As filed with the Securities and Exchange Commission on May 13, 1998
Registration No. 333-49281
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
RAYOVAC CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Wisconsin 22-2423556
<S> <C>
(State or other jurisdiction of (I.R.S. Employers
incorporation or organization) Identification No.)
</TABLE>
601 Rayovac Drive
Madison, Wisconsin 53711-2497
(608) 275-3340
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
JAMES A. BRODERICK, ESQ.
Vice President and General Counsel
Rayovac Corporation
601 Rayovac Drive
Madison, Wisconsin 53711-2497
(608) 275-3340
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies of Communications to:
<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. [ ]
CALCULATION OF REGISTRATION FEE
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============================================================================================================================
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 MAY 12, 1998
PROSPECTUS
6,500,000 Shares
[Logo]
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 May 11, 1998, the last sale price of the Common Stock as reported on
the New York Stock Exchange was $22.75 per share. See "Price Range of Common
Stock and Dividend Policy."
See "Risk Factors" beginning on page 12 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
================================================================================
Proceeds to
Price to Underwriting Selling
Public Discount (1) Shareholders (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- --------------------------------------------------------------------------------
Total(3) .............................. $ $ $
================================================================================
</TABLE>
(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) The Company has agreed to pay certain expenses of the Offerings 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.
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.
<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], SMART PACK[RegTM], BEST
LABS[RegTM], ULTRACELL[RegTM], XCELL[RegTM] and AIRPOWER[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. The Rayovac
brand name was first used as a trademark for batteries in 1921 and 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],
Roughneck[RegTM], Best Labs[RegTM], Ultracell[RegTM], XCell[RegTM] and
AIRPOWER[RegTM].
Business Strategy
In September 1996, the Company and the shareholders of the Company
completed the Recapitalization pursuant to which, among other things,
affiliates of Thomas H. Lee Company acquired for cash 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, who
joined the Company as Executive Vice President of Finance and Administration
and Chief Financial Officer following the Recapitalization and was recently
promoted to the position of President and Chief Operating Officer; Merrell M.
Tomlin, Senior Vice President of Sales; Stephen P.
3
<PAGE>
Shanesy, Executive Vice President and General Manager of General Batteries and
Lights; and Randall J. Steward, Senior Vice President of Finance and Chief
Financial Officer. 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 10.2% 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 recorded 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.
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
4
<PAGE>
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. In March 1998, the
Company acquired the battery distribution portion of Best Labs in St.
Petersburg, Florida, a distributor of hearing aid batteries in customized
packaging and a manufacturer of hearing instruments. The Company believes that
these acquisitions will enable the Company to further penetrate 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 through 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 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.
5
<PAGE>
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 March 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 Renewal 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 recorded 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 recorded a gain of $2.4 million in the second fiscal
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. See "Description of
Certain Indebtedness."
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., Ltd. 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
6
<PAGE>
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%.
Further Strengthening of Senior Management Team. In April 1998, the
Company named Kent J. Hussey President and Chief Operating Officer of the
Company. Previously Mr. Hussey served as Executive Vice President of Finance
and Administration and Chief Financial Officer. The Company also at such time
named Randall J. Steward, formerly Senior Vice President of Corporate
Development, as Senior Vice President of Finance and Chief Financial Officer
and Stephen P. Shanesy, formerly Senior Vice President of Marketing and the
General Manager of General Batteries and Lights of the Company, as Executive
Vice President and General Manager of General Batteries and Lights of the
Company. In addition, David A. Jones, Chairman and Chief Executive Officer of
the Company, and Kent J. Hussey signed three-year employment contracts
effective until May 1, 2001.
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) .......................... 27,441,266 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 5,259,099 shares of Common Stock reserved for sale or issuance
under the Company's employee benefit plans, of which options to purchase
2,497,152 shares have been granted and 2,761,947 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 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 for the six
months ended March 29, 1997 and as of and for the six months ended March 28,
1998, included elsewhere in this Prospectus, and for the twelve months ended
September 30, 1996, not included herein, 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. The summary
historical financial data of the Company for the 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 $15.4 million for the six
months ended March 29, 1997. The Company believes that this reclassification is
consistent with the method used by other consumer products companies.
<TABLE>
<CAPTION>
Transition Twelve Fiscal
Fiscal Year Ended June 30, Period Months Year
----------------------------------------------- Ended Ended Ended
September September September
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997
----------- ----------- ----------- ----------- ------------ -------------- -----------
(In millions)
<S> <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
Gross Profit ................. 171.0 168.8 178.1 184.0 42.6 180.0 198.0
Income (loss) from
operations (1)(2)(3)(4)..... 31.2 10.9 31.5 30.3 (23.7) (1.4) 34.5
Interest expense ............. 6.0 7.7 8.6 8.4 4.4 10.5 24.5
Net income (loss)(5) ......... 15.0 4.4 16.4 14.3 (20.9) (10.2) 6.2
Other Financial Data:
Depreciation ................. $ 7.4 $ 10.3 $ 11.0 $ 11.9 $ 3.3 $ 12.1 $ 11.3
Capital expenditures(6) ...... 30.3 12.5 16.9 6.6 1.2 8.4 10.9
Cash flows from operating
activities ................. 15.8 (18.7) 35.5 17.8 (1.1) 26.0 35.7
Cash flows from investing
activities ................. (30.1) (12.4) (16.8) (6.3) 0.0 (7.3) (10.8)
Cash flows from financing
activities ................. 13.7 30.8 (18.3) (12.0) 3.2 (16.8) (28.0)
Income from operations
before non-recurring
charges (7) ................ 31.2 21.9 31.5 30.3 4.7 27.0 37.5
EBITDA(8) .................... 39.3 21.2 41.3 42.2 (20.4) 10.7 45.8
<CAPTION>
Six Months
Ended
-----------------------
March March
29, 1997 28, 1998
---------- -----------
<S> <C> <C>
Statement of Operations
Data:
Net sales .................... $ 225.6 $ 246.1
Gross Profit ................. 99.4 118.2
Income (loss) from
operations (1)(2)(3)(4)..... 14.7 20.1
Interest expense ............. 13.4 8.3
Net income (loss)(5) ......... 0.7 5.6
Other Financial Data:
Depreciation ................. $ 5.9 $ 5.8
Capital expenditures(6) ...... 2.6 6.7
Cash flows from operating
activities ................. 35.2 4.4
Cash flows from investing
activities ................. (2.8) (10.9)
Cash flows from financing
activities ................. (27.5) 9.1
Income from operations
before non-recurring
charges (7) ................ 19.4 24.1
EBITDA(8) .................... 20.7 26.1
</TABLE>
<TABLE>
<CAPTION>
March 28, 1998
(in millions)
---------------
<S> <C>
Balance Sheet Data:
Working capital .............. $ 55.3
Total assets ................. 241.4
Total debt ................... 129.5
Shareholders' equity ......... 12.2
</TABLE>
(footnotes on following page)
9
<PAGE>
- ----------------
(1) 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."
(2) 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."
(3) 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.
(4) In the six months ended March 28, 1998, the Company recorded net charges of
$4.0 million including (i) $1.7 million associated with consolidating
domestic battery packaging operations and outsourcing the manufacture of
heavy duty batteries, (ii) $2.0 million associated with closing the
Company's Appleton, Wisconsin manufacturing plant and consolidating it
into its Portage, Wisconsin manufacturing plant, (iii) $3.9 million
associated with closing the Company's Newton Aycliffe, United Kingdom
facility, phasing out direct distribution in the United Kingdom and
closing one of the Company's German sales offices, (iv) a $2.4 million
gain on the sale of the Company's previously closed Kingston, North
Carolina facility, and (v) income of $1.2 million in connection with the
buyout of deferred compensation agreements with certain former employees.
(5) The Recapitalization of the Company included repayment of certain
outstanding indebtedness, including prepayment fees and penalties. Such
prepayment fees and penalties of $2.4 million, net of income tax benefit
of $0.8 million, has been recorded as an extraordinary item in the
Combined Consolidated Statement of Operations for the Transition Period
and the twelve months ended September 30, 1996. In the six months ended
March 28, 1998, 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.
(6) 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. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Introduction."
(7) 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 six months ended
March 29, 1997 and March 28, 1998. Income from operations before these
non-recurring charges was as follows:
<TABLE>
<CAPTION>
Transition Twelve Fiscal
Fiscal Year Ended June 30, Period Months Year
------------------------------------------- Ended Ended Ended
September September September
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997
---------- ---------- ---------- ---------- ------------ ----------- -----------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from operations ..... $ 31.2 $ 10.9 $ 31.5 $ 30.3 $ (23.7) $ (1.4) $ 34.5
Fennimore Expansion ............... -- 9.5 -- -- -- -- --
Recapitalization and other
special charges .................. -- 1.5 -- -- 28.4 28.4 3.0
------ ------- ------ ------ ------- ------- -------
Income from operations before
non-recurring charges ............ $ 31.2 $ 21.9 $ 31.5 $ 30.3 $ 4.7 $ 27.0 $ 37.5
====== ======= ====== ====== ======= ======= =======
<CAPTION>
Six Months
Ended
---------------------
March March
29, 1997 28, 1998
---------- ---------
(In millions)
<S> <C> <C>
Income (loss) from operations ..... $ 14.7 $ 20.1
Fennimore Expansion ............... -- --
Recapitalization and other
special charges .................. 4.7 4.0
------- -------
Income from operations before
non-recurring charges ............ $ 19.4 $ 24.1
======= =======
</TABLE>
(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.
(footnote continued on following page)
10
<PAGE>
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 six months ended March 29, 1997 and March 28,
1998. EBITDA before these non-recurring charges was as follows:
<TABLE>
<CAPTION>
Transition Twelve Fiscal
Fiscal Year Ended June 30, Period Months Year
------------------------------------------- Ended Ended Ended
September September September
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997
---------- ---------- ---------- ---------- ------------ ----------- -----------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA ....................... $ 39.3 $ 21.2 $ 41.3 $ 42.2 $ (20.4) $ 10.7 $ 45.8
Fennimore Expansion .......... -- 9.5 -- -- -- -- --
Recapitalization and other
special charges ............. -- 1.5 -- -- 28.4 28.4 3.0
------ ------- ------ ------ ------- ------- -------
EBITDA before non-
recurring charges ........... $ 39.3 $ 32.2 $ 41.3 $ 42.2 $ 8.0 $ 39.1 $ 48.8
====== ======= ====== ====== ======= ======= =======
<CAPTION>
Six Months
Ended
---------------------
March March
29, 1997 28, 1998
---------- ---------
(In millions)
<S> <C> <C>
EBITDA ....................... $ 20.7 $ 26.1
Fennimore Expansion .......... -- --
Recapitalization and other
special charges ............. 4.7 4.0
------- -------
EBITDA before non-
recurring charges ........... $ 25.4 $ 30.1
======= =======
</TABLE>
11
<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.
12
<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 at
the Refuse Hideaway Site in Middleton, Wisconsin. 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 presently estimates
that its liability with respect to the Middleton, Wisconsin site should not
exceed $100,000. 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 applied to the Tennessee Department of
Environment and Conservation ("TDEC") for participation in TDEC's Voluntary
Cleanup Oversight and Assistance Program with respect to the Company's former
manganese processing facility in Covington, Tennessee. Pursuant to this
program, TDEC will conduct a site investigation to determine the extent of the
cleanup required at the Covington facility, however, there can be no assurance
that participation in this program will preclude this site from being 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 50 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."
13
<PAGE>
Substantial Leverage
As of March 28, 1998, the Company had total indebtedness of $129.5 million
and total shareholders' equity of $12.2 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 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
14
<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 Consolidated Financial Statements and
Note 1 to the Unaudited Condensed Consolidated Financial Statements for the six
months ended March 29, 1997 and March 28, 1998, included elsewhere herein.
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 41.2% of the Company's outstanding Common Stock (38.4% 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 27,441,266 shares of Common Stock,
excluding 2,497,152 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,
15
<PAGE>
the Selling Shareholders, certain existing shareholders, the Company, its
executive officers and directors and the THL Group (holding an aggregate of
approximately 13.5 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 11.3 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. In certain circumstances under provisions of Wisconsin law,
shareholders may be liable for liabilities of the Company with respect to
unpaid wages.
16
<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 (the
"Senior Subordinated Notes"), 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 April 29, 1998, the outstanding shares of Common Stock were held of
record by 285 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 May 11, 1998) ................................ $24-1/2 $22
</TABLE>
On May 11, 1998, the closing price of the Common Stock on the New York
Stock Exchange Composite Transaction Tape was $22-3/4 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.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 28, 1998. 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 March 28, 1998
----------------------
(Dollars in millions)
<S> <C>
Debt:
Revolver Facility ........................................... $ 56.1
Acquisition Facility ........................................ 4.2
Bankers' acceptances(1) ..................................... 1.5
Notes ....................................................... 65.0
Capitalized leases and foreign currency borrowings .......... 2.7
--------
Total debt ................................................. 129.5
--------
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding .......................... --
Common stock, $.01 par value, 150,000,000 shares authorized;
27,432,238 shares outstanding ............................. 0.6
Additional paid in capital .................................. 103.2
Foreign currency translation ................................ 2.3
Notes receivable from officers/shareholders ................. (1.4)
Retained earnings ........................................... 36.9
Less stock held in trust .................................... (1.0)
Less treasury stock, at cost, 29,440,269 shares ............. (128.4)
--------
Total shareholders' equity ................................. 12.2
--------
Total capitalization ...................................... $ 141.7
========
</TABLE>
- ----------------
(1) In connection with the acquisition of DPP, the Company assumed $1.5 million
of bankers' acceptances.
18
<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 six months ended March 29, 1997 and March 28,
1998, included elsewhere in this Prospectus, and as of and for the twelve
months ended September 30, 1996, not included herein, 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. 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 $15.4 million for the six
months ended March 29, 1997. The Company believes that this reclassification is
consistent with the method used by other consumer products companies.
19
<PAGE>
<TABLE>
<CAPTION>
Transition Twelve Fiscal
Fiscal Year Ended June 30, Period Months Year
----------------------------------------------- Ended Ended Ended
September September September
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(In millions, except per share data)
<S> <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
Cost of goods sold ................. 201.4 234.9 237.1 239.4 59.3 237.9 234.6
------- ------- ------- ------- ------- ------- -------
Gross profit ....................... 171.0 168.8 178.1 184.0 42.6 180.0 198.0
Selling expense .................... 98.8 121.3 108.7 116.5 27.8 114.4 122.1
General and administrative
expense ........................... 35.4 29.4 32.9 31.8 8.6 33.0 32.2
Research and development
expense ........................... 5.6 5.7 5.0 5.4 1.5 5.6 6.2
Recapitalization and other
special charges(1)(2)(3) .......... -- 1.5 -- -- 28.4 28.4 3.0
-------- ------- -------- -------- ------- ------- -------
Income (loss) from
operations(4)(5) .................. 31.2 10.9 31.5 30.3 (23.7) (1.4) 34.5
Interest expense ................... 6.0 7.7 8.6 8.4 4.4 10.5 24.5
Other expense (income), net ........ 1.2 (0.6) 0.3 0.6 0.1 0.5 0.4
-------- -------- -------- -------- -------- -------- -------
Income (loss) before income
taxes and extraordinary item....... 24.0 3.8 22.6 21.3 (28.2) (12.4) 9.6
Income tax expense (benefit) ....... 9.0 (0.6) 6.2 7.0 (8.9) (3.8) 3.4
-------- -------- -------- -------- -------- -------- -------
Income (loss) before
extraordinary item ................ 15.0 4.4 16.4 14.3 (19.3) (8.6) 6.2
Extraordinary item(6) .............. -- -- -- -- (1.6) (1.6) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) .................. $ 15.0 $ 4.4 $ 16.4 $ 14.3 $ (20.9) $ (10.2) $ 6.2
======== ======== ======== ======== ======== ======== ========
Basic net income (loss) per
common share before
extraordinary item ................ $ 0.30 $ 0.09 $ 0.33 $ 0.29 $ (0.44) $ (0.18) $ 0.30
======== ======== ======== ======== ========= ========= ========
Diluted net income (loss) per
common share before
extraordinary item ................ $ 0.30 $ 0.09 $ 0.33 $ 0.29 $ (0.44) $ (0.18) $ 0.30
======== ======== ======== ======== ========= ========= ========
Basic net income (loss) per
common share ...................... $ 0.30 $ 0.09 $ 0.33 $ 0.29 $ (0.48) $ (0.21) $ 0.30
======== ======== ======== ======== ========= ========= ========
Diluted net income (loss) per
common share ...................... $ 0.30 $ 0.09 $ 0.33 $ 0.29 $ (0.48) $ (0.21) $ 0.30
======== ======== ======== ======== ========= ========= ========
Weighted average common
shares ............................ 50.0 50.0 50.0 49.6 43.8 48.1 20.5
Weighted average common and
common equivalent shares .......... 50.0 50.0 50.0 49.6 43.8 48.1 20.6
Other Financial Data:
Depreciation ....................... $ 7.4 $ 10.3 $ 11.0 $ 11.9 $ 3.3 $ 12.1 $ 11.3
Capital expenditures(7) ............ 30.3 12.5 16.9 6.6 1.2 8.4 10.9
Cash flows from operating
activities ........................ 15.8 (18.7) 35.5 17.8 (1.1) 26.0 35.7
Cash flows from investing
activities ........................ (30.1) (12.4) (16.8) (6.3) 0.0 (7.3) (10.8)
Cash flows from financing
activities ........................ 13.7 30.8 (18.3) (12.0) 3.2 (16.8) (28.0)
EBITDA(8) .......................... 39.3 21.2 41.3 42.2 (20.4) 10.7 45.8
Balance Sheet Data:
Working capital .................... $ 31.6 $ 63.6 $ 55.9 $ 63.2 $ 64.6 $ 64.6 $ 33.8
Total assets ....................... 189.0 222.4 220.6 221.1 243.7 243.7 236.9
Total debt ......................... 74.1 109.0 88.3 81.3 233.7 233.7 207.3
Shareholders' equity (deficit) ..... 36.7 37.9 53.6 61.6 (85.7) (85.7) (80.6)
<CAPTION>
Six Months
Ended
------------------------
March March
29, 1997 28, 1998
----------- -----------
(In millions, except per
share data)
<S> <C> <C>
Statement of Operations Data:
Net sales .......................... $ 225.6 $ 246.1
Cost of goods sold ................. 126.2 127.9
------- -------
Gross profit ....................... 99.4 118.2
Selling expense .................... 61.3 73.7
General and administrative
expense ........................... 15.3 17.4
Research and development
expense ........................... 3.4 3.0
Recapitalization and other
special charges(1)(2)(3) .......... 4.7 4.0
------- -------
Income (loss) from
operations(4)(5) .................. 14.7 20.1
Interest expense ................... 13.4 8.3
Other expense (income), net ........ 0.3 (0.3)
------- --------
Income (loss) before income
taxes and extraordinary item....... 1.0 12.1
Income tax expense (benefit) ....... 0.3 4.5
------- --------
Income (loss) before
extraordinary item ................ 0.7 7.6
Extraordinary item(6) .............. -- 2.0
-------- --------
Net income (loss) .................. $ 0.7 $ 5.6
======== ========
Basic net income (loss) per
common share before
extraordinary item ................ $ 0.03 $ 0.30
======== ========
Diluted net income (loss) per
common share before
extraordinary item ................ $ 0.03 $ 0.28
======== ========
Basic net income (loss) per
common share ...................... $ 0.03 $ 0.22
======== ========
Diluted net income (loss) per
common share ...................... $ 0.03 $ 0.21
======== ========
Weighted average common
shares ............................ 20.5 25.5
Weighted average common and
common equivalent shares .......... 20.5 27.0
Other Financial Data:
Depreciation ....................... $ 5.9 $ 5.8
Capital expenditures(7) ............ 2.6 6.7
Cash flows from operating
activities ........................ 35.2 4.4
Cash flows from investing
activities ........................ (2.8) (10.9)
Cash flows from financing
activities ........................ (27.5) 9.1
EBITDA(8) .......................... 20.7 26.1
Balance Sheet Data:
Working capital .................... $ 48.3 $ 55.3
Total assets ....................... 211.3 241.4
Total debt ......................... 206.5 129.5
Shareholders' equity (deficit) ..... ( 84.1) 12.2
</TABLE>
(footnotes on following page)
20
<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 six months ended March 28, 1998, the Company recorded net charges of
$4.0 million including (i) $1.7 million associated with consolidating
domestic battery packaging operations and outsourcing the manufacture of
heavy duty batteries, (ii) $2.0 million associated with closing the
Company's Appleton, Wisconsin manufacturing plant and consolidating it
into its Portage, Wisconsin manufacturing plant, (iii) $3.9 million
associated with closing the Company's Newton Aycliffe, United Kingdom
facility, phasing out direct distribution in the United Kingdom and
closing one of the Company's German sales offices, (iv) a $2.4 million
gain on the sale of the Company's previously closed Kinston, North
Carolina facility, and (v) 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 six months ended March 29, 1997 and
March 28, 1998. Income from operations before these non-recurring charges
was as follows:
<TABLE>
<CAPTION>
Transition Twelve Fiscal Six Months
Fiscal Year Ended June 30, Period Months Year Ended
------------------------------------------- Ended Ended Ended -------------------
September September September March March
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997 29,1997 28, 1998
---------- ---------- ---------- ---------- ------------ ----------- ----------- --------- ---------
(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 $ 14.7 $ 20.1
Fennimore Expansion .......... -- 9.5 -- -- -- -- -- -- --
Recapitalization and other
special charges ............. -- 1.5 -- -- 28.4 28.4 3.0 4.7 4.0
------ ------- ------ ------ ------- ------- ------- ------- -------
Income from operations
before non-recurring
charges ..................... $ 31.2 $ 21.9 $ 31.5 $ 30.3 $ 4.7 $ 27.0 $ 37.5 $ 19.4 $ 24.1
====== ======= ====== ====== ======= ======= ======= ======= =======
</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 six months ended March 28, 1998, 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. 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. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Introduction."
(footnotes continued on following page)
21
<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 six months ended March 29, 1997 and March 28,
1998. EBITDA before these non-recurring charges was as follows:
<TABLE>
<CAPTION>
Transition Twelve Fiscal Six Months
Fiscal Year Ended June 30, Period Months Year Ended
------------------------------------------- Ended Ended Ended --------------------
September September September March 29, March 28,
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997 1997 1998
---------- ---------- ---------- ---------- ------------ ----------- ----------- ----------- --------
(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 $ 20.7 $ 26.1
Fennimore Expansion .......... -- 9.5 -- -- -- -- -- -- --
Recapitalization and other
special charges ............. -- 1.5 -- -- 28.4 28.4 3.0 4.7 4.0
------ ------- ------ ------ ------- ------- ------- ------- -------
EBITDA before non-
recurring charges ........... $ 39.3 $ 32.2 $ 41.3 $ 42.2 $ 8.0 $ 39.1 $ 48.8 $ 25.4 $ 30.1
====== ======= ====== ====== ======= ======= ======= ======= =======
</TABLE>
22
<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 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
recorded 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 for $10.0 million 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 Company estimates costs
associated with the implementation of this new manufacturing line to be
approximately $1.0 million. 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
23
<PAGE>
of equipment purchase agreements entered into in connection with the Fennimore
Expansion which required the Company to source material from specified foreign
vendors at an increased cost. These incremental costs decreased in fiscal 1996
as a result of the increased use of lower-cost domestic raw material sources to
replace the foreign vendor sourcing, which replacement was substantially
completed in fiscal 1997.
Effect of Recapitalization. The Recapitalization of the Company, which was
completed on September 12, 1996, resulted in non-recurring charges of $12.3
million which were recognized in the Transition Period, including (i) $5.0
million of advisory, legal and consulting fees and (ii) $7.3 million of stock
option compensation, severance payments and employment contract settlements for
the benefit of certain current and former officers, directors and management of
the Company. In connection with the Recapitalization, the Company incurred
other non-recurring special charges of $16.1 million recognized in the
Transition Period, including (i) $2.7 million of charges related to the
discontinuation of 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 and
the lowest sales occurring in the fiscal quarter ending on or about March 30.
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, December 28, March 29, June 29, September 30, December 27, March 28,
1995 1996 1996 1996 1996 1997 1997 1997 1997 1998
--------------------------------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 140.9 $ 80.5 $ 94.6 $ 101.9 $ 141.9 $ 83.6 $ 95.5 $ 111.5 $ 150.0 $ 96.1
</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 $15.4 million for the six months ended March
24
<PAGE>
29, 1997. The Company believes that this reclassification is consistent with
the method used by other consumer products companies.
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
Ended Transition Six Months
--------------------- Three Months Period Twelve Months Fiscal Year Ended
Ended Ended Ended Ended ----------------------
June 30, June 30, September September September September March March
1995 1996 30, 1995 30, 1996 30, 1996 30, 1997 29, 1997 28, 1998
---------- ---------- -------------- ----------- --------------- ------------ ---------- -----------
<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 55.9 52.0
----- ----- ----- ------ ------ ----- ----- -----
Gross profit ................. 42.9 43.5 40.3 41.8 43.1 45.8 44.1 48.0
Selling expense .............. 26.2 27.5 27.9 27.3 27.4 28.2 27.2 29.9
General and
administrative expense....... 7.9 7.5 6.9 8.4 7.9 7.5 6.8 7.1
Research and
development expense ......... 1.2 1.3 1.2 1.5 1.3 1.4 1.5 1.2
Recapitalization and other
special charges ............. -- -- -- 27.9 6.8 0.7 2.1 1.6
----- ----- ----- ------ ------ ----- ----- -----
Income (loss) from
operations .................. 7.6% 7.2% 4.3% (23.3%) ( 0.3%) 8.0% 6.5% 8.2%
</TABLE>
Six Months Ended March 28, 1998 Compared to Six Months Ended March 29, 1997
Net Sales. Net sales were $246.1 million for the six months ended March
28, 1998 (the "1998 Six Month Period"), an increase of $20.5 million, or 9.1%,
from $225.6 million for the six months ended March 29, 1997 (the "1997 Six
Month Period"). Increased sales of alkaline batteries, hearing aid batteries,
and specialty batteries were somewhat offset by the continuing decline in the
domestic market for heavy duty batteries.
Alkaline general battery sales for the 1998 Six Month Period exceeded
alkaline general battery sales for the 1997 Six Month Period by approximately
26%, or $25.1 million, as a result of strong promotional programs, a price
increase implemented in the summer of 1997, sales to new customers, and
increased volume with existing customers, all of which increased market share.
Within specialty battery products, hearing aid battery sales increased
approximately 9% due primarily to growth in the market and the November 1997
acquisition of Brisco. In addition, net sales in the 1998 Six Month Period
included $2.2 million of specialty battery sales related to the DPP
acquisition.
Gross Profit. Gross profit increased $18.8 million, or 18.9%, to $118.2
million for the 1998 Six Month Period, from $99.4 million for the 1997 Six
Month Period, primarily as a result of increased sales of higher margin
alkaline batteries and decreased sales of lower margin heavy duty batteries.
Gross profit margins increased to 48.0% in the 1998 Six Month Period from 44.1%
in the 1997 Six Month Period due primarily to the change in sales mix toward
alkaline and away from heavy duty batteries, the alkaline price increase
implemented in the summer of 1997, and alkaline manufacturing cost
improvements.
Selling Expense. Selling expense increased $12.4 million, or 20.2%, to
$73.7 million for the 1998 Six Month Period from $61.3 million for the 1997 Six
Month Period. Selling expense as a percent of net sales increased to 29.9% in
the 1998 Six Month Period from 27.2% in the 1997 Six Month Period. The increase
in dollars and as a percent of sales was due primarily to increased advertising
and promotional spending which resulted in the increased alkaline general
battery sales. In addition, selling expense was lower during the 1997 Six Month
Period while a new advertising agency and promotional strategies were under
review.
General and Administrative Expense. General and administrative expense
increased $2.1 million, or 13.7%, to $17.4 million for the 1998 Six Month
Period from $15.3 million for the 1997 Six Month Period primarily as a result
of higher costs associated with information system improvements worldwide and
increased expenses associated with being a publicly held company.
Research and Development Expense. Research and development expense
decreased $0.4 million to $3.0 million for the 1998 Six Month Period from $3.4
million for the 1997 Six Month Period primarily as a result of the increased
resources assigned to the development of an on-the-label battery tester in 1997
which management decided not to implement.
25
<PAGE>
Other Special Charges. In March 1998, the Company recorded net charges of
$5.2 million including (i) a $1.7 million charge associated with consolidating
domestic battery packaging operations and outsourcing the manufacture of heavy
duty batteries, (ii) a $2.0 million charge associated with closing the
Company's Appleton, Wisconsin manufacturing plant and consolidating it into its
Portage, Wisconsin manufacturing plant, (iii) a $3.9 million charge associated
with closing the Company's Newton Aycliffe, United Kingdom facility, phasing
out direct distribution in the United Kingdom and closing one of the Company's
German sales offices, and (iv) a $2.4 million gain on the sale of the Company's
previously closed Kinston, North Carolina, facility. The Company expects to
record an additional $2.0 million of costs in subsequent periods related to
these restructuring and cost rationalization initiatives.
For the 1998 Six Month Period, the Company recorded net charges of $4.0
million. This includes the $5.2 million charge recorded in March offset by
income of $1.2 million in connection with the buy-out of deferred compensation
agreements with certain former employees recorded earlier in the fiscal year.
For the 1997 Six Month Period, the Company recorded charges of $4.7 million for
organizational restructuring in the U.S., the discontinuation of certain
manufacturing operations in the United Kingdom, and the closing of its Kinston,
North Carolina, facility. At September 30, 1997, the balance of these 1997
reserves was $1.9 million of which the Company expended $1.1 million in the
1998 Six Month Period and currently expects the balance to be expended by the
end of fiscal 1998.
Income From Operations. Income from operations increased $5.4 million, or
36.7%, to $20.1 million from $14.7 million for the 1997 Six Month Period. This
increase was due primarily to increased sales and gross profit offset by
increased selling and general and administrative expense. Income from
operations before special charges increased $4.7 million, or 24.2%, to $24.1
million from $19.4 million for the 1997 Six Month Period. As a percentage of
sales income from operations for the 1998 Six Month Period increased to 8.2%
from 6.5% for the 1997 Six Month Period.
Interest Expense. Interest expense decreased $5.1 million, or 38.1%, to
$8.3 million for the 1998 Six Month Period from $13.4 million for the 1997 Six
Month Period. This decrease was primarily as a result of decreased indebtedness
due to the application of proceeds of the Company's IPO in November 1997. In
addition to the effects of the IPO on the 1998 Six Month Period, the 1997 Six
Month Period interest expense included a $2.0 million write-off of unamortized
debt issuance costs.
Other Expense (Income). For the 1998 Six Month Period, interest income and
foreign exchange gain totaled $(0.4) million compared to $0.3 million of net
expense in the 1997 Six Month Period, attributed to foreign exchange losses
somewhat offset by interest income.
Income Tax Expense. The Company's effective tax rate was 37.7% for the
1998 Six Month Period, compared to 31.9% for the 1997 Six Month Period. This
more favorable tax rate in 1997 was due primarily to the Company's Foreign
Sales Corporation ("FSC") benefiting 1997 more than 1998.
Extraordinary Item. In the 1998 Six Month Period, the Company recorded
extraordinary expense of $2.0 million net of income taxes for the premium
payment on the redemption of a portion of the Company's Senior Subordinated
Notes.
Net Income. For the 1998 Six Month Period, net income was $5.6 million
compared to $0.7 million in the 1997 Six Month Period.
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
26
<PAGE>
Company's value brand position), and strong promotional programs in the
Company's fourth fiscal quarter. The Company also gained significant new
distribution on the strength of this program.
Lithium sales increased primarily due to increased sales of computer clock
and memory back-up batteries to Compaq Computers and SGS Thomson, two of the
Company's larger OEM (Original Equipment Manufacturers) customers.
Sales of heavy duty and lantern batteries decreased primarily due to
declines in the market as consumers move toward alkaline batteries away from
heavy duty batteries. Lantern battery volume was also adversely impacted by the
migration to reflective tape in place of flashing lights on construction
barricades.
Hearing aid battery sales increased as a result of continued growth in the
overall hearing aid battery market. The Company's market leadership position in
this product line has resulted in new distribution gains in the retail channel,
the fastest growing channel for hearing aid batteries as consumers shift their
purchases toward this channel.
Net sales of lighting products increased slightly over the prior twelve
months due primarily to growth in key mass merchandiser accounts and wholesale
clubs.
Dollar sales of Renewal rechargeables were down approximately 12% due
primarily to the Company's decision to decrease prices of the chargers by 33%
in the first quarter of fiscal 1997 to reposition the product and encourage
consumers to purchase the system. Unit sales of chargers and batteries combined
were approximately 7% higher than the prior twelve months.
Gross Profit. Gross profit increased $18.0 million, or 10.0%, to $198.0
million in fiscal 1997 from $180.0 million for the twelve months ended
September 30, 1996. Gross profit as a percentage of net sales increased to
45.8% in fiscal 1997 from 43.1% in the prior twelve months. These increases are
attributed to increased sales of higher margin alkaline batteries, the
introduction of a 4% price increase on alkaline batteries in the U.S. phased in
beginning May 1997, and lower manufacturing costs as a result of cost
rationalization initiatives. Gross profit increased $12.7 million, or 29.8%, to
$55.3 million in the three months ended September 30, 1997 from $42.6 million
in the Transition Period, for these same reasons.
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.
27
<PAGE>
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.
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 diversion of management attention and other Company resources
on matters associated with the pending Recapitalization.
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.
28
<PAGE>
Income (loss) from Operations. Income (loss) from operations increased
$58.2 million to $34.5 million in fiscal 1997 from $(23.7) million in the
Transition Period. As a percentage of net sales, income (loss) from operations
increased to 8.0% in fiscal 1997 from (23.3)% in the Transition Period for the
reasons discussed above.
Net Income (loss). Net income (loss) for fiscal 1997 increased $27.1
million to $6.2 million from $(20.9) million in the Transition Period. As a
percentage of net sales, net income (loss) increased to 1.4% in fiscal 1997
from (20.5)% in the Transition Period primarily due to significant
Recapitalization and other special charges in the Transition Period. In
addition, an extraordinary loss on the early retirement of debt decreased net
income in the Transition Period by $1.6 million, net of income taxes. The
effective tax rate for fiscal 1997 was 35.6% compared to 31.6% in the
Transition Period due primarily to some of the Recapitalization expenses being
non-tax deductible in the Transition Period.
Transition Period Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
Net Sales. The Company's net sales decreased $5.4 million, or 5.0%, to
$101.9 million in the Transition Period from $107.3 million in the three months
ended September 30, 1995 (the "Prior Fiscal Year Period") primarily due to
decreased sales to the food and drug store retail channels and the Company
having made sales to certain retail customers in connection with promotional
orders after the Transition Period which were made during the Prior Fiscal Year
Period.
Gross Profit. Gross profit decreased $0.6 million, or 1.4%, to $42.6
million in the Transition Period from $43.2 million in the Prior Fiscal Year
Period, primarily as a result of decreased sales in the Transition Period, as
discussed above. Gross profit increased as a percentage of net sales to 41.8%
in the Transition Period from 40.3% in the Prior Fiscal Year Period due
primarily to a lower proportion of promotion sales as discussed above.
Selling Expense. Selling expense decreased $2.1 million, or 7.0%, to $27.8
million in the Transition Period from $29.9 million in the Prior Fiscal Year
Period, primarily due to decreased advertising expense in the Transition
Period.
General and Administrative Expense. General and administrative expense
increased $1.2 million, or 16.2%, to $8.6 million in the Transition Period from
$7.4 million in the Prior Fiscal Year Period, primarily as a result of 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
29
<PAGE>
related to the Bridge Notes and an extraordinary loss on the early retirement
of debt decreased net income in the Transition Period by $2.6 million, net of
income taxes.
Transition Period Ended September 30, 1996 Compared to Fiscal Year Ended
June 30, 1996
Results of operations for the Transition Period Ended September 30, 1996
include amounts for a three-month period, while results for the fiscal year
ended June 30, 1996 include amounts for a twelve-month period. Results (in
terms of dollar amounts) for these periods are not directly comparable.
Accordingly, management's discussion and analysis for these periods is
generally based upon a comparison of specified results as a percentage of net
sales.
Net Sales. The Company's net sales decreased $321.5 million, or 75.9%, to
$101.9 million in the Transition Period from $423.4 million in fiscal 1996
because the Transition Period included only three months of net sales as
compared to twelve months in fiscal 1996. Overall pricing was relatively
constant between the two periods.
Gross Profit. Gross profit decreased $141.4 million, or 76.8%, to $42.6
million in the Transition Period from $184.0 million in fiscal 1996. As a
percentage of net sales, gross profit decreased to 41.8% in the Transition
Period from 43.5% in fiscal 1996, primarily because the products sold during
the Transition Period carried a higher average unit cost than the overall
average unit cost of products sold in fiscal 1996 due to seasonal sales trends.
Selling Expense. Selling expense decreased $88.7 million, or 76.1%, to
$27.8 million in the Transition Period from $116.5 million in fiscal 1996. As a
percentage of net sales, selling expenses decreased to 27.3% in the Transition
Period from 27.5% in fiscal 1996, primarily as a result of decreased
advertising expense in the Transition Period.
General and Administrative Expense. General and administrative expense
decreased $23.2 million, or 73.0%, to $8.6 million in the Transition Period
from $31.8 million in fiscal 1996. As a percentage of net sales, general and
administrative expense increased to 8.4% in the Transition Period from 7.5% in
fiscal 1996, primarily as a result of the effects of seasonal sales trends in
the Transition Period.
Research and Development Expense. Research and development expense
decreased $3.9 million, or 72.2%, to $1.5 million in the Transition Period from
$5.4 million in fiscal 1996. As a percentage of net sales, research and
development expense increased to 1.5% in the Transition Period from 1.3% in
fiscal 1996, primarily as a result of increased support for ongoing product
development efforts.
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.
