Registration No. 333- 
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                      SECURITIES AND EXCHANGE COMMISSION 
                            Washington, D.C. 20549 
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                                   FORM S-1 
                            REGISTRATION STATEMENT 
                                    Under 
                          THE SECURITIES ACT OF 1933 
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                             RAYOVAC CORPORATION 
            (Exact Name Of Registrant As Specified In Its Charter) 

Wisconsin 3692 22-2423556 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.) incorporation or organization) Classification Code Number)
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) -------------------------- Copy to: LOUIS A. GOODMAN, ESQ. Skadden, Arps, Slate, Meagher & Flom LLP One Beacon Street Boston, Massachusetts 02108 (617) 573-4800 -------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
=============================================================================================================== Proposed Maximum Proposed Maximum Title Of Each Class Of Amount to be Offering Price Per Aggregate Offering Amount of Securities To Be Registered Registered Note(1) Price(1) Registration Fee - - --------------------------------------------------------------------------------------------------------------- 10-1/4% Series B Senior Subordinated Notes due 2006 $100,000,000 100% $100,000,000 $34,500 - - ---------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 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. =============================================================================== RAYOVAC CORPORATION CROSS REFERENCE SHEET Pursuant to Item 501(b) of Regulation S-K
Form S-1 Item No. Location in Prospectus 1. Forepart of the Registration Statement and Facing Page of Registration Statement and Outside Front Cover Page of Prospectus Outside Front Cover of Prospectus 2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of Prospectus Prospectus 3. Summary Information, Risk Factors and Ratio Prospectus Summary; Risk Factors; Unaudited of Earnings to Fixed Charges Pro Forma Condensed Consolidated Financial Data; Selected Historical Combined Consolidated Financial Data 4. Use of Proceeds Prospectus Summary; Use of Proceeds 5. Determination of Offering Price Not Applicable 6. Dilution Not Applicable 7. Selling Security Holders Not Applicable 8. Plan of Distribution Outside Front Cover Page of Prospectus; Plan of Distribution 9. Description of Securities to be Registered Prospectus Summary; Description of the Notes 10. Interests of Named Experts and Counsel Legal Matters; Experts 11. Information With Respect to the Registrant Prospectus Summary; Risk Factors; The Recapitalization; Use of Proceeds; Capitalization; Unaudited Pro Forma Condensed Consolidated Financial Data; Selected Historical Combined Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Ownership of Capital Stock; Certain Relationships and Related Transactions; Description of the Credit Agreement; Description of the Notes; Consolidated Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities Not Applicable
[red herring on left side of page] 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. [end red herring] SUBJECT TO COMPLETION DECEMBER 13, 1996 PROSPECTUS Offer for all Outstanding 10-1/4% Senior Subordinated Notes due 2006 in Exchange for 10-1/4% Series B Senior Subordinated Notes due 2006 of [Rayovac logo] RAYOVAC CORPORATION The Exchange Offer will expire at 5:00 P.M., New York City time, on [ ], 1997, unless extended Rayovac Corporation, a Wisconsin corporation ("Rayovac" or the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange an aggregate principal amount of up to $100,000,000 of 10-1/4% Series B Senior Subordinated Notes due 2006 of the Company (the "New Notes") for a like principal amount of the issued and outstanding 10-1/4% Senior Subordinated Notes due 2006 of the Company (the "Old Notes" and, together with the New Notes, the "Notes") with the holders thereof. The terms of the New Notes are identical in all material respects to the Old Notes, except that the terms of the New Notes do not include certain transfer restrictions and registration rights included in the terms of the Old Notes. For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from October 22, 1996. Accordingly, if the relevant record date for interest payment occurs after the consummation of the Exchange Offer, registered holders of New Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from October 22, 1996. If, however, the relevant record date for interest payment occurs prior to the consummation of the Exchange Offer, registered holders of Old Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from October 22, 1996. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer, except as set forth in the immediately preceding sentence. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. The Old Notes were issued on October 22, 1996 in connection with the financing of the recapitalization of the Company (the "Recapitalization"). The Old Notes are, and the New Notes will be, general unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Debt (as defined herein), including borrowings under the Credit Agreement (as defined herein). The Old Notes are, and the New Notes will be, guaranteed by ROV Holding, Inc., a wholly owned subsidiary of the Company ("ROV Holding"), and may in the future be guaranteed by certain other subsidiaries of the Company (collectively, the "Guarantors"). See "Description of the Notes--Subsidiary Guarantees" and "Certain Covenants--Additional Guarantees." The Guarantees (as defined herein) are subordinated in right of payment to all existing and future Senior Debt of the Guarantors, including guarantees under the Credit Agreement. The Old Notes, the Guarantees and borrowings under the Credit Agreement are, and the New Notes will be, effectively subordinated to the indebtedness of foreign subsidiaries of ROV Holding which effectively ranks senior in right of payment to the Notes and the Guarantees. The Indenture (as defined herein) permits the Company and its subsidiaries to incur additional indebtedness, including Senior Debt, subject to certain limitations, and prohibits the incurrence of any indebtedness that is senior to the Notes and subordinated to any Senior Debt. As of September 30, 1996, the Company and its subsidiaries had $128.5 million of Senior Debt and $5.2 million of indebtedness and capitalized lease obligations of foreign subsidiaries which rank senior or effectively rank senior, as the case may be, in right of payment to the Notes. The New Notes are being offered hereunder in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement, dated October 17, 1996 (the "Registration Rights Agreement"), among the Company and the other signatories thereto. Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission"), New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act of 1933, as amended (the "Securities Act")) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such New Notes. If any holder of Old Notes is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement with any person to participate in the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the date of this Prospectus, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." The Company will not receive any proceeds from the Exchange Offer. The Company will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date (as defined herein). In the event the Company terminates the Exchange Offer and does not accept for exchange any Old Notes, the Company will promptly return the Old Notes to the holders thereof. See "The Exchange Offer." The Old Notes are eligible for trading in the Private Offerings, Resales and Trading through Automatic Linkages ("PORTAL") market of the National Association of Securities Dealers, Inc. Prior to this Exchange Offer, there has been no public market for the New Notes. If a market for the New Notes should develop, the New Notes could trade at a discount from their principal amount. The Company does not currently intend to list the New Notes on any securities exchange or to seek approval for quotation on any automated quotation system. There can be no assurance that an active public market for the New Notes will develop. See "Risk Factors" beginning on page 9 for a discussion of certain factors that should be considered in connection with an investment in the Notes offered hereby. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Date of this Prospectus is ,1997. [Insert Pictures] ADDITIONAL INFORMATION The Company filed with the Commission a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act with respect to the New Notes being offered by this Prospectus. 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. Reference is made to the exhibit for a more complete description thereof. The Registration Statement and the exhibits and schedules thereto 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 Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at (http://www.sec.gov). Upon consummation of the Exchange Offer, the Company will become subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will be required to file periodic reports and other information with the Commission. Whether or not the Company is required to be subject to the reporting requirements of the Exchange Act in the future, the Company and, if the Company is required to file financial statements for any Guarantor, such Guarantor will be required under the Indenture, dated as of October 22, 1996 (the "Indenture") by and among the Company, ROV Holding, Inc. and Marine Midland Bank, as trustee (the "Trustee"), pursuant to which the Old Notes were, and the New Notes will be, issued, to continue to file with the Commission for public availability (unless the Commission will not accept such filings), and to furnish holders of the New Notes with, (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K, if the Company and/or such Guarantor were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to annual information only, a report thereon by the Company's certified independent public accountants, and (ii) all financial information that would be required to be filed with the Commission on Form 8-K if the Company and/or such Guarantor were required to file such reports. INDUSTRY MARKET DATA External market information in this Prospectus is provided by the Company, based on data licensed from A.C. Nielsen. The two primary sources of market data are Nielsen Scanner Data (obtained from checkout scanners in selected food stores, drug stores and mass merchandisers) and Nielsen Consumer Panel Data (obtained from a group of representative households selected by A.C. Nielsen equipped with in-home scanners). Except as set forth below, specific market share references are obtained from Nielsen Scanner Data. Specific hearing aid battery market share references are obtained from Nielsen Scanner Data, as supplemented by National Family Opinion Purchase Diary Data. Information regarding the size (in terms of both dollars and unit sales) of the total U.S. retail battery market is based upon Nielsen Scanner Data, as supplemented by Nielsen Consumer Panel Data. 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. i The New Notes will be available initially in book-entry form, and the Company expects that the New Notes sold pursuant hereto will be issued in the form of a Global Note (as defined herein) which will be deposited with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in its name or in the name of Cede & Co., its nominee, except with respect to institutional "accredited investors" (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act), who will receive New Notes in certificated form. Beneficial interests in the Global Note will be shown on, and transfer thereof will be effected through, records maintained by the Depositary and its participants. After the initial issuance of the Global Note, New Notes in certificated form will be issued in exchange for the Global Note only under the limited circumstances set forth in the Indenture