30
<PAGE>
Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Net Sales. The Company's net sales increased $8.2 million, or 2.0%, to
$423.4 million in fiscal 1996 from $415.2 million in fiscal 1995, primarily due
to higher unit sales of hearing aid batteries, Renewal rechargeable batteries
and alkaline batteries, offset in part by decreases in unit sales of heavy duty
and lantern batteries. Overall pricing was relatively constant between the two
periods. Sales of hearing aid batteries increased as a result of unit sales
growth in the overall hearing aid battery market as well as increased
penetration by the Company's Loud'n Clear line of hearing aid batteries and the
introduction of a new miniature size battery, used in hearing aids that fit
completely in the ear. Unit sales of Renewal rechargeable alkaline batteries
increased as a result of increased consumer awareness of the benefits of
Renewal over nickel-cadmium household rechargeable batteries and disposable
batteries and as replacement sales increased to retailers who had sold through
their high levels of fiscal 1995 Renewal inventory. The Company's unit sales of
alkaline batteries increased as the Company participated to a certain extent in
the continued overall growth in the market for alkaline batteries. Unit sales
of heavy duty batteries decreased due to the continued worldwide migration away
from heavy duty batteries and toward alkaline batteries while unit sales of
lantern batteries also decreased due to an overall decline in the lantern
battery market.
Gross Profit. Gross profit increased $5.9 million, or 3.3%, to $184.0
million in fiscal 1996 from $178.1 million in fiscal 1995. Gross profit
increased as a percentage of net sales to 43.5% in fiscal 1996 from 42.9% in
fiscal 1995. These increases are primarily attributable to increased sales of
higher margin products such as Renewal rechargeable batteries and hearing aid
batteries. In addition, the Company experienced manufacturing cost
improvements, particularly for alkaline battery raw materials related to the
Fennimore Expansion as discussed above.
Selling Expense. Selling expense increased $7.8 million, or 7.2%, to
$116.5 million in fiscal 1996 from $108.7 million in fiscal 1995. Selling
expense as a percentage of net sales increased to 27.5% in 1996 from 26.2% in
1995. These increases are primarily attributable to increased advertising costs
to promote the Renewal product line as discussed above.
General and Administrative Expense. General and administrative expense
decreased $1.1 million, or 3.3%, to $31.8 million in fiscal 1996 from $32.9
million in fiscal 1995. General and administrative expense as a percentage of
net sales decreased from 7.9% in fiscal 1995 to 7.5% in fiscal 1996. These
decreases occurred primarily because the $4.0 million payment of management
incentives in 1995 was not repeated in fiscal 1996.
Research and Development Expense. Research and development expense
increased $0.4 million, or 8.0%, to $5.4 million in fiscal 1996 from $5.0
million in fiscal 1995 as a result of continued support for ongoing product
development efforts.
Income from Operations. Income from operations decreased $1.2 million, or
3.8%, to $30.3 million, or 7.2% of net sales in fiscal 1996, from $31.5
million, or 7.6% of net sales, in fiscal 1995 for the reasons discussed above.
Net Income. Net income decreased $2.1 million, or 12.8%, to $14.3 million
for fiscal 1996 from $16.4 million in fiscal 1995, principally as a result of
decreased income from operations and higher effective tax rates, which
increased from 27.4% in 1995 to 32.9% in 1996. The Company's effective income
tax rates in fiscal 1996 and fiscal 1995 were impacted by the income tax
benefits of Rayovac International Corporation, a domestic international sales
corporation ("DISC") owned by the Company's shareholders, and fiscal 1995 was
also impacted by the utilization of a foreign net operating loss carryforward.
Liquidity and Capital Resources
For the 1998 Six Month Period, net cash provided by operating activities
decreased $30.8 million to $4.4 million from $35.2 million for the 1997 Six
Month Period. The decrease was due primarily to increased inventory levels in
the current year to support the growth in the business whereas a significant
reduction in excess inventory was experienced in the prior year.
Capital expenditures for the 1998 Six Month Period were $6.7 million, an
increase of $4.1 million from $2.6 million in the 1997 Six Month Period. This
increase reflects continued spending on the implementation of new computer
systems in fiscal 1998 and the down payment on a new alkaline production line
for one of the Company's manufacturing facilities.
31
<PAGE>
In March 1998, the Company sold its Kinston, North Carolina, facility for
approximately $3.3 million. The Company also acquired DPP for $4.7 million plus
incentive payments over four years which are anticipated to total approximately
$2.7 million. The initial $4.7 million acquisition price consisted of $3.2
million in cash (of which $0.5 million is to be paid in cash after a specified
time period for resolution of acquisition related claims), and $1.5 million of
assumed bankers' acceptances. In November 1997, the Company acquired Brisco for
approximately $4.9 million.
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 (including the $6.7 million expended
in the first six months of the fiscal year) 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
million was outstanding under the Acquisition Facility. See "Description of
Certain Indebtedness."
The Amended Credit Agreement contains financial covenants customary and
usual for credit facilities of this type, including those involving limitations
on liens, limitations on the disposition of assets, limitations on loans and
investments, limitations on lease obligations, maintenance of minimum interest
coverage, maximum leverage ratios, restrictions on dividend payments,
distribution of assets and redemption of subordinated debt, limitations on sale
and leaseback transactions and limitations on issuance of guaranty obligations.
In particular, the Company may not permit to occur (i) an interest coverage
ratio for any computation period which is less than 3.0 to 1 or (ii) a leverage
ratio for the computation periods from December 31, 1997 through September 30,
1999 which exceeds 3.75 to 1.0, for the computation periods from December 31,
1999 through September 30, 2000 which exceeds 3.50 to 1.0 and for the
computation periods from December 31, 2000 and thereafter which exceeds 3.25 to
1.0. The Company also may not and may not permit any subsidiary to create,
incur, assume, suffer to exist or otherwise become or remain directly or
indirectly liable with respect to any additional indebtedness, except as
specifically contemplated by the Amended Credit Agreement. As of the date
hereof, the Company is in compliance with all covenants contained in the
Amended Credit Agreement.
In addition, the Indenture also restricts, in some instances, the
Company's ability to incur additional indebtedness. Pursuant to the terms of
the Indenture, there is no limit on the additional amount of indebtedness the
Company may incur if the Fixed Charge Coverage Ratio (as defined in the
Indenture) for the Company's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the
date on which such additional indebtedness has been incurred would have been at
least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional indebtedness
had been incurred at the beginning of such four-quarter period. In addition,
the Company may be able to incur additional indebtedness in certain
circumstances even if it does not satisfy the 2.0 to 1 test described above, as
set forth in the Indenture.
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
32
<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 $1.6 million for known
on-site and off-site environmental liabilities. See Note 4 to Notes to
Condensed Consolidated Financial Statements for the six months ended March 28,
1998. 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 the Company's Audited Consolidated Financial
Statements and Note 1 to Notes to Condensed Consolidated Financial Statements
for the six months ended March 28, 1998.
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.
33
<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. The Rayovac
brand name was first used as a trademark for batteries in 1921 and 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],
Roughneck[RegTM], Best Labs[RegTM], Ultracell[RegTM], XCell[RegTM] and
AIRPOWER[RegTM].
Business Strategy
In September 1996, the Company and the shareholders of the Company
completed the Recapitalization pursuant to which, among other things,
affiliates of Thomas H. Lee Company acquired for cash 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, who
joined the Company as Executive Vice President of Finance and Administration
and Chief Financial Officer and was recently promoted to the position of
President and Chief Operating Officer; Merrell M. Tomlin, Senior Vice President
of Sales; Stephen P. Shanesy, Executive Vice President and General Manager of
General Batteries and Lights; and Randall J. Steward, Senior Vice President of
Finance and Chief Financial Officer. 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 10.2% 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)
34
<PAGE>
closing certain of the Company's existing manufacturing, packaging and
distribution facilities. The Company recorded 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 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.
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<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. In
March 1998, the Company acquired the battery distribution portion of Best Labs
in St. Petersburg, Florida, a distributor of hearing aid batteries in
customized packaging and a manufacturer of hearing instruments. The Company
believes that these acquisitions will enable the Company to further penetrate
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 March 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
36
<PAGE>
charges, are sold fully charged, retain their charge longer and are
environmentally safer. The Company has focused sales efforts for Renewal 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.
Battery Industry
The U.S. battery industry had aggregate sales in 1997 of approximately
$4.3 billion as set forth below.
<TABLE>
<CAPTION>
1997 U.S. Battery Industry Sales (In billions)
<S> <C>
Retail:
General ................................ $ 2.4
Hearing aid ............................ 0.2
Other specialty ........................ 0.9
Industrial, OEM and Government ......... 0.8
------
Total .................................. $ 4.3
======
</TABLE>
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 and Company estimates.
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.
37
<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 six months
ended March 29, 1997 and March 28, 1998 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, Six Months Ended
--------------------- --------------- --------------- --------------------------------
1995 1996 1996 1997 March 29, 1997 March 28, 1998
Product Type ---------- ---------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Battery Products:
Alkaline .......................... 43.4% 43.6% 41.4% 45.0% 43.7% 50.2%
Heavy Duty ........................ 14.1 12.2 12.7 10.4 11.3 8.3
Rechargeable Batteries ............ 5.6 7.1 5.1 5.5 6.3 5.6
Hearing Aid ....................... 12.7 14.6 14.3 14.8 14.2 14.2
Other Specialty Batteries ......... 10.0 8.6 10.1 9.8 9.6 8.0
----- ----- ----- ----- ----- -----
Total ........................... 85.8 86.1 83.6 85.5 85.1 86.3
Lighting Products and
Lantern Batteries ................ 14.2 13.9 16.4 14.5 14.9 13.7
----- ----- ----- ----- ----- -----
Total ........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
38
<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, Best Labs,
Power Ultracell
Station XCell and
AIRPOWER
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.
39
<PAGE>
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.
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 35% unit market share in the heavy duty battery market
through mass merchandisers, food and drug stores for the 52 weeks ended March
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 March 14, 1998. 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, ProLine, Best Labs, Ultracell, XCell and AIRPOWER brand
names and under several private labels, including Beltone, Miracle Ear, Siemens
and Starkey. 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
40
<PAGE>
market at a lower price, appealing to a large segment of the population
desiring a value brand. To demonstrate its value positioning, Rayovac offers
comparable battery packages at a lower price or, in some cases, more batteries
for the same price. The Company also works with individual retail channel
participants to develop unique merchandising programs and promotions and to
provide retailers with attractive profit margins to encourage retailer brand
support.
In response to the introduction by the Company's principal competitors in
the U.S. general battery market of on-the-label battery testers for alkaline
batteries, the Company developed an on-the-label tester for the Company's
alkaline batteries. Based on the Company's consumer testing which indicated
that such testers are difficult to use, prone to failure and do not represent a
significant marketing advantage, management decided not to proceed with the
implementation of such testers.
In the three fiscal years prior to the Recapitalization, the Company spent
substantially all of its advertising budget on its Renewal product line. The
Company's current advertising campaign designed by Young & Rubicam, the
Company's new advertising agency, has shifted advertising efforts to the
Company's MAXIMUM alkaline products. In addition, the Company 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 and which, by its terms, may not be
cancelled or terminated by Mr. Jordan without cause prior to its expiration.
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's
agreement with Mr. Palmer may not be cancelled or terminated by him without
cause prior to its expiration. 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.
41
<PAGE>
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 March 14, 1998 the Company's
products accounted for 13% 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
42
<PAGE>
flashlights. Maintenance repair organizations, the largest of which is W.W.
Grainger (to whom the Company is a major supplier of battery and lighting
products), generally sell to contractors and manufacturers. The office product
supply channel includes sales to both professional and retail companies in the
office product supply business.
In the OEM sales channel, the Company actively pursues OEM arrangements
and other alliances with major electronic device manufacturers for its
rechargeable batteries. The Company also utilizes the OEM channel for the sale
and distribution of its hearing aid batteries through strong relationships it
has developed with hearing aid manufacturers. The Company plans to continue to
develop relationships with manufacturers of communications equipment and other
products in an effort to expand its share of the non-hearing aid button cell
market. With regard to lithium coin cells, the Company plans to penetrate
further the OEM portable personal computer market and broaden its customer base
by focusing additional sales and distribution efforts on telecommunications and
medical equipment manufacturers.
Manufacturing and Raw Materials
The Company manufactures batteries in the United States and the United
Kingdom. 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 (on a non-exclusive basis) Matsushita's highly advanced
designs, technology and manufacturing equipment for alkaline batteries,
including all developments and innovations thereto, through 2003. Thereafter,
the Company is entitled to license such technology existing as of such date
through 2023. Pursuant to the terms of the agreement, Matsushita may not cancel
or terminate this battery technology agreement prior to its expiration other
than for "cause" as described therein. 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
43
<PAGE>
efforts. In the hearing aid battery segment, the Company's research and
development group maintains close alliances with the developers of hearing aid
devices and often works in conjunction with these developers in preparing new
product designs. The success of these efforts is most recently demonstrated by
the Company's development of the two smallest (5A and 10A size) hearing aid
batteries. The Company's research and development efforts in the Lighting
Products and Lantern Batteries segment are focused on the development of new
products. Further, the Company continues to partner with the U.S. government in
research efforts to develop new battery technology. The Company's research and
development group includes approximately 95 employees, the expense for some of
whom is funded by U.S. government research contracts. The Company's
expenditures for research and development were approximately $6.2 million, $1.5
million, $5.4 million and $5.0 million for fiscal 1997, the Transition Period,
fiscal 1996 and fiscal 1995, respectively. 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 substantially address 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], Best Labs[RegTM],
Ultracell[RegTM], XCell[RegTM], AIRPOWER[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
2015. 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 Consolidated Financial Statements.
44
<PAGE>
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
categories which is being marketed as providing increased performance in
certain high-drain devices, including cellular phones, digital cameras and
palm-sized computers. Duracell has 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, however there can be no assurance in this
regard. See "Risk Factors--Competition."
In the U.S. market for general batteries, competition is based on brand
name recognition, perceived quality, price, performance, product packaging and
design innovation, as well as creative marketing, promotion and distribution
strategies. In comparison to the U.S. battery market, the international general
battery market has more competitors, is as highly competitive and has similar
methods of competition.
Competition in the hearing aid battery industry is based upon reliability,
performance, quality, product packaging and brand name recognition. The
Company's primary competitors in the hearing aid battery industry include
Duracell, Energizer and Panasonic. The battery-powered lighting device industry
is also very competitive and includes a greater number of competitors
(including Black & Decker, Mag-Lite and Energizer) than the U.S. battery
industry.
Employees
As of March 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>
The Company also leases approximately 250,000 square feet of space in
Madison, Wisconsin for its corporate headquarters and technology center.
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.
45
<PAGE>
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%.
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 may
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 applied to TDEC for participation in TDEC's Voluntary
Cleanup Oversight and Assistance Program with respect to the Company's former
manganese processing facility in Covington, Tennessee. Pursuant to this
program, TDEC will conduct a site investigation to determine the extent of the
cleanup required at the Covington facility, however, there can be no assurance
that participation in this program will preclude this site from being added to
the National Priorities List as a Superfund site. 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
46
<PAGE>
aforementioned lagoons and has completed the remediation of a stream that
borders the site. The Company cannot predict the outcome of TDEC's
investigation of the site and there can be no assurance that the Company will
not incur material liabilities in the future with respect to this site.
The Company has been and is subject to several proceedings related to its
disposal of industrial and hazardous waste at off-site disposal locations,
under CERCLA or analogous state laws that hold persons who "arranged for" the
disposal or treatment of such substances strictly liable for the costs incurred
in responding to the release or threatened release of hazardous substances from
such sites. Current and former owners and operators of such sites, and
transporters of waste who participated in the selection of such sites, are also
strictly liable for such costs. Liability under CERCLA is generally "joint and
several," so that a responsible party under CERCLA may be held liable for all
of the costs incurred at a particular site. However, as a practical matter,
liability at such sites generally is allocated among all of the viable
responsible parties. Some of the most significant factors for allocating
liabilities to persons that disposed of wastes at Superfund sites are the
relative volume of waste such persons sent to the site and the toxicity of such
waste. 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 approximately 50 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 50 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 $1.6 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
ultimately be adequate to cover such matters.
47
<PAGE>
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.
48
<PAGE>
MANAGEMENT
Directors and Executive Officers
Set forth below is certain information regarding each director and
executive officer of the Company as of April 30, 1998:
<TABLE>
<CAPTION>
Name Age Position and Offices
- ---- --- --------------------
<S> <C> <C>
David A. Jones 48 Chairman of the Board and Chief Executive Officer
Kent J. Hussey 52 President, Chief Operating Officer and Director
Roger F. Warren 57 President/International and Contract MicroPower and
Director
Trygve Lonnebotn 60 Executive Vice President of Operations and Director
Stephen P. Shanesy 41 Executive Vice President and General Manager of
General Batteries and Lights
Kenneth V. Biller 51 Senior Vice President of Manufacturing/Supply Chain
Merrell M. Tomlin 47 Senior Vice President of Sales
Randall J. Steward 43 Senior Vice President of Finance and Chief Financial
Officer
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 and Chief
Executive Officer of the Company since September 12, 1996. From September 1996
to April 1998 Mr. Jones also served as President of the Company. 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., a
manufacturer and marketer of infrared ear thermometers for consumer and
professional use. 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 President and
Chief Operating Officer of the Company since April 1998. Prior to that time and
since joining the Company in October 1996, Mr. Hussey was the Executive Vice
President of Finance and Administration, Chief Financial Officer and a director
of the Company. From 1994 to 1996, 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 Executive Vice President and General Manager of
General Batteries and Lights of the Company since April 1998. Prior to that
time and from December 1997, Mr. Shanesy served as Senior Vice President of
Marketing and the General Manager of General Batteries and Lights of the
Company. From January 1998 to 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
49
<PAGE>
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.
Mr. Steward has been the Senior Vice President of Finance and Chief
Financial Officer of the Company since April 1998. Mr. Steward joined the
Company in March of 1998 as Senior Vice President of Corporate Development.
From September 1997 to March 1998 Mr. Steward worked as an independent
consultant, primarily with Thermoscan, Inc. and Braun AG assisting with
financial and operational issues. 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 IV, LLC, which is the general partner of Thomas
H. Lee Equity Fund IV, L.P. He is also a director of 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.
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 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 IV, LLC, 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.
50
<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% 4,746,858 659,098 9,031,108 32.9%
Thomas H. Lee Foreign Fund III, L.P.(3)
75 State Street, Ste. 2600
Boston, MA 02109 894,341 3.3 294,056 40,830 559,455 2.0
THL--CCI Limited Partnership(4)
75 State Street, Ste. 2600
Boston, MA 02109 1,515,753 5.5 498,374 69,199 948,180 3.5
David A. Jones(5) 664,388 2.4 217,357 53,144 392,277 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 * 79,174 19,553 142,672 *
Trygve Lonnebotn(12) 502,652 1.8 164,859 40,714 297,079 1.1
Randall J. Steward 7,500 * 0 0 7,500 *
Scott A. Schoen(3)(13) 72,756 * 23,922 3,332 45,502 *
Thomas R. Shepherd(13) 37,894 * 12,459 1,730 23,705 *
Warren C. Smith, Jr.(3)(13) 60,640 * 19,938 2,768 37,934 *
All directors and executive officers of the
Company as a group (12 persons)(3)(13) 2,712,796 9.6 892,866 201,625 1,618,302 5.7
Other Officers
- --------------
Gary E. Wilson(14) 133,959 * 43,936 6,390 83,633 *
Kenneth G. Drescher(15) 22,075 * 7,240 1,788 13,047 *
Dale R. Tetzlaff(16) 137,572 * 37,000 0 100,572 *
Linda G. Pauls Fleming, as trustee of the
Fleming Trust 8,000 * 600 0 7,400 *
Other Selling Shareholders
- --------------------------
17 Other Selling Shareholders, each of whom
is selling less than 4,600 shares of Common
Stock in the Offerings and will beneficially
own on an aggregate basis less than 1% of
the outstanding Common Stock after the
Offerings 121,777 * 36,800 4,097 80,880 *
</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
(footnotes continued on following page)
51
<PAGE>
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.
(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 2,689 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 8,901 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 10,972 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.
52
<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., a wholly-owned subsidiary of the Company, 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 the Indenture, 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
53
<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:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001 ......................... 105.125%
2002 ......................... 103.417
2003 ......................... 101.708
2004 and thereafter .......... 100.000
</TABLE>
In addition, at any time on or before October 22, 1999, the Company may
redeem up to 35% of the original aggregate principal amount of the Notes with
the net proceeds of a public equity offering at a redemption price equal to
109.25% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption, provided that at least 65% of the
original aggregate principal amount of the Notes remains outstanding
immediately after such redemption. The Company 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.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 27,441,266 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 2,497,152 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 and the Incentive 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 are 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
13.5 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; Registration Rights."
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<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.
57
<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.
<TABLE>
<CAPTION>
Number
U.S. Underwriter of Shares
---------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .........................................
Bear, Stearns & Co. Inc. ....................................
Donaldson, Lufkin & Jenrette Securities Corporation .........
Smith Barney Inc. ...........................................
---------
Total ................................................ 5,200,000
=========
</TABLE>
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 International 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
58
<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, Tucker Anthony Incorporated and Cleary Gull Reiland & McDevitt
Inc., 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
59
<PAGE>
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.
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.
60
<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.
61
<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.
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<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 Reports on Form 10-Q for the quarterly periods
ended December 27, 1997 and March 28, 1998; 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).
63
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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 as of June 30, 1996, September 30, 1996 and 1997 ............. F-4
Consolidated Statements of Operations for the years ended June 30, 1995 and 1996,
the transition period ended September 30, 1996 and year ended September 30, 1997 ........ F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1995 and 1996,
the transition period ended September 30, 1996 and year ended September 30, 1997 ........ F-6
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended June 30,
1994,
1995 and 1996, the transition period ended September 30, 1996 and the year ended
September 30, 1997 ...................................................................... F-7
Notes to Consolidated Financial Statements ............................................... F-8
Unaudited Condensed Consolidated Balance Sheets as of March 28, 1998 and September 30,
1997 .................................................................................... F-36
Unaudited Condensed Consolidated Statements of Operations for the three and six months
ended March 29, 1997 and March 28, 1998 ................................................. F-37
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended
March 29, 1997 and March 28, 1998 ....................................................... F-38
Notes to Unaudited Condensed Consolidated Financial Statements ........................... F-39
</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.
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
The Company derived 28%, 28%, 25% and 29% of its net sales during the
years ended June 30, 1995 and 1996, the Transition Period, and the year
ended September 30, 1997, respectively, from the same three customers.
The Company has one customer that represented over 10% of its net
sales. The Company derived 16%, 18%, 18%, and 20% of its net sales from
this customer during the years ended June 30, 1995 and 1996, the
Transition Period, and the year ended September 30, 1997, respectively.
A significant number of the Company's factory employees are represented
by one of four labor unions. The Company has recently entered into
collective bargaining agreements with its Madison and Fennimore,
Wisconsin employees each of which expires in 2000. The Company's
collective bargaining agreement with 24 of its Washington, United Kingdom
employees is scheduled to expire in December 1997. In addition, the
Company's collective bargaining agreements with its 5 Hayward, California
and 203 Portage, Wisconsin employees are scheduled to expire in May and
July 1998, respectively. The Company believes its relationship with its
employees is good and there have been no work stoppages involving Company
employees since 1981.
f. Displays and Fixtures: The costs of displays and fixtures are
capitalized and recorded as a prepaid asset and charged to expense when
shipped to a customer location. Such prepaid assets amount to
approximately $1,068, $730 and $1,456 as of June 30, 1996, and September
30, 1996 and 1997, respectively.
g. Inventories: Inventories are stated at lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
h. Property, Plant and Equipment: Property, plant and equipment are stated
at cost. Depreciation on plant and equipment is calculated on the
straight-line method over the estimated useful lives of the assets.
Depreciable lives by major classification are as follows:
<TABLE>
<S> <C>
Building and improvements .............. 20-30 years
Machinery, equipment and other ......... 5-20 years
</TABLE>
i. Debt Issuance Costs: Debt issuance costs are capitalized and amortized
to interest expense over the lives of the related debt agreements.
j. Accounts Payable: Included in accounts payable at June 30, 1996, and
September 30, 1996 and 1997, is approximately $7,805, $5,312, and $5,476,
respectively, of book overdrafts on disbursement accounts which were
replenished prior to the presentation of checks for payment.
k. Income Taxes: Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
l. Foreign Currency Translation: Assets and liabilities of the Company's
foreign subsidiaries are translated at the rate of exchange existing at
year-end, with revenues, expenses, and cash flows translated at the
average of the monthly exchange rates. Adjustments resulting from
translation of the financial statements are accumulated as a separate
component of shareholders' equity (deficit). Exchange gains (losses) on
foreign currency transactions aggregating ($112), ($750), ($70), and
($639) for the years ended June 30, 1995 and 1996, the Transition Period,
and the year ended September 30, 1997, respectively, are included in
other expense, net, in the Consolidated Statements of Operations.
F-9
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
2. Significant Accounting Policies and Practices--Continued
m. Advertising Costs: The Company incurred expenses for advertising of
$25,556, $29,976, $7,505 and $24,326 in the years ended June 30, 1995
and 1996, the Transition Period, and the year ended September 30, 1997,
respectively. The Company expenses advertising production costs as such
costs are incurred.
n. 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
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
September 30, 1997. The Company has a receivable at September 30, 1997,
of approximately $222 in the accompanying consolidated balance sheet from
the settlement of September contracts.
These fair values represent the estimated amount the Company would
receive or pay to terminate agreements at September 30, 1997, taking into
consideration current market rates and the current credit worthiness of
the counterparties based on dealer quotes. The Company may be exposed to
credit loss in the event of nonperformance by the counterparties to these
contracts, but does not anticipate such nonperformance.
p. Environmental Expenditures: Environmental expenditures that relate to
current ongoing operations or to conditions caused by past operations are
expensed. The Company determines its liability on a site by site basis
and records a liability at the time when it is probable and can be
reasonably estimated. The estimated liability is not reduced for possible
recoveries from insurance carriers.
q. Stock Split: In September 1996, the Company's Board of Directors
declared a five-for-one stock split. A total of 16,376 additional shares
were issued in conjunction with the stock split to shareholders of
record. All applicable share and per share amounts herein have been
restated to reflect the stock split retroactively.
r. Reclassification: Certain prior year amounts have been reclassified to
conform with the current year presentation.
The Company has reclassified certain promotional expenses, previously
reported as a reduction of net sales, to selling expense. The amounts
which have been reclassified are $24,236 and $23,970 for the years ended
June 30, 1995 and 1996, respectively, $6,899 for the Transition Period
ended September 30, 1996, and $28,702 for the year ended September 30,
1997.
s. Impact of Recently Issued Accounting Standards: In February 1997, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share (FAS 128). FAS 128 will
be effective for periods ending after December 15, 1997, and specifies
the computation, presentation, and disclosure requirements for earnings
per share. Adoption of this accounting standard is not expected to have a
material effect on the earnings per share computations of the Company
assuming the current capital structure.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (FAS 130), which
establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
All items that are required to be recognized under accounting standards
as components of comprehensive income are to be reported in a financial
statement that is displayed with the same prominence as other financial
statements. FAS 130 requires that an enterprise (i) classify items of
other comprehensive income by their nature in a financial statement, and
(ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. FAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. The Company is evaluating the effect of this pronouncement on
its consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (FAS 131), which is effective for financial
statements for periods beginning after December 15, 1997. FAS 131
establishes standards for the way public business enterprises are to
report information about operating segments in annual financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company is evaluating the effect of this pronouncement on
its consolidated financial statements.
F-11
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------
<S> <C> <C> <C>
Raw material ................................................. $24,238 $25,300 $23,291
Work-in-process .............................................. 19,081 14,651 15,286
Finished goods ............................................... 23,622 30,170 19,974
------- ------- -------
$66,941 $70,121 $58,551
======= ======= =======
</TABLE>
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------
<S> <C> <C> <C>
Land, building and improvements .............................. $ 15,469 $ 16,824 $ 10,752
Machinery, equipment and other ............................... 117,248 117,754 120,894
Construction in process ...................................... 5,339 6,232 11,326
-------- -------- --------
138,056 140,810 142,972
Less accumulated depreciation ................................ 64,875 72,170 77,461
-------- -------- --------
$ 73,181 $ 68,640 $ 65,511
======== ======== ========
</TABLE>
5. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------
<S> <C> <C> <C>
Term loan facility ........................................... $ -- $105,000 $ 100,500
Revolving credit facility .................................... -- 23,500 4,500
Series B Senior Subordinated Notes, due November 1,
2006, with interest at 10-1/4% payable semi-annually ........ -- -- 100,000
Bridge Notes ................................................. -- 100,000 --
Debt paid September 1996 due to Recapitalization:
Senior Secured Notes due 1997 through 2002 .................. 29,572 -- --
Subordinated Notes due through 2003 ......................... 7,270 -- --
Revolving credit facility ................................... 39,250 -- --
Notes payable in Pounds Sterling to a foreign bank, due
on demand, with interest at bank's base rate plus
1.87% ....................................................... 1,242 939 --
Capitalized lease obligation ................................. 1,330 1,246 866
Notes and obligations, weighted average interest rate of
5.24% at September 30, 1997 ................................. 2,685 2,978 1,455
------- -------- ---------
81,349 233,663 207,321
Less current maturities ...................................... 11,631 8,818 23,880
------- -------- ---------
Long-term debt ............................................... $69,718 $224,845 $ 183,441
======= ======== =========
</TABLE>
F-12
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
5. Debt --Continued
On September 12, 1996, the Company executed a Credit Agreement (Agreement)
arranged by BA Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and certain of its affiliates for a group of financial institutions
and other accredited investors. The Agreement provides for senior bank
facilities, including term and revolving credit facilities in an aggregate
amount of $170,000. Interest on borrowings is computed, at the Company's
option, based on the Bank of America Illinois' base rate, as defined, (Base
Rate) or the Interbank Offering Rate (IBOR).
The term loan facility includes: (i) Tranche A term loan of $55,000,
quarterly amortization ranging from $1,000 to $3,750 beginning December 31,
1996, through September 30, 2002, interest at the Base Rate plus 1.5% per annum
or at IBOR plus 2.5% per annum (8.49% at September 30, 1997); (ii) Tranche B
term loan of $25,000, quarterly amortization amounts of $62.5 during each of
the first six years and $5,875 in the seventh year beginning December 31, 1996,
through September 30, 2003, interest at the Base Rate plus 2.0% per annum, or
IBOR plus 3.0% per annum (8.93% at September 30, 1997); (iii) Tranche C term
loan of $25,000, quarterly amortization of $62.5 during each of the first seven
years and $5,812.5 during the eighth year beginning December 31, 1996, through
September 30, 2004; interest at the Base Rate plus 2.25% per annum or IBOR plus
3.25% per annum (9.10% at September 30, 1997).
The revolving credit facility provides for aggregate working capital loans
up to $65,000 through September 30, 2002, reduced by outstanding letters of
credit ($10,000 limit), and other existing credit facilities and outstanding
obligations (approximately $5,000 at September 30, 1997). Interest on
borrowings is at the Base Rate plus 1.5% per annum or IBOR plus 2.5% per annum
(10.0% at September 30, 1997). The Company had outstanding letters of credit of
approximately $631 at September 30, 1997. A fee of 2.5% per annum is payable on
the outstanding letters of credit. The Company also incurs a fee of .25% per
annum of the average daily maximum amount available to be drawn on each letter
of credit issued. The revolving credit facility must be reduced for 30
consecutive days to no more than $5,000 for the fiscal year ending September
30, 1998, and to zero for any fiscal year thereafter.
The Agreement contains financial covenants with respect to borrowings
which include fixed charge coverage, adjusted net worth, and minimum earnings
before interest, income taxes, depreciation, amortization. In addition, the
Agreement restricts capital expenditures and the payment of dividends. The
Company is required to pay a commitment fee of 0.50% per annum on the average
daily unused portion of the revolving credit facility. The Tranche A term loan
and the revolving credit facility interest rates may be adjusted downward if
the Company's leverage ratio, as defined, decreases. Borrowings under the
Agreement are collateralized by substantially all the assets of the Company.
The Agreement also contains certain mandatory prepayment provisions, one of
which requires the Company to pay down $14.5 million by December 29, 1997 due
to excess cash flow generated as of September 30, 1997.
On October 22, 1996, the Company completed a private debt offering of
10-1/4% Senior Subordinated Notes due in 2006 (Old Notes) pursuant to an
Indenture. In March 1997, the Company exchanged the Old Notes for 10-1/4% Series
B Senior Subordinated Notes due in 2006 (New Notes) registered with the
Securities and Exchange Commission. The terms of the New Notes are identical in
all material respects to terms of the Old Notes. On or after November 1, 2001
or in certain circumstances, after a public offering of equity securities of
the Company, the New Notes will be redeemable at the option of the Company, in
whole or in part, at prescribed redemption prices plus accrued and unpaid
interest.
Upon a change in control, the Company shall be required to repurchase all
or any part of the New Notes at a purchase price equal to 101% of the aggregate
principal amount. The Company is also required to repurchase all or a portion
of the New Notes upon consummation of an asset sale, as defined, in excess of
$5,000.
The terms of the New Notes restrict or limit the ability of the Company
and its subsidiaries to, among other things, (i) pay dividends or make other
restricted payments, (ii) incur additional indebtedness and issue preferred
F-13
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
5. Debt --Continued
stock, (iii) create liens, (iv) incur dividend and other payment restrictions
affecting subsidiaries, (v) enter into mergers, consolidations, or sales of all
or substantially all of the assets of the Company, (vi) make asset sales, (vii)
enter into transactions with affiliates, and (viii) issue or sell capital stock
of wholly owned subsidiaries of the Company. Payment obligations under the New
Notes are fully and unconditionally guaranteed on a joint and several basis by
the Company's directly and wholly owned subsidiary, ROV Holding, Inc. (ROV or
Guarantor Subsidiary). The foreign subsidiaries of the Company, which do not
guarantee the payment obligations under the New Notes (Nonguarantor
Subsidiaries), are directly and wholly owned by ROV. See note 17.
The proceeds from the new Notes were used to pay down the Bridge Notes.
The Bridge Notes bore interest at prime plus 3.5%.
The aggregate scheduled maturities of debt are as follows:
<TABLE>
<S> <C>
Year ending September 30,
1998 ............................ $ 23,880
1999 ............................ 12,441
2000 ............................ 10,500
2001 ............................ 12,500
2002 ............................ 15,500
Thereafter ...................... 132,500
--------
$207,321
========
</TABLE>
The capitalized lease obligation is payable in Pounds Sterling in
installments of $425 in 1998 and $441 in 1999.
The carrying values of the debt instruments noted above are approximately
96% of their estimated fair values.
6. Shareholders' Equity (Deficit)
During the year ended June 30, 1996, the former principal shareholder of
the Company granted an officer and a director options to purchase 235 shares of
common stock owned by the shareholder personally at exercise prices per share
ranging from $3.65 to $5.77 (the book values per share at the respective dates
of grant). These options were exercised in conjunction with the
Recapitalization and resulted in a charge to earnings of approximately $3,970
during the Transition Period and an increase in additional paid-in capital in
the Consolidated Statements of Shareholders' Equity (Deficit).
Treasury stock acquired during the year ended June 30, 1996 was subject to
an agreement which provided the selling shareholder with additional
compensation for the common stock sold if a change in control occurred within a
specified period of time. As a result of the Recapitalization, the selling
shareholder was entitled to an additional $564, which is reflected as an
increase in treasury stock in the Consolidated Statements of Shareholders'
Equity (Deficit).
Retained earnings includes DISC retained earnings of $1,594 at June 30,
1996. In August 1996, the DISC was terminated and the net assets were
distributed to its shareholders.
In January 1997, the Company established a trust to fund future payments
under a deferred compensation plan. Certain employees eligible to participate
in the plan assigned stock options to the plan. The plan exercised the options
and purchased 160 shares of the Company's common stock. Shares issued to the
trust are valued at $962 and are reflected as a reduction of stockholders'
equity in the consolidated balance sheet.
The Company and the former principal shareholder of the Company, entered
into a Stock Sale Agreement, dated as of August 1, 1997 pursuant to which the
former principal shareholder sold 2,023 shares of common stock at $6.01 per
share to the Company and to the Thomas H. Lee Equity Fund III, L.P. (the "Lee
Fund") and certain other affiliates of Thomas H. Lee Company ("THL Co.," the
Lee Fund and such other affiliates being referred to
F-14
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
6. Shareholders' Equity (Deficit) --Continued
herein as the "Lee Group"). The Stock Sale Agreement provides that, among other
things, if (i) the Company enters into a business combination or other
transaction with a third party whereby less than a majority of the outstanding
capital stock of the surviving entity is owned by the Lee Group, and (ii) such
business combination or other transaction is the result of negotiations or
discussions entered into prior to December 31, 1997 and such combination is
consummated prior to June 30, 1998, then the Lee Group will remit to the former
principal shareholder all amounts, if any, received by the Lee Group (or any
affiliated transferee of shares owned by the Lee Group) from the sale of the
shares of common stock to such third party in excess of $6.01 per share. In
September 1997, another former shareholder sold 205 shares of common stock to
the Company and the Lee Group under similar terms.
On October 22, 1997, the shareholders of the Company approved the
authorization of 5,000 shares of Preferred Stock, $.01 par value, and an
increase in authorized shares of Common Stock from 90,000 to 150,000.
7. Stock Option Plans
Effective September 1996, the Company's Board of Directors (Board)
approved the Rayovac Corporation 1996 Stock Option Plan (1996 Plan) which is
intended to afford an incentive to select employees and directors of the
Company to promote the interests of the Company. Under the 1996 Plan, stock
options to acquire up to 3,000 shares of common stock, in the aggregate, may be
granted under either or both a time-vesting or a performance-vesting formula at
an exercise price equal to the market price of the common stock on the date of
grant. The time-vesting options become exercisable primarily in equal 20%
increments over a five year period. The performance-vesting options become
exercisable at the end of ten years with accelerated vesting over each of the
next five years if the Company achieves certain performance goals. Accelerated
vesting may occur upon sale of the Company, as defined in the Plan.
On September 3, 1997, the Board adopted the 1997 Rayovac Incentive Plan
(Incentive Plan) which was approved by the Shareholders on October 22, 1997 and
expires in August 2007. The Incentive Plan replaces the 1996 Plan and no
further awards will be granted under the 1996 Plan other than awards of options
for shares up to an amount equal to the number of shares covered by options
that terminate or expire prior to being exercised. Under the Incentive Plan,
the Company may grant to employees and non-employee directors stock options,
stock appreciation rights (SARs), restricted stock, and other stock-based
awards, as well as cash-based annual and long-term incentive awards.
Accelerated vesting will occur in the event of a change in control, as defined
in the Incentive Plan. Up to 3,000 shares of common stock may be issued under
the Incentive Plan.
During 1997, the Company adopted the Rayovac Corporation 1997 Stock Option
Plan (1997 Plan). Under the 1997 Plan, stock options to acquire up to 665
shares of common stock, in the aggregate, may be granted. The exercise price is
$6.01. The 1997 Plan and each option granted thereunder expire no later than
November 30, 1997.
A summary of the status of the Company's plan is as follows:
<TABLE>
<CAPTION>
Transition period ended Year ended
September 30, 1996 September 30, 1997
------------------------------ -----------------------------
Weighted-average Weighted-average
Options exercise price Options exercise price
--------- ------------------ --------- -----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period ........... -- $ -- 1,464 $ 4.39
Granted .................................... 1,464 4.30 1,410 5.03
Exercised .................................. -- -- (556) 6.01
----- ----- ----- -------
Outstanding, end of period ................. 1,464 $ 4.30 2,318 $ 4.33
===== ====== ===== =======
Options exercisable, end of period ......... 40 $ 1.14 496 $ 4.13
===== ====== ===== =======
</TABLE>
The stock options outstanding on September 30, 1997, have a
weighted-average remaining contractual life estimated at 9.5 years.
F-15
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
7. Stock Option Plans --Continued
<TABLE>
<CAPTION>
Transition
period ended Year ended
September 30, 1996 September 30, 1997
-------------------- -------------------
<S> <C> <C>
Weighted-average grant-date
fair value of options granted during period ......... $ 1.92 $ 1.84
Assumptions used:
Risk-free interest rate ............................. 6.78% 6.78%
Expected life ....................................... 8 years 8 years
</TABLE>
The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized in the Consolidated Statements of
Operations. Had the Company recognized compensation expense determined on the
fair value at the grant dates for awards under the plans consistent with the
method prescribed by FASB Statement No. 123, Accounting for Stock Based
Compensation (SFAS No. 123), the Company's net income (loss) and net income
(loss) per share, on a pro forma basis, for the Transition Period and the year
ended September 30, 1997, would have been ($21,035) and ($0.48) 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:
<TABLE>
<S> <C>
Year ending September 30,
1998 .................... $ 6,828
1999 .................... 5,404
2000 .................... 4,455
2001 .................... 4,012
2002 .................... 4,017
Thereafter .............. 34,112
-------
$58,828
=======
</TABLE>
The above lease commitments include payments under leases for the
corporate headquarters facilities and other properties from partnerships in
which one of the Company's former shareholders is a partner. Annual minimum
rental commitments on the headquarters facility of $2,817 are subject to an
adjustment based upon changes in the Consumer Price Index. The leases on the
other properties require annual lease payments of $470 subject to annual
inflationary increases. All of the leases expire during the years 1998 through
2013.
Total rental expense was $8,189, $8,213, $1,995, and $8,126, for the years
ended June 30, 1995 and 1996, the Transition Period, and the year ended
September 30, 1997, respectively.
10. Postretirement Pension Benefits
The Company has various defined benefit pension plans covering
substantially all of its domestic employees. Plans covering salaried employees
provide pension benefits that are based on the employee's average compensation
for the five years which yield the highest average during the 10 consecutive
years prior to retirement. Plans covering hourly employees and union members
generally provide benefits of stated amounts for each year of service. The
Company's policy is to fund pension costs at amounts within the acceptable
ranges established by the Employee Retirement Income Security Act of 1974.
The Company also has nonqualified deferred compensation agreements with
certain of its employees under which the Company has agreed to pay certain
amounts annually for the first 15 years subsequent to retirement or to a
designated beneficiary upon death. It is management's intent that life
insurance contracts owned by the Company will fund these agreements.
F-18
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
10. Postretirement Pension Benefits --Continued
Net periodic pension cost for the aforementioned plans is summarized as
follows:
<TABLE>
<CAPTION>
Years ended 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 Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 2,983 $ 57 $ 1,215 $ -- $ 4,255
Receivables:
Trade accounts receivable, net ......................... 45,614 -- 16,706 -- 62,320
Other .................................................. 15,128 162 95 (11,229) 4,156
Inventories ............................................. 57,615 -- 13,303 (797) 70,121
Deferred income taxes ................................... 7,888 1,026 244 -- 9,158
Prepaid expenses and other .............................. 3,457 -- 1,407 -- 4,864
-------- ------- -------- --------- --------
Total current assets ............................... 132,685 1,245 32,970 (12,026) 154,874
-------- ------- -------- --------- --------
Property, plant and equipment, net ....................... 61,495 -- 7,145 -- 68,640
Deferred charges and other ............................... 6,815 -- 598 -- 7,413
Debt issuance costs ...................................... 12,764 -- -- -- 12,764
Investment in subsidiaries ............................... 12,056 12,098 -- (24,154) --
-------- ------- -------- --------- --------
Total assets ....................................... $225,815 $13,343 $ 40,713 $ (36,180) $243,691
======== ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt .................... $ 4,500 $ -- $ 4,318 $ -- $ 8,818
Accounts payable ........................................ 40,830 597 16,505 (11,011) 46,921
Accrued liabilities:
Wages and benefits ..................................... 4,759 -- 1,135 -- 5,894
Accrued interest ...................................... 618 -- 13 -- 631
Recapitalization and other special charges ............ 11,645 -- 3,297 -- 14,942
Other .................................................. 10,043 484 2,492 -- 13,019
-------- ------- -------- --------- --------
Total current liabilities .......................... 72,395 1,081 27,760 (11,011) 90,225
-------- ------- -------- --------- --------
Long-term debt, net of current maturities ................ 223,990 -- 855 -- 224,845
Employee benefit obligations, net of current portion ..... 12,138 -- -- -- 12,138
Deferred income taxes .................................... (64) 206 -- -- 142
Other .................................................... 2,061 -- -- -- 2,061
-------- ------- -------- --------- --------
Total liabilities .................................. 310,520 1,287 28,615 (11,011) 329,411
Shareholders' equity (deficit):
Common stock ............................................ 500 -- 12,072 (12,072) 500
Additional paid-in capital .............................. 15,970 3,525 750 (4,275) 15,970
Foreign currency translation adjustment ................. 1,689 1,689 1,689 (3,378) 1,689
Notes receivable from officers/shareholders ............. (500) -- -- -- (500)
Retained earnings ....................................... 26,158 6,842 (2,413) (5,444) 25,143
-------- ------- -------- --------- --------
43,817 12,056 12,098 (25,169) 42,802
Less treasury stock, at cost ............................ (128,522) -- -- -- (128,522)
-------- ------- -------- --------- --------
Total shareholders' equity (deficit) ..................... (84,705) 12,056 12,098 (25,169) (85,720)
-------- ------- -------- --------- --------
Total liabilities and shareholders' equity (deficit) ..... $225,815 $13,343 $ 40,713 $ (36,180) $243,691
======== ======= ======== ========= ========
</TABLE>
F-28
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Transition period ended September 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $ 89,760 $ -- $ 19,974 $ (7,854) $ 101,880
Cost of goods sold ....................... 53,480 -- 13,470 (7,708) 59,242
--------- ------- -------- -------- ---------
Gross profit ........................... 36,280 -- 6,504 (146) 42,638
--------- ------- -------- -------- ---------
Operating expenses:
Selling ................................. 23,539 -- 4,257 -- 27,796
General and administrative .............. 6,508 2 2,109 9 8,628
Research and development ................ 1,495 -- -- -- 1,495
Recapitalization charges ................ 12,326 -- -- -- 12,326
Other special charges ................... 12,768 - 3,297 -- 16,065
--------- ------- -------- -------- ---------
56,636 2 9,663 9 66,310
--------- ------- -------- -------- ---------
Loss from operations ................... (20,356) (2) (3,159) (155) (23,672)
Interest expense ......................... 4,320 -- 110 -- 4,430
Equity in loss of subsidiary ............. 2,508 2,611 -- (5,119) --
Other (income) expense, net .............. (170) (162) 408 -- 76
--------- --------- -------- -------- ---------
Loss before income taxes and
extraordinary item ...................... (27,014) (2,451) (3,677) 4,964 (28,178)
Income tax (benefit) expense ............. (7,895) 57 (1,066) -- (8,904)
--------- --------- -------- -------- ---------
Loss before extraordinary item ........... (19,119) (2,508) (2,611) 4,964 (19,274)
Extraordinary item, loss on early
extinguishment of debt, net of income
tax benefit of $777...................... (1,647) -- -- -- (1,647)
--------- --------- -------- -------- ---------
Net loss ............................... $ (20,766) $(2,508) $ (2,611) $ 4,964 $ (20,921)
========= ========= ======== ======== =========
</TABLE>
F-29
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Transition period ended September 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating activities ......... $ (2,078) $16 $ 932 $-- $ (1,130)
Cash flows from investing activities: ....................
Purchases of property, plant and equipment .............. (912) -- (336) -- (1,248)
Proceeds from sale of property, plant and
equipment ............................................. 1,281 -- -- -- 1,281
-------- --- -------- --- --------
Net cash provided (used) by investing activities ......... 369 -- (336) -- 33
-------- --- -------- --- --------
Cash flows from financing activities:
Reduction of debt ....................................... (104,138) -- (2,952) -- (107,090)
Proceeds from debt financing ............................ 256,500 -- 2,989 -- 259,489
Cash overdraft .......................................... (2,493) -- -- -- (2,493)
Debt issuance costs ..................................... (14,373) -- -- -- (14,373)
Extinguishment of debt .................................. (2,424) -- -- -- (2,424)
Distributions from DISC ................................. (1,943) -- -- -- (1,943)
Acquisition of treasury stock ........................... (127,925) -- -- -- (127,925)
Payments on capital lease obligation .................... -- -- (84) -- (84)
-------- --- -------- --- --------
Net cash provided (used) by financing activities ......... 3,204 -- (47) -- 3,157
-------- --- -------- --- --------
Effect of exchange rate changes on cash and cash
equivalents ............................................. -- -- 5 -- 5
-------- --- -------- --- --------
Net increase (decrease) in cash and cash
equivalents ........................................... 1,495 16 554 -- 2,065
Cash and cash equivalents, beginning of period ........... 1,488 41 661 -- 2,190
-------- --- -------- --- --------
Cash and cash equivalents, end of period ................. $ 2,983 $57 $ 1,215 $-- $ 4,255
======== === ======== === ========
</TABLE>
F-30
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 1,488 $ 41 $ 661 $ -- $ 2,190
Receivables:
Trade accounts receivable, net ............................. 40,138 -- 15,692 -- 55,830
Other ...................................................... 11,434 318 780 (10,210) 2,322
Inventories ................................................. 54,486 -- 12,951 (496) 66,941
Deferred income taxes ....................................... 5,439 179 243 -- 5,861
Prepaid expenses and other .................................. 3,415 -- 1,560 -- 4,975
-------- ------- ------- --------- --------
Total current assets ................................... 116,400 538 31,887 (10,706) 138,119
-------- ------- ------- --------- --------
Property, plant and equipment, net ........................... 65,747 -- 7,434 -- 73,181
Deferred charges and other ................................... 9,047 -- 608 -- 9,655
Debt issuance costs .......................................... 173 -- -- -- 173
Investment in subsidiaries ................................... 14,524 14,670 -- (29,194) --
-------- ------- ------- --------- --------
Total assets ........................................... $205,891 $15,208 $39,929 $ (39,900) $221,128
======== ======= ======= ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities: .........................................
Current maturities of long-term debt ........................ $ 7,350 $ -- $ 4,281 $ -- $ 11,631
Accounts payable ............................................ 32,906 492 15,145 (9,848) 38,695
Accrued liabilities:
Wages and benefits ......................................... 5,077 -- 1,049 -- 6,126
Accrued interest ........................................... 1,850 -- 40 -- 1,890
Other ...................................................... 12,768 (14) 3,803 -- 16,557
-------- ------- ------- --------- --------
Total current liabilities .............................. 59,951 478 24,318 (9,848) 74,899
-------- ------- ------- --------- --------
Long-term debt, net of current maturities .................... 68,777 -- 941 -- 69,718
Employee benefit obligations, net of current portion ......... 12,141 -- -- -- 12,141
Deferred income taxes ........................................ 2,378 206 -- -- 2,584
Other ........................................................ 162 -- -- -- 162
-------- ------- ------- --------- --------
Total liabilities ...................................... 143,409 684 25,259 (9,848) 159,504
-------- ------- ------- --------- --------
Shareholders' equity (deficit): ..............................
Common stock ................................................ 500 -- 12,072 (12,072) 500
Rayovac International Corporation common stock .............. 5 -- -- -- 5
Additional paid-in capital .................................. 12,000 3,525 750 (4,275) 12,000
Foreign currency translation adjustment ..................... 1,650 1,650 1,650 (3,300) 1,650
Retained earnings ........................................... 48,860 9,349 198 (10,405) 48,002
-------- ------- ------- --------- --------
63,015 14,524 14,670 (30,052) 62,157
Less treasury stock, at cost ................................ (533) -- -- -- (533)
Total shareholders' equity (deficit) ......................... 62,482 14,524 14,670 (30,052) 61,624
-------- ------- ------- --------- --------
Total liabilities and shareholders' equity (deficit) ......... $205,891 $15,208 $39,929 $ (39,900) $221,128
======== ======= ======= ========= ========
</TABLE>
F-31
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year ended June 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
----------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales .......................... $369,065 $ -- $82,116 $ (27,827) $423,354
Cost of goods sold ................. 213,349 -- 53,846 (27,852) 239,343
-------- -------- ------- --------- --------
Gross profit ...................... 155,716 -- 28,270 25 184,011
-------- -------- ------- --------- --------
Operating expenses:
Selling ........................... 99,486 -- 17,039 -- 116,525
General and administrative ........ 25,967 12 5,775 13 31,767
Research and development .......... 5,442 -- -- -- 5,442
-------- -------- ------- --------- --------
130,895 12 22,814 13 153,734
-------- -------- ------- --------- --------
Income (loss) from operations ..... 24,821 (12) 5,456 12 30,277
Interest expense ................... 7,731 -- 704 -- 8,435
Equity in income of subsidiary ..... (2,507) (2,167) -- 4,674 --
Other (income) expense, net ........ (51) (570) 1,173 -- 552
-------- -------- ------- --------- --------
Income before income taxes ......... 19,648 2,725 3,579 (4,662) 21,290
Income tax expense ................. 5,372 218 1,412 -- 7,002
-------- -------- ------- --------- --------
Net income ........................ $ 14,276 $ 2,507 $ 2,167 $ (4,662) $ 14,288
======== ======== ======= ========= ========
</TABLE>
F-32
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended June 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating activities ......... $ 14,449 $ (292) $ 3,688 $ -- $ 17,845
Cash flows from investing activities:
Purchases of property, plant and equipment .............. (6,558) -- (88) -- (6,646)
Proceeds from sale of property, plant and
equipment ............................................. 298 -- -- -- 298
---------- ------ -------- ---- ----------
Net cash provided (used) by investing activities ......... (6,260) -- (88) -- (6,348)
---------- ------ -------- ---- ----------
Cash flows from financing activities:
Reduction of debt ....................................... (97,627) -- (6,899) -- (104,526)
Proceeds from debt financing ............................ 93,600 -- 2,652 -- 96,252
Cash overdraft .......................................... 2,339 -- -- -- 2,339
Distributions from DISC ................................. (5,187) -- -- -- (5,187)
Intercompany dividends .................................. -- 130 (130) -- --
Acquisition of treasury stock ........................... (533) -- -- -- (533)
Payments on capital lease obligation .................... -- -- (295) -- (295)
---------- ------ -------- ---- ----------
Net cash provided (used) by financing activities ......... (7,408) 130 (4,672) -- (11,950)
---------- ------ -------- ---- ----------
Effect of exchange rate changes on cash and cash
equivalents ............................................. -- -- (2) -- (2)
---------- ------ -------- ---- ----------
Net increase (decrease) in cash and cash
equivalents ............................................ 781 (162) (1,074) -- (455)
Cash and cash equivalents, beginning of period ........... 707 203 1,735 -- 2,645
---------- ------ -------- ---- ----------
Cash and cash equivalents, end of period ................. $ 1,488 $ 41 $ 661 $ -- $ 2,190
========== ====== ======== ==== ===========
</TABLE>
F-33
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year ended June 30, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
----------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales .............................. $364,816 $ -- $79,022 $ (28,614) $415,224
Cost of goods sold ..................... 214,119 -- 51,781 (28,774) 237,126
-------- -------- ------- --------- --------
Gross profit .......................... 150,697 -- 27,241 160 178,098
-------- -------- ------- --------- --------
Operating expenses:
Selling ............................... 93,935 -- 14,768 -- 108,703
General and administrative ............ 27,556 (651) 5,872 84 32,861
Research and development .............. 5,005 -- -- -- 5,005
-------- -------- ------- --------- --------
126,496 (651) 20,640 84 146,569
-------- -------- ------- --------- --------
Income from operations ................ 24,201 651 6,601 76 31,529
Interest expense ....................... 7,889 -- 755 -- 8,644
Equity in income of subsidiary ......... (5,520) (4,928) -- 10,448 --
Other (income) expense, net ............ (116) (319) 665 -- 230
-------- -------- ------- --------- --------
Income before income taxes.............. 21,948 5,898 5,181 (10,372) 22,655
Income tax expense ..................... 5,616 378 253 -- 6,247
-------- -------- ------- --------- --------
Net income ............................ $16,332 $ 5,520 $ 4,928 $ (10,372) $ 16,408
======== ======== ======= ========= ========
</TABLE>
F-34
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended June 30, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating activities ......... $ 32,394 $ (3,823) $ 3,737 $ 3,211 $ 35,519
Cash flows from investing activities:
Purchases of property, plant and equipment .............. (14,288) -- (2,650) -- (16,938)
Proceeds from sale of property, plant and
equipment .............................................. 139 -- -- -- 139
---------- -------- -------- -------- ----------
Net cash (used) by investing activities .................. (14,149) -- (2,650) -- (16,799)
---------- -------- -------- -------- ----------
Cash flows from financing activities:
Reduction of debt ....................................... (100,536) -- (5,847) -- (106,383)
Proceeds from debt financing ............................ 79,749 -- 5,223 726 85,698
Cash overdraft .......................................... 3,925 -- -- -- 3,925
Distributions from DISC ................................. (1,500) -- -- -- (1,500)
Intercompany dividends .................................. -- 3,899 (3,899) -- --
---------- -------- -------- -------- ----------
Net cash provided (used) by financing activities ......... (18,362) 3,899 (4,523) 726 (18,260)
========== ======== ======== ======== ==========
Effect of exchange rate changes on cash and cash
equivalents ............................................. -- -- 3,592 (3,937) (345)
---------- -------- -------- -------- ----------
Net increase (decrease) in cash and cash
equivalents ............................................ (117) 76 156 -- 115
Cash and cash equivalents, beginning of period ........... 824 127 1,579 -- 2,530
---------- -------- -------- -------- ----------
Cash and cash equivalents, end of period ................. $ 707 $ 203 $ 1,735 $ -- $ 2,645
========== ======== ======== ======== ==========
</TABLE>
F-35
<PAGE>
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
As of March 28, 1998 and September 30, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 28, 1998 September 30, 1997
---------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 3,672 $ 1,133
Receivables ........................................................... 69,079 79,669
Inventories ........................................................... 61,254 58,551
Prepaid expenses and other ............................................ 14,434 15,027
---------- ----------
Total current assets ............................................. 148,439 154,380
Property, plant and equipment, net ..................................... 66,889 65,511
Deferred charges and other ............................................. 26,075 16,990
---------- ----------
Total assets ..................................................... $ 241,403 $ 236,881
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt .................................. $ 4,329 $ 23,880
Accounts payable ...................................................... 50,891 57,259
Accrued liabilities:
Wages and benefits and other ........................................ 28,067 34,812
Recapitalization and other special charges .......................... 9,856 4,612
---------- ----------
Total current liabilities ........................................ 93,143 120,563
Long-term debt, net of current maturities .............................. 125,148 183,441
Employee benefit obligations, net of current portion ................... 6,738 11,291
Other .................................................................. 4,160 2,181
---------- ----------
Total liabilities ................................................ 229,189 317,476
Shareholders' equity (deficit):
Common stock, $.01 par value, authorized 150,000 and 90,000 shares
respectively; issued 56,873 and 50,000 shares respectively;
outstanding 27,432 and 20,581 shares, respectively .................. 569 500
Additional paid-in capital ............................................ 103,155 15,974
Foreign currency translation adjustments .............................. 2,307 2,270
Notes receivable from officers/shareholders ........................... (1,361) (1,658)
Retained earnings ..................................................... 36,898 31,321
---------- ----------
141,568 48,407
Less stock held in trust for deferred compensation plan,
160 shares .......................................................... (962) (962)
Less treasury stock, at cost, 29,441 and 29,419 shares, respectively... (128,392) (128,040)
---------- ----------
Total shareholders' equity (deficit) ................................... 12,214 (80,595)
---------- ----------
Total liabilities and shareholders' equity (deficit) ................... $ 241,403 $ 236,881
========== ==========
</TABLE>
See accompanying notes which are an integral part of these statements.
F-36
<PAGE>
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three month and six month periods ended March 28, 1998 and March 29,
1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
Net sales ....................................... $ 96,081 $ 83,632 $ 246,076 $ 225,554
Cost of goods sold .............................. 50,545 47,123 127,900 126,142
-------- --------- --------- ----------
Gross profit ................................... 45,536 36,509 118,176 99,412
Selling ......................................... 28,204 22,592 73,676 61,272
General and administrative ...................... 9,102 7,660 17,363 15,264
Research and development ........................ 1,509 1,520 3,034 3,430
Other special charges ........................... 5,236 1,754 4,017 4,717
-------- --------- --------- ----------
Total operating expenses ....................... 44,051 33,526 98,090 84,683
Income from operations ....................... 1,485 2,983 20,086 14,729
Other expense (income): .........................
Interest expense ................................ 3,291 5,472 8,315 13,446
Other expense (income) ......................... (126) 300 (359) 314
-------- --------- --------- ----------
3,165 5,772 7,956 13,760
Income (loss) before income taxes and
extraordinary item ............................. (1,680) (2,789) 12,130 969
Income tax expense (benefit) .................... (698) (1,069) 4,578 309
-------- --------- --------- ----------
Income (loss) before extraordinary item ......... (982) (1,720) 7,552 660
Extraordinary item, loss on early
extinguishment of debt, net of income
tax benefit of $1,263........................... -- -- 1,975 --
-------- --------- --------- ----------
Net income (loss) .............................. $ (982) $ (1,720) $ 5,577 $ 660
======== ========= ========= ==========
Average shares outstanding ...................... 27,432 20,485 25,476 20,478
Basic earnings per share ........................
Income (loss) before extraordinary item ......... $ (0.04) $ (0.08) $ 0.30 $ 0.03
Extraordinary item .............................. -- -- (0.08) --
-------- --------- --------- ----------
Net income (loss) ............................... $ (0.04) $ (0.08) $ 0.22 $ 0.03
======== ========= ========= ==========
Average shares outstanding and common
stock equivalents .............................. 27,432 20,485 27,006 20,507
Diluted earnings per share ......................
Income (loss) before extraordinary item ......... $ (0.04) $ (0.08) $ 0.28 $ 0.03
Extraordinary item .............................. -- -- (0.07) --
-------- --------- --------- ----------
Net income (loss) ............................... $ (0.04) $ (0.08) $ 0.21 $ 0.03
======== ========= ========= ==========
</TABLE>
See accompanying notes which are an integral part of these statements.
F-37
<PAGE>
RAYOVAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the six month periods ended March 28, 1998 and March 29, 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 5,577 $ 660
Non-cash adjustments to net income: .................................
Amortization ...................................................... 1,675 2,772
Depreciation ...................................................... 5,811 5,892
Other non-cash adjustments ........................................ (3,453) (330)
Net changes in other assets and liabilities, ........................
net of effects from acquisitions ................................... (5,239) 26,234
--------- ----------
Net cash provided by operating activities ...................... 4,371 35,228
Cash flows from investing activities: ................................
Purchases of property, plant and equipment .......................... (6,676) (2,625)
Proceeds from sale of property, plant and equipment ................. 3,292 --
Payment for acquisitions ............................................ (7,508) --
Other ............................................................... -- (215)
--------- ----------
Net cash used by investing activities .......................... (10,892) (2,840)
Cash flows from financing activities:
Reduction of debt ................................................... (137,987) (140,004)
Proceeds from debt financing ........................................ 59,859 112,243
Proceeds from issuance of common stock .............................. 87,268 --
Other ............................................................... (73) 265
--------- ----------
Net cash provided (used) by financing activities ............... 9,067 (27,496)
--------- ----------
Effect of exchange rate changes on cash and cash equivalents ......... (7) 3
------------ ----------
Net increase in cash and cash equivalents ...................... 2,539 4,895
Cash and cash equivalents, beginning of period ....................... 1,133 4,255
----------- ----------
Cash and cash equivalents, end of period ............................. $ 3,672 $ 9,150
=========== ==========
</TABLE>
See accompanying notes which are an integral part of these statements.
F-38
<PAGE>
RAYOVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
1. Significant Accounting Policies
Basis of Presentation
These financial statements have been prepared by Rayovac Corporation (the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") and, in the opinion of the
Company, include all adjustments (all of which are normal and recurring in
nature) necessary to present fairly the financial position of the Company at
March 28, 1998, results of operations for the three and six month periods ended
March 28, 1998 and March 29, 1997, and cash flows for the six month periods
ended March 28, 1998 and March 29, 1997. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations.
These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto as of
September 30, 1997.
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 counter-parties are included in accrued
liabilities 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 a notional principal amount of $62,500 through
October 1999. The fair value of this contract at March 28, 1998 was ($382).
The Company has entered into an amortizing cross currency interest rate
swap agreement related to financing the acquisition of Brisco (as defined
herein). The agreement effectively fixes the interest and foreign exchange on
floating rate debt denominated in U.S. Dollars at a rate of 5.34% denominated
in German Marks. The unamortized notional principal amount at March 28, 1998 is
approximately $4,700. The fair value at March 28, 1998 approximated the
contract value.
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 (income). The related amounts payable to, or
receivable from, the counter-parties are included in accounts payable, or
accounts receivable. The Company has approximately $7,700 of such forward
exchange contracts at March 28, 1998. The fair value at March 28, 1998,
approximated the contract value.
The Company has also entered into foreign exchange contracts to hedge
payment obligations denominated in Japanese Yen under a commitment to purchase
certain production equipment from Matsushita. The Company has approximately
$6,700 of such forward exchange contracts outstanding at March 28, 1998. The
fair value at March 28, 1998 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 swaps, calls and puts. The Company has entered into
commodity swap agreements which effectively fix the floating price on a
specified quantity of zinc through a specified date. 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,
F-39
<PAGE>
RAYOVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
(Unaudited)
(In thousands, except per share amounts)
1. Significant Accounting Policies --Continued
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
swap, put and call agreements. At March 28, 1998, the Company had entered into
a series of swap agreements with a contract value of approximately $3,200 for
the period from April through December of 1998. At March 28, 1998, the Company
had purchased a series of calls with a contract value of approximately $3,000
and sold a series of puts with a contract value of approximately $2,800 for the
period from April 1998 through March 1999 designed to set a ceiling and floor
price. While these transactions have no carrying value, the fair value of these
contracts was approximately ($600) at March 28, 1998.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 28, 1998 September 30, 1997
---------------- -------------------
<S> <C> <C>
Raw material ............. $20,450 $23,291
Work-in-process .......... 16,478 15,286
Finished goods ........... 24,326 19,974
------- -------
$61,254 $58,551
======= =======
</TABLE>
3. Earnings per Share Disclosure
Earnings per share is calculated based upon the following:
<TABLE>
<CAPTION>
Three Months Ended March 28, 1998 Three Months Ended March 29, 1997
----------------------------------------- ----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- --------------- ----------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Loss before extraordinary item ....... $ (982) $ (1,720)
Basic EPS
Loss available to common
shareholders ........................ $ (982) 27,432 $ (0.04) $ (1,720) 20,485 $ (0.08)
Diluted EPS
Loss available to common
shareholders plus assumed
conversion .......................... $ (982) 27,432 $ (0.04) $ (1,720) 20,485 $ (0.08)
====== ====== ======= ======== ====== =======
</TABLE>
The effect of unexercised stock options outstanding for the three month
periods ending March 28, 1998 and March 29, 1997, were excluded from the
diluted EPS calculations as their effect was anti-dilutive. These options may
dilute EPS in the future.
F-40
<PAGE>
RAYOVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
(Unaudited)
(In thousands, except per share amounts)
3. Earnings per Share Disclosure --Continued
<TABLE>
<CAPTION>
Six Months Ended March 28, 1998 Six Months Ended March 29, 1997
----------------------------------------- ----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- --------------- ----------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary
item ............................... $7,552 $660
Basic EPS ...........................
Income available to common
shareholders ....................... 7,552 25,476 $ 0.30 660 20,478 $ 0.03
====== ======
Effect of Dilutive Securities .......
Stock Options ....................... 1,530 29
Diluted EPS .........................
Income available to common
shareholders plus assumed
conversion ......................... $7,552 27,006 $ 0.28 $660 20,507 $ 0.03
====== ====== ====== ==== ====== ======
</TABLE>
4. 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 annual royalties of $1.5 million for the first five years, beginning in
1993, plus $0.5 million for each year thereafter, as long as the related
equipment patents are enforceable (2012). In a March 1994 agreement, the
Company committed to pay $0.5 million in 1994 and annual royalties of $0.5
million for five years beginning in 1995. In a March 1998 agreement which
supersedes the previous agreements, the Company committed to pay $2.0 million
in 1998 and 1999, $3.0 million in 2000 through 2002 and $0.5 million in each
year thereafter, as long as the related equipment patents are enforceable
(2022). Additionally, the Company has committed to purchase tooling of $0.7
million related to this equipment.
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 $1.6 million, which may result
from resolution of these matters, will not have a material adverse effect on
the financial condition, liquidity, or cash flows of the Company.
5. Other
During the 1998 Fiscal First Quarter, the Company recorded a pre-tax
credit of $1.2 million related to the buyout of deferred compensation
agreements with certain former employees.
On November 28, 1997, the Company acquired Brisco GmbH in Germany and
Brisco B.V. in Holland (collectively "Brisco"), a distributor of hearing aid
batteries for $4.9 million. Brisco recorded calendar 1997 sales of $4.5
million.
F-41
<PAGE>
RAYOVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
(Unaudited)
(In thousands, except per share amounts)
5. Other --Continued
In the 1998 Fiscal Second Quarter, the Company recorded special charges
and credits including severance, outplacement service, other employee benefits,
and asset write-downs related to the following: (i) $3.7 million for exit of
certain manufacturing operations at the Company's Madison, Wisconsin, and
Appleton, Wisconsin, facilities and consolidating domestic battery packaging
operations, (ii) $3.9 million for the closing of the Company's Newton Aycliffe,
U.K., packaging facility, phasing out direct distribution in the U.K., and
closing one of the Company's German sales offices, and (iii) a $2.4 million
gain on the disposition of the Company's Kinston, North Carolina, previously
closed facility.
In the 1998 Fiscal Second Quarter, the Company acquired Direct Power Plus
of New York ("DPP"), a full line marketer of rechargeable batteries and
accessories for cellular phones and video camcorders for $4.7 million. DPP
recorded sales of $2.2 million in the 1998 Fiscal Second Quarter.
6. Subsequent Events
On March 30, 1998, the Company acquired the battery distribution portion
of Best Labs, St. Petersburg, Florida, a distributor of hearing aid batteries
and a manufacturer of hearing instruments for $2.1 million. The acquired
portion of Best Labs had net sales of approximately $2.6 million in calendar
1997.
On April 3, 1998, the Company announced the filing of a registration
statement with the SEC for a secondary offering of 6.5 million shares of common
stock. The Company will not receive any proceeds from the sale of shares in the
offering but will pay certain expenses for the offering estimated at $0.8
million. Of the shares being offered, 5.5 million will be offered by Thomas H.
Lee Group and its affiliates and 1.0 million by certain Rayovac officers and
employees. The registration statement has not yet become effective. These
securities may not be sold nor any offers to buy be accepted prior to the time
the registration statement becomes effective.
7. Guarantor Subsidiary
The following condensed consolidating financial data illustrates the
composition of the consolidated financial statements. Investments in
subsidiaries are accounted for by the Company 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 inter-company 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-42
<PAGE>
RAYOVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
(Unaudited)
(In thousands, except per share amounts)
7. Guarantor Subsidiary --Continued
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 28, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 2,148 $ 46 $ 1,478 $ -- $ 3,672
Receivables ................................... 61,208 584 15,131 (7,844) 69,079
Inventories ................................... 48,728 -- 12,639 (113) 61,254
Prepaid expenses and other .................... 12,462 342 1,630 -- 14,434
---------- -------- -------- ---------- ----------
Total current assets ....................... 124,546 972 30,878 (7,957) 148,439
Property, plant and equipment, net ............. 61,530 -- 5,359 -- 66,889
Deferred charges and other ..................... 26,045 -- 4,996 (4,966) 26,075
Investment in subsidiaries ..................... 14,799 13,969 -- (28,768) --
---------- -------- -------- ---------- ----------
Total assets ............................... $ 226,920 $ 14,941 $ 41,233 $ (41,691) $ 241,403
========== ======== ======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt .......... $ 3,135 $ -- $ 2,175 $ (981) $ 4,329
Accounts payable .............................. 43,419 -- 14,193 (6,721) 50,891
Accrued liabilities: ..........................
Wages and benefits and other ................ 24,599 (88) 3,547 9 28,067
Recapitalization and other special
charges .................................... 6,478 -- 3,378 -- 9,856
---------- -------- -------- ---------- ----------
Total current liabilities .................. 77,631 (88) 23,293 (7,693) 93,143
Long-term debt, net of current maturities ...... 124,901 -- 3,783 (3,536) 125,148
Employee benefit obligations, net of
current portion ............................... 6,738 -- -- -- 6,738
Other .......................................... 3,742 230 188 -- 4,160
---------- -------- -------- ---------- ----------
Total liabilities .......................... 213,012 142 27,264 (11,229) 229,189
Shareholders' equity :
Common stock .................................. 569 -- 12,072 (12,072) 569
Additional paid-in capital .................... 103,155 3,525 750 (4,275) 103,155
Foreign currency translation adjustment ....... 2,307 2,307 2,307 (4,614) 2,307
Notes receivable from officers/
shareholders ................................ (1,361) -- -- -- (1,361)
Retained earnings ............................. 38,592 8,967 (1,160) (9,501) 36,898
---------- -------- -------- ---------- ----------
143,262 14,799 13,969 (30,462) 141,568
Less stock held in trust for deferred
compensation ................................ (962) -- -- -- (962)
Less treasury stock ........................... (128,392) -- -- -- (128,392)
---------- -------- -------- ---------- ----------
Total shareholders' equity ..................... 13,908 14,799 13,969 (30,462) 12,214
---------- -------- -------- ---------- ----------
Total liabilities and shareholders' equity ..... $ 226,920 $ 14,941 $ 41,233 $ (41,691) $ 241,403
========== ======== ======== ========== ==========
</TABLE>
F-43
<PAGE>
RAYOVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
(Unaudited)
(In thousands, except per share amounts)
7. Guarantor Subsidiary --Continued
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the three month period ended March 28, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
-------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales ............................... $ 83,519 $ -- $ 19,237 $(6,675) $ 96,081
Cost of goods sold ...................... 45,535 -- 11,689 (6,679) 50,545
-------- -------- -------- ------- --------
Gross profit ......................... 37,984 -- 7,548 4 45,536
Selling ................................. 24,277 -- 3,927 -- 28,204
General and administrative .............. 7,340 (245) 2,025 (18) 9,102
Research and development ................ 1,509 -- -- -- 1,509
Other special charges ................... 1,274 -- 3,962 -- 5,236
-------- -------- -------- ------- --------
Total operating expenses ............. 34,400 (245) 9,914 (18) 44,051
Income (loss) from operations ........... 3,584 245 (2,366) 22 1,485
Other expense (income):
Interest expense ........................ 3,211 -- 83 (3) 3,291
Equity in profit of subsidiary ......... 1,531 1,826 -- (3,357) --
Other expense (income) ................. (148) 6 13 3 (126)
-------- -------- -------- --------- --------
Loss before income taxes and
extraordinary item ..................... (1,010) (1,587) (2,462) 3,379 (1,680)
Income taxes (benefit) .................. (6) (56) (636) -- (698)
----------- -------- -------- --------- --------
Loss before extraordinary item .......... (1,004) (1,531) (1,826) 3,379 (982)
Extraordinary item ...................... -- -- -- -- --
---------- -------- -------- --------- --------
Net loss ................................ $ (1,004) $ (1,531) $ (1,826) $ 3,379 $ (982)
========== ======== ======== ========= ========
</TABLE>
F-44
<PAGE>
RAYOVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
(Unaudited)
(In thousands, except per share amounts)
7. Guarantor Subsidiary --Continued
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the six month period ended March 28, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
----------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales ................................... $216,426 $ -- $ 44,036 $ (14,386) $ 246,076
Cost of goods sold .......................... 114,446 -- 27,849 (14,395) 127,900
-------- ------- --------- --------- ---------
Gross profit ............................. 101,980 -- 16,187 9 118,176
Selling ..................................... 63,708 -- 9,968 -- 73,676
General and administrative .................. 13,598 (476) 4,277 (36) 17,363
Research and development .................... 3,034 -- -- -- 3,034
Other special charges ....................... 55 -- 3,962 -- 4,017
-------- ------- --------- --------- ---------
Total operating expenses ................. 80,395 (476) 18,207 (36) 98,090
Income(loss) from operations ................ 21,585 476 (2,020) 45 20,086
Other expense (income):
Interest expense ........................... 8,075 -- 240 -- 8,315
Equity in profit of subsidiary ............. 1,349 1,687 -- (3,036) --
Other expense (income) ..................... (344) (4) (11) -- (359)
-------- ---------- --------- --------- ---------
9,080 1,683 229 (3,036) 7,956
Income(loss) before income taxes and
extraordinary item ......................... 12,505 (1,207) (2,249) 3,081 12,130
Income taxes (benefit) ...................... 4,998 142 (562) -- 4,578
-------- --------- --------- --------- ---------
Income (loss) before extraordinary item ..... 7,507 (1,349) (1,687) 3,081 7,552
Extraordinary item .......................... 1,975 -- -- -- 1,975
-------- --------- --------- --------- ---------
Net income(loss) ............................ $ 5,532 $(1,349) $ (1,687) $ 3,081 $ 5,577
======== ========= ========= ========= =========
</TABLE>
F-45
<PAGE>
RAYOVAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
(Unaudited)
(In thousands, except per share amounts)
7. Guarantor Subsidiary --Continued
RAYOVAC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the six month period ended March 28, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
------------- ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities .............................. $ (3,380) $-- $ 3,233 $ 4,518 $ 4,371
Cash flows from investing activities:
Purchases of property, plant and
equipment ............................. (5,839) -- (837) -- (6,676)
Proceeds from sale of property, plant,
and equip. ............................ 3,292 -- -- -- 3,292
Payment for acquisitions ................ (2,655) -- (4,853) -- (7,508)
---------- --- ------- -------- ---------
Net cash used by investing activities .... (5,202) -- (5,690) -- (10,892)
Cash flows from financing activities:
Reduction of debt ....................... (135,500) -- (2,487) -- (137,987)
Proceeds from debt financing ............ 58,193 -- 6,184 (4,518) 59,859
Proceeds from issuance of common
stock ................................. 87,268 -- -- -- 87,268
Other ................................... 136 -- (209) -- (73)
---------- --- ------- -------- ---------
Net cash provided by financing
activities .............................. 10,097 -- 3,488 (4,518) 9,067
Effect of exchange rate changes on
cash and cash equivalents ............... -- -- (7) -- (7)
---------- --- ---------- -------- ------------
Net increase in cash and cash
equivalents ............................. 1,515 -- 1,024 -- 2,539
Cash and cash equivalents, beginning
of period ............................... 633 46 454 -- 1,133
---------- --- --------- -------- -----------
Cash and cash equivalents, end
of period ............................... $ 2,148 $46 $ 1,478 $ -- $ 3,672
========== === ========= ======== ===========
</TABLE>
F-46
<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 Black and Flashlights on Gray Background]
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 Light Gray Battery Packs on Gray Background]
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 ................................. 12
The Recapitalization ......................... 17
Use of Proceeds .............................. 17
Price Range of Common Stock
and Dividend Policy ....................... 17
Capitalization ............................... 18
Selected Financial Data ...................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 23
Business ..................................... 34
Management ................................... 49
Principal and Selling Shareholders ........... 51
Description of Certain Indebtedness .......... 53
Shares Eligible for Future Sale .............. 55
Certain United States Federal Tax
Considerations for Non-United States
Holders ................................... 56
Underwriting ................................. 58
Legal Matters ................................ 61
Experts ...................................... 61
Available Information ........................ 62
Incorporation of Certain Documents by
Reference ................................. 63
Index to Financial Statements ................ F-1
</TABLE>
6,500,000 Shares
[Logo] 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 MAY 12, 1998
PROSPECTUS
- ----------
6,500,000 Shares
[Logo]
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 May 11, 1998, the last sale price of the Common Stock as reported on
the New York Stock Exchange was $22.75 per share. See "Price Range of Common
Stock and Dividend Policy."
See "Risk Factors" beginning on page 12 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Proceeds to
Price to Underwriting Selling
Public Discount (1) Shareholders (2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Per Share ...................... $ $ $
- --------------------------------------------------------------------------------
Total (3) ...................... $ $ $
================================================================================
</TABLE>
(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) The Company has agreed to pay certain expenses of the Offerings 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
International
Salomon Smith Barney
International
----------------
The date of this Prospectus is , 1998.
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.
<PAGE>
[Alternate Page for International Prospectus]
UNDERWRITING
Merrill Lynch International, Bear, Stearns International Limited,
Donaldson, Lufkin & Jenrette International 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.
<TABLE>
<CAPTION>
Number of
International Manager Shares
- --------------------- ----------
<S> <C>
Merrill Lynch International .................................
Bear, Stearns International Limited .........................
Donaldson, Lufkin & Jenrette International ..................
Smith Barney Inc. ...........................................
Total ........................................ .......... 1,300,000
=========
</TABLE>
The Company has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement") with certain underwriters in the United States and Canada
(the "U.S. Underwriters" and, together with the International Managers, the
"Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc. are acting as representatives (the
"U.S. Representatives"). Subject to the terms and conditions set forth in the
U.S. Purchase Agreement, and concurrently with the sale of 1,300,000 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
58
<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, Tucker Anthony Incorporated and Cleary Gull Reiland & McDevitt
Inc., 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.
59
<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 $170 million.
60
<PAGE>
[Alternate Back Cover for International Prospectus]
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy the Common
Stock in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.
In the Prospectus, references to "dollars" and "$" are to United States
dollars.
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ........................... 3
Risk Factors ................................. 12
The Recapitalization ......................... 17
Use of Proceeds .............................. 17
Price Range of Common Stock and
Dividend Policy ........................... 17
Capitalization ............................... 18
Selected Financial Data ...................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 23
Business ..................................... 34
Management ................................... 49
Principal and Selling Shareholders ........... 51
Description of Certain Indebtedness .......... 53
Shares Eligible for Future Sale .............. 55
Certain United States Federal Tax
Considerations for Non-United States
Holders ................................... 56
Underwriting ................................. 58
Legal Matters ................................ 61
Experts ...................................... 61
Available Information ........................ 62
Incorporation of Certain Documents by
Reference ................................. 63
Index to Financial Statements ................ F-1
</TABLE>
6,500,000 Shares
[Logo] RAYOVAC(R)
Common Stock
----------------------------------
P R O S P E C T U S
----------------------------------
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette
International
Salomon Smith Barney
International
, 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:
<TABLE>
<S> <C>
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
========
</TABLE>
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 10-1/4% 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.
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>
- ----------------
+ Previously filed.
++ To be filed by Amendment.
* 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.
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 Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Madison, Wisconsin on May 13, 1998.
RAYOVAC CORPORATION
By: /s/ James A. Broderick
-------------------------------
Name: James A. Broderick
Title: Vice President, General Counsel
and Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on May 13, 1998.
<TABLE>
<CAPTION>
Signature Title
- ------------------------------- ----------------------------------------------------
<S> <C>
* Chairman of the Board and Chief Executive Officer
- ----------------------------- (Principal Executive Officer)
David A. Jones
* President and Chief Operating Officer and Director
- -----------------------------
Kent J. Hussey
* President/International and Contract MicroPower
- ----------------------------- and Director
Roger F. Warren
* Executive Vice President of Operations and Director
- -----------------------------
Trygve Lonnebotn
* Director
- -----------------------------
Scott A. Schoen
* Director
- -----------------------------
Thomas R. Shepherd
* Director
- -----------------------------
Warren C. Smith, Jr.
/s/ Randall J. Steward Senior Vice President of Finance and
- ----------------------------- Chief Financial Officer
Randall J. Steward (Principal Financial and Accounting Officer)
*By /s/ James A. Broderick
-------------------------
James A. Broderick
Attorney-in-fact
</TABLE>
II-4
================================================================================
RAYOVAC CORPORATION
(a Wisconsin corporation)
5,200,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
-----------------------
Dated: May ____, 1998
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
U.S. PURCHASE AGREEMENT......................................................................1
SECTION 1. Representations and Warranties...............................................3
(a) Representations and Warranties by the Company...................................3
(i) Compliance with Registration Requirements................................3
(ii) Independent Accountants.................................................4
(iii) Financial Statements...................................................4
(iv) No Material Adverse Change in Business..................................5
(v) Good Standing of the Company.............................................5
(vi) Good Standing of Subsidiaries...........................................5
(vii) Capitalization.........................................................6
(viii) Authorization of Agreement............................................6
(ix) Authorization and Description of Securities.............................6
(x) Absence of Defaults and Conflicts........................................6
(xi) Absence of Labor Dispute................................................7
(xii) Absence of Proceedings.................................................7
(xiii) Accuracy of Exhibits..................................................7
(xiv) Possession of Intellectual Property....................................8
(xv) Absence of Further Requirements.........................................8
(xvi) Possession of Licenses and Permits.....................................8
(xvii) Title to Property.....................................................8
(xviii) Investment Company...................................................9
(xix) Environmental Laws.....................................................9
(xx) Registration Rights....................................................10
(xxi) Stabilization or Manipulation.........................................10
(xxii) Accounting Controls..................................................10
(xxiii) Tax Returns.........................................................10
(xxiv) No Association with NASD.............................................10
(b) Representations and Warranties by the Selling Shareholders.....................11
(i) Accurate Disclosure by Selling Shareholders............................11
(ii) Authorization of Agreements...........................................11
(iii) Valid Title..........................................................12
(iv) Due Execution of Power of Attorney and Custody Agreement..............12
(v) Absence of Manipulation................................................12
(vi) Absence of Further Requirements.......................................12
(vii) Certificates Suitable for Transfer...................................12
(viii) Irrevocable Obligations.............................................13
(ix) No Association with NASD..............................................13
(x) Power and Authority....................................................13
(c) Officer's Certificates.........................................................14
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing...........................14
(a) Initial Securities...........................................................14
(b) Option Securities............................................................14
(c) Payment......................................................................15
(d) Denominations; Registration..................................................15
SECTION 3. Covenants of the Company..................................................15
(a) Compliance with Securities Regulations and Commission Requests...............15
(b) Filing of Amendments.........................................................16
(c) Delivery of Registration Statements..........................................16
(d) Delivery of Prospectuses.....................................................16
(e) Continued Compliance with Securities Laws....................................17
(f) Blue Sky Qualifications......................................................17
(g) Rule 158.....................................................................17
(h) Restriction on Sale of Securities............................................17
(i) Reporting Requirements.......................................................18
SECTION 4. Payment of Expenses.......................................................18
(a) Expenses.....................................................................18
(b) Expenses of the Selling Shareholders.........................................18
(c) Termination of Agreement.....................................................18
(d) Allocation of Expenses.......................................................19
SECTION 5. Conditions of U.S. Underwriters' Obligations..............................19
(a) Effectiveness of Registration Statement......................................19
(b) Opinion of Counsel for Company and the Selling Shareholders..................19
(c) Opinion of Counsel for U.S. Underwriters.....................................19
(d) Officers' Certificate........................................................20
(e) Selling Shareholders' Certificate............................................20
(f) Accountant's Comfort Letters.................................................20
(g) Bring-down Comfort Letters...................................................20
(h) No Objection.................................................................21
(i) Lock-up Agreement............................................................21
(j) Purchase of Initial International Securities.................................21
(k) Custody Agreement............................................................21
(l) Conditions to Purchase of U.S. Option Securities.............................21
(m) Additional Documents.........................................................22
(n) Termination of Agreement.....................................................22
SECTION 6. Indemnification...........................................................23
(a) Indemnification of U.S. Underwriters by the Company..........................23
(b) Indemnification of U.S. Underwriters by the Selling Shareholders.............24
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(c) Indemnification of Company, Directors and Officers and Selling Shareholders..25
(d) Actions against Parties; Notification........................................25
(e) Settlement without Consent if Failure to Reimburse...........................26
(f) Other Agreements with Respect to Indemnification.............................26
SECTION 7. Contribution..............................................................26
SECTION 8. Representations, Warranties and Agreements to Survive Delivery............28
SECTION 9. Termination of Agreement..................................................28
(a) Termination; General.........................................................28
(b) Liabilities..................................................................29
SECTION 10. Default by One or More of the U.S. Underwriters..........................29
SECTION 11. Notices..................................................................29
SECTION 12. Parties..................................................................30
SECTION 13. Governing Law and Time...................................................30
SECTION 14. Effect of Headings.......................................................30
SECTION 15. Counterparts.............................................................30
</TABLE>
-v-
<PAGE>
SCHEDULES
SCHEDULE A LIST OF UNDERWRITERS
SCHEDULE B LIST OF SELLING SHAREHOLDERS
SCHEDULE B-1 LIST OF OVER-ALLOTMENT SELLING SHAREHOLDERS
SCHEDULE C PRICING INFORMATION
SCHEDULE D LIST OF PERSONS AND ENTITIES SUBJECT TO LOCK-UP
SCHEDULE E LIST OF SUBSIDIARIES OF THE COMPANY
EXHIBIT A-1 FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
EXHIBIT A-2 FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT A-3 FORM OF OPINION OF COUNSEL OF SELLING SHAREHOLDERS
EXHIBIT A-4 FORM OF OPINION OF COUNSEL OF CATEGORY 2 SELLING SHAREHOLDERS
EXHIBIT B FORM OF LOCK-UP LETTER
EXHIBIT C-1 FORM OF COMFORT LETTER OF KPMG PEAT MARWICK LLP
EXHIBIT C-2 FORM OF COMFORT LETTER OF COOPERS & LYBRAND LLP
-v-
<PAGE>
RAYOVAC CORPORATION
(a Wisconsin corporation)
5,200,000 Shares of Common Stock
(Par Value $0.01 Per Share)
U.S. PURCHASE AGREEMENT
-----------------------
May ___, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Rayovac Corporation, a Wisconsin corporation (the "Company"), and the
persons listed on Schedule B hereto (collectively, the "Selling Shareholders")
confirm their respective agreements with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other U.S.
Underwriters named in Schedule A hereto (collectively, the "U.S. Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 10 hereof), for whom Merrill Lynch, Bear, Stearns & Co.
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney Inc.
are acting as representatives (in such capacity, the "U.S. Representatives"),
with respect to (i) the sale by the Selling Shareholders and the purchase by the
U.S. Underwriters, acting severally and not jointly, of the number of shares of
Common Stock, par value $0.01 per share, of the Company ("Common Stock") set
forth in Schedule A hereto and (ii) the grant by the Selling Shareholders,
listed on Schedule B-1 hereto, acting severally and not jointly, to the U.S.
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part
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of 780,000 additional shares of Common Stock to cover over-allotments, if any.
The aforesaid 5,200,000 shares of Common Stock (the "Initial U.S. Securities")
to be purchased by the U.S. Underwriters, and all or any part of the 780,000
shares of Common Stock subject to the option described in Section 2(b) hereof
(the "U.S. Option Securities"), are hereinafter called, collectively, the "U.S.
Securities."
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Selling Shareholders of an aggregate of
1,300,000 shares of Common Stock (the "Initial International Securities")
through arrangements with certain underwriters outside the United States and
Canada (the "International Managers") for which Merrill Lynch International,
Bear, Stearns International Limited, Donaldson, Lufkin & Jenrette Securities
Corporation and Smith Barney Inc. are acting as lead managers (the "Lead
Managers") and the grant by the Selling Shareholders, acting severally and not
jointly, to the International Managers, acting severally and not jointly, of an
option to purchase all or any part of the International Managers' pro rata
portion of up to 195,000 additional shares of Common Stock solely to cover
over-allotments, if any (the "International Option Securities" and, together
with the U.S. Option Securities, the "Option Securities"). The Initial
International Securities and the International Option Securities are hereinafter
called the "International Securities." It is understood that the Selling
Shareholders are not obligated to sell and the U.S. Underwriters are not
obligated to purchase, any Initial U.S. Securities unless all of the Initial
International Securities are contemporaneously purchased by the International
Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters," the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities," and the U.S. Securities and the International Securities
are hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company and the Selling Shareholders understand that the U.S.
Underwriters propose to make a public offering of the U.S. Securities as soon as
the U.S. Representatives deem advisable after this Agreement has been executed
and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-49281), as amended
by Amendment No. 1 thereto, covering the registration of the Securities under
the Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses. Promptly after execution and delivery of
this Agreement, the Company will either (i) prepare and file a prospectus in
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or
(ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933
Act Regulations, prepare and file a term
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sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule
424(b). Two forms of prospectus are to be used in connection with the offering
and sale of the Securities: one relating to the U.S. Securities (the "Form of
U.S. Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of International Prospectus is identical to
the Form of U.S. Prospectus, except for the front cover and back cover pages and
the information under the caption "Underwriting." The information included in
any such prospectus or in any such Term Sheet, as the case may be, that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each Form of U.S. Prospectus and Form of International
Prospectus used before such registration statement became effective, and any
prospectus that omitted, as applicable, the Rule 430A Information or the Rule
434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final Form of U.S.
Prospectus and the final Form of International Prospectus in the forms first
furnished to the Underwriters for use in connection with the offering of the
Securities are herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated May, 1998 and the preliminary
International Prospectus dated May, 1998, respectively, each together with the
applicable Term Sheet, and all references in this Agreement to the date of such
Prospectuses shall mean the date of the applicable Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a)....Representations and Warranties by the Company. The Company
represents and warrants to each U.S. Underwriter as of the date hereof, as of
the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each U.S.
Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of
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the Company, are contemplated by the Commission, and any request on the
part of the Commission for additional information has been complied
with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any U.S. Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither of the Prospectuses nor any amendments or supplements thereto
(including any prospectus wrapper), at the time the Prospectuses or any
amendments or supplements thereto were issued and at the Closing Time
(and, if any U.S. Option Securities are purchased, at the Date of
Delivery), included or will include, at the aforesaid times, an untrue
statement of a material fact or omitted or will omit, at the aforesaid
times, to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If Rule 434 is used, the Company will comply
with the requirements of Rule 434 and the Prospectuses shall not be
"materially different," as such term is used in Rule 434, from the
prospectuses included in the Registration Statement at the time it
became effective. The representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or the U.S. Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through the U.S. Representative(s) expressly for use in the
Registration Statement or the U.S. Prospectus or by any International
Manager through the Lead Managers expressly for use in the Registration
Statement or the International Prospectus.
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The historical financial
statements included in the Registration Statement and the Prospectuses,
together with the related schedule and notes, present fairly the
financial position of the Company and its consolidated Subsidiaries (as
defined below) at the dates indicated and the statement of operations,
shareholders' equity and cash flows of the Company and its consolidated
Subsidiaries for the periods
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specified; said financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein. The
selected financial data and the summary financial information included
in the Prospectuses present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition (financial
or otherwise), earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise, whether or
not arising in the ordinary course of business (a "Material Adverse
Effect"), (B) there have been no transactions entered into by the
Company or any of its Subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and
its Subsidiaries considered as one enterprise, and (C) there has been
no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Wisconsin and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each subsidiary of the
Company (each a "Subsidiary" and, collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation where
such legal concepts are recognized, has corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect; except as otherwise disclosed
in the Registration Statement, all of the issued and outstanding
capital stock of each such Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable in jurisdictions where
such legal concepts are recognized and is owned by the Company,
directly or through Subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity (except
as set forth in the Registration Statement and except for any director
or member qualifying shares); none of the outstanding shares of capital
stock of any Subsidiary was issued in
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violation of the preemptive or similar rights of any securityholder of
such Subsidiary. The only Subsidiaries of the Company are the
subsidiaries listed on Schedule E hereto and, except for Rayovac Europe
Limited (which represents less than 15% of the assets, liabilities and
earnings of the Company), the Company has no "significant subsidiaries"
as defined in Section 1-02 of Regulation S-X.
(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses under
the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to this Agreement, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectuses or pursuant to
the exercise of convertible securities or options referred to in the
Prospectuses). The shares of issued and outstanding capital stock of
the Company have been and at the Closing Time, including the U.S.
Option Securities to be purchased by the U.S. Underwriters from the
Selling Shareholders, will have been duly authorized and validly issued
and are fully paid and non-assessable, except to the extent such
securities are assessable pursuant to applicable provisions of
Wisconsin law; none of the outstanding shares of capital stock of the
Company was or as of the Closing Time, including the U.S. Option
Securities to be purchased by the U.S. Underwriters from the Selling
Shareholders, will have been or was issued in violation of the
preemptive or other similar rights of any securityholder of the
Company.
(viii) Authorization of Agreement. This Agreement and the
International Purchase Agreement have been duly authorized, executed
and delivered by the Company.
(ix) Authorization and Description of Securities. The
Securities to be purchased by the U.S. Underwriters and the
International Managers from the Selling Shareholders have been duly
authorized for sale to the U.S. Underwriters pursuant to this Agreement
and the International Managers pursuant to the International Purchase
Agreement, respectively; the Common Stock conforms to the descriptions
thereof contained in the Prospectuses or incorporated by reference
therein and such description conforms to the rights set forth in the
instruments defining the same; no holder of the Securities will be
subject to personal liability by reason of being such a holder, except
for certain liabilities pursuant to applicable provisions of Wisconsin
law; and the issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the
Company.
(x) Absence of Defaults and Conflicts. Neither the Company nor
any of its Subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its Subsidiaries is a
party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any Subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the International
Purchase Agreement and the consummation of the transactions
contemplated in this
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Agreement, the International Purchase Agreement and in the Registration
Statement and the compliance by the Company with its obligations under
this Agreement and the International Purchase Agreement have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to, the Agreements and Instruments
which would reasonably be expected, either singly or in the aggregate,
to result in a Material Adverse Effect, nor will such action result in
any violation of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Company or any Subsidiary or any of their assets, properties or
operations, nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any Subsidiary.
As used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company or any Subsidiary.
(xi) Absence of Labor Dispute. Except as described in the
Registration Statement with respect to the renegotiation of collective
bargaining agreements, no labor dispute with the employees of the
Company or any Subsidiary exists or, to the knowledge of the Company,
is imminent, and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its or any Subsidiary's
principal suppliers, manufacturers, customers, dealers or contractors,
which, in either case, may reasonably be expected to result in a
Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any Subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the
transactions contemplated in this Agreement and the International
Purchase Agreement or the performance by the Company of its obligations
hereunder or thereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement,
including ordinary routine litigation incidental to the business of the
Company and its Subsidiaries would not reasonably be expected to result
in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which
have not been so described or filed or incorporated by reference as
required.
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(xiv) Possession of Intellectual Property. Except as described
in the Registration Statement, the Company and its Subsidiaries own or
possess the right to utilize, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its Subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering or sale of
the Securities under this Agreement and the International Purchase
Agreement or the consummation of the transactions contemplated by this
Agreement and the International Purchase Agreement, except such as have
been already obtained or as may be required under the 1933 Act or the
1933 Act Regulations and foreign or state securities or blue sky laws
or the rules or regulations of the NASD.
(xvi) Possession of Licenses and Permits. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them except
where the failure to possess the same would not, singly or in the
aggregate have a Material Adverse Effect; the Company and its
Subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of
the Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the failure
of such Governmental Licenses to be in full force and effect would not
have a Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xvii) Title to Property. The Company and its Subsidiaries
have good and marketable title to all real property owned by the
Company and its Subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectuses or (b) do
not, singly or in the aggregate,
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materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or
any of its Subsidiaries or (c) would not reasonably be expected to
result in a Material Adverse Effect; and all of the leases and
subleases material to the business of the Company and its Subsidiaries,
considered as one enterprise, and under which the Company or any of its
Subsidiaries holds properties described in the Prospectuses, are in
full force and effect, and neither the Company nor any Subsidiary has
any notice of any claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any Subsidiary under any of the
leases or subleases mentioned above, or affecting or questioning the
rights of the Company or such Subsidiary to the continued possession of
the leased or subleased premises under any such lease or sublease which
would reasonably be expected to result in a Material Adverse Effect.
(xviii) Investment Company Act. The Company is not, and upon
the sale of the Securities as herein contemplated will not be, an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(xix) Environmental Laws. Except as described in the
Registration Statement or except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its Subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its Subsidiaries have all
permits, licenses, authorizations and approvals currently required for
their respective businesses and for the businesses contemplated to be
conducted upon consummation of the offering of the Securities under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company or
any of its Subsidiaries and (D) there are no events, facts or
circumstances that might reasonably be expected to form the basis of
any liability or obligation of the Company or any of its Subsidiaries,
including, without limitation, any order, decree, plan or agreement
requiring clean-up or remediation, or any action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or any of its Subsidiaries relating to any Hazardous
Materials or any Environmental Laws.
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(xx) Registration Rights. Except for those persons (i) set
forth on Schedule B hereto or (ii) who have waived any such rights,
there are no persons with registration rights or other similar rights
to have any securities registered pursuant to the Registration
Statement under the 1933 Act. Except as described in the Registration
Statement, there are no persons with registration rights or other
similar rights to have any securities registered by the Company under
the 1933 Act.
(xxi) Stabilization or Manipulation. Neither the Company nor
any of its officers, directors or controlling persons has taken,
directly or indirectly, any action designed to cause or to result in,
or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale of the Securities.
(xxii) Accounting Controls. The Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization;
and (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxiii) Tax Returns. The Company and its Subsidiaries have
filed all federal, state, local and foreign tax returns that are
required to have been filed by them pursuant to applicable foreign,
federal, state, local or other law or have duly requested extensions
thereof, except insofar as the failure to file such returns or request
such extensions would not reasonably be expected to result in a
Material Adverse Effect, and has paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Company and its
Subsidiaries, except for such taxes or assessments, if any, as are
being contested in good faith and as to which adequate reserves have
been provided or where the failure to pay would not reasonably be
expected to result in a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company in respect of any income and
corporation tax liability of the Company and each Subsidiary for any
years not finally determined are adequate to meet any assessments or
re-assessments for additional income tax for any years not finally
determined, except to the extent of any inadequacy that would not
reasonably be expected to result in a Material Adverse Effect.
(xxiv) No Association with NASD. Neither the Company nor any
of its affiliates (within the meaning of NASD Conduct Rule
2720(b)(1)(a)) directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, or is an associated person (within the meaning of Article
I, Section 1(q) of the By-laws of the National Association of
Securities Dealers, Inc.), of any member firm of the National
Association of Securities Dealers, Inc., other than as described on an
appendix to a Selling Shareholders' Power of Attorney and Custody
Agreement (as defined herein).
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(b) Representations and Warranties by the Selling Shareholders. Each
Selling Shareholder, severally and not jointly, represents and warrants to each
U.S. Underwriter as of the date hereof, and, if such Selling Shareholder is
selling U.S. Option Securities on a Date of Delivery, as of each such Date of
Delivery, and agrees with each U.S. Underwriter, as follows:
(i) Accurate Disclosure by Selling Shareholders. (A) The
information furnished in writing by or on behalf of such Selling
Shareholder listed on Schedule B hereto expressly for use in the
Registration Statement and any amendments or supplements thereto does
not contain an untrue statement of a material fact with respect to such
Selling Shareholder or omit to state a material fact with respect to
such Selling Shareholder required to be stated therein or necessary to
make the statements regarding the Selling Shareholder therein not
misleading and (B) the information furnished in writing by or on behalf
of such Selling Shareholder expressly for use in the Prospectus does
not include an untrue statement of a material fact with respect to such
Selling Shareholder or omit to state a material fact with respect to
such Selling Shareholder necessary in order to make the statements
regarding the Selling Shareholder therein, in the light of the
circumstances under which they were made, not misleading.
(ii) Authorization of Agreements. Such Selling Shareholder has
the full right, power and authority to enter into this Agreement and
the Irrevocable Power of Attorney and Custody Agreement (the "Power of
Attorney and Custody Agreement") with Firstar Trust Company, as
custodian (the "Custodian"), and the attorneys-in-fact named therein
(each an "Attorney-in-Fact"), and to sell, transfer and deliver the
Securities to be sold by such Selling Shareholder hereunder. The
execution and delivery of this Agreement and the Power of Attorney and
Custody Agreement and the sale and delivery of the Securities to be
sold by such Selling Shareholder and the consummation of the
transactions contemplated herein and compliance by such Selling
Shareholder with its obligations hereunder have been duly authorized by
such Selling Shareholder and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with
or constitute a breach of, or default under, or result in the creation
or imposition of any tax, lien, charge or encumbrance upon the
Securities to be sold by such Selling Shareholder or any property or
assets of such Selling Shareholder pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, license, lease
or other agreement or instrument to which such Selling Shareholder is a
party or by which such Selling Shareholder may be bound, or to which
any of the property or assets of such Selling Shareholder is subject
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a material adverse change in the
condition (financial or otherwise), earnings, business affairs or
business prospects of such Selling Shareholder (a "Selling Shareholder
Material Adverse Effect"), whether or not arising in the ordinary
course of business), nor will such action result in any violation of
the provisions of the charter or by-laws or other organizational
instrument of such Selling Shareholder, if applicable, or any
applicable treaty, law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over such Selling Shareholder
or any of its properties which would reasonably be expected, either
singly or in the aggregate, to result in a Selling Shareholder Material
Adverse Effect.
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(iii) Valid Title. Such Selling Shareholder has on the date
hereof and will at the Closing Time and on the Date of Delivery have
good and valid title to the U.S. Securities to be sold by such Selling
Shareholder hereunder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any
kind, other than pursuant to this Agreement; and upon delivery of such
U.S. Securities and payment of the purchase price therefor as herein
contemplated, assuming each such Underwriter has no notice of any
adverse claim as such term is used in the Uniform Commercial Code, each
of the Underwriters will receive valid title to the U.S. Securities
purchased by it from such Selling Shareholder, free and clear of any
security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind.
(iv) Due Execution of Power of Attorney and Custody Agreement.
Each such Selling Shareholder has duly executed and delivered a Power
of Attorney and Custody Agreement; the Custodian is authorized by each
such Selling Shareholder to deliver the U.S. Securities to be sold by
such Selling Shareholder hereunder and to accept payment therefor; and
each Attorney-in-Fact named in the Power of Attorney and Custody
Agreement executed by such Selling Shareholder is authorized by such
Selling Shareholder to execute and deliver this Agreement and the
certificate referred to in Section 5(e) of this Agreement or that may
be required pursuant to Sections 5(m) or 5(n) of this Agreement on
behalf of such Selling Shareholder, to sell, assign and transfer to the
U.S. Underwriters the U.S. Securities to be sold by such Selling
Shareholder hereunder, to determine the purchase price to be paid by
the U.S. Underwriters to such Selling Shareholder, as provided in
Section 2(a) hereof, to authorize the delivery of the Securities to be
sold by such Selling Shareholder hereunder, to accept payment therefor,
and otherwise to act on behalf of such Selling Shareholder in
connection with this Agreement.
(v) Absence of Manipulation. Such Selling Shareholder has not
taken, and will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Securities.
(vi) Absence of Further Requirements. No filing with, or
consent, approval, authorization, order, registration, qualification or
decree of, any court or governmental authority or agency, domestic or
foreign, is necessary or required for the performance by each such
Selling Shareholder of their obligations hereunder or in the Power of
Attorney and Custody Agreement, or in connection with the sale and
delivery of the U.S. Securities being sold by each such Selling
Shareholder hereunder or the consummation of the transactions
contemplated by this Agreement, except such as may have previously been
made or obtained or as may be required under the 1933 Act or the 1933
Act Regulations or state or foreign securities laws or under the rules
of the NASD.
(vii) Certificates Suitable for Transfer. Certificates for all
of the U.S. Securities to be sold by such Selling Shareholder pursuant
to this Agreement, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment in
blank with signatures guaranteed, have been placed in custody with the
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Custodian with irrevocable conditional instructions to deliver such
U.S. Securities to the U.S. Underwriters pursuant to this Agreement.
(viii) Irrevocable Obligations. The U.S. Securities
represented by the Certificates held in custody for such holder under
the Custody Agreement are subject to the interests of the U.S.
Underwriters hereunder; the arrangements made by such holder for such
custody, and the appointment by such holder of the Attorneys-in-fact by
the Power of Attorney and Custody Agreement, are to that extent
irrevocable; the obligations of such holder hereunder shall not be
terminated, except as provided in the Agreement or in the Power of
Attorney, by operation of law, whether by the death or incapacity of
any individual Selling Shareholder or, in the case of an estate or
trust, by the death or incapacity of any executor or trustee or the
termination of such trust estate or trust, or in the case of a
partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event, if any individual
Selling Shareholder or any such executor or trustee should die or
become incapacitated, or if any such estate or trust should be
terminated, or any such partnership or corporation should be dissolved,
or if any other event should occur, before the delivery of the U.S.
Securities hereunder, certificates representing the U.S. Securities
shall be delivered by or on behalf of such holder in accordance with
the terms and conditions of this Agreement and of the Power of Attorney
and Custody Agreement; and actions taken by the Attorney-in-Fact
pursuant to the Powers of Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred,
regardless of whether or not the Custodian, Attorney-in-Fact, or any of
them, shall have received notice of such death, incapacity,
termination, dissolution or other event.
(ix) No Association with NASD. Neither such Selling
Shareholder nor any of its affiliates (within the meaning of NASD
Conduct Rule 2720(b)(1)(a)) directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, or is an associated person (within the meaning of Article
I, Section 1(q) of the By-laws of the National Association of
Securities Dealers, Inc.), of, any member firm of the National
Association of Securities Dealers, Inc., other than as described on an
appendix to the Power of Attorney and Custody Agreement to which such
Selling Shareholder is a party.
(x) Power and Authority. If such Selling Shareholder is a
corporation, partnership or trust, such Selling Shareholder has been
duly organized or incorporated and is validly existing as a corporation
or partnership or limited partnership in good standing under the laws
of its jurisdiction of incorporation or organization, if applicable,
and has the power and authority to own its property and to conduct its
business and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not result in a Selling Shareholder Material Adverse
Effect, whether or not arising in the ordinary course of business, or
materially impair its ability to consummate the transactions
contemplated hereby.
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(c) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its Subsidiaries delivered to the Global Coordinator, the
U.S. Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby; and any certificate signed by or on behalf of any
Selling Shareholder as such or such Selling Shareholder's Attorney-in-Fact and
delivered to the U.S. Representatives or to counsel for the U.S. Underwriters
pursuant to the terms of this Agreement shall be deemed a representation and
warranty by such Selling Shareholder, as the case may be, to the U.S.
Underwriters as to the matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Selling Shareholders agree to sell to each U.S. Underwriter,
severally and not jointly, to the extent indicated on Schedule A hereto, and
each U.S. Underwriter, severally and not jointly, agrees to purchase from the
Selling Shareholders, at the price per share set forth in Schedule C, the
proportion of the number of Initial U.S. Securities being sold by each Selling
Shareholder set forth in Schedule B opposite the name of each Selling
Shareholder which the number of U.S. Securities set forth in Schedule A opposite
the name of such U.S. Underwriter (plus any additional number of Initial U.S.
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 10 hereof) bears to the total number of U.S.
Securities, in each case, with such adjustments among the U.S. Underwriters as
the Global Coordinator in its sole discretion shall make to eliminate any sales
or purchases of fractional securities.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Selling Shareholders, severally and not jointly, hereby grant an
option to the U.S. Underwriters, severally and not jointly, to purchase up to an
additional 780,000 shares of Common Stock, to the extent indicated on Schedule
B-1, at the price per share set forth in Schedule C, less an amount per share
equal to any dividends or distributions declared by the Company and payable on
the Initial U.S. Securities but not payable on the U.S. Option Securities. The
option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial U.S. Securities upon notice by the Global
Coordinator to the Selling Shareholders setting forth the number of U.S. Option
Securities as to which the several U.S. Underwriters are then exercising the
option and the time and date of payment and delivery for such U.S. Option
Securities. Any such time and date of delivery for the U.S. Option Securities (a
"Date of Delivery") shall be determined by the Global Coordinator, but shall not
be later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the U.S. Option Securities, each of the
U.S. Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of U.S. Option Securities then being purchased
which the number of Initial U.S. Securities set forth in Schedule A opposite the
name of such U.S. Underwriter bears to the total number of Initial U.S.
Securities, subject in each case to such adjustments as the Global Coordinator
in its discretion shall make to eliminate any sales or purchases of fractional
shares.
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<PAGE>
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Fried,
Frank, Harris, Shriver & Jacobson, 1 New York Plaza, New York, New York 10004,
or at such other place as shall be agreed upon by the Global Coordinator and the
Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs
after 4:30 P.M. (Eastern time) on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section 10), or
such other time not later than ten business days after such date as shall be
agreed upon by the Global Coordinator and the Selling Shareholders or the
Attorneys-in-Fact on behalf of the Selling Shareholders (such time and date of
payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities
are purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Selling Shareholders or the Attorneys-in-Fact on
behalf of the Selling Shareholders, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Selling Shareholders.
Payment shall be made to each Selling Shareholder by wire transfer of
immediately available funds to a bank account designated by the Custodian
pursuant to the Selling Shareholders' Power of Attorney and Custody Agreement,
as the case may be, against delivery to the U.S. Representatives for the
respective accounts of the U.S. Underwriters of certificates for the U.S.
Securities to be purchased by them. It is understood that each U.S. Underwriter
has authorized the U.S. Representatives, for its account, to accept delivery of,
receipt for, and make payment of the purchase price for, the Initial U.S.
Securities and the U.S. Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the U.S.
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial U.S. Securities or the U.S. Option Securities, if any, to
be purchased by any U.S. Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such U.S. Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3 Covenants of the Company. The Company covenants with each
U.S. Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Global Coordinator immediately,
and confirm the notice in
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writing, (i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectuses or any amended
Prospectuses shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectuses or for
additional information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under Rule 424(b)
was received for filing by the Commission and, in the event that it was not, it
will promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Global Coordinator
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectuses,
will furnish the Global Coordinator with copies of any such documents a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file or use any such document to which the Global Coordinator
or counsel for the U.S. Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the U.S. Representatives and counsel for the U.S. Underwriters,
without charge, signed copies of the Registration Statement as originally filed
and of each amendment thereto (including exhibits filed therewith) and signed
copies of all consents and certificates of experts, and will also deliver to the
U.S. Representatives, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without exhibits)
for each of the U.S. Underwriters. The copies of the Registration Statement and
each amendment thereto furnished to the U.S. Underwriters will be identical to
the electronically transmitted copies thereof filed with the Commission pursuant
to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered or will deliver
to each U.S. Underwriter, without charge, as many copies of each preliminary
prospectus as such U.S. Underwriter reasonably requested, and the Company hereby
consents to the use of such copies for purposes permitted by the 1933 Act. The
Company will furnish to each U.S. Underwriter, without charge, during the period
when the U.S. Prospectus is required to be delivered under the 1933 Act or the
Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of the
U.S. Prospectus (as amended or supplemented) as such U.S. Underwriter may
reasonably request. The U.S. Prospectus and any amendments or supplements
thereto furnished to the U.S. Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
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(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement, the
International Purchase Agreement and in the Prospectuses. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Securities, any event shall occur or condition shall exist as a result of
which it is necessary to amend the Registration Statement or amend or supplement
any Prospectus in order that the Prospectuses will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, at any such time to amend the Registration Statement or
amend or supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b), such amendment or supplement
as may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectuses comply with such requirements, and
the Company will furnish to the U.S. Underwriters such number of copies of such
amendment or supplement as the U.S. Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the U.S. Underwriters, to qualify the Securities for offering
and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Global Coordinator may designate and
to maintain such qualifications in effect for a period of not less than one year
from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that neither the Company nor
any of the Selling Shareholders shall be obligated to file any general consent
to service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the Securities have
been so qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Restriction on Sale of Securities. During a period of 90 days from
the date of the Prospectuses, the Company will not, without the prior written
consent of the Global Coordinator, (i) directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or file any
registration statement under the 1933 Act with respect to any of the foregoing
or (ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction described
in clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or
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otherwise except pursuant to Common Stock issued in connection with (y) the
Company's stock option plans existing at the Closing Time or (z) acquisitions by
the Company; provided that, in the case of clause (z), it shall be a condition
to such stock issuance that the third party receiving such shares executes a
lock-up agreement on substantially the same terms as described above for a
period expiring 90 days from the date of the Prospectus and there shall be no
further transfer of such shares except in accordance with the provisions of such
lock-up agreement. The foregoing sentence shall not apply to the Securities to
be sold hereunder or under the International Purchase Agreement.
(i) Reporting Requirements. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to the
1934 Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities by the Company to the Underwriters
and the transfer of the Securities between the U.S. Underwriters and the
International Managers, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectuses and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the blue
sky survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities and (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the NASD of the terms of the sale of the
Securities.
(b) Expenses of the Selling Shareholders. The Company will pay all
expenses incident to the performance of the Selling Shareholders' obligations
under, and the consummation of the transactions contemplated by, this Agreement
(other than any underwriting discount), including (i) any stamp duties, capital
duties and stock transfer taxes, if any, payable upon the sale of the U.S.
Securities or the U.S. Option Securities by the Selling Shareholders to the
Underwriters, and their transfer between the Underwriters pursuant to an
agreement between such Underwriters and (ii) the fees and disbursements of the
Selling Shareholders' counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
U.S. Representatives in accordance with the provisions of Section 5 or Sections
9(a)(i) or (ii) hereof,
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the Company shall reimburse the U.S. Underwriters for all of their out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
U.S. Underwriters.
(d) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Shareholders may make for
the sharing of such costs and expenses.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The
obligations of the several U.S. Underwriters hereunder are subject to the
accuracy of the representations and warranties of the Company and the Selling
Shareholders contained in Section 1 hereof or in certificates of any officer of
the Company or any Subsidiary of the Company or on behalf of the Selling
Shareholders delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective under the 1933 Act; and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or threatened by the Commission, and
any request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the U.S.
Underwriters. A prospectus containing the Rule 430A Information shall have been
filed with the Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the Company
has elected to rely upon Rule 434, a Term Sheet shall have been filed with the
Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for Company and the Selling Shareholders. At
Closing Time, the U.S. Representatives shall have received the favorable
opinions, dated as of Closing Time, of (i) Dewitt, Ross & Stevens s.c., counsel
to the Company, relating to certain matters of Wisconsin law, (ii) Skadden,
Arps, Slate, Meagher & Flom LLP, special counsel to the Company, (iii) Skadden,
Arps, Slate, Meagher & Flom LLP, special counsel to the Category 1 Selling
Shareholders and special counsel to the Category 2 Selling Shareholders with
respect to certain matters of New York law, and (iv) Dewitt, Ross & Stevens s.c.
counsel to the Category 2 Selling Shareholders, in each case in form and
substance reasonably satisfactory to counsel for the U.S. Underwriters together
with signed or reproduced copies of such letter for each of the other U.S.
Underwriters, dated such Date of Delivery, to the effect set forth in Exhibits
A-1, A-2, A-3 and A-4, respectively, hereto.
(c) Opinion of Counsel for U.S. Underwriters. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Fried, Frank, Harris, Shriver & Jacobson, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter for each
of the other U.S. Underwriters with respect to the matters set forth in clauses
(i), (ii) (solely as to preemptive or other similar rights arising by operation
of law or under the charter or bylaws of the Company), (v) (solely as to the
information contained in or incorporated by reference therein in the Prospectus
with respect to the
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"Description of Capital Stock") and (viii) of Exhibit A-1; and to the matters
set forth in paragraph 3 and the penultimate paragraph Exhibit A-2. In giving
such opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the federal law of
the United States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to the U.S. Representatives. Such counsel
may also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its Subsidiaries and of the Selling Shareholders and certificates of
public officials.
(d) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in the
condition (financial or otherwise), earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the U.S.
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened by the
Commission.
(e) Selling Shareholders' Certificate. At Closing Time, the
Representatives shall have received a certificate of each Selling Shareholder
(which may be executed on behalf of each Selling Shareholder by the general
partner or a duly authorized executive officer of such Selling Shareholder or by
such Selling Shareholder's Attorney-in-Fact), dated as of Closing Time, to the
effect that (i) the representations and warranties of such Selling Shareholder
contained in Section 1(b) hereof are true and correct with the same force and
effect as though expressly made at and as of the Closing Time and (ii) such
Selling Shareholder has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied under this Agreement at or
prior to the Closing Time.
(f) Accountant's Comfort Letters. At the time of the execution of
this Agreement, the U.S. Representatives shall have received from KPMG Peat
Marwick LLP a letter in the form of Exhibit C-1 hereto and from Coopers &
Lybrand LLP a letter in the form of Exhibit C-2 hereto, dated such date, in form
and substance reasonably satisfactory to the U.S. Representatives, together with
signed or reproduced copies of such letter for each of the other U.S.
Underwriters containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectuses.
(g) Bring-down Comfort Letters. At Closing Time, the U.S.
Representatives shall have received letters from KPMG Peat Marwick LLP and
Coopers & Lybrand LLP, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant
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to subsection (e) of this Section, except that the specified date referred to
shall be a date not more than three business days prior to Closing Time.
(h) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the form of
Exhibit B hereto signed by the persons listed on Schedule D hereto.
(j) Purchase of Initial International Securities. Contemporaneously
with the purchase by the U.S. Underwriters of the Initial U.S. Securities under
this Agreement, the International Managers shall have purchased the Initial
International Securities under the International Purchase Agreement.
(k) Custody Agreement. At the date of this Agreement the U.S.
Representatives shall have received copies of the Power of Attorney and Custody
Agreement executed by each of the Selling Shareholders.
(l) Conditions to Purchase of U.S. Option Securities. In the event that
the U.S. Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the U.S. Option Securities, the representations
and warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any Subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the relevant Date
of Delivery, the U.S. Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company confirming that the certificate delivered at the
Closing Time pursuant to Section 5(d) hereof remains true and
correct as of such Date of Delivery.
(ii) Selling Shareholder's Certificate. At the Date of Delivery,
the U.S. Representatives shall have received a certificate of
each Selling Shareholder (which may be executed on behalf of
each Selling Shareholder by the general partner or a duly
authorized executive officer of such Selling Shareholder or
such Selling Shareholder's Attorney-in-Fact), dated as of
Date of Delivery, to the effect that (x) the representations
and warranties of such Selling Shareholder contained in
Section 1(b) hereof, are true and correct with the same force
and effect as though expressly made at and as of Date of
Delivery and (y) such Selling Shareholder has complied with
all agreements and satisfied all conditions on their part to
be performed or satisfied under this Agreement at or prior to
Date of Delivery.
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(iii) Opinion of Counsel for Company and the Selling Shareholders.
The favorable opinion of (w) Dewitt, Ross & Stevens s.c.,
counsel to the Company, relating to certain matters of
Wisconsin law, (x) Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Company, (y) Skadden, Arps, Slate,
Meagher & Flom LLP, special counsel to the Category 1 Selling
Shareholders and special counsel to the Category 2 Selling
Shareholders with respect to certain matters of New York law,
and (z) Dewitt, Ross & Stevens s.c. counsel to the Category
2 Selling Shareholders, in each case in form and substance
reasonably satisfactory to counsel for the U.S. Underwriters
together with signed or reproduced copies of such letter for
each of the other U.S. Underwriters, dated such Date of
Delivery, relating to the U.S. Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(b).
(iv) Opinion of Counsel for U.S. Underwriters. The favorable
opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel
for the U.S. Underwriters, dated such Date of Delivery,
relating to the U.S. Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the
opinion required by Section 5(c) hereof.
(v) Bring-down Comfort Letters. Letters from Coopers & Lybrand
LLP and KPMG Peat Marwick LLP, in form and substance
reasonably satisfactory to the U.S. Representatives and dated
such Date of Delivery, substantially in the same form and
substance as the letter furnished to the U.S. Representatives
pursuant to Section 5(g) hereof, except that the "specified
date" in the letter furnished pursuant to this paragraph
shall be a date not more than five days prior to such Date of
Delivery.
(m) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the U.S. Underwriters shall have been furnished with such documents
and opinions as they may reasonably require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company and the Selling Shareholders in connection with the
issuance and sale of the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the U.S. Representatives and counsel for
the U.S. Underwriters.
(n) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of U.S. Option
Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several U.S. Underwriters to purchase the relevant Option
Securities, may be terminated by the U.S. Representatives by notice to the
Company at any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any party to any
other party except as provided in Section 4 and
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except that Sections 1, 6, 7 and 8 shall survive any such termination and remain
in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of U.S. Underwriters by the Company. The Company
agrees to indemnify and hold harmless each U.S. Underwriter and each person, if
any, who controls any U.S. Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows to the extent set forth below:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the indemnifying party; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not (i) apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any U.S. Underwriter through the U.S. Representatives or any
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus or International Prospectus, as the case may
be (or any amendment or supplement thereto) or (ii) inure to the benefit of any
U.S. Underwriter from whom the person asserting any loss, liability, claim,
damage or expense, purchased Securities, or any person controlling such U.S.
Underwriter, if it shall be established
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that a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such U.S. Underwriter to such person, if required by
law to have been so delivered, at or prior to the confirmation of the sale of
such Securities to such person in any case where the Company complied with its
obligations under Sections 3(a), 3(b) and 3(d), and if the Prospectus (as so
amended or supplemented) would have cured any defect giving rise to such loss,
liability, claim damage, or expense.
(b) Indemnification of U.S. Underwriters by the Selling Shareholders.
Each Selling Shareholder, severally and not jointly, agrees to indemnify and
hold harmless each U.S. Underwriter and each person, if any, who controls any
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act as follows to the extent set forth below:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the indemnifying party; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not (i) apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any U.S. Underwriter through the U.S. Representatives or any
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus or International Prospectus, as
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the case may be (or any amendment or supplement thereto) or (ii) inure to the
benefit of any U.S. Underwriter from whom the person asserting any loss,
liability, claim, damage or expense, purchased Securities, or any person
controlling such U.S. Underwriter, if it shall be established that a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such U.S. Underwriter to such person, if required by law to have been so
delivered, at or prior to the confirmation of the sale of such Securities to
such person in any case where the Company complied with its obligations under
Sections 3(a), 3(b) and 3(d), and if the Prospectus (as so amended or
supplemented) would have cured any defect giving rise to such loss, liability,
claim damage, or expense; provided, however, further, that with respect to each
Selling Shareholder, (x) the indemnification provision in this paragraph (b)
shall only apply to any loss, liability, claim, damage or expense to the extent
arising out of any untrue statement or omission, or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by such Selling Shareholder expressly for use in the
Registration Statement (or any amendment thereto) including the Rule 430A
information and the Rule 434 Information if applicable, or any or such
preliminary prospectus or the U.S. Prospectus or International Prospectus, as
the case may be (or any amendment or supplement thereto) and (y) each Selling
Shareholder's aggregate liability under this Section 6 shall be limited to an
amount equal to the net proceeds (after deducting the underwriting discount but
before deducting expenses) received by such Selling Shareholder from the sale of
Securities pursuant to this Agreement.
(c) Indemnification of Company, Directors and Officers and Selling
Shareholders. Each U.S. Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each
Selling Shareholder and each person, if any, who controls any Selling
Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 6(a) and Section 6(b) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary U.S. prospectus or the U.S.
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the U.S. Prospectus (or any amendment or supplement thereto).
(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified
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pursuant to Section 6(a) and Section 6(b) above, counsel to the indemnified
parties shall be selected by Merrill Lynch, and, in the case of parties
indemnified pursuant to Section 6(c) above, counsel to the indemnified parties
shall be selected by the Company or the indemnified Selling Shareholder, as
appropriate. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any
necessary local counsel) separate from their own counsel for all indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(e) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel for which the indemnifying
party is responsible pursuant to the terms hereof, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) or Section 6(b)(iii) effected without its written consent if
(i) such settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 45 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(f) Other Agreements with Respect to Indemnification. The provisions of
this Section shall not affect any agreement among the Company and the Selling
Shareholders with respect to indemnification.
SECTION 7. Contribution. If, although applicable in accordance with its
terms, the indemnification provided for in Section 6 hereof is for any reason
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders,
collectively, on the one hand and the U.S. Underwriters on the other hand from
the offering of the U.S. Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Shareholders on the one hand and of the U.S. Underwriters on the other
hand in connection with the statements or omissions,
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which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling
Shareholders, collectively, on the one hand and the U.S. Underwriters on the
other hand in connection with the offering of the U.S. Securities pursuant to
this Agreement shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the U.S. Securities pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the U.S. Prospectus, or,
if Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the U.S. Securities as set forth on
such cover.
The relative fault of the Company and the Selling Shareholders on the
one hand and the U.S. Underwriters on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Selling Shareholders
or by the U.S. Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the U.S. Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation (even if the U.S. Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, (a) each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, (b) each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
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1934 Act shall have the same rights to contribution as the Company and (c) each
person, if any, who controls any Selling Shareholder within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as such Selling Shareholder. The U.S. Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial U.S. Securities set forth opposite their
respective names in Schedule A hereto and not joint.
Notwithstanding the provisions of this Section 7, no Selling
Shareholder shall be required to contribute any amount in excess of the amount
equal to the net proceeds (after deducting the underwriting discount but before
deducting expenses) received by such Selling Shareholder from the sale of U.S.
Securities pursuant to this Agreement.
The provisions of this Section shall not affect any agreement among the
Company and the Selling Shareholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
Subsidiaries or the Selling Shareholders submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any U.S. Underwriter or controlling person, or by or on behalf
of the Company or any Selling Shareholder, and shall survive delivery of the
U.S. Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company and the Attorneys-in-Fact on behalf of the
Selling Shareholders, at any time at or prior to Closing Time (i) if there has
been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the U.S. Prospectus, any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there shall have occurred a downgrading in the rating
assigned to any of the Company's debt securities by any nationally recognized
securities rating agency, or if such securities rating agency shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities, or
(iii) if there has occurred any material adverse change in the financial markets
in the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the U.S. Representatives, impracticable
to market the Securities or to enforce contracts for the sale of the Securities,
or (iv) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such
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system or by order of the Commission, the National Association of Securities
Dealers, Inc. or any other governmental authority, or (v) if a banking
moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one or
more of the U.S. Underwriters shall fail at the Closing Time or a Date of
Delivery to purchase the Securities which it or they are obligated to purchase
under this Agreement (the "Defaulted Securities"), the U.S. Representatives
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting U.S. Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of U.S. Securities to be purchased on such date, each of
the non-defaulting U.S. Underwriters shall be obligated, severally and
not jointly, to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of U.S. Securities to be purchased on such date, this Agreement
or, with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the U.S. Underwriters to purchase the U.S.
Option Securities to be purchased and sold on such Date of Delivery
shall terminate without liability on the part of any non-defaulting
U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
U.S. Underwriters to purchase and the Selling Shareholders to sell the relevant
U.S. Securities, either (i) the U.S. Representatives or (ii) the Selling
Shareholders shall have the right to postpone the Closing Time or the relevant
Date of Delivery, as the case may be, for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or Prospectus
or in any other documents or arrangements. As used herein, the term "U.S.
Underwriter" includes any person substituted for a U.S. Underwriter under this
Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S.
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Representatives at North Tower, World Financial Center, New York, New York
10281-1201, attention of W. Gregg Smart, with a copy to Fried, Frank, Harris,
Shriver & Jacobson, 1 New York Plaza, New York, New York 10004, attention of
Valerie Ford Jacob, Esq.; notices to the Company shall be directed to it at
Rayovac Corporation, 601 Rayovac Drive, Madison, Wisconsin 53711, attention of
James A. Broderick, Esq., with a copy to Louis A. Goodman, Esq. Skadden, Arps,
Slate, Meagher & Flom LLP, One Beacon Street, Boston, MA 02108; notices to the
Selling Shareholders shall be delivered to them at the address for notices
indicated in the Power of Attorney and Custody Agreement.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the U.S. Underwriters, the Company and the Selling
Shareholders and their respective successors. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the U.S. Underwriters, the Company and the Selling
Shareholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the U.S. Underwriters, the Company and the Selling
Shareholders and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any U.S. Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME. AS USED HEREIN, THE TERM "BUSINESS
DAY" MEANS ANY DAY ON WHICH THE NEW YORK STOCK EXCHANGE AND COMMERCIAL BANKS IN
NEW YORK CITY ARE REGULARLY OPEN FOR BUSINESS.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 15. Counterparts. This Agreement may be executed in one or more
counterparts and, when a counterpart has been executed by each party hereto, all
such counterparts taken together shall constitute one and the same agreement.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof
-30-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Attorneys-in-Fact for
the Selling Shareholders a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement among the U.S.
Underwriters, the Company and the Selling Shareholders in accordance with its
terms.
Very truly yours,
RAYOVAC CORPORATION
By: ____________________________
Name: David A. Jones
Title: Chairman of the Board,
Chief Executive Officer and
President
SELLING SHAREHOLDERS LISTED IN CATEGORY 1 ON
SCHEDULE B HERETO
THOMAS H. LEE EQUITY FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
By: THL Equity Trust III,
as General Partner
By: ____________________________
Name:
Title:
THOMAS H. LEE FOREIGN FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
By: THL Equity Trust III,
as General Partner
By: ____________________________
Name:
Title:
<PAGE>
THL-CCI LIMITED PARTNERSHIP
By: THL Investment Management Corp.
as General Partner
By: ____________________________
Name:
Title:
SELLING SHAREHOLDERS LISTED IN CATEGORY 2 ON
SCHEDULE B HERETO
By: ____________________________
Name: ______________________
Title: Attorney-in-Fact, on
behalf of the Selling Shareholders
listed in Category 2 on Schedule B
hereto
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _______________________________________
Authorized Signatory
For themselves and as U.S. Representatives of the
other U.S. Underwriters named in Schedule A hereto.
<PAGE>
SCHEDULE A
Number of
Initial U.S.
Securities
Name of U.S. Underwriter
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
Bear, Stearns & Co. Inc..........................................
Donaldson, Lufkin & Jenrette Securities Corporation .............
Smith Barney Inc.................................................
<PAGE>
SCHEDULE B
Selling Shareholder Number of U.S. Securities
to be Sold*
-----------
Category 1
THOMAS H. LEE EQUITY FUND III, L.P.
THOMAS H. LEE FOREIGN FUND III, L.P.
THL-CCI Limited Partnership
Total Category 1
Category 2
Carter J. Balfour
Kevin Balfour
Kenneth V. Biller
James A. Broderick
Fred Christopher Brooks
Bernard T. Conner
David M. Darkoch
Kenneth Drescher
Fleming Trust
Mark G. Hines
John E. Hofkes
Kent J. Hussey
David A. Jones
Pamela A. Josheff
Robert K. Kloppenburg
Richard A. Kreutz
Trygve Lonnebotn
Terrence P. McGraw
Rayovac Corporation Deferred Compensation
Emil J. Ripley and Laverne M. Ripley
Stephen P. Salzieder
Stephen P. Shanesy
Shanesy Children's Trust f/b/o Kelsey Alice Shanesy
Shanesy Children's Trust f/b/o Nicholas Auster Shanesy
Dale R. Tetzlaff
Michael G. Thompson
Merrill Tomlin
Deborah L. Ulrich
Lucille Warren
Roger F. Warren
Andrew P. Warren Irrevocable Trust
Michael F. Warren Irrevocable Trust
Gary E. Wilson
Martin W. Wirt
Karl M. Wulf
Total Category 2
Total of Category 1 and Category 2..................... 5,200,000
=========
<PAGE>
SCHEDULE B-1
Over allotment Number of U.S. Option
Selling Shareholder Securities
to be Sold*
Category 1
THOMAS H. LEE EQUITY FUND III, L.P.
THOMAS H. LEE FOREIGN FUND III, L.P.
THL-CCI Limited Partnership
Total Category 1
Category 2
Carter J. Balfour
Kevin Balfour
Kenneth V. Biller
James A. Broderick
Fred Christopher Brooks
Bernard T. Conner
David M. Darkoch
Kenneth Drescher
Fleming Trust
Mark G. Hines
John E. Hofkes
Kent J. Hussey
David A. Jones
Pamela A. Josheff
Robert K. Kloppenburg
Richard A. Kreutz
Trygve Lonnebotn
Terrence P. McGraw
Rayovac Corporation Deferred Compensation
Emil J. Ripley and Laverne M. Ripley
Stephen P. Salzieder
Stephen P. Shanesy
Shanesy Children's Trust f/b/o Kelsey Alice Shanesy
Shanesy Children's Trust f/b/o Nicholas Auster Shanesy
Dale R. Tetzlaff
Michael G. Thompson
Merrill Tomlin
Deborah L. Ulrich
Lucille Warren
Roger F. Warren
Andrew P. Warren Irrevocable Trust
Michael F. Warren Irrevocable Trust
Gary E. Wilson
Martin W. Wirt
Karl M. Wulf
Total Category 2
Total of Category 1 and Category 2......................... 780,000
=======
<PAGE>
SCHEDULE C
Rayovac Corporation
5,200,000 Shares of Common Stock
(Par Value $0.01 Per Share)
1. The public offering price per share for the Securities, determined
as provided in said Section 2, shall be $ .
2. The purchase price per share for the U.S. Securities to be paid by
the several U.S. Underwriters shall be $ , being an amount equal to the public
offering price set forth above less $. per share; provided that the purchase
price per share for any U.S. Option Securities purchased upon the exercise of
the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial U.S. Securities but not payable on the U.S. Option
Securities.
<PAGE>
SCHEDULE D
List of Persons and Entities Subject to Lock-up
THOMAS H. LEE EQUITY FUND III, L.P.
THOMAS H. LEE FOREIGN FUND III, L.P.
THL-CCI Limited Partnership
Carter J. Balfour
Kevin Balfour
Kenneth V. Biller
James A. Broderick
Fred Christopher Brooks
Bernard T. Conner
David M. Darkoch
Kenneth Drescher
Fleming Trust
Mark G. Hines
John E. Hofkes
Kent J. Hussey
David A. Jones
Pamela A. Josheff
Robert K. Kloppenburg
Richard A. Kreutz
Trygve Lonnebotn
Terrence P. McGraw
Rayovac Corporation Deferred Compensation
Emil J. Ripley and Laverne M. Ripley
Stephen P. Salzieder
Stephen P. Shanesy
Shanesy Children's Trust f/b/o Kelsey Alice Shanesy
Shanesy Children's Trust f/b/o Nicholas Auster Shanesy
Dale R. Tetzlaff
Michael G. Thompson
Merrill Tomlin
Deborah L. Ulrich
Lucille Warren
Roger F. Warren
Andrew P. Warren Irrevocable Trust
Michael F. Warren Irrevocable Trust
Gary E. Wilson
Martin W. Wirt
Karl M. Wulf
<PAGE>
Schedule E
Subsidiaries of the Company
Direct Power Plus, Inc., a New York corporation
Minera Vidaluz S.A. DE C.V., a Mexico corporation
ROV Holding, Inc., a Delaware corporation
Vidor Battery Company, a Wisconsin corporation
Rayovac Foreign Sales Corporation, a Barbados corporation
Rovcal, Inc., a California corporation
Rayovac (UK) Limited, an United Kingdom corporation
Rayovac Europe Limited, an United Kingdom corporation
Rayovac Canada, Inc., a Canada corporation
Rayovac Far East Limited, a Hong Kong corporation
Zoephos International N.V., a Netherlands Antilles corporation
Rayovac Europe, B.V., a Netherlands Antilles corporation
Brisco Electronics, B.V., a Netherlands Antilles corporation
Brisco GmbH, a German corporation
<PAGE>
EXHIBIT A-1
FORM OF OPINION OF DEWITT, ROSS & STEVENS S.C., WISCONSIN COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
U.S. Purchase Agreement
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as representatives of the several
international managers to be named
in the International Purchase Agreement
c/o Merrill Lynch & Co.
North Tower
World Financial Center
New York, New York 10210-1209
Ladies and Gentlemen:
We have acted as special counsel to Rayovac Corporation, a Wisconsin
corporation (the "Company") in connection with (i) the registration and sale by
the Company of 5,200,000 shares of the Company's Common Stock, par value $0.01
per share (the "U.S. Shares"), pursuant to the terms of the U.S. Purchase
Agreement (the "U.S. Purchase Agreement"), dated April [ ], 1998, between the
Company, the persons listed on Schedule B thereto (the "Selling Shareholders")
and the U.S. Underwriters named in Schedule A thereto (the "U.S. Underwriters")
and (ii) the registration and sale by the company of 1,300,000 shares of Common
Stock (the "International Shares," and together with the U.S. Shares, the
"Shares"), pursuant to the terms of the International Purchase Agreement (the
"International Purchase Agreement"), dated April [ ], 1998, between the Company,
the persons listed on Schedule B thereto (the "Selling Shareholders") and the
international managers named in Schedule A thereto (the "International
Managers").
-1-
<PAGE>
This opinion is being furnished pursuant to Section 5(b) of the U.S.
Purchase Agreement and Section 5(b) of the International Purchase Agreement.
Capitalized terms used but not otherwise defined herein shall have the
respective meanings set forth in the U.S. Purchase Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-3 (File No. 333- ) relating to the Shares filed with the
Securities and Exchange Commission (the "Commission") on April 2, 1998, under
the Securities Act of 1933, as amended (the "Act"), including the information
deemed to be a part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A of the General Rules and Regulations under the Act (the
"Rules and Regulations") (such registration statement, as so amended, being
hereinafter referred to as the "Registration Statement"); (ii) the final U.S.
prospectus dated [ ], 1998, relating to the U.S. Shares filed with the
Commission on [ ], 1998, pursuant to Rule 424(b) of the Rules and Regulations
(the "U.S. Prospectus"); (iii) the final International Prospectus dated [ ],
1998, pursuant to Rule 424(b) of the Rules and Regulations (the "International
Prospectus" and together with the U.S. Prospectus, the "Prospectuses"); (iv)
executed copies of the U.S. Purchase Agreement and the International Purchase
Agreement; (v) a specimen certificate representing the Common Stock (the
"Specimen Certificate"); and (vi) the certificate of James A. Broderick, General
Counsel to the Company, attached hereto as Exhibit A (the "Officer's
Certificate"). We have also examined originals or certified or otherwise
identified to our satisfaction, of all such records of the Company and all such
agreements, certificates of public officials, certificates of officers or other
representatives of the Company and others and such other documents, certificates
and records as we have deemed necessary or appropriate as a basis for the
opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
executed documents, we have assumed that the parties thereto (including the
Company) had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein that are not independently established
or verified, we have relied upon oral or written statements and representations
of officers and other representatives of the Company.
For purposes of the opinions set forth below, with respect to any
document which by its terms or otherwise is governed by the laws of any
jurisdiction other than the United States of America or the State of Wisconsin,
such opinions are based solely upon our understanding of the plain language of
such document, and we express no opinion as to the interpretation of any such
document or of any term or provisions thereof under applicable governing law or
as to the effect on the opinions expressed herein of any interpretation hereof
inconsistent with such undertaking. For purposes of our opinion set forth in
paragraph 4, we have assumed that the certificates representing the shares
referred to in such paragraph conform to the Specimen Certificate. Our
2
<PAGE>
opinion set forth in paragraph 12, is based solely upon the Officer's
Certificate and our discussions with James A. Broderick, General Counsel of the
Company, we have not performed any docket search in any jurisdiction, and have
not done any other investigation of any kind.
The opinions expressed herein are limited to the laws of the State of
Wisconsin and the federal laws of the United States of America to the extent
specifically referred to herein.
Based upon and subject to the foregoing and to the other qualifications
and limitations set forth herein, we are of the opinion that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Wisconsin.
(ii) The issuance of the Shares is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(iii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement and the International Purchase Agreement.
(iv) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company.
(v) The statements contained in or incorporated by reference therein,
in the Prospectuses, with respect to the "Description of Capital Stock," to the
extent that such statements constitute matters of law, summaries of legal
matters or legal conclusions are correct in all material respects.
(vi) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(vii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectuses under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to the U.S. Purchase
Agreement and the International Purchase Agreement); the shares of issued and
outstanding capital stock have been and will have been at the Closing Time duly
authorized and validly issued and are fully paid and non-assessable; except to
the extent such shares are assessable as provided in Section 180.0622 of the
Wisconsin Business Corporation Law, and none of the outstanding shares of
capital stock of the Company was or will have been at the Closing Time issued in
violation of the preemptive or other similar rights of any securityholder of the
Company.
(viii) The Shares to be purchased by the U.S. Underwriters and the
International Managers from the Selling Shareholders have duly authorized for
issuance and sale to the
3
<PAGE>
Underwriters pursuant to the U.S. Purchase Agreement or the International
Purchase Agreement and when delivered by the Selling Shareholder pursuant
thereto, will by validly issued, and fully paid and non-assessable and no holder
of the Shares is or will by subject to personal liability by reason of being
such a holder, except to the extent such shares are assessable as provided in
Section 180.0622 of the Wisconsin Business Corporation Law.
(ix) Vidor Battery Company, the sole subsidiary is incorporated or
organized under the laws of the State of Wisconsin (a "Wisconsin Subsidiary")
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Wisconsin, has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectuses and is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(x) The information in Part II of the Registration Statement under Item
15, "Indemnification of Officers and Directors," to the extent that it
constitutes matters of law, summaries of legal matters, the Company's charter
and bylaws or legal proceedings, or legal conclusions, has been reviewed by us
and is correct in all material respects.
(xi) The U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by the Company.
(xii) To the best of our knowledge, neither the Company nor its sole
Wisconsin Subsidiary is in violation of its charter or by-laws and no default by
the Company or its Wisconsin Subsidiary exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectuses or filed or incorporated by reference
as an exhibit to the Registration Statement.
(xiii) The execution, delivery and performance of the U.S. Purchase
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated in the U.S. Purchase Agreement, the International
Purchase Agreement and in the Registration Statement and compliance by the
Company with its obligations under the U.S. Purchase Agreement and the
International Purchase Agreement have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined in Section 1(a)(x) of the Purchase
Agreements) under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any Wisconsin
Subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or any other agreement or instrument to which the
Company or its Wisconsin Subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or its
Wisconsin Subsidiary is subject (except for such conflicts, breaches or defaults
or liens, charges or encumbrances that would not have a Material Adverse
Effect), nor will such action result in any violation of the provisions of the
charter or by-laws of
4
<PAGE>
the Company or any Wisconsin Subsidiary, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any Wisconsin Subsidiary or any of their respective
properties, assets or operations.
5
<PAGE>
EXHIBIT A-2
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
U.S. Purchase Agreement
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as representatives of the several
international managers to be named
in the International Purchase Agreement
c/o Merrill Lynch & Co.
North Tower
World Financial Center
New York, New York 10210-1209
Re: Public Offering of 6,700,000 Shares
of Common Stock of Rayovac Corporation
Ladies and Gentlemen:
We have acted as special counsel to Rayovac Corporation, a Wisconsin
corporation (the "Company"), in connection with (i) the registration by the
Company and sale by certain shareholders of 5,200,000 shares of the Company's
Common Stock, par value $0.01 per share (the "U.S. Shares"), pursuant to the
terms of the U.S. Purchase Agreement (the "U.S. Purchase Agreement"), dated
April [ ], 1998, among the Company, the U.S. Underwriters named in Schedule A
thereto (the "U.S. Underwriters") and the shareholders of the Company named in
Schedule B thereto (the "Selling Shareholders") and (ii) the registration by the
Company and sale by the Selling Shareholders of 1,300,000 shares of Common Stock
(the "International Shares,"
1
<PAGE>
and together with the U.S. Shares, the "Shares"), pursuant to the terms of the
International Purchase Agreement (the "International Purchase Agreement"), dated
April [ ], 1998, between the Company, and the international managers named in
Schedule A thereto (the "International Managers") and the Selling Shareholders.
This opinion is being furnished pursuant to Section 5(b) of each of the
U.S. Purchase Agreement and the International Purchase Agreement. Capitalized
terms used but not otherwise defined herein shall have the respective meanings
set forth in the U.S. Purchase Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-3 (File No. 333- ) relating to the Shares filed with the
Securities and Exchange Commission (the "Commission") on April 2, 1998 under the
Securities Act of 1933, as amended (the "Act"), including the information deemed
to be a part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A of the General Rules and Regulations under the Act (the "Rules and
Regulations") (such registration statement, as so amended, being hereinafter
referred to as the "Registration Statement"); (ii) the final U.S. prospectus
dated April [ ], 1998, relating to the U.S. Shares filed with the Commission on
April [ ], 1998, pursuant to Rule 424(b) of the Rules and Regulations (the
""U.S. Prospectus"); (iii) the final International Prospectus dated April [ ],
1998, relating to the International Shares filed with the Commission on April [
], 1998, pursuant to Rule 424(b) of the Rules and Regulations (the
"International Prospectus" and together with the U.S. Prospectus, the
"Prospectuses"); (iv) executed copies of the U.S. Purchase Agreement and the
International Purchase Agreement; (v) a specimen certificate representing the
Common Stock (the "Specimen Certificate"); and (vi) the certificate of James A.
Broderick, General Counsel to the Company, attached hereto as Exhibit A (the
"Officer's Certificate"). We have also examined originals or copies certified or
otherwise identified to our satisfaction, of all such records of the Company and
all such agreements, certificates of public officials, certificates of officers
or other representatives of the Company and others and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or Photostat copies and the
authenticity of the originals of such copies. In making our examination of
executed documents, we have assumed that the parties thereto (including the
Company) had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein that were not independently
established or verified, we have relied upon oral or written statements and
representations of officers and other representatives of the Company.
For purposes of the opinions set forth below, with respect to any
document which by its terms or otherwise is governed by the laws of any
jurisdiction other than the United States of
2
<PAGE>
America or the State of New York, such opinions are based solely upon our
understanding of the plain language of such document, and we express no opinion
as to the interpretation of any such document or of any term or provisions
thereof under applicable governing law or as to the effect on the opinions
expressed herein of any interpretation hereof inconsistent with such
understanding. For purposes of our opinion set forth in paragraph 4, we have
assumed that the certificates representing the shares referred to in such
paragraph conform to the Specimen Certificate. Our opinion set forth in
paragraph 5, is based solely upon the Officer's Certificate and our discussions
with James A. Broderick, General Counsel of the Company; we have not performed
any docket search in any jurisdiction, and have not done any other investigation
of any kind.
The opinions expressed herein are limited to the laws of the State of
New York, the General Corporation Law of the State of Delaware and the federal
laws of the United States of America to the extent specifically referred to
herein.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law of the state of Delaware and those laws, rules and regulations
of the State of New York and of the United States of America that, in our
experience, are normally applicable to transactions of the type contemplated by
the U.S. Purchase Agreement, but without our having made any special
investigation concerning the applicability of any other law, rule or regulation;
provided, that such term does not include any federal or state securities or
other antifraud laws or the rules and regulations of the National Association of
Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A to the Officer's Certificate; and
(iii) the term "Governmental Approval" means any consent, approval, license,
authorization or validation of, or filing, recording or registration with, any
United States Federal or New York executive, legislative, judicial,
administrative or regulatory body (a "Governmental Entity"), pursuant to
Applicable Laws.
Based upon and subject to the foregoing and to the other qualifications
and limitations set forth herein, we are of the opinion that:
1. All of the issued and outstanding capital stock of ROV Holding, Inc.
has been duly authorized and validly issued and is fully paid and nonassessable.
None of the outstanding shares of capital stock of ROV Holding, Inc. was issued
in violation of the preemptive rights of any security holder of ROV Holding,
Inc. arising under the Certificate of Incorporation or By-laws of ROV Holding
Inc. or any other similar rights arising under any Applicable Contract.
2. To our knowledge, based solely on our examination of the stock
record book of ROV Holding, Inc., the issued and outstanding capital stock of
ROV Holding, Inc. is owned of record by the Company, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity arising
under any Applicable contract, except for the pledge of the capital stock of ROV
Holding, Inc. by the Company pursuant to a Company Pledge Agreement dated as of
September 12, 1996 between the Company and Bank of America National Trust and
Savings Association in its capacity as administrative agent fore the lenders
referred to therein.
3
<PAGE>
3. The Registration Statement, as of its effective date, and the
Prospectuses, as of their date, appeared on their face to be appropriately
responsive in all material respects to the requirements of the Securities Act
and the Rules and Regulations, except that, in each case, we express no opinion
as to the financial statements, schedules and other financial data included
therein or excluded therefrom or the exhibits to the Registration Statement, and
we do not assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement except to the extent
indicated in paragraph 6 below.
4. The Specimen Certificate complies in all material respects with any
requirements of the New York Stock Exchange applicable to companies whose
securities are listed thereon.
5. To our knowledge, except as set forth in the Registration Statement
or the Prospectuses, there are no legal, regulatory or governmental proceedings
pending in any New York State or federal court to which the Company or any
subsidiary of the Company listed on Exhibit 21 to the Registration Statement
(each, a "Subsidiary") is a party, or to which the property of the Company or
any Subsidiary is subject, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the transactions contemplated by the U.S. Purchase Agreement or
the International Purchase Agreement or the performance by the Company of its
obligations thereunder.
6. The statements in the Prospectuses(or incorporated by reference
therein) under the captions "Description of Certain Indebtedness," "Shares
Eligible for Future Sale," "Underwriting" and "Certain Federal Income Tax
Considerations," to the extent that such statements constitute matters of law,
summaries of legal matters or legal conclusions, are correct in all material
respects.
7. No Governmental Approval is required under Applicable Laws in
connection with the consummation by the Company of the transactions contemplated
by the U.S. Purchase Agreement or the International Purchase Agreement except
that we do not express any opinion as to any consent or authorization which may
have become applicable to the Company as a result of the involvement of the U.S.
Underwriters or of the International Managers in the transactions contemplated
by the U.S. Purchase Agreement or the International Purchase Agreement, because
of their legal or regulatory status or because of any other facts specifically
pertaining to them.
8. Neither the execution and delivery of the U.S. Purchase Agreement or
the International Purchase Agreement nor the consummation of the transactions
contemplated therein will contravene any Applicable Laws.
9. To our knowledge, based solely upon a review of the Applicable
Contracts, there are no Applicable Contracts of a character required to be filed
as exhibits to the Registration Statement which are not filed as required.
4
<PAGE>
10. The execution, delivery and performance of the U.S. Purchase
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated thereby and the use of the proceeds from the sale of
the Shares as described in the Prospectuses under the caption "Use of Proceeds"
do not and will not, either by itself or the giving of notice or the lapse of
time or both, conflict with or constitute a breach of or a default or Repayment
Event (as defined in Section 1(a)(x) of the Purchase Agreements) under any
Applicable Contract, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any Subsidiary
pursuant to any Applicable Contract to which the Company or any Subsidiary is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any Subsidiary is subject, or any
Applicable Law or Governmental Approval having jurisdiction over the Company or
any Subsidiary or any of their respective properties, assets or operations
except in any such case for any such conflicts, breaches or defaults which would
not have a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or any
Subsidiary
11. Except as disclosed in the Registration Statement, to our
knowledge, there are no persons with registration rights or other similar rights
under any Applicable Contract to have any shares of Common Stock registered
pursuant to the Registration Statement or otherwise registered by the Company
pursuant to the 1933 Act.
12. The Company is not subject to registration as an investment company
under the Investment Company Act of 1940, as amended.
We have been orally advised by the Commission that the Registration
Statement was declared effective under the Act at [ ], Washington, D.C. time,
April [ ], 1998; the required filing of the Prospectuses pursuant to Rule 424(b)
has been made in the manner and within the time period required by Rule 424(b);
and, to our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened by the Commission.
In addition, we have participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants for the Company, and you and your counsel, at which the contents of
the Registration Statement, the Prospectuses and related matters were discussed
and, although we are not passing upon, and do not assume any responsibility
for, the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectuses and have made no independent check or
verification thereof, on the basis of the foregoing, no facts have come to our
attention that have led us to believe that the Registration Statement, at the
time it became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectuses, as of their
dates and as of the date hereof, contained or contains an untrue statement of a
material fact or omitted or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that we express no opinion or belief with respect
to the financial statements, schedules and other financial data included therein
or excluded therefrom or the exhibits to the Registration Statement.
5
<PAGE>
This opinion is furnished to you solely for your benefit in connection
with the closings under the U.S. Purchase Agreement and the International
Purchase Agreement occurring today and is not to be used, circulated, quoted or
otherwise referred to for any other purpose or relied upon by any other person
without our prior express written permission.
Very truly yours,
6
<PAGE>
EXHIBIT A-3
FORM OF OPINION OF COUNSEL OF SELLING SHAREHOLDERS
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
MERRILL LYNCH INTERNATIONAL
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as Lead Managers for the several International
Managers
c/o Merrill Lynch International
25 Ropemaker Place
London EC2Y 9LY
England
Re: Selling Shareholder Opinion pursuant
to Section 5(b) of the Purchase Agreement
Ladies and Gentlemen:
We have acted as special counsel to Thomas H. Lee Equity Fund III,
L.P., THL-CCI Limited Partnership, Thomas H. Lee Foreign Fund III, L.P., and the
shareholders listed on Schedule B (each a Selling Shareholder") in connection
with the execution and delivery by the Selling Shareholders of (i) the U.S.
Purchase Agreement dated as of April ___, 1998 (the "U.S. Purchase Agreement")
among Rayovac Corporation, a Wisconsin corporation (the "Company"), the Selling
Shareholders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Bear Stearns & Co., Inc., and Smith
Barney Inc. as representatives (the "U.S. Representatives") of the U.S.
Underwriters listed in Schedule A thereto
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<PAGE>
and (ii) the International Purchase Agreement dated as of April ___, 1998 (the
"International Purchase Agreement") among the Company, the Selling Shareholders,
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Bear Stearns International Limited, and Smith
Barney Inc. as lead managers (the "Lead Managers") on behalf of the
International Managers listed in Schedule A thereto, and the sale by the Selling
Shareholders to the U.S. Underwriters (as defined in the U.S. Purchase
Agreement) and the International Managers (as defined in the International
Purchase Agreement) of an aggregate of 6,500,000 shares of Common Stock, par
value $0.01 per share, of the Company (the "Common Stock"), acting severally and
not jointly, to (i) the U.S. Underwriters, acting severally and not jointly, to
purchase 5,200,000 shares of Common Stock (the "U.S. Securities") and (ii) the
International Managers, acting severally and not jointly, to purchase 1,300,000
additional shares of Common Stock (the "International Securities," and together
with the U.S. Securities, the "Securities"). This opinion is delivered to you
pursuant to Section 5(b) of each of the U.S. Purchase Agreement and the
International Purchase Agreement. Capitalized terms used herein but not
otherwise defined herein shall have the same meaning ascribed to them in the
U.S. Purchase Agreement.
In connection with this opinion, we have examined or are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the U.S. Purchase Agreement; (ii) the International Purchase Agreement;
(iii) the Power of Attorney and Custody Agreement dated as of April ___, 1998
among each Selling Shareholder and ________________________, each acting as
Attorney-in-Fact (each, an "Attorney-in-Fact" and together, the
"Attorneys-in-Fact"), and [Firstar Trust Bank], as Custodian (the "Custodian")
(the "Custody Agreement" and together with the U.S. Purchase Agreement and the
International Purchase Agreement, the "Transaction Documents"), (iv) the Limited
Partnership Agreement of Thomas H. Lee Foreign Fund III, L.P. (the "Foreign
Fund"), dated as of February 6, 1996, by and among THL Equity Advisors III
Limited Partnership, a Massachusetts limited partnership ("Advisors"), and the
limited partners listed on Exhibit A thereto; (v) the Second Amended and
Restated Limited Partnership Agreement of Thomas H. Lee Equity Fund III, L.P.
(the "Equity Fund" and together with the Foreign Fund, the "Funds"), dated as of
December 22, 1995, by and among Advisors and the limited partners listed on
Exhibit A thereto; (vi) the Thirteenth Amended and Restated Agreement of Limited
Partnership of THL-CCI Limited Partnership ("CCI", and together with the Funds,
the "Partnerships"), dated as of January 17, 1997, by and among THL Investment
Management Corp. and the persons and entities admitted as limited partners;
(vii) the Certificate of Limited Partnership of the Foreign Fund, dated as of
January 23, 1996; (viii) the Certificate of Limited Partnership of the Equity
Fund, dated as of February 14, 1995; (ix) the Certificate of Limited Partnership
of CCI, dated as of July 10, 1992, as amended November 30, 1993 and March 13,
1996; (x) the First Amended and Restated Agreement of Limited Partnership of
Advisors, dated as of August 15, 1995 by and among THL Equity Trust III, a
Massachusetts business trust ("Equity Trust"), and the limited partners
signatories thereto; (xi) the Certificate of Limited Partnership of Advisors,
dated as of February 16, 1995; (xii) the Declaration of Trust of Equity Trust,
made as of February 14, 1995, by and between Thomas H. Lee, as grantor, and the
trustees signatories thereto; (xiii) the Consent of Trustees of Equity Trust,
dated as of January 17, 1997; (xiv) the Articles of Organization and By-laws of
THL Investment Management Corp., each as in effect as of the date hereof; (xv)
the Consent of Sole Director of THL Investment
2
<PAGE>
Management Corp., dated as of January 17, 1997; (xvi) the Certificate of
Advisors, as general partner of the Equity Fund, dated as of January 17, 1997;
(xvii) the Certificate of Advisors, as general partner of the Foreign Fund,
dated as of November 26, 1997; (xviii) the Certificate of Equity Trust, as
general partner of Advisors, dated as of November 26, 1997; (xix) the
Certificate of THL Investment Management Corp., as general partner of CCI, dated
as of November 26, 1997; (xx) the Officer's Certificate of THL Investment
Management Corp., dated as of November 26, 1997; (xxi) the Certificate of Equity
Trust, dated as of November 26, 1997 and (xxii) certificates representing the
Securities. We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such records of each of the Partnerships and
others and such agreements, certificates of public officials, certificates of
officers or other representatives of each of the Partnerships and others and
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to any facts material
to the opinions set forth herein which we did not independently establish or
verify, we have relied upon statements and representations of officers and other
representatives of each of the Partnerships and others.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law and Revised Uniform Limited Partnership Act of the State of
Delaware, the Business Corporation Law and the Uniform Limited Partnership Act
of the Commonwealth of Massachusetts and those laws, rules and regulations of
the State of New York and of the United States of America that, in our
experience, are normally applicable to transaction of the type contemplated by
the Transaction Documents, but without our having made any special investigation
concerning the applicability of any other law, rule or regulation; provided,
that such term does not include any federal or state securities or other
antifraud laws or the rules and regulations of the National Association of
Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A hereto; and (iii) the term
"Governmental Approval" means any consent, approval, license, authorization or
validation of, or filing, recording or registration with, any United States
Federal or Delaware, Massachusetts or New York executive, legislative, judicial,
administrative or regulatory body (a "Governmental Entity"), pursuant to
Applicable Laws.
The opinions expressed herein are limited to (i) the General
Corporation Law and the Revised Uniform Limited Partnership Act of the State of
Delaware; (ii) the Business Corporation Law and the Uniform Limited Partnership
Act of the Commonwealth of Massachusetts; (iii) the laws of the State of New
York; and (iv) the federal laws of the United States of America to the extent
specifically referred to herein.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
3
<PAGE>
1. No Governmental Approval is required under Applicable Laws in
connection with the offer, sale or delivery of the Securities by the Selling
Shareholders under the U.S. Purchase Agreement and the International Purchase
Agreement or the performance by each of the Selling Shareholders of its
obligations under any of the Transaction Documents; provided, that we express no
opinion as to any Governmental Approval which may be required under state
securities laws or that may have become applicable to any Selling Shareholder as
a result of your involvement in the U.S. Purchase Agreement or the International
Purchase Agreement because of your legal or regulatory status or because of any
other facts specifically pertaining to you.
2. Each of the Custody Agreements, the U.S. Purchase Agreement and the
International Purchase Agreement has been duly executed and delivered by each
Selling Shareholder. The Custody Agreement to which each Selling Shareholder is
a party constitutes the valid and binding agreement of such Selling Shareholder
enforceable against such Selling Shareholder in accordance with its terms,
except that enforcement may be limited by applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws nor or
hereinafter in effect relating to or affecting creditors' rights generally and
by general principals of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
3. The Attorney-in-Fact has been duly authorized by each Selling
Shareholder to deliver and sell the U.S. Securities and the International
Securities on behalf of each Selling Shareholder in accordance with the terms of
each of the U.S. Purchase Agreement and the International Purchase Agreement.
4. The execution, delivery and performance of each of the Transaction
Documents and the sale and delivery of the U.S. Securities and the International
Securities and the consummation of the transactions contemplated in each of the
U.S. Purchase Agreement and the International Purchase Agreement and compliance
by each Selling Shareholder with its obligations under each of the U.S. Purchase
Agreement and the International Purchase Agreement have been duly authorized by
all necessary partnership action on the part of each Selling Shareholder and do
not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under any
Applicable Law or Governmental Approval of any Governmental Entity having
jurisdiction over any Selling Shareholder or any of their properties, or under
any indenture, mortgage, deed of trust, loan, credit agreement, note or other
debt instrument to which any Selling Shareholder is a party or pursuant to which
any of them is bound or any of their assets is subject and pursuant to which any
Selling Shareholder has incurred indebtedness (except for such conflicts,
breaches or defaults or liens, charges or encumbrances which would not have a
material adverse effect on the condition (financial or otherwise), earnings,
business affairs or business prospects of any Selling Shareholder, whether or
not arising in the ordinary course of business) nor will such action result in
any violation of the provisions of the partnership agreements of any of the
Selling Shareholders, as the case may be.
5. To our knowledge, (i) each Selling Shareholder has the power and
authority as a limited partnership as the case to sell, transfer and deliver the
U.S. Securities and the International Securities pursuant to each of the U.S.
Purchase Agreement and the International Purchase Agreement and (ii) each
Selling Shareholder has the power and authority to sell,
4
<PAGE>
transfer and deliver the U.S. Securities and the International Securities
pursuant to each of the U.S. Purchase Agreement and the International Purchase
Agreement. Assuming that neither any U.S. Representatives nor any U.S.
Underwriter has notice of adverse claims with respect to the certificates
identified on Schedule B as representing the U.S. Securities, then upon physical
delivery to Merrill Lynch & Co. as designee of the U.S. Representatives in the
State of New York of such certificates indorsed to the U.S. Representatives or
indorsed in blank, the U.S. Representatives will acquire such certificates (and
the shares of Common Stock represented thereby) free of any adverse claims
within the meaning of the Uniform Commercial Code in effect in the State of New
York. Assuming that neither any Lead Manager nor any International Manager has
notice of adverse claims with respect to the certificates identified on Schedule
B as representing the International Securities, then upon physical delivery to
Merrill Lynch & Co. as designee of the Lead Managers in the State of New York of
such certificates indorsed to the Lead Managers or indorsed in blank, the Lead
Managers will acquire such certificates (and the shares of Common Stock
represented thereby) free of any adverse claims within the meaning of the
Uniform Commercial Code in effect in the State of New York.
This opinion is furnished to you solely for your benefit in connection
with the closings under the U.S. Purchase Agreement and the International
Purchase Agreement occurring today and is not to be used, circulated, quoted or
otherwise referred to for any other purpose or relied upon by any other person
without our prior express written permission.
Very truly yours,
5
<PAGE>
EXHIBIT A-4
FORM OF OPINION OF COUNSEL OF CATEGORY 2 SELLING SHAREHOLDERS
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
MERRILL LYNCH INTERNATIONAL
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as Lead Managers for the several International
Managers
c/o Merrill Lynch International
25 Ropemaker Place
London EC2Y 9LY
England
Re: Selling Shareholder Opinion pursuant
to Section 5(b) of the Purchase Agreement
-----------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to __________________________ (the
"Selling Shareholder") in connection with the execution and delivery by the
Selling Shareholders of (i) the U.S. Purchase Agreement dated as of April ___,
1998 (the "U.S. Purchase Agreement") among Rayovac Corporation, a Wisconsin
corporation (the "Company"), the Selling Shareholders, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Bear Stearns & Co., Inc., and Smith Barney Inc. as representatives
(the "U.S. Representatives") of the U.S. Underwriters listed in Schedule A
thereto and (ii) the International Purchase Agreement dated as of April ___,
1998 (the "International Purchase Agreement") among the Company, the Selling
Shareholders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Bear Stearns
1
<PAGE>
International Limited, and Smith Barney Inc. as lead managers (the "Lead
Managers") on behalf of the International Managers listed in Schedule A thereto,
and the sale by the Selling Shareholders to the U.S. Underwriters (as defined in
the U.S. Purchase Agreement) and the International Managers (as defined in the
International Purchase Agreement) of an aggregate of 6,500,000 shares of Common
Stock, par value $0.01 per share, of the Company (the "Common Stock"), acting
severally and not jointly, to (i) the U.S. Underwriters, acting severally and
not jointly, to purchase 5,200,000 shares of Common Stock (the "U.S.
Securities") and (ii) the International Managers, acting severally and not
jointly, to purchase 1,300,000 additional shares of Common Stock (the
"International Securities," and together with the U.S. Securities, the
"Securities"). This opinion is delivered to you pursuant to Section 5(b) of each
of the U.S. Purchase Agreement and the International Purchase Agreement.
Capitalized terms used herein but not otherwise defined herein shall have the
same meaning ascribed to them in the U.S. Purchase Agreement.
In connection with this opinion, we have examined or are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the U.S. Purchase Agreement; (ii) the International Purchase Agreement;
(iii) the Power of Attorney and Custody Agreement dated as of April ___, 1998
among each Selling Shareholder and _______________________, each acting as
Attorney-in-Fact (each, an "Attorney-in-Fact" and together, the
"Attorneys-in-Fact"), and [Firstar Trust Bank], as Custodian (the "Custodian")
(the "Custody Agreement" and together with the U.S. Purchase Agreement and the
International Purchase Agreement, the "Transaction Documents"), and (iv)
certificates representing the Securities. We have also examined originals or
copies, certified or otherwise identified to our satisfaction, of such
agreements, certificates of public officials, certificates of officers or other
representatives of the Selling Shareholders and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to any facts material
to the opinions set forth herein which we did not independently establish or
verify, we have relied upon statements and representations of the Selling
Shareholder.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law and Revised Uniform Limited Partnership Act of the State of
Delaware, the Business Corporation Law and the Uniform Limited Partnership Act
of the Commonwealth of Massachusetts and those laws, rules and regulations of
the State of New York and of the United States of America that, in our
experience, are normally applicable to transaction of the type contemplated by
the Transaction Documents, but without our having made any special investigation
concerning the applicability of any other law, rule or regulation; provided,
that such term does not include any federal or state securities or other
antifraud laws or the rules and regulations of the National Association of
Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A hereto; and (iii) the term
"Governmental Approval" means any consent, approval, license, authorization or
validation of, or filing, recording or registration with, any United States
Federal or Delaware, Massachusetts or
2
<PAGE>
New York executive, legislative, judicial, administrative or regulatory body (a
"Governmental Entity"), pursuant to Applicable Laws.
The opinions expressed herein are limited to (i) the General
Corporation Law of the State of Delaware; (ii) the Business Corporation Law of
the Commonwealth of Massachusetts; (iii) the laws of the State of New York; and
(iv) the federal laws of the United States of America to the extent specifically
referred to herein.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. No Governmental Approval is required under Applicable Laws in
connection with the offer, sale or delivery of the Securities by the Selling
Shareholder under the U.S. Purchase Agreement and the International Purchase
Agreement or the performance by such Selling Shareholders of its obligations
under any of the Transaction Documents; provided, that we express no opinion as
to any Governmental Approval which may be required under state securities laws
or that may have become applicable to the Selling Shareholder as a result of
your involvement in the U.S. Purchase Agreement or the International Purchase
Agreement because of your legal or regulatory status or because of any other
facts specifically pertaining to you.
2. Each of the Custody Agreements, the U.S. Purchase Agreement and the
International Purchase Agreement has been duly executed and delivered by the
Selling Shareholder. The Custody Agreement to which such Selling Shareholder is
a party constitutes the valid and binding agreement of such Selling Shareholder
enforceable against such Selling Shareholder in accordance with its terms,
except that enforcement may be limited by applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws nor or
hereinafter in effect relating to or affecting creditors' rights generally and
by general principals of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
3. The Attorney-in-Fact has been duly authorized by such Selling
Shareholder to deliver and sell the U.S. Securities and the International
Securities on behalf of such Selling Shareholder in accordance with the terms of
each of the U.S. Purchase Agreement and the International Purchase Agreement.
4. The execution, delivery and performance of each of the Transaction
Documents and the sale and delivery of the U.S. Securities and the International
Securities and the consummation of the transactions contemplated in each of the
U.S. Purchase Agreement and the International Purchase Agreement and compliance
by such Selling Shareholder with its obligations under each of the U.S. Purchase
Agreement and the International Purchase Agreement have been duly authorized on
the part of such Selling Shareholder and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default under any Applicable Law or Governmental
Approval of any Governmental Entity having jurisdiction over such Selling
Shareholder or any of its properties or any material contract known to us to
which the Seller is a party or to which any of its properties are subject.
3
<PAGE>
5. To our knowledge, such Selling Shareholder has the power and
authority to sell, transfer and deliver the U.S. Securities and the
International Securities pursuant to each of the U.S. Purchase Agreement and the
International Purchase Agreement. Assuming that neither any U.S. Representatives
nor any U.S. Underwriter has notice of adverse claims with respect to the
certificates identified on Schedule B as representing the U.S. Securities, then
upon physical delivery to Merrill Lynch & Co. as designee of the U.S.
Representatives in the State of New York of such certificates indorsed to the
U.S. Representatives or indorsed in blank, the U.S. Representatives will acquire
such certificates (and the shares of Common Stock represented thereby) free of
any adverse claims within the meaning of the Uniform Commercial Code in effect
in the State of New York. Assuming that neither any Lead Manager nor any
International Manager has notice of adverse claims with respect to the
certificates identified on Schedule B as representing the International
Securities, then upon physical delivery to Merrill Lynch & Co. as designee of
the Lead Managers in the State of New York of such certificates indorsed to the
Lead Managers or indorsed in blank, the Lead Managers will acquire such
certificates (and the shares of Common Stock represented thereby) free of any
adverse claims within the meaning of the Uniform Commercial Code in effect in
the State of New York.
This opinion is furnished to you solely for your benefit in connection
with the closings under the U.S. Purchase Agreement and the International
Purchase Agreement occurring today and is not to be used, circulated, quoted or
otherwise referred to for any other purpose or relied upon by any other person
without our prior express written permission.
Very truly yours,
\
4
<PAGE>
EXHIBIT B
_________________, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
within-mentioned U.S. Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Rayovac Corporation
Dear Sirs:
The undersigned, a stockholder of Rayovac Corporation, a Wisconsin
Corporation (the "Company") understands that Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney Inc.
propose to enter into a U.S. Purchase Agreement (the "U.S. Purchase Agreement")
with the Company providing for the public offering of shares (the "Securities")
of the Company's common stock, par value $0.01 per share (the "Common Stock").
In recognition of the benefit that such an offering will confer upon the
undersigned as a stockholder of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the U.S. Purchase
Agreement that, during a period of 90 days from the date of the U.S. Purchase
Agreement, the undersigned will not, without the prior written consent of
Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or
1
<PAGE>
hereafter acquires the power of disposition, or file any registration statement
under the Securities Act of 1933, as amended, with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise.
Notwithstanding the foregoing, the undersigned may transfer any or all
of its shares of Company Common Stock (i) by gift, will or intestacy, (ii) to
its affiliates, as such term is defined in Rule 405 promulgated under the
Securities Act of 1933, as amended, or (iii) in the event the undersigned is an
individual, to his or her immediate family or to a trust the beneficiaries of
which are exclusively the undersigned and/or a member or members of his or her
immediate family; provided, however, that in any such case it shall be a
condition to any such transfer that the transferee execute an agreement stating
that the transferee is receiving and holding the shares subject to the
provisions of this letter agreement and there shall be no further transfer of
such shares except in accordance with the provisions of this letter agreement.
Very truly yours,
Signature: _____________________
Print Name: ____________________
2
<PAGE>
EXHIBIT C-1
FORM OF COMFORT LETTER OF
KPMG PEAT MARWICK LLP PURSUANT TO SECTION 5(f)
attached hereto
<PAGE>
EXHIBIT C-2
FORM OF COMFORT LETTER OF
COOPERS & LYBRAND LLP PURSUANT TO SECTION 5(f)
Attached hereto
==============================================================================
RAYOVAC CORPORATION
(a Wisconsin corporation)
1,300,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
Dated: May __, 1998
==============================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTERNATIONAL PURCHASE AGREEMENT.............................................................1
SECTION 1. Representations and Warranties...............................................3
(a) Representations and Warranties by the Company...................................3
(i) Compliance with Registration Requirements................................3
(ii) Independent Accountants.................................................3
(iii) Financial Statements...................................................4
(iv) No Material Adverse Change in Business..................................5
(v) Good Standing of the Company.............................................5
(vi) Good Standing of Subsidiaries...........................................5
(vii) Capitalization.........................................................5
(viii) Authorization of Agreement............................................6
(ix) Authorization and Description of Securities.............................6
(x) Absence of Defaults and Conflicts........................................6
(xi) Absence of Labor Dispute................................................7
(xii) Absence of Proceedings.................................................7
(xiii) Accuracy of Exhibits..................................................7
(xiv) Possession of Intellectual Property....................................7
(xv) Absence of Further Requirements.........................................8
(xvi) Possession of Licenses and Permits.....................................8
(xvii) Title to Property.....................................................8
(xviii) Investment Company Act...............................................9
(xix) Environmental Laws.....................................................9
(xx) Registration Rights.....................................................9
(xxi) Stabilization or Manipulation..........................................9
(xxii) Accounting Controls..................................................10
(xxiii) Tax Returns.........................................................10
(xxiv) No Association with NASD.............................................10
(b) Representations and Warranties by the Selling Shareholders.....................10
(i) Accurate Disclosure by Selling Shareholders.............................10
(ii) Authorization of Agreements............................................11
(iii) Valid Title...........................................................11
(iv) Due Execution of Power of Attorney and Custody Agreement...............12
(v) Absence of Manipulation.................................................12
(vi) Absence of Further Requirements........................................12
(vii) Certificates Suitable for Transfer....................................12
(viii) Irrevocable Obligations..............................................12
(ix) No Association with NASD...............................................13
(x) Power and Authority.....................................................13
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(c) Officer's Certificates.........................................................13
SECTION 2. Sale and Delivery to International Managers; Closing........................14
(a) Initial Securities.............................................................14
(b) Option Securities..............................................................14
(c) Payment........................................................................14
(d) Denominations; Registration....................................................15
SECTION 3. Covenants of the Company....................................................15
(a) Compliance with Securities Regulations and Commission Requests.................15
(b) Filing of Amendments...........................................................16
(c) Delivery of Registration Statements............................................16
(d) Delivery of Prospectuses.......................................................16
(e) Continued Compliance with Securities Laws......................................17
(f) Blue Sky Qualifications........................................................17
(g) Rule 158.......................................................................17
(h) Restriction on Sale of Securities..............................................17
(i) Reporting Requirements.........................................................18
SECTION 4. Payment of Expenses.........................................................18
(a) Expenses.......................................................................18
(b) Expenses of the Selling Shareholders...........................................18
(c) Termination of Agreement.......................................................19
(d) Allocation of Expenses.........................................................19
SECTION 5. Conditions of International Managers' Obligations...........................19
(a) Effectiveness of Registration Statement........................................19
(b) Opinion of Counsel for the Company and the Selling Shareholders................19
(c) Opinion of Counsel for International Managers..................................20
(d) Officers' Certificate..........................................................20
(e) Selling Shareholders' Certificate..............................................20
(f) Accountant's Comfort Letters...................................................20
(g) Bring-down Comfort Letters.....................................................21
(h) No Objection...................................................................21
(i) Lock-up Agreements.............................................................21
(j) Purchase of Initial U.S. Securities............................................21
(k) Custody Agreement..............................................................21
(l) Conditions to Purchase of International Option Securities......................21
(m) Additional Documents...........................................................22
(n) Termination of Agreement.......................................................23
SECTION 6. Indemnification.............................................................23
(a) Indemnification of International Managers by the Company.......................23
(b) Indemnification of the International Managers by the Selling Shareholders......24
(c) Indemnification of Company, Directors and Officers and Selling Shareholders....25
(d) Actions against Parties; Notification..........................................26
(e) Settlement without Consent if Failure to Reimburse.............................26
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<PAGE>
(f) Other Agreements with Respect to Indemnification...............................26
SECTION 7. Contribution................................................................27
SECTION 8. Representations, Warranties and Agreements to Survive Delivery..............28
SECTION 9. Termination of Agreement....................................................28
(a) Termination; General...........................................................28
(b) Liabilities....................................................................29
SECTION 10. Default by One or More of the International Managers.......................29
SECTION 11. Notices....................................................................30
SECTION 12. Parties....................................................................30
SECTION 13. Governing Law and Time.....................................................30
SECTION 14. Effect of Headings.........................................................30
SECTION 15. Counterparts...............................................................31
SCHEDULE A LIST OF UNDERWRITERS
SCHEDULE B LIST OF SELLING SHAREHOLDERS
SCHEDULE B-1 LIST OF OVER-ALLOTMENT SELLING SHAREHOLDERS
SCHEDULE C PRICING INFORMATION
SCHEDULE D LIST OF PERSONS AND ENTITIES SUBJECT TO LOCK-UP
SCHEDULE E LIST OF SUBSIDIARIES OF THE COMPANY
EXHIBIT A-1 FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
EXHIBIT A-2 FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT A-3 FORM OF OPINION OF COUNSEL OF SELLING SHAREHOLDERS
EXHIBIT A-4 FORM OF OPINION OF COUNSEL OF CATEGORY 2 SELLING SHAREHOLDERS
EXHIBIT B FORM OF LOCK-UP LETTER
EXHIBIT C-1 FORM OF COMFORT LETTER OF KPMG PEAT MARWICK LLP
EXHIBIT C-2 FORM OF COMFORT LETTER OF COOPERS & LYBRAND LLP
</TABLE>
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<PAGE>
RAYOVAC CORPORATION
(a Wisconsin corporation)
1,300,000 Shares of Common Stock
(Par Value $0.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
April __, 1997
MERRILL LYNCH INTERNATIONAL
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Salomon Smith Barney Inc.
c/o Merrill Lynch International
25 Ropemaker Place
London EC2Y 9LY
England
Ladies and Gentlemen:
Rayovac Corporation, a Wisconsin corporation (the "Company") and the
persons listed on Schedule B hereto (collectively, the "Selling Shareholders")
confirm their respective agreements with Merrill Lynch International and each of
the other International Managers named in Schedule A hereto (collectively, the
"International Managers," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch International, Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc. are acting as representatives (in
such capacity, the "Lead Managers"), with respect to (i) the sale by the Selling
Shareholders and the purchase by the International Managers, acting severally
and not jointly, of the number of shares of Common Stock, par value $0.01 per
share, of the Company ("Common Stock") set forth in Schedule A hereto and (ii)
the grant by the Selling Shareholders, to the International Managers, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of 195,000 additional shares of Common Stock to cover
over-allotments, if any. The aforesaid 1,300,000 shares of Common Stock (the
"Initial International Securities") to be purchased by the International
Managers, and all or any part of the 195,000 shares of Common Stock subject to
the option described in Section 2(b) hereof (the "International Option
Securities"), are hereinafter called, collectively, the "International
Securities."
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<PAGE>
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "U.S. Purchase Agreement") providing for
the offering by the Selling Shareholders of an aggregate of 5,200,000 shares of
Common Stock (the "Initial U.S. Securities") through arrangements with certain
underwriters in the United States and Canada (the "U.S. Underwriters") for which
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Smith Barney Inc. are acting as
representatives (the "U.S. Representatives") and the grant by the Company, to
the U.S. Underwriters, acting severally and not jointly, of an option to
purchase all or any part of the U.S. Underwriters' pro rata portion of up to
780,000 additional shares of Common Stock solely to cover over-allotments, if
any (the "U.S. Option Securities" and, together with the International Option
Securities, the "Option Securities"). The Initial U.S. Securities and the U.S.
Option Securities are hereinafter called the "U.S. Securities." It is understood
that the Company is not obligated to sell and the International Managers are not
obligated to purchase, any Initial International Securities unless all of the
Initial U.S. Securities are contemporaneously purchased by the U.S.
Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters," the Initial International Securities and
the Initial U.S. Securities are hereinafter collectively called the "Initial
Securities," and the International Securities and the U.S. Securities are
hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company and the Selling Shareholders understand that the
International Managers propose to make a public offering of the International
Securities as soon as the Lead Managers deem advisable after this Agreement has
been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-492281), as amended
by Amendment No. 1 thereto, covering the registration of the Securities under
the Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses. Promptly after execution and delivery of
this Agreement, the Company will either (i) prepare and file a prospectus in
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations, or
(ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933
Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). Two forms of prospectus are to
be used in connection with the offering and sale of the Securities: one relating
to the International Securities (the "Form of International Prospectus") and one
relating to the U.S. Securities (the "Form of U.S. Prospectus"). The Form of
U.S. Prospectus is identical to the Form of International Prospectus, except for
the front cover and back cover pages and the information under the caption
"Underwriting." The information included in any such prospectus or in any such
Term Sheet, as the case may be, that was omitted from such registration
statement
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<PAGE>
at the time it became effective but that is deemed to be part of such
registration statement at the time it became effective (a) pursuant to paragraph
(b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to
paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each Form of
International Prospectus and Form of U.S. Prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final Form of International Prospectus and the final
Form of U.S. Prospectus in the forms first furnished to the Underwriters for use
in connection with the offering of the Securities are herein called the
"International Prospectus" and the "U.S. Prospectus," respectively, and
collectively, the "Prospectuses." If Rule 434 is relied on, the terms
"International Prospectus" and "U.S. Prospectus" shall refer to the preliminary
International Prospectus dated May __, 1998 and the preliminary U.S. Prospectus
dated May __, 1998, respectively, each together with the applicable Term Sheet,
and all references in this Agreement to the date of such Prospectuses shall mean
the date of the applicable Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
International Prospectus, the U.S. Prospectus or any Term Sheet or any amendment
or supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each International Manager as of the date hereof, as
of the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
International Manager, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any International
Option Securities are purchased, at the Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto complied and will comply in all
material respects with the
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<PAGE>
requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading. Neither of the Prospectuses
nor any amendments or supplements thereto (including any prospectus
wrapper), at the time the Prospectuses or any amendments or supplements
thereto were issued and at the Closing Time (and, if any International
Option Securities are purchased, at the Date of Delivery), included or
will include, at the aforesaid times, an untrue statement of a material
fact or omitted or will omit, at the aforesaid times, to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
If Rule 434 is used, the Company will comply with the requirements of
Rule 434 and the Prospectuses shall not be "materially different," as
such term is used in Rule 434, from the prospectuses included in the
Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or the
Prospectuses made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through the Lead
Managers or the U.S. Representatives expressly for use in the
Registration Statement or the Prospectuses.
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The historical financial
statements included in the Registration Statement and the Prospectuses,
together with the related schedule and notes, present fairly the
financial position of the Company and its consolidated Subsidiaries (as
defined below) at the dates indicated and the statement of operations,
shareholders' equity and cash flows of the Company and its consolidated
Subsidiaries for the periods specified; said financial statements have
been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules included in the Registration
Statement present fairly in accordance with GAAP the information
required to be stated therein. The selected financial data and the
summary financial information included in the Prospectuses present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in
the Registration Statement.
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<PAGE>
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition (financial
or otherwise), earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise, whether or
not arising in the ordinary course of business (a "Material Adverse
Effect"), (B) there have been no transactions entered into by the
Company or any of its Subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and
its Subsidiaries considered as one enterprise, and (C) there has been
no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Wisconsin and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each subsidiary of the
Company (each a "Subsidiary" and, collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, where
such legal concepts are recognized, has corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect; except as otherwise disclosed
in the Registration Statement, all of the issued and outstanding
capital stock of each such Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable in jurisdictions where
such legal concepts are recognized and is owned by the Company,
directly or through Subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity (except
as set forth in the Registration Statement and except for any director
or member qualifying shares); none of the outstanding shares of capital
stock of any Subsidiary was issued in violation of the preemptive or
similar rights of any securityholder of such Subsidiary. The only
Subsidiaries of the Company are the subsidiaries listed on Schedule E
hereto and, except for Rayovac Europe Limited (which represents less
than 15% of the assets, liabilities and earnings of the Company) the
Company has no "significant subsidiaries" as defined in Section 1-02 of
Regulation S-X.
(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses under
the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to this Agreement, pursuant to reservations,
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<PAGE>
agreements or employee benefit plans referred to in the Prospectuses or
pursuant to the exercise of convertible securities or options referred
to in the Prospectuses). The shares of issued and outstanding capital
stock of the Company have been and at the Closing Time, including the
International Option Securities to be purchased by the International
Managers from the Selling Shareholders, will have been duly authorized
and validly issued and are fully paid and non-assessable except to the
extent such securities are assessable pursuant to applicable provisions
of Wisconsin law; none of the outstanding shares of capital stock of
the Company was or as of the Closing Time, including the International
Option Securities to be purchased by the International Managers from
the Selling Shareholders, will have been or was issued in violation of
the preemptive or other similar rights of any securityholder of the
Company.
(viii) Authorization of Agreement. This Agreement and the U.S.
Purchase Agreement have been duly authorized, executed and delivered by
the Company.
(ix) Authorization and Description of Securities. The
Securities to be purchased by the International Managers and the U.S.
Underwriters from the Selling Shareholders have been duly authorized
for issuance and sale to the International Managers pursuant to this
Agreement and the U.S. Underwriters pursuant to the U.S. Purchase
Agreement, respectively, and, are validly issued, fully paid and
non-assessable; the Common Stock conforms to the descriptions thereof
contained in the Prospectuses or incorporated by reference therein and
such description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder, except for certain
liabilities pursuant to applicable provisions of Wisconsin Law; and the
issuance of the Securities is not subject to the preemptive or other
similar rights of any securityholder of the Company.
(x) Absence of Defaults and Conflicts. Neither the Company nor
any of its Subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its Subsidiaries is a
party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any Subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the U.S. Purchase
Agreement and the consummation of the transactions contemplated in this
Agreement, the U.S. Purchase Agreement and in the Registration
Statement and the compliance by the Company with its obligations under
this Agreement and the U.S. Purchase Agreement have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to, the Agreements and Instruments
which would reasonably be expected, either singly or in the aggregate,
to result in a Material Adverse Effect, nor will such action result in
any violation of any applicable
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<PAGE>
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or any of their
assets, properties or operations, nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or
any Subsidiary. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or
a portion of such indebtedness by the Company or any Subsidiary.
(xi) Absence of Labor Dispute. Except as described in the
Registration Statement with respect to the renegotiation of collective
bargaining agreements, no labor dispute with the employees of the
Company or any Subsidiary exists or, to the knowledge of the Company,
is imminent, and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its or any Subsidiary's
principal suppliers, manufacturers, customers, dealers or contractors,
which, in either case, may reasonably be expected to result in a
Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any Subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the
transactions contemplated in this Agreement and the U.S. Purchase
Agreement or the performance by the Company of its obligations
hereunder or thereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement,
including ordinary routine litigation incidental to the business of the
Company and its Subsidiaries would not reasonably be expected to result
in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which
have not been so described or filed or incorporated by reference as
required.
(xiv) Possession of Intellectual Property. Except as described
in the Registration Statement, the Company and its Subsidiaries own or
possess the right to utilize, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its Subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual
-7-
<PAGE>
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of
the Company or any of its Subsidiaries therein, and which infringement
or conflict (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy, singly or in the aggregate, would
result in a Material Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering or sale of
the Securities under this Agreement and the U.S. Purchase Agreement or
the consummation of the transactions contemplated by this Agreement and
the U.S. Purchase Agreement, except such as have been already obtained
or as may be required under the 1933 Act or the 1933 Act Regulations
and foreign or state securities or blue sky laws or the rules or
regulations of the NASD.
(xvi) Possession of Licenses and Permits. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, except
where the failure to possess the same would not, singly or in the
aggregate have a Material Adverse Effect; the Company and its
Subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of
the Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the failure
of such Governmental Licenses to be in full force and effect would not
have a Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xvii) Title to Property. The Company and its Subsidiaries
have good and marketable title to all real property owned by the
Company and its Subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectuses or (b) do
not, singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company or any of its Subsidiaries or (c) would
not reasonably be expected to result in a Material Adverse Effect; and
all of the leases and subleases material to the business of the Company
and its Subsidiaries, considered as one enterprise, and under which the
Company or any of its Subsidiaries holds properties described in the
Prospectuses, are in full force and effect, and neither the Company nor
any Subsidiary has any notice of any claim of any sort that has been
asserted by anyone adverse to the rights of the
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Company or any Subsidiary under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company
or such Subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease which would
reasonably be expected to result in a Material Adverse Effect.
(xviii) Investment Company Act. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated will not
be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(xix) Environmental Laws. Except as described in the
Registration Statement or except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its Subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its Subsidiaries have all
permits, licenses, authorizations and approvals currently required for
their respective businesses and for the businesses contemplated to be
conducted upon consummation of the offering of the Securities under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company or
any of its Subsidiaries and (D) there are no events, facts or
circumstances that might reasonably be expected to form the basis of
any liability or obligation of the Company or any of its Subsidiaries,
including, without limitation, any order, decree, plan or agreement
requiring clean-up or remediation, or any action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or any of its Subsidiaries relating to any Hazardous
Materials or any Environmental Laws.
(xx) Registration Rights. Except for those persons (i) set
forth on Schedule B hereto or (ii) who have waived any such rights,
there are no persons with registration rights or other similar rights
to have any securities registered pursuant to the Registration
Statement under the 1933 Act. Except as described in the Registration
Statement, there are no persons with registration rights or other
similar rights to have any securities registered by the Company under
the 1933 Act.
(xxi) Stabilization or Manipulation. Neither the Company nor
any of its officers, directors or controlling persons has taken,
directly or indirectly, any action designed to cause or to result in,
or that has constituted or which might reasonably be
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expected to constitute, the stabilization or manipulation of the price
of any security of the Company to facilitate the sale of the
Securities.
(xxii) Accounting Controls. The Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization;
and (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxiii) Tax Returns. The Company and its Subsidiaries have
filed all federal, state, local and foreign tax returns that are
required to have been filed by them pursuant to applicable foreign,
federal, state, local or other law or have duly requested extensions
thereof, except insofar as the failure to file such returns or request
such extensions would not reasonably be expected to result in a
Material Adverse Effect, and has paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Company and its
Subsidiaries, except for such taxes or assessments, if any, as are
being contested in good faith and as to which adequate reserves have
been provided or where the failure to pay would not reasonably be
expected to result in a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company in respect of any income and
corporation tax liability of the Company and each Subsidiary for any
years not finally determined are adequate to meet any assessments or
re-assessments for additional income tax for any years not finally
determined, except to the extent of any inadequacy that would not
reasonably be expected to result in a Material Adverse Effect.
(xxiv) No Association with NASD. Neither the Company nor any
of its affiliates (within the meaning of NASD Conduct Rule
2720(b)(1)(a)) directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, or is an associated person (within the meaning of Article
I, Section 1(q) of the By-laws of the National Association of
Securities Dealers, Inc.), of any member firm of the National
Association of Securities Dealers, Inc., other than as described on an
appendix to a Selling Shareholders' Power of Attorney and Custody
Agreement (as defined herein).
b) Representations and Warranties by the Selling Shareholders. Each
Selling Shareholder, severally and not jointly, represents and warrants to each
International Manager as of the date hereof, and, if such Selling Shareholder is
selling International Option Securities on a Date of Delivery, as of each such
Date of Delivery, and agrees with each International Manager, as follows:
(i) Accurate Disclosure by Selling Shareholders. (A) The
information furnished in writing by or on behalf of such Selling
Shareholder listed on Schedule B hereto expressly for use in the
Registration Statement and any amendments or supplements thereto does
not contain an untrue statement of a material fact with respect to such
Selling
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Shareholder or omit to state a material fact with respect to such
Selling Shareholder required to be stated therein or necessary to make
the statements regarding the Selling Shareholder therein not misleading
and (B) the information furnished in writing by or on behalf of such
Selling Shareholder expressly for use in the Prospectus does not
include an untrue statement of a material fact with respect to such
Selling Shareholder or omit to state a material fact with respect to
such Selling Shareholder necessary in order to make the statements
regarding the Selling Shareholder therein, in the light of the
circumstances under which they were made, not misleading.
(ii) Authorization of Agreements. Such Selling Shareholder has
the full right, power and authority to enter into this Agreement and
the Power of Attorney and Custody Agreement (the "Power of Attorney and
Custody Agreement") with Firstar Trust Company, as custodian (the
"Custodian"), and the attorneys-in-fact named therein (each an
"Attorney-in-Fact"), and to sell, transfer and deliver the Securities
to be sold by such Selling Shareholder hereunder. The execution and
delivery of this Agreement and the Power of Attorney and Custody
Agreement and the sale and delivery of the Securities to be sold by
such Selling Shareholder and the consummation of the transactions
contemplated herein and compliance by such Selling Shareholder with its
obligations hereunder have been duly authorized by such Selling
Shareholder and do not and will not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any tax, lien, charge or encumbrance upon the Securities to be sold by
such Selling Shareholder or any property or assets of such Selling
Shareholder pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, license, lease or other
agreement or instrument to which such Selling Shareholder is a party or
by which such Selling Shareholder may be bound, or to which any of the
property or assets of such Selling Shareholder is subject (except for
such conflicts, breaches or defaults or liens, charges or encumbrances
that would not result in a material adverse change in the condition
(financial or otherwise), earnings, business affairs or business
prospects of such Selling Shareholder (a "Selling Shareholder Material
Adverse Effect"), whether or not arising in the ordinary course of
business), nor will such action result in any violation of the
provisions of the charter or by-laws or other organizational instrument
of such Selling Shareholder, if applicable, or any applicable treaty,
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over such Selling Shareholder or any of its
properties which would reasonably be expected, either singly or in the
aggregate, to result in a Selling Shareholder Material Adverse Effect.
(iii) Valid Title. Such Selling Shareholder has on the date
hereof and will at the Closing Time and on the Date of Delivery have
good and valid title to the International Securities to be sold by such
Selling Shareholder hereunder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any
kind, other than pursuant to this Agreement; and upon delivery of such
International Securities and payment of the purchase price therefor as
herein contemplated, assuming each such Underwriter has no notice of
any adverse claim as such term is used in the Uniform Commercial Code,
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each of the Underwriters will receive valid title to the International
Securities purchased by it from such Selling Shareholder, free and
clear of any security interest, mortgage, pledge, lien, charge, claim,
equity or encumbrance of any kind.
(iv) Due Execution of Power of Attorney and Custody Agreement.
Each such Selling Shareholder has duly executed and delivered a Power
of Attorney and Custody Agreement; the Custodian is authorized by each
such Selling Shareholder to deliver the International Securities to be
sold by such Selling Shareholder hereunder and to accept payment
therefor; and each Attorney-in-Fact named in the Power of Attorney and
Custody Agreement executed by such Selling Shareholder is authorized by
such Selling Shareholder to execute and deliver this Agreement and the
certificate referred to in Section 5(e) of this Agreement or that may
be required pursuant to Sections 5(m) or 5(n) of this Agreement on
behalf of such Selling Shareholder, to sell, assign and transfer to the
International Managers the International Securities to be sold by such
Selling Shareholder hereunder, to determine the purchase price to be
paid by the U.S. Underwriters to such Selling Shareholder, as provided
in Section 2(a) hereof, to authorize the delivery of the Securities to
be sold by such Selling Shareholder hereunder, to accept payment
therefor, and otherwise to act on behalf of such Selling Shareholder in
connection with this Agreement.
(v) Absence of Manipulation. Such Selling Shareholder has not
taken, and will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the International Securities.
(vi) Absence of Further Requirements. No filing with, or
consent, approval, authorization, order, registration, qualification or
decree of, any court or governmental authority or agency, domestic or
foreign, is necessary or required for the performance by each such
Selling Shareholder of their obligations hereunder or in the Power of
Attorney and Custody Agreement, or in connection with the sale and
delivery of the International Securities being sold by each such
Selling Shareholder hereunder or the consummation of the transactions
contemplated by this Agreement, except such as may have previously been
made or obtained or as may be required under the 1933 Act or the 1933
Act Regulations or state or foreign securities laws or under the rules
of the NASD.
(vii) Certificates Suitable for Transfer. Certificates for all
of the International Securities to be sold by such Selling Shareholder
pursuant to this Agreement, in suitable form for transfer by delivery
or accompanied by duly executed instruments of transfer or assignment
in blank with signatures guaranteed, have been placed in custody with
the Custodian with irrevocable conditional instructions to deliver such
International Securities to the International Managers pursuant to this
Agreement.
(viii) Irrevocable Obligations. The International Securities
represented by the Certificates held in custody for such holder under
the Custody Agreement are subject to the interests of the International
Managers hereunder; the arrangements made by such
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holder for such custody, and the appointment by such holder of the
Attorneys-in-fact by the Power of Attorney, are to that extent
irrevocable; the obligations of such holder hereunder shall not be
terminated, except as provided in the Agreement or in the Power of
Attorney, by operation of law, whether by the death or incapacity of
any individual Selling Shareholder or, in the case of an estate or
trust, by the death or incapacity of any executor or trustee or the
termination of such trust estate or trust, or in the case of a
partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event, if any individual
Selling Shareholder or any such executor or trustee should die or
become incapacitated, or if any such estate or trust should be
terminated, or any such partnership or corporation should be dissolved,
or if any other event should occur, before the delivery of the
International Securities hereunder, certificates representing the
International Securities shall be delivered by or on behalf of such
holder in accordance with the terms and conditions of this Agreement
and of the Power of Attorney and Custody Agreement; and actions taken
by the Attorney-in-Fact pursuant to the Powers of Attorney shall be as
valid as if such death, incapacity, termination, dissolution or other
event had not occurred, regardless of whether or not the Custodian,
Attorney-in-Fact, or any of them, shall have received notice of such
death, incapacity, termination, dissolution or other event.
(ix) No Association with NASD. Neither such Selling
Shareholder nor any of its affiliates (within the meaning of NASD
Conduct Rule 2720(b)(1)(a)) directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, or is an associated person (within the meaning of Article
I, Section 1(q) of the By-laws of the National Association of
Securities Dealers, Inc.), of, any member firm of the National
Association of Securities Dealers, Inc., other than as described on an
appendix to the Power of Attorney and Custody Agreement to which such
Selling Shareholder is a party.
(x) Power and Authority. If such Selling Shareholder is a
corporation, partnership or trust, such Selling Shareholder has been
duly organized or incorporated and is validly existing as a corporation
or partnership or limited partnership in good standing under the laws
of its jurisdiction of incorporation or organization, if applicable,
and has the power and authority to own its property and to conduct its
business and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not result in a Selling Shareholder Material Adverse
Effect, whether or not arising in the ordinary course of business, or
materially impair its ability to consummate the transactions
contemplated hereby.
(c) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its Subsidiaries delivered to the Global Coordinator, the
Lead Managers or to counsel for the International Managers shall be deemed a
representation and warranty by the Company to each International Manager as to
the matters covered thereby; and any certificate signed by or on behalf of any
Selling Shareholder as such and delivered to the International Managers or to
counsel for the International Managers pursuant to the terms of this Agreement
shall be deemed a
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representation and warranty by such Selling Shareholder, as the case may be, to
the International Managers as to the matters covered thereby.
SECTION 2. Sale and Delivery to International Managers; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Selling Shareholders agree to sell to each International Manager,
severally and not jointly, to the extent indicated on Schedule A hereto, and
each International Manager, severally and not jointly, agrees to purchase from
the Selling Shareholders, at the price per share set forth in Schedule C, the
proportion of the number of Initial International Securities being sold by each
Selling Shareholder set forth in Schedule B opposite the name of each Selling
Shareholder which the number of International Securities set forth in Schedule A
opposite the name of such International Manager, (plus any additional number of
Initial International Securities which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 10 hereof) bears to the total
number of International Securities, in each case, with such adjustments among
the International Managers as the global coordinator in its sole discretion
shall make to eliminate any sales or purchases of fractional securities.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Selling Shareholders, severally and not jointly, hereby grant an
option to the International Managers, severally and not jointly, to purchase up
to an additional 195,000 shares of Common Stock to the extent indicated on
Schedule B-1, at the price per share set forth in Schedule C, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial International Securities but not payable on the
International Option Securities. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial International Securities upon
notice by the Global Coordinator to the Selling Shareholders setting forth the
number of International Option Securities as to which the several International
Managers are then exercising the option and the time and date of payment and
delivery for such International Option Securities. Any such time and date of
delivery for the International Option Securities (a "Date of Delivery") shall be
determined by the Global Coordinator, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined. If the option is exercised as to all or
any portion of the International Option Securities, each of the International
Managers, acting severally and not jointly, will purchase that proportion of the
total number of International Option Securities then being purchased which the
number of Initial International Securities set forth in Schedule A opposite the
name of such International Manager bears to the total number of Initial
International Securities, subject in each case to such adjustments as the Global
Coordinator in its discretion shall make to eliminate any sales or purchases of
fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Fried,
Frank, Harris, Shriver & Jacobson, 1 New York Plaza, New York, New York 10004,
or at such other place as shall be agreed upon by the
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Global Coordinator and the Company, at 9:00 A.M. (Eastern time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Global Coordinator and the
Selling Shareholders or the Attorneys-in-Fact on behalf of the Selling
Shareholders (such time and date of payment and delivery being herein called
"Closing Time").
In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Global Coordinator and the Selling Shareholders
or the Attorneys-in-Fact on behalf of the Selling Shareholders, on each Date of
Delivery as specified in the notice from the Global Coordinator to the Selling
Shareholders.
Payment shall be made to each Selling Shareholder by wire transfer of
immediately available funds to a bank account designated by the Custodian
pursuant to the Selling Shareholders' Power of Attorney and Custody Agreement,
against delivery to the Lead Managers for the respective accounts of the
International Managers of certificates for the International Securities to be
purchased by them. It is understood that each International Manager has
authorized the Lead Managers, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Initial International
Securities and the International Option Securities, if any, which it has agreed
to purchase. Merrill Lynch, individually and not as representative of the
International Managers, may (but shall not be obligated to) make payment of the
purchase price for the Initial International Securities or the International
Option Securities, if any, to be purchased by any International Manager whose
funds have not been received by the Closing Time or the relevant Date of
Delivery, as the case may be, but such payment shall not relieve such
International Manager from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and registered in such names as the Lead Managers may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
International Securities and the International Option Securities, if any, will
be made available for examination and packaging by the Lead Managers in The City
of New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
International Manager as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement,
shall become effective, or any supplement to the Prospectuses or any
amended Prospectuses shall have been filed, (ii) of the receipt of any
comments from the
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Commission, (iii) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the
Prospectuses or for additional information, and (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use
of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings
for any of such purposes. The Company will promptly effect the filings
necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file
such prospectus. The Company will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)),
any Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectuses, will furnish the Global Coordinator
with copies of any such documents a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file or
use any such document to which the Global Coordinator or counsel for
the International Managers shall reasonably object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Lead Managers and counsel for the
International Managers, without charge, signed copies of the
Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith) and signed copies of all
consents and certificates of experts, and will also deliver to the Lead
Managers, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the International Managers. The copies of the
Registration Statement and each amendment thereto furnished to the
International Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered or
will deliver to each International Manager, without charge, as many
copies of each preliminary prospectus as such International Manager
reasonably requested, and the Company hereby consents to the use of
such copies for purposes permitted by the 1933 Act. The Company will
furnish to each International Manager, without charge, during the
period when the International Prospectus is required to be delivered
under the 1933 Act or the Securities Exchange Act of 1934 (the "1934
Act"), such number of copies of the International Prospectus (as
amended or supplemented) as such International Manager may reasonably
request. The International Prospectus and any amendments or supplements
thereto furnished to the International Managers will be identical to
the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
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(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement, the U.S. Purchase Agreement and in the
Prospectuses. If at any time when a prospectus is required by the 1933
Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is
necessary to amend the Registration Statement or amend or supplement
any Prospectus in order that the Prospectuses will not include any
untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary at any such time to amend the
Registration Statement or amend or supplement any Prospectus in order
to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectuses comply with such
requirements, and the Company will furnish to the International
Managers such number of copies of such amendment or supplement as the
International Managers may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the International Managers, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Global Coordinator may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that neither the Company nor
any of the Selling Shareholders shall be obligated to file any general
consent to service of process or to qualify as a foreign corporation or
as a dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing business
in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the
Company will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for
a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Restriction on Sale of Securities. During a period of 90
days from the date of the Prospectuses, the Company will not, without
the prior written consent of the Global Coordinator, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or
dispose of any share of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock or file any
registration statement under the 1933 Act with respect to any of the
foregoing or (ii)
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enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise
except pursuant to Common Stock issued in connection with (y) the
Company's stock option plans existing at the Closing Time or (z)
acquisitions by the Company; provided that, in the case of clause (z),
it shall be a condition to such stock issuance that the third party
receiving such shares executes a lock-up agreement on substantially the
same terms as described above for a period expiring 90 days from the
date of the Prospectus and there shall be no further transfer of such
shares except in accordance with the provisions of such lock-up
agreement. The foregoing sentence shall not apply to the Securities to
be sold hereunder or under the U.S. Purchase Agreement
(i) Reporting Requirements. The Company, during the period
when the Prospectuses are required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities by the Company to the Underwriters
and the transfer of the Securities between the International Managers and the
U.S. Underwriters, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectuses and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the blue
sky survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities and (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the NASD of the terms of the sale of the
Securities.
(b) Expenses of the Selling Shareholders. The Company will pay all
expenses incident to the performance of the Selling Shareholders' obligations
under, and the consummation of the transactions contemplated by, this Agreement
(other than any underwriting discount), including (i) any stamp duties, capital
duties and stock transfer taxes, if any, payable upon the sale of the
International Option Securities by the Selling Shareholders to the
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Underwriters, and their transfer between the Underwriters pursuant to an
agreement between such Underwriters and (ii) the fees and disbursements of the
Selling Shareholders' counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
Lead Managers in accordance with the provisions of Section 5 or Sections 9(a)(i)
or (ii) hereof, the Company shall reimburse the International Managers for all
of their out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for the International Managers.
(d) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Shareholders may make for
the sharing of such costs and expenses.
SECTION 5. Conditions of International Managers' Obligations. The
obligations of the several International Managers hereunder are subject to the
accuracy of the representations and warranties of the Company and the Selling
Shareholders contained in Section 1 hereof or in certificates of any officer of
the Company or any Subsidiary of the Company or on behalf of the Selling
Shareholders delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective under the 1933 Act; and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the International Managers. A
prospectus containing the Rule 430A Information shall have been filed
with the Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for the Company and the Selling
Shareholders. At Closing Time, the Lead Managers shall have received
the favorable opinions, dated as of Closing Time, of (i) Dewitt, Ross &
Stevens s.c., counsel to the Company, relating to certain matters of
Wisconsin law, (ii) Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to the Company, (iii) Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel for the Category 1 Selling Shareholders and special
counsel to the Category 2 Selling Shareholders with respect to certain
matters of New York law, and (iv) Dewitt, Ross & Stevens s.c. counsel
to the Category 2 Selling Shareholders, in each case in form and
substance reasonably satisfactory to counsel for the International
Managers together with signed or reproduced copies of such letter for
each of the other International Managers, dated such Date of Delivery,
to the effect set forth in Exhibits A-1, A-2, A-3 and A-4,
respectively, hereto.
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(c) Opinion of Counsel for International Managers. At Closing
Time, the Lead Managers shall have received the favorable opinion,
dated as of Closing Time, of Fried, Frank, Harris, Shriver & Jacobson,
counsel for the International Managers, together with signed or
reproduced copies of such letter for each of the other International
Managers with respect to the matters set forth in clauses (i), (ii)
(solely as to preemptive or other similar rights arising by operation
of law or under the charter or bylaws of the Company), (v) (solely as
to the information contained in or incorporated by reference therein in
the Prospectus with respect to the "Description of Capital Stock") and
(viii) of Exhibit A-1; and to the matters set forth in paragraph 3 and
the penultimate paragraph Exhibit A-2. In giving such opinion such
counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the
federal law of the United States and the General Corporation Law of the
State of Delaware, upon the opinions of counsel satisfactory to the
Lead Managers. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its
Subsidiaries and of the Selling Shareholders and certificates of public
officials.
(d) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectuses, any material adverse
change in the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary
course of business, and the Lead Managers shall have received a
certificate of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company, dated
as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct with the same force and effect
as though expressly made at and as of Closing Time, (iii) the Company
has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to Closing Time, and (iv)
no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened by the Commission.
(e) Selling Shareholders' Certificate. At Closing Time, the
Lead Managers shall have received a certificate of each Selling
Shareholder (which may be executed on behalf of each Selling
Shareholder by the general partner or a duly authorized executive
officer of such Selling Shareholder), dated as of Closing Time, to the
effect that (i) the representations and warranties of such Selling
Shareholder contained in Section 1(b) hereof are true and correct with
the same force and effect as though expressly made at and as of the
Closing Time and (ii) such Selling Shareholder has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied under this Agreement at or prior to the Closing Time.
(f) Accountant's Comfort Letters. At the time of the execution
of this Agreement, the Lead Managers shall have received from KPMG Peat
Marwick LLP a letter in the form of Exhibit C-1 hereto and from Coopers
& Lybrand LLP a letter in the
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form of Exhibit C-2 hereto, dated such date, in form and substance
reasonably satisfactory to the Lead Managers, together with signed or
reproduced copies of such letter for each of the other International
Managers containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect
to the financial statements and certain financial information contained
in the Registration Statement and the Prospectuses.
(g) Bring-down Comfort Letters. At Closing Time, the Lead
Managers shall have received letters from KPMG Peat Marwick LLP and
Coopers & Lybrand LLP, dated as of Closing Time, to the effect that
they reaffirm the statements made in the letter furnished pursuant to
subsection (e) of this Section, except that the specified date referred
to shall be a date not more than three business days prior to Closing
Time.
(h) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the
Lead Managers shall have received an agreement substantially in the
form of Exhibit B hereto signed by the persons listed on Schedule D
hereto.
(j) Purchase of Initial U.S. Securities. Contemporaneously
with the purchase by the International Managers of the Initial
International Securities under this Agreement, the U.S. Underwriters
shall have purchased the Initial U.S. Securities under the U.S.
Purchase Agreement.
(k) Custody Agreement. At the date of this Agreement the Lead
Managers shall have received copies of the Power of Attorney and
Custody Agreement executed by each of the Selling Shareholders.
(l) Conditions to Purchase of International Option Securities.
In the event that the International Managers exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
International Option Securities, the representations and warranties of
the Company contained herein and the statements in any certificates
furnished by the Company or any Subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Lead Managers shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the
Company and of the chief financial or chief accounting
officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(d)
hereof remains true and correct as of such Date of
Delivery.
(ii) Selling Shareholder's Certificate. At the Date of
Delivery, the Lead Managers shall have received a
certificate of each Selling Shareholder
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(which may be executed on behalf of each Selling
Shareholder by the general partner or a duly authorized
executive officer of such Selling Shareholder or such
Selling Shareholder's Attorney-in-Fact), dated as of
Date of Delivery, to the effect that (x) the
representations and warranties of such Selling
Shareholder contained in Section 1(b) hereof are true
and correct with the same force and effect as though
expressly made at and as of Date of Delivery and (y)
such Selling Shareholder has complied with all
agreements and satisfied all conditions on their part to
be performed or satisfied under this Agreement at or
prior to Date of Delivery.
(iii) Opinion of Counsel for Company and the Selling
Shareholders. The favorable opinion of (w) Dewitt,
Ross & Stevens s.c., counsel to the Company, relating
to certain matters of Wisconsin law, (x) Skadden, Arps,
Slate, Meagher & Flom LLP, special counsel to the
Company, (y) Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Category 1 Selling Shareholders
and special counsel to the Category 2 Selling
Shareholders with respect to certain matters of New York
law, and (z) Dewitt, Ross & Stevens s.c. counsel to the
Category 2 Selling Shareholders, in each case in form
and substance reasonably satisfactory to counsel for the
International Managers together with signed or
reproduced copies of such letter for each of the other
International Managers, dated such Date of Delivery,
relating to the International Option Securities to be
purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(b).
(iv) Opinion of Counsel for International Managers. The
favorable opinion of Fried, Frank, Harris, Shriver &
Jacobson, counsel for the International Managers, dated
such Date of Delivery, relating to the International
Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
(v) Bring-down Comfort Letters. Letters from Coopers &
Lybrand LLP and KPMG Peat Marwick LLP in form and
substance reasonably satisfactory to the Lead Managers
and dated such Date of Delivery, substantially in the
same form and substance as the letter furnished to the
Lead Managers pursuant to Section 5(g) hereof, except
that the "specified date" in the letter furnished
pursuant to this paragraph shall be a date not more than
five days prior to such Date of Delivery.
(m) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the International Managers shall have been
furnished with such documents and opinions as they may reasonably
require for the purpose of enabling them to pass upon the issuance and
sale of the Securities as herein contemplated, or in order to evidence
the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company and the Selling Shareholders in
connection with the issuance and sale of the Securities as herein
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contemplated shall be reasonably satisfactory in form and substance to
the Lead Managers and counsel for the International Managers.
(n) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of International Option Securities on a Date of Delivery which
is after the Closing Time, the obligations of the several International
Managers to purchase the relevant Option Securities, may be terminated
by the Lead Managers by notice to the Company at any time at or prior
to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of International Managers by the Company. The
Company agrees to indemnify and hold harmless each International Manager and
each person, if any, who controls any International Manager within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows to the
extent set forth below:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the indemnifying party; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
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provided, however, that this indemnity agreement shall not (i) apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any International Manager through the Lead Managers or any U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus or U.S. Prospectus, as the case may
be, (or any amendment or supplement thereto) or (ii) inure to the benefit of any
International Manager from whom the person asserting any loss, liability, claim,
damage or expense, purchased Securities, or any person controlling such
International Manager, if it shall be established that a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
U.S. Underwriter to such person, if required by law to have been so delivered,
at or prior to the confirmation of the sale of such Securities to such person in
any case where the Company complied with its obligations under Sections 3(a),
3(b) and 3(d), and if the Prospectus (as so amended or supplemented) would have
cured any defect giving rise to such loss, liability, claim damage, or expense.
(b) Indemnification of the International Managers by the Selling
Shareholders. Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each International Manager and each person, if any,
who controls any International Manager within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows to the extent set forth below:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the indemnifying party; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
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governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not (i) apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any International Manager through the Lead Managers or any U.S.
Underwriter through the U.S. Representative expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus or U.S. Prospectus, as the case may
be (or any amendment or supplement thereto) or (ii) inure to the benefit of any
International Manager from whom the person asserting any loss, liability, claim,
damage or expense, purchased Securities, or any person controlling such
International Manager, if it shall be established that a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
International Manager to such person, if required by law to have been so
delivered, at or prior to the confirmation of the sale of such Securities to
such person in any case where the Company complied with its obligations under
Sections 3(a), 3(b) and 3(d), and if the Prospectus (as so amended or
supplemented) would have cured any defect giving rise to such loss, liability,
claim damage, or expense; provided, however, further, that with respect to each
Selling Shareholder, (x) the indemnification provision in this paragraph (b)
shall only apply to any loss, liability, claim, damage or expense to the extent
arising out of any untrue statement or omission, or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by such Selling Shareholder expressly for use in the
Registration Statement (or any amendment thereto) including the Rule 430A
Information and the Rule 434 Information if applicable, or any such preliminary
International prospectus or the International Prospectus or the U.S. Prospectus,
as the case may be, (or any amendment or supplement thereto) and (y) each
Selling Shareholder's aggregate liability under this Section 6 shall be limited
to an amount equal to the net proceeds (after deducting the underwriting
discount but before deducting expenses) received by such Selling Shareholder
from the sale of Securities pursuant to this Agreement.
(c) Indemnification of Company, Directors and Officers and Selling
Shareholders. Each International Manager severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each
Selling Shareholder and each person, if any, who controls any Selling
Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 6(a) and Section 6(b) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary International Prospectus or the
International Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company by such
International Manager through the Lead
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<PAGE>
Managers expressly for use in the Registration Statement (or any amendment
thereto) or such preliminary prospectus or the International Prospectus (or any
amendment or supplement thereto).
(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) and
Section 6(b) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(c)
above, counsel to the indemnified parties shall be selected by the Company or
the indemnified Selling Shareholder, as appropriate. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any necessary local counsel) separate from
their own counsel for all indemnified parties in connection with any one action
or separate but similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances; No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(e) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel for which the indemnifying
party is responsible pursuant to the terms hereof, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) or Section (6)(b)(iii) effected without its written consent if
(i) such settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 45 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(f) Other Agreements with Respect to Indemnification. The provisions of
this Section shall not affect any agreement among the Company and the Selling
Shareholders with respect to indemnification.
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SECTION 7. Contribution. If, although applicable in accordance with
its terms, the indemnification provided for in Section 6 hereof is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholders, collectively, on the one hand and the International Managers on
the other hand from the offering of the Securities pursuant to this Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Shareholders on the one hand and of the International
Managers on the other hand in connection with the statements or omissions, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the International Managers on the other hand in
connection with the offering of the International Securities pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the International Securities pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders and the total underwriting discount received by the International
Managers, in each case as set forth on the cover of the International
Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet, bear to the aggregate initial public offering price of the International
Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholders on the
one hand and the International Managers on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Selling Shareholders
or by the International Managers and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Shareholders and the International Managers
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the International
Managers were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 7. The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in
this Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no International
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public
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exceeds the amount of any damages which such International Manager has otherwise
been required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, (a) each person, if any, who controls a
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, (b) each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company and
(c) each person, if any, who controls any Selling Shareholder within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as such Selling Shareholder. The International Managers
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial International Securities set forth opposite
their respective names in Schedule A hereto and not joint.
Notwithstanding the provisions of this Section 7, no Selling
Shareholder shall be required to contribute any amount in excess of the amount
equal to the net proceeds (after deducting the underwriting discount but before
deducting expenses) received by such Selling Shareholder from the sale of
International Securities pursuant to this Agreement.
The provisions of this Section shall not affect any agreement among the
Company and the Selling Shareholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
Subsidiaries or the Selling Shareholders submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any International Manager or controlling person, or by or on
behalf of the Company or any Selling Shareholder, and shall survive delivery of
the International Option Securities to the International Managers.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Lead Managers may terminate this
Agreement, by notice to the Company and the Attorneys-in-Fact on behalf of the
Selling Shareholders, at any time at or prior to Closing Time (i) if there has
been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the International Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there shall have occurred a downgrading
in the rating assigned to any of the Company's debt securities by
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any nationally recognized securities rating agency, or if such securities rating
agency shall have publicly announced that it has under surveillance or review,
with possible negative implications, its rating of any of the Company's debt
securities, or (iii) if there has occurred any material adverse change in the
financial markets in the United States or the international financial markets,
any outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Lead Managers,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iv) if trading in any securities of the Company has been
suspended or materially limited by the Commission or the New York Stock
Exchange, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (v) if a banking moratorium has
been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the International Managers. If
one or more of the International Managers shall fail at Closing Time or a Date
of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Lead Managers
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Lead Managers shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of International Securities to be purchased on such date,
each of the non-defaulting International Managers shall be obligated,
severally and not jointly, to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder
bear to the underwriting obligations of all non-defaulting
International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of International Securities to be purchased on such date, this
Agreement or, with respect to any Date of Delivery which occurs after
the Closing Time, the obligation of the International Managers to
purchase the International Option Securities to be purchased and sold
on such Date of Delivery shall terminate without liability on the part
of any non-defaulting International Manager.
No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.
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<PAGE>
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
International Managers to purchase and the Selling Shareholders to sell the
relevant International Securities, as the case may be, either (i) the Lead
Managers or (ii) the Selling Shareholders shall have the right to postpone the
Closing Time or the relevant Date of Delivery, as the case may be, for a period
not exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
As used herein, the term "International Manager" includes any person substituted
for a International Manager under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Lead Managers at North Tower,
World Financial Center, New York, New York 10281-1201, attention of W. Gregg
Smart, with a copy to Fried, Frank, Harris, Shriver & Jacobson, 1 New York
Plaza, New York, New York 10004, attention of Valerie Ford Jacob, Esq.; and
notices to the Company shall be directed to it at Rayovac Corporation, 601
Rayovac Drive, Madison, Wisconsin 53711, attention of James A. Broderick, Esq.,
with a copy to Louis A. Goodman, Esq. Skadden, Arps, Slate, Meagher & Flom, LLP,
One Beacon Street, Boston, MA; notices to the Selling Shareholders shall be
delivered to them at the address for notices indicated on the Power of Attorney
and Custody Agreement.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the International Managers, the Company, and the Selling
Shareholders and, their respective successors. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the International Managers, the Company, and the Selling
Shareholders and, their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the International Managers, the Company, the Selling
Shareholders, and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any International Manager shall be deemed to be a successor by reason merely of
such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME. AS USED HEREIN, THE TERM "BUSINESS
DAY" MEANS ANY DAY ON WHICH THE NEW YORK STOCK EXCHANGE AND COMMERCIAL BANKS IN
NEW YORK CITY ARE REGULARLY OPEN FOR BUSINESS.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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<PAGE>
SECTION 15. Counterparts.. This Agreement may be executed in one or
more counterparts and, when a counterpart has been executed by each party
hereto, all such counterparts taken together shall constitute one and the same
agreement. The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof
-31-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Attorneys-in-Fact for
the Selling Shareholders a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement among the International
Managers, the Company and the Selling Shareholders in accordance with its terms.
Very truly yours,
RAYOVAC CORPORATION
By: ____________________________
Name: David A. Jones
Title: Chairman of the Board,
Chief Executive Officer and
President
SELLING SHAREHOLDERS LISTED IN
CATEGORY 1 ON SCHEDULE B HERETO
THOMAS H. LEE EQUITY FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
By: THL Equity Trust III,
as General Partner
By: ____________________________
Name:
Title:
THOMAS H. LEE FOREIGN FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
-1-
<PAGE>
By: THL Equity Trust III,
as General Partner
By: ____________________________
Name:
Title:
THL-CCI LIMITED PARTNERSHIP
By: THL Investment Management Corp.
as General Partner
By: ____________________________
Name:
Title:
SELLING SHAREHOLDERS LISTED IN
CATEGORY 2 ON SCHEDULE B HERETO
By: ____________________________
Name:
Title: Attorney-in-Fact on behalf of
the Selling Shareholders
listed in Category 2 on
Schedule B hereto
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SMITH BARNEY INC.
By: MERRILL LYNCH INTERNATIONAL
By: _____________________________
Authorized Signatory
For themselves and as Lead Managers of the
other International Managers named in Schedule A hereto.
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<PAGE>
SCHEDULE A
Number of
Initial International
Name of International Manager Securities
----------------------------- ----------
Merrill Lynch International................................
Bear, Stearns International Limited........................
Donaldson, Lufkin & Jenrette Securities Corporation........
Smith Barney, Inc..........................................
Total...................................................... 1,300,000
=========
-1-
<PAGE>
SCHEDULE B
Selling Shareholder Number of Initial International
Securities to be Sold*
Category 1
THOMAS H. LEE EQUITY FUND III, L.P.
THOMAS H. LEE FOREIGN FUND III, L.P.
THL-CCI Limited Partnership
Total Category 1
Category 2
Carter J. Balfour
Kevin Balfour
Kenneth V. Biller
James A. Broderick
Fred Christopher Brooks
Bernard T. Conner
David M. Darkoch
Kenneth Drescher
Fleming Trust
Mark G. Hines
John E. Hofkes
Kent J. Hussey
David A. Jones
Pamela A. Josheff
Robert K. Kloppenburg
Richard A. Kreutz
Trygve Lonnebotn
Terrence P. McGraw
Rayovac Corporation Deferred Compensation
Emil J. Ripley and Laverne M. Ripley
Stephen P. Salzieder
Stephen P. Shanesy
Shanesy Children's Trust f/b/o Kelsey Alice Shanesy
Shanesy Children's Trust f/b/o Nicholas Auster Shanesy
Dale R. Tetzlaff
Michael G. Thompson
Merrill Tomlin
Deborah L. Ulrich
Lucille Warren
Roger F. Warren
Andrew P. Warren Irrevocable Trust
Michael F. Warren Irrevocable Trust
Gary E. Wilson
Martin W. Wirt
Karl M. Wulf
Total Category 2
Total of Category 1 and Category 2......................... 1,300,000
=========
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<PAGE>
SCHEDULE B-1
Over allotment Number of International Option
Selling Shareholder Securities
to be Sold*
Category 1
THOMAS H. LEE EQUITY FUND III, L.P.
THOMAS H. LEE FOREIGN FUND III, L.P.
THL-CCI Limited Partnership
Total Category 1
Category 2
Carter J. Balfour
Kevin Balfour
Kenneth V. Biller
James A. Broderick
Fred Christopher Brooks
Bernard T. Conner
David M. Darkoch
Kenneth Drescher
Fleming Trust
Mark G. Hines
John E. Hofkes
Kent J. Hussey
David A. Jones
Pamela A. Josheff
Robert K. Kloppenburg
Richard A. Kreutz
Trygve Lonnebotn
Terrence P. McGraw
Rayovac Corporation Deferred Compensation
Emil J. Ripley and Laverne M. Ripley
Stephen P. Salzieder
Stephen P. Shanesy
Shanesy Children's Trust f/b/o Kelsey Alice Shanesy
Shanesy Children's Trust f/b/o Nicholas Auster Shanesy
Dale R. Tetzlaff
Michael G. Thompson
Merrill Tomlin
Deborah L. Ulrich
Lucille Warren
Roger F. Warren
Andrew P. Warren Irrevocable Trust
Michael F. Warren Irrevocable Trust
Gary E. Wilson
Martin W. Wirt
Karl M. Wulf
Total Category 2
Total of Category 1 and Category 2..................... 195,000
=======
<PAGE>
SCHEDULE C
Rayovac Corporation.
1,300,000 Shares of Common Stock
(Par Value $0.01 Per Share)
1. The public offering price per share for the Securities, determined
as provided in said Section 2, shall be $ .
2. The purchase price per share for the International Securities to be
paid by the several International Managers shall be $ , being an amount equal to
the public offering price set forth above less $ per share; provided that the
purchase price per share for any International Option Securities purchased upon
the exercise of the over-allotment option described in Section 2(b) shall be
reduced by an amount per share equal to any dividends or distributions declared
by the Company and payable on the Initial International Securities but not
payable on the International Option Securities.
<PAGE>
SCHEDULE D
List of Persons and Entities Subject to Lock-up
THOMAS H. LEE EQUITY FUND III, L.P.
THOMAS H. LEE FOREIGN FUND III, L.P.
THL-CCI Limited Partnership
Carter J. Balfour
Kevin Balfour
Kenneth V. Biller
James A. Broderick
Fred Christopher Brooks
Bernard T. Conner
David M. Darkoch
Kenneth Drescher
Fleming Trust
Mark G. Hines
John E. Hofkes
Kent J. Hussey
David A. Jones
Pamela A. Josheff
Robert K. Kloppenburg
Richard A. Kreutz
Trygve Lonnebotn
Terrence P. McGraw
Rayovac Corporation Deferred Compensation
Emil J. Ripley and Laverne M. Ripley
Stephen P. Salzieder
Stephen P. Shanesy
Shanesy Children's Trust f/b/o Kelsey Alice Shanesy
Shanesy Children's Trust f/b/o Nicholas Auster Shanesy
Dale R. Tetzlaff
Michael G. Thompson
Merrill Tomlin
Deborah L. Ulrich
Lucille Warren
Roger F. Warren
Andrew P. Warren Irrevocable Trust
Michael F. Warren Irrevocable Trust
Gary E. Wilson
Martin W. Wirt
Karl M. Wulf
<PAGE>
Schedule E
Subsidiaries of the Company
Direct Power Plus, Inc., a New York corporation
Minera Vidaluz S.A. DE C.V., a Mexico corporation
ROV Holding, Inc., a Delaware corporation
Vidor Battery Company, a Wisconsin corporation
Rayovac Foreign Sales Corporation, a Barbados corporation
Rovcal, Inc., a California corporation
Rayovac (UK) Limited, an United Kingdom corporation
Rayovac Europe Limited, an United Kingdom corporation
Rayovac Canada, Inc., a Canada corporation
Rayovac Far East Limited, a Hong Kong corporation
Zoephos International N.V., a Netherlands Antilles corporation
Rayovac Europe, B.V., a Netherlands Antilles corporation
Brisco Electronics, B.V., a Netherlands Antilles corporation
Brisco GmbH, a German corporation
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<PAGE>
EXHIBIT A-1
FORM OF OPINION OF DEWITT, ROSS & STEVENS S.C., WISCONSIN COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
U.S. Purchase Agreement
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as representatives of the several
international managers to be named
in the International Purchase Agreement
c/o Merrill Lynch & Co.
North Tower
World Financial Center
New York, New York 10210-1209
Ladies and Gentlemen:
We have acted as special counsel to Rayovac Corporation, a Wisconsin
corporation (the "Company") in connection with (i) the registration and sale by
the Company of 5,200,000 shares of the Company's Common Stock, par value $0.01
per share (the "U.S. Shares"), pursuant to the terms of the U.S. Purchase
Agreement (the "U.S. Purchase Agreement"), dated April [ ], 1998, between the
Company, the persons listed on Schedule B thereto (the "Selling Shareholders")
and the U.S. Underwriters named in Schedule A thereto (the "U.S. Underwriters")
and (ii) the registration and sale by the company of 1,300,000 shares of Common
Stock (the "International Shares," and together with the U.S. Shares, the
"Shares"), pursuant to the terms of the International Purchase Agreement (the
"International Purchase Agreement"), dated April [ ], 1998, between the Company,
the persons listed on Schedule B thereto (the "Selling
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<PAGE>
Shareholders") and the international managers named in Schedule A thereto (the
"International Managers").
This opinion is being furnished pursuant to Section 5(b) of the U.S.
Purchase Agreement and Section 5(b) of the International Purchase Agreement.
Capitalized terms used but not otherwise defined herein shall have the
respective meanings set forth in the U.S. Purchase Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-3 (File No. 333- ) relating to the Shares filed with the
Securities and Exchange Commission (the "Commission") on April 2, 1998, under
the Securities Act of 1933, as amended (the "Act"), including the information
deemed to be a part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A of the General Rules and Regulations under the Act (the
"Rules and Regulations") (such registration statement, as so amended, being
hereinafter referred to as the "Registration Statement"); (ii) the final U.S.
prospectus dated [ ], 1998, relating to the U.S. Shares filed with the
Commission on [ ], 1998, pursuant to Rule 424(b) of the Rules and Regulations
(the "U.S. Prospectus"); (iii) the final International Prospectus dated [ ],
1998, pursuant to Rule 424(b) of the Rules and Regulations (the "International
Prospectus" and together with the U.S. Prospectus, the "Prospectuses"); (iv)
executed copies of the U.S. Purchase Agreement and the International Purchase
Agreement; (v) a specimen certificate representing the Common Stock (the
"Specimen Certificate"); and (vi) the certificate of James A. Broderick, General
Counsel to the Company, attached hereto as Exhibit A (the "Officer's
Certificate"). We have also examined originals or certified or otherwise
identified to our satisfaction, of all such records of the Company and all such
agreements, certificates of public officials, certificates of officers or other
representatives of the Company and others and such other documents, certificates
and records as we have deemed necessary or appropriate as a basis for the
opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
executed documents, we have assumed that the parties thereto (including the
Company) had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein that are not independently established
or verified, we have relied upon oral or written statements and representations
of officers and other representatives of the Company.
For purposes of the opinions set forth below, with respect to any
document which by its terms or otherwise is governed by the laws of any
jurisdiction other than the United States of America or the State of Wisconsin,
such opinions are based solely upon our understanding of the plain language of
such document, and we express no opinion as to the interpretation of any such
document or of any term or provisions thereof under applicable governing law or
as to the effect
2
<PAGE>
on the opinions expressed herein of any interpretation hereof inconsistent with
such undertaking. For purposes of our opinion set forth in paragraph 4, we have
assumed that the certificates representing the shares referred to in such
paragraph conform to the Specimen Certificate. Our opinion set forth in
paragraph 12, is based solely upon the Officer's Certificate and our discussions
with James A. Broderick, General Counsel of the Company, we have not performed
any docket search in any jurisdiction, and have not done any other investigation
of any kind.
The opinions expressed herein are limited to the laws of the State of
Wisconsin and the federal laws of the United States of America to the extent
specifically referred to herein.
Based upon and subject to the foregoing and to the other qualifications
and limitations set forth herein, we are of the opinion that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Wisconsin.
(ii) The issuance of the Shares is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(iii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement and the International Purchase Agreement.
(iv) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company.
(v) The statements contained in or incorporated by reference therein,
in the Prospectuses, with respect to the "Description of Capital Stock," to the
extent that such statements constitute matters of law, summaries of legal
matters or legal conclusions are correct in all material respects.
(vi) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(vii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectuses under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to the U.S. Purchase
Agreement and the International Purchase Agreement); the shares of issued and
outstanding capital stock have been and will have been at the Closing Time duly
authorized and validly issued and are fully paid and non-assessable; except to
the extent such shares are assessable as provided in Section 180.0622 of the
Wisconsin Business Corporation Law, and none of the outstanding shares of
capital stock of the Company was or will have been at the Closing Time issued in
violation of the preemptive or other similar rights of any securityholder of the
Company.
3
<PAGE>
(viii) The Shares to be purchased by the U.S. Underwriters and the
International Managers from the Selling Shareholders have duly authorized for
issuance and sale to the Underwriters pursuant to the U.S. Purchase Agreement or
the International Purchase Agreement and when delivered by the Selling
Shareholder pursuant thereto, will by validly issued, and fully paid and
non-assessable and no holder of the Shares is or will by subject to personal
liability by reason of being such a holder, except to the extent such shares are
assessable as provided in Section 180.0622 of the Wisconsin Business Corporation
Law.
(ix) Vidor Battery Company, the sole subsidiary is incorporated or
organized under the laws of the State of Wisconsin (a "Wisconsin Subsidiary")
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Wisconsin, has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectuses and is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(x) The information in Part II of the Registration Statement under Item
15, "Indemnification of Officers and Directors," to the extent that it
constitutes matters of law, summaries of legal matters, the Company's charter
and bylaws or legal proceedings, or legal conclusions, has been reviewed by us
and is correct in all material respects.
(xi) The U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by the Company.
(xii) To the best of our knowledge, neither the Company nor its sole
Wisconsin Subsidiary is in violation of its charter or by-laws and no default by
the Company or its Wisconsin Subsidiary exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectuses or filed or incorporated by reference
as an exhibit to the Registration Statement.
(xiii) The execution, delivery and performance of the U.S. Purchase
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated in the U.S. Purchase Agreement, the International
Purchase Agreement and in the Registration Statement and compliance by the
Company with its obligations under the U.S. Purchase Agreement and the
International Purchase Agreement have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined in Section 1(a)(x) of the Purchase
Agreements) under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any Wisconsin
Subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or any other agreement or instrument to which the
Company or its Wisconsin Subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or its
Wisconsin Subsidiary is subject (except for such conflicts,
4
<PAGE>
breaches or defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any Wisconsin Subsidiary,
or any applicable law, statute, rule, regulation, judgment, order, writ or
decree, known to us, of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any Wisconsin
Subsidiary or any of their respective properties, assets or operations.
5
<PAGE>
EXHIBIT A-2
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
U.S. Purchase Agreement
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as representatives of the several
international managers to be named
in the International Purchase Agreement
c/o Merrill Lynch & Co.
North Tower
World Financial Center
New York, New York 10210-1209
Re: Public Offering of 6,700,000 Shares
of Common Stock of Rayovac Corporation
Ladies and Gentlemen:
We have acted as special counsel to Rayovac Corporation, a Wisconsin
corporation (the "Company"), in connection with (i) the registration by the
Company and sale by certain shareholders of 5,200,000 shares of the Company's
Common Stock, par value $0.01 per share (the "U.S. Shares"), pursuant to the
terms of the U.S. Purchase Agreement (the "U.S. Purchase Agreement"), dated
April [ ], 1998, among the Company, the U.S. Underwriters named in Schedule A
thereto (the "U.S. Underwriters") and the shareholders of the Company named in
Schedule B thereto (the "Selling Shareholders") and (ii) the registration by the
Company and sale by the Selling Shareholders of 1,300,000 shares of Common Stock
(the "International Shares,"
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<PAGE>
and together with the U.S. Shares, the "Shares"), pursuant to the terms of the
International Purchase Agreement (the "International Purchase Agreement"), dated
April [ ], 1998, between the Company, and the international managers named in
Schedule A thereto (the "International Managers") and the Selling Shareholders.
This opinion is being furnished pursuant to Section 5(b) of each of the
U.S. Purchase Agreement and the International Purchase Agreement. Capitalized
terms used but not otherwise defined herein shall have the respective meanings
set forth in the U.S. Purchase Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-3 (File No. 333- ) relating to the Shares filed with the
Securities and Exchange Commission (the "Commission") on April 2, 1998 under the
Securities Act of 1933, as amended (the "Act"), including the information deemed
to be a part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A of the General Rules and Regulations under the Act (the "Rules and
Regulations") (such registration statement, as so amended, being hereinafter
referred to as the "Registration Statement"); (ii) the final U.S. prospectus
dated April [ ], 1998, relating to the U.S. Shares filed with the Commission on
April [ ], 1998, pursuant to Rule 424(b) of the Rules and Regulations (the
""U.S. Prospectus"); (iii) the final International Prospectus dated April [ ],
1998, relating to the International Shares filed with the Commission on April [
], 1998, pursuant to Rule 424(b) of the Rules and Regulations (the
"International Prospectus" and together with the U.S. Prospectus, the
"Prospectuses"); (iv) executed copies of the U.S. Purchase Agreement and the
International Purchase Agreement; (v) a specimen certificate representing the
Common Stock (the "Specimen Certificate"); and (vi) the certificate of James A.
Broderick, General Counsel to the Company, attached hereto as Exhibit A (the
"Officer's Certificate"). We have also examined originals or copies certified or
otherwise identified to our satisfaction, of all such records of the Company and
all such agreements, certificates of public officials, certificates of officers
or other representatives of the Company and others and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or Photostat copies and the
authenticity of the originals of such copies. In making our examination of
executed documents, we have assumed that the parties thereto (including the
Company) had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein that were not independently
established or verified, we have relied upon oral or written statements and
representations of officers and other representatives of the Company.
For purposes of the opinions set forth below, with respect to any
document which by its terms or otherwise is governed by the laws of any
jurisdiction other than the United States of
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<PAGE>
America or the State of New York, such opinions are based solely upon our
understanding of the plain language of such document, and we express no opinion
as to the interpretation of any such document or of any term or provisions
thereof under applicable governing law or as to the effect on the opinions
expressed herein of any interpretation hereof inconsistent with such
understanding. For purposes of our opinion set forth in paragraph 4, we have
assumed that the certificates representing the shares referred to in such
paragraph conform to the Specimen Certificate. Our opinion set forth in
paragraph 5, is based solely upon the Officer's Certificate and our discussions
with James A. Broderick, General Counsel of the Company; we have not performed
any docket search in any jurisdiction, and have not done any other investigation
of any kind.
The opinions expressed herein are limited to the laws of the State of
New York, the General Corporation Law of the State of Delaware and the federal
laws of the United States of America to the extent specifically referred to
herein.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law of the state of Delaware and those laws, rules and regulations
of the State of New York and of the United States of America that, in our
experience, are normally applicable to transactions of the type contemplated by
the U.S. Purchase Agreement, but without our having made any special
investigation concerning the applicability of any other law, rule or regulation;
provided, that such term does not include any federal or state securities or
other antifraud laws or the rules and regulations of the National Association of
Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A to the Officer's Certificate; and
(iii) the term "Governmental Approval" means any consent, approval, license,
authorization or validation of, or filing, recording or registration with, any
United States Federal or New York executive, legislative, judicial,
administrative or regulatory body (a "Governmental Entity"), pursuant to
Applicable Laws.
Based upon and subject to the foregoing and to the other qualifications
and limitations set forth herein, we are of the opinion that:
1. All of the issued and outstanding capital stock of ROV
Holding, Inc. has been duly authorized and validly issued and is fully paid and
nonassessable. None of the outstanding shares of capital stock of ROV Holding,
Inc. was issued in violation of the preemptive rights of any security holder of
ROV Holding, Inc. arising under the Certificate of Incorporation or By-laws of
ROV Holding Inc. or any other similar rights arising under any Applicable
Contract.
2. To our knowledge, based solely on our examination of the
stock record book of ROV Holding, Inc., the issued and outstanding capital stock
of ROV Holding, Inc. is owned of record by the Company, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity arising
under any Applicable contract, except for the pledge of the capital stock of ROV
Holding, Inc. by the Company pursuant to a Company Pledge Agreement dated as of
September 12, 1996 between the Company and Bank of America National Trust and
Savings Association in its capacity as administrative agent fore the lenders
referred to therein.
3
<PAGE>
3. The Registration Statement, as of its effective date, and
the Prospectuses, as of their date, appeared on their face to be appropriately
responsive in all material respects to the requirements of the Securities Act
and the Rules and Regulations, except that, in each case, we express no opinion
as to the financial statements, schedules and other financial data included
therein or excluded therefrom or the exhibits to the Registration Statement, and
we do not assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement except to the extent
indicated in paragraph 6 below.
4. The Specimen Certificate complies in all material respects
with any requirements of the New York Stock Exchange applicable to companies
whose securities are listed thereon.
5. To our knowledge, except as set forth in the Registration
Statement or the Prospectuses, there are no legal, regulatory or governmental
proceedings pending in any New York State or federal court to which the Company
or any subsidiary of the Company listed on Exhibit 21 to the Registration
Statement (each, a "Subsidiary") is a party, or to which the property of the
Company or any Subsidiary is subject, which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the transactions contemplated by the U.S.
Purchase Agreement or the International Purchase Agreement or the performance by
the Company of its obligations thereunder.
6. The statements in the Prospectuses(or incorporated by
reference therein) under the captions "Description of Certain Indebtedness,"
"Shares Eligible for Future Sale," "Underwriting" and "Certain Federal Income
Tax Considerations," to the extent that such statements constitute matters of
law, summaries of legal matters or legal conclusions, are correct in all
material respects.
7. No Governmental Approval is required under Applicable Laws
in connection with the consummation by the Company of the transactions
contemplated by the U.S. Purchase Agreement or the International Purchase
Agreement except that we do not express any opinion as to any consent or
authorization which may have become applicable to the Company as a result of the
involvement of the U.S. Underwriters or of the International Managers in the
transactions contemplated by the U.S. Purchase Agreement or the International
Purchase Agreement, because of their legal or regulatory status or because of
any other facts specifically pertaining to them.
8. Neither the execution and delivery of the U.S. Purchase
Agreement or the International Purchase Agreement nor the consummation of the
transactions contemplated therein will contravene any Applicable Laws.
9. To our knowledge, based solely upon a review of the
Applicable Contracts, there are no Applicable Contracts of a character required
to be filed as exhibits to the Registration Statement which are not filed as
required.
4
<PAGE>
10. The execution, delivery and performance of the U.S.
Purchase Agreement and the International Purchase Agreement and the consummation
of the transactions contemplated thereby and the use of the proceeds from the
sale of the Shares as described in the Prospectuses under the caption "Use of
Proceeds" do not and will not, either by itself or the giving of notice or the
lapse of time or both, conflict with or constitute a breach of or a default or
Repayment Event (as defined in Section 1(a)(x) of the Purchase Agreements) under
any Applicable Contract, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to any Applicable Contract to which the Company or any
Subsidiary is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any Subsidiary is subject, or
any Applicable Law or Governmental Approval having jurisdiction over the Company
or any Subsidiary or any of their respective properties, assets or operations
except in any such case for any such conflicts, breaches or defaults which would
not have a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or any
Subsidiary
11. Except as disclosed in the Registration Statement, to our
knowledge, there are no persons with registration rights or other similar rights
under any Applicable Contract to have any shares of Common Stock registered
pursuant to the Registration Statement or otherwise registered by the Company
pursuant to the 1933 Act.
12. The Company is not subject to registration as an
investment company under the Investment Company Act of 1940, as amended.
We have been orally advised by the Commission that the
Registration Statement was declared effective under the Act at [ ], Washington,
D.C. time, April [ ], 1998; the required filing of the Prospectuses pursuant to
Rule 424(b) has been made in the manner and within the time period required by
Rule 424(b); and, to our knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened by the Commission.
In addition, we have participated in conferences with officers
and other representatives of the Company, representatives of the independent
public accountants for the Company, and you and your counsel, at which the
contents of the Registration Statement, the Prospectuses and related matters
were discussed and, although we are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectuses and have made no
independent check or verification thereof, on the basis of the foregoing, no
facts have come to our attention that have led us to believe that the
Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectuses, as of their dates and as of the date hereof, contained or
contains an untrue statement of a material fact or omitted or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that we express
no opinion or belief with respect to the financial statements, schedules and
other financial data included therein or excluded therefrom or the exhibits to
the Registration Statement.
5
<PAGE>
This opinion is furnished to you solely for your benefit in
connection with the closings under the U.S. Purchase Agreement and the
International Purchase Agreement occurring today and is not to be used,
circulated, quoted or otherwise referred to for any other purpose or relied upon
by any other person without our prior express written permission.
Very truly yours,
6
<PAGE>
EXHIBIT A-3
FORM OF OPINION OF COUNSEL OF SELLING SHAREHOLDERS
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
MERRILL LYNCH INTERNATIONAL
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as Lead Managers for the several International
Managers
c/o Merrill Lynch International
25 Ropemaker Place
London EC2Y 9LY
England
Re: Selling Shareholder Opinion pursuant
to Section 5(b) of the Purchase Agreement
Ladies and Gentlemen:
We have acted as special counsel to Thomas H. Lee Equity Fund
III, L.P., THL-CCI Limited Partnership, Thomas H. Lee Foreign Fund III, L.P.,
and the shareholders listed on Schedule B (each a Selling Shareholder") in
connection with the execution and delivery by the Selling Shareholders of (i)
the U.S. Purchase Agreement dated as of April ___, 1998 (the "U.S. Purchase
Agreement") among Rayovac Corporation, a Wisconsin corporation (the "Company"),
the Selling Shareholders, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Bear Stearns
& Co., Inc., and Smith Barney Inc. as representatives (the "U.S.
Representatives") of the U.S. Underwriters listed in Schedule A thereto
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<PAGE>
and (ii) the International Purchase Agreement dated as of April ___, 1998 (the
"International Purchase Agreement") among the Company, the Selling Shareholders,
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Bear Stearns International Limited, and Smith
Barney Inc. as lead managers (the "Lead Managers") on behalf of the
International Managers listed in Schedule A thereto, and the sale by the Selling
Shareholders to the U.S. Underwriters (as defined in the U.S. Purchase
Agreement) and the International Managers (as defined in the International
Purchase Agreement) of an aggregate of 6,500,000 shares of Common Stock, par
value $0.01 per share, of the Company (the "Common Stock"), acting severally and
not jointly, to (i) the U.S. Underwriters, acting severally and not jointly, to
purchase 5,200,000 shares of Common Stock (the "U.S. Securities") and (ii) the
International Managers, acting severally and not jointly, to purchase 1,300,000
additional shares of Common Stock (the "International Securities," and together
with the U.S. Securities, the "Securities"). This opinion is delivered to you
pursuant to Section 5(b) of each of the U.S. Purchase Agreement and the
International Purchase Agreement. Capitalized terms used herein but not
otherwise defined herein shall have the same meaning ascribed to them in the
U.S. Purchase Agreement.
In connection with this opinion, we have examined or are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the U.S. Purchase Agreement; (ii) the International Purchase Agreement;
(iii) the Power of Attorney and Custody Agreement dated as of April ___, 1998
among each Selling Shareholder and ________________________, each acting as
Attorney-in-Fact (each, an "Attorney-in-Fact" and together, the
"Attorneys-in-Fact"), and [Firstar Trust Bank], as Custodian (the "Custodian")
(the "Custody Agreement" and together with the U.S. Purchase Agreement and the
International Purchase Agreement, the "Transaction Documents"), (iv) the Limited
Partnership Agreement of Thomas H. Lee Foreign Fund III, L.P. (the "Foreign
Fund"), dated as of February 6, 1996, by and among THL Equity Advisors III
Limited Partnership, a Massachusetts limited partnership ("Advisors"), and the
limited partners listed on Exhibit A thereto; (v) the Second Amended and
Restated Limited Partnership Agreement of Thomas H. Lee Equity Fund III, L.P.
(the "Equity Fund" and together with the Foreign Fund, the "Funds"), dated as of
December 22, 1995, by and among Advisors and the limited partners listed on
Exhibit A thereto; (vi) the Thirteenth Amended and Restated Agreement of Limited
Partnership of THL-CCI Limited Partnership ("CCI", and together with the Funds,
the "Partnerships"), dated as of January 17, 1997, by and among THL Investment
Management Corp. and the persons and entities admitted as limited partners;
(vii) the Certificate of Limited Partnership of the Foreign Fund, dated as of
January 23, 1996; (viii) the Certificate of Limited Partnership of the Equity
Fund, dated as of February 14, 1995; (ix) the Certificate of Limited Partnership
of CCI, dated as of July 10, 1992, as amended November 30, 1993 and March 13,
1996; (x) the First Amended and Restated Agreement of Limited Partnership of
Advisors, dated as of August 15, 1995 by and among THL Equity Trust III, a
Massachusetts business trust ("Equity Trust"), and the limited partners
signatories thereto; (xi) the Certificate of Limited Partnership of Advisors,
dated as of February 16, 1995; (xii) the Declaration of Trust of Equity Trust,
made as of February 14, 1995, by and between Thomas H. Lee, as grantor, and the
trustees signatories thereto; (xiii) the Consent of Trustees of Equity Trust,
dated as of January 17, 1997; (xiv) the Articles of Organization and By-laws of
THL Investment Management Corp., each as in effect as of the date hereof; (xv)
the Consent of Sole Director of THL Investment
2
<PAGE>
Management Corp., dated as of January 17, 1997; (xvi) the Certificate of
Advisors, as general partner of the Equity Fund, dated as of January 17, 1997;
(xvii) the Certificate of Advisors, as general partner of the Foreign Fund,
dated as of November 26, 1997; (xviii) the Certificate of Equity Trust, as
general partner of Advisors, dated as of November 26, 1997; (xix) the
Certificate of THL Investment Management Corp., as general partner of CCI, dated
as of November 26, 1997; (xx) the Officer's Certificate of THL Investment
Management Corp., dated as of November 26, 1997; (xxi) the Certificate of Equity
Trust, dated as of November 26, 1997 and (xxii) certificates representing the
Securities. We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such records of each of the Partnerships and
others and such agreements, certificates of public officials, certificates of
officers or other representatives of each of the Partnerships and others and
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to any facts material
to the opinions set forth herein which we did not independently establish or
verify, we have relied upon statements and representations of officers and other
representatives of each of the Partnerships and others.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law and Revised Uniform Limited Partnership Act of the State of
Delaware, the Business Corporation Law and the Uniform Limited Partnership Act
of the Commonwealth of Massachusetts and those laws, rules and regulations of
the State of New York and of the United States of America that, in our
experience, are normally applicable to transaction of the type contemplated by
the Transaction Documents, but without our having made any special investigation
concerning the applicability of any other law, rule or regulation; provided,
that such term does not include any federal or state securities or other
antifraud laws or the rules and regulations of the National Association of
Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A hereto; and (iii) the term
"Governmental Approval" means any consent, approval, license, authorization or
validation of, or filing, recording or registration with, any United States
Federal or Delaware, Massachusetts or New York executive, legislative, judicial,
administrative or regulatory body (a "Governmental Entity"), pursuant to
Applicable Laws.
The opinions expressed herein are limited to (i) the General
Corporation Law and the Revised Uniform Limited Partnership Act of the State of
Delaware; (ii) the Business Corporation Law and the Uniform Limited Partnership
Act of the Commonwealth of Massachusetts; (iii) the laws of the State of New
York; and (iv) the federal laws of the United States of America to the extent
specifically referred to herein.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
3
<PAGE>
1. No Governmental Approval is required under Applicable Laws in
connection with the offer, sale or delivery of the Securities by the Selling
Shareholders under the U.S. Purchase Agreement and the International Purchase
Agreement or the performance by each of the Selling Shareholders of its
obligations under any of the Transaction Documents; provided, that we express no
opinion as to any Governmental Approval which may be required under state
securities laws or that may have become applicable to any Selling Shareholder as
a result of your involvement in the U.S. Purchase Agreement or the International
Purchase Agreement because of your legal or regulatory status or because of any
other facts specifically pertaining to you.
2. Each of the Custody Agreements, the U.S. Purchase Agreement and the
International Purchase Agreement has been duly executed and delivered by each
Selling Shareholder. The Custody Agreement to which each Selling Shareholder is
a party constitutes the valid and binding agreement of such Selling Shareholder
enforceable against such Selling Shareholder in accordance with its terms,
except that enforcement may be limited by applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws nor or
hereinafter in effect relating to or affecting creditors' rights generally and
by general principals of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
3. The Attorney-in-Fact has been duly authorized by each Selling
Shareholder to deliver and sell the U.S. Securities and the International
Securities on behalf of each Selling Shareholder in accordance with the terms of
each of the U.S. Purchase Agreement and the International Purchase Agreement.
4. The execution, delivery and performance of each of the Transaction
Documents and the sale and delivery of the U.S. Securities and the International
Securities and the consummation of the transactions contemplated in each of the
U.S. Purchase Agreement and the International Purchase Agreement and compliance
by each Selling Shareholder with its obligations under each of the U.S. Purchase
Agreement and the International Purchase Agreement have been duly authorized by
all necessary partnership action on the part of each Selling Shareholder and do
not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under any
Applicable Law or Governmental Approval of any Governmental Entity having
jurisdiction over any Selling Shareholder or any of their properties, or under
any indenture, mortgage, deed of trust, loan, credit agreement, note or other
debt instrument to which any Selling Shareholder is a party or pursuant to which
any of them is bound or any of their assets is subject and pursuant to which any
Selling Shareholder has incurred indebtedness (except for such conflicts,
breaches or defaults or liens, charges or encumbrances which would not have a
material adverse effect on the condition (financial or otherwise), earnings,
business affairs or business prospects of any Selling Shareholder, whether or
not arising in the ordinary course of business) nor will such action result in
any violation of the provisions of the partnership agreements of any of the
Selling Shareholders.
5. To our knowledge, each Selling Shareholder has the power and
authority, as a limited partnership, to sell, transfer and deliver the U.S.
Securities and the International Securities pursuant to each of the U.S.
Purchase Agreement and the International Purchase Agreement. Assuming that
neither any U.S. Representatives nor any U.S. Underwriter has notice
4
<PAGE>
of adverse claims with respect to the certificates identified on Schedule B as
representing the U.S. Securities, then upon physical delivery to Merrill Lynch &
Co. as designee of the U.S. Representatives in the State of New York of such
certificates indorsed to the U.S. Representatives or indorsed in blank, the U.S.
Representatives will acquire such certificates (and the shares of Common Stock
represented thereby) free of any adverse claims within the meaning of the
Uniform Commercial Code in effect in the State of New York. Assuming that
neither any Lead Manager nor any International Manager has notice of adverse
claims with respect to the certificates identified on Schedule B as representing
the International Securities, then upon physical delivery to Merrill Lynch & Co.
as designee of the Lead Managers in the State of New York of such certificates
indorsed to the Lead Managers or indorsed in blank, the Lead Managers will
acquire such certificates (and the shares of Common Stock represented thereby)
free of any adverse claims within the meaning of the Uniform Commercial Code in
effect in the State of New York.
This opinion is furnished to you solely for your benefit in connection
with the closings under the U.S. Purchase Agreement and the International
Purchase Agreement occurring today and is not to be used, circulated, quoted or
otherwise referred to for any other purpose or relied upon by any other person
without our prior express written permission.
Very truly yours,
5
<PAGE>
EXHIBIT A-4
FORM OF OPINION OF COUNSEL OF CATEGORY 2 SELLING SHAREHOLDERS
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
MERRILL LYNCH INTERNATIONAL
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as Lead Managers for the several International
Managers
c/o Merrill Lynch International
25 Ropemaker Place
London EC2Y 9LY
England
Re: Selling Shareholder Opinion pursuant
to Section 5(b) of the Purchase Agreement
-----------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to __________________________
(the "Selling Shareholder") in connection with the execution and delivery by the
Selling Shareholders of (i) the U.S. Purchase Agreement dated as of April ___,
1998 (the "U.S. Purchase Agreement") among Rayovac Corporation, a Wisconsin
corporation (the "Company"), the Selling Shareholders, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Bear Stearns & Co., Inc., and Smith Barney Inc. as representatives
(the "U.S. Representatives") of the U.S. Underwriters listed in Schedule A
thereto and (ii) the International Purchase Agreement dated as of April ___,
1998 (the "International Purchase Agreement") among the Company, the Selling
Shareholders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Bear Stearns
1
<PAGE>
International Limited, and Smith Barney Inc. as lead managers (the "Lead
Managers") on behalf of the International Managers listed in Schedule A thereto,
and the sale by the Selling Shareholders to the U.S. Underwriters (as defined in
the U.S. Purchase Agreement) and the International Managers (as defined in the
International Purchase Agreement) of an aggregate of 6,500,000 shares of Common
Stock, par value $0.01 per share, of the Company (the "Common Stock"), acting
severally and not jointly, to (i) the U.S. Underwriters, acting severally and
not jointly, to purchase 5,200,000 shares of Common Stock (the "U.S.
Securities") and (ii) the International Managers, acting severally and not
jointly, to purchase 1,300,000 additional shares of Common Stock (the
"International Securities," and together with the U.S. Securities, the
"Securities"). This opinion is delivered to you pursuant to Section 5(b) of each
of the U.S. Purchase Agreement and the International Purchase Agreement.
Capitalized terms used herein but not otherwise defined herein shall have the
same meaning ascribed to them in the U.S. Purchase Agreement.
In connection with this opinion, we have examined or are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the U.S. Purchase Agreement; (ii) the International Purchase Agreement;
(iii) the Power of Attorney and Custody Agreement dated as of April ___, 1998
among each Selling Shareholder and _______________________, each acting as
Attorney-in-Fact (each, an "Attorney-in-Fact" and together, the
"Attorneys-in-Fact"), and [Firstar Trust Bank], as Custodian (the "Custodian")
(the "Custody Agreement" and together with the U.S. Purchase Agreement and the
International Purchase Agreement, the "Transaction Documents"), and (iv)
certificates representing the Securities. We have also examined originals or
copies, certified or otherwise identified to our satisfaction, of such
agreements, certificates of public officials, certificates of officers or other
representatives of the Selling Shareholders and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to any facts material
to the opinions set forth herein which we did not independently establish or
verify, we have relied upon statements and representations of the Selling
Shareholder.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law and Revised Uniform Limited Partnership Act of the State of
Delaware, the Business Corporation Law and the Uniform Limited Partnership Act
of the Commonwealth of Massachusetts and those laws, rules and regulations of
the State of New York and of the United States of America that, in our
experience, are normally applicable to transaction of the type contemplated by
the Transaction Documents, but without our having made any special investigation
concerning the applicability of any other law, rule or regulation; provided,
that such term does not include any federal or state securities or other
antifraud laws or the rules and regulations of the National Association of
Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A hereto; and (iii) the term
"Governmental Approval" means any consent, approval, license, authorization or
validation of, or filing, recording or registration with, any United States
Federal or Delaware, Massachusetts or
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New York executive, legislative, judicial, administrative or regulatory body (a
"Governmental Entity"), pursuant to Applicable Laws.
The opinions expressed herein are limited to (i) the General
Corporation Law of the State of Delaware; (ii) the Business Corporation Law of
the Commonwealth of Massachusetts; (iii) the laws of the State of New York; and
(iv) the federal laws of the United States of America to the extent specifically
referred to herein.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. No Governmental Approval is required under Applicable Laws in
connection with the offer, sale or delivery of the Securities by the Selling
Shareholder under the U.S. Purchase Agreement and the International Purchase
Agreement or the performance by such Selling Shareholders of its obligations
under any of the Transaction Documents; provided, that we express no opinion as
to any Governmental Approval which may be required under state securities laws
or that may have become applicable to the Selling Shareholder as a result of
your involvement in the U.S. Purchase Agreement or the International Purchase
Agreement because of your legal or regulatory status or because of any other
facts specifically pertaining to you.
2. Each of the Custody Agreements, the U.S. Purchase Agreement and the
International Purchase Agreement has been duly executed and delivered by the
Selling Shareholder. The Custody Agreement to which such Selling Shareholder is
a party constitutes the valid and binding agreement of such Selling Shareholder
enforceable against such Selling Shareholder in accordance with its terms,
except that enforcement may be limited by applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws nor or
hereinafter in effect relating to or affecting creditors' rights generally and
by general principals of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
3. The Attorney-in-Fact has been duly authorized by such Selling
Shareholder to deliver and sell the U.S. Securities and the International
Securities on behalf of such Selling Shareholder in accordance with the terms of
each of the U.S. Purchase Agreement and the International Purchase Agreement.
4. The execution, delivery and performance of each of the Transaction
Documents and the sale and delivery of the U.S. Securities and the International
Securities and the consummation of the transactions contemplated in each of the
U.S. Purchase Agreement and the International Purchase Agreement and compliance
by such Selling Shareholder with its obligations under each of the U.S. Purchase
Agreement and the International Purchase Agreement have been duly authorized on
the part of such Selling Shareholder and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default under any Applicable Law or Governmental
Approval of any Governmental Entity having jurisdiction over such Selling
Shareholder or any of its properties or any material contract known to us to
which the Seller is a party or to which any of its properties are subject.
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5. To our knowledge, such Selling Shareholder has the power and
authority to sell, transfer and deliver the U.S. Securities and the
International Securities pursuant to each of the U.S. Purchase Agreement and the
International Purchase Agreement. Assuming that neither any U.S. Representatives
nor any U.S. Underwriter has notice of adverse claims with respect to the
certificates identified on Schedule B as representing the U.S. Securities, then
upon physical delivery to Merrill Lynch & Co. as designee of the U.S.
Representatives in the State of New York of such certificates indorsed to the
U.S. Representatives or indorsed in blank, the U.S. Representatives will acquire
such certificates (and the shares of Common Stock represented thereby) free of
any adverse claims within the meaning of the Uniform Commercial Code in effect
in the State of New York. Assuming that neither any Lead Manager nor any
International Manager has notice of adverse claims with respect to the
certificates identified on Schedule B as representing the International
Securities, then upon physical delivery to Merrill Lynch & Co. as designee of
the Lead Managers in the State of New York of such certificates indorsed to the
Lead Managers or indorsed in blank, the Lead Managers will acquire such
certificates (and the shares of Common Stock represented thereby) free of any
adverse claims within the meaning of the Uniform Commercial Code in effect in
the State of New York.
This opinion is furnished to you solely for your benefit in connection
with the closings under the U.S. Purchase Agreement and the International
Purchase Agreement occurring today and is not to be used, circulated, quoted or
otherwise referred to for any other purpose or relied upon by any other person
without our prior express written permission.
Very truly yours,
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EXHIBIT B
_________________, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
within-mentioned U.S. Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Rayovac Corporation
Dear Sirs:
The undersigned, a stockholder of Rayovac Corporation, a Wisconsin
Corporation (the "Company") understands that Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney Inc.
propose to enter into a U.S. Purchase Agreement (the "U.S. Purchase Agreement")
with the Company providing for the public offering of shares (the "Securities")
of the Company's common stock, par value $0.01 per share (the "Common Stock").
In recognition of the benefit that such an offering will confer upon the
undersigned as a stockholder of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the U.S. Purchase
Agreement that, during a period of 90 days from the date of the U.S. Purchase
Agreement, the undersigned will not, without the prior written consent of
Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the
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economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise.
Notwithstanding the foregoing, the undersigned may transfer any or all
of its shares of Company Common Stock (i) by gift, will or intestacy, (ii) to
its affiliates, as such term is defined in Rule 405 promulgated under the
Securities Act of 1933, as amended, or (iii) in the event the undersigned is an
individual, to his or her immediate family or to a trust the beneficiaries of
which are exclusively the undersigned and/or a member or members of his or her
immediate family; provided, however, that in any such case it shall be a
condition to any such transfer that the transferee execute an agreement stating
that the transferee is receiving and holding the shares subject to the
provisions of this letter agreement and there shall be no further transfer of
such shares except in accordance with the provisions of this letter agreement.
Very truly yours,
Signature: ___________________________
Print Name: __________________________
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EXHIBIT C-1
FORM OF COMFORT LETTER OF
KPMG PEAT MARWICK LLP PURSUANT TO SECTION 5(f)
attached hereto
<PAGE>
EXHIBIT C-2
FORM OF COMFORT LETTER OF
COOPERS & LYBRAND LLP PURSUANT TO SECTION 5(f)
Attached hereto
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
May 12, 1998
Exhibit 23.3
[Letterhead of Coopers & Lybrand L.L.P.]
Consent of Independent Auditors
We consent to the incorporation in Amendment No. 1 to this registration
statement on Form S-3 (File No. 333-49281) 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 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 L.L.P.
Milwaukee, Wisconsin
May 11, 1998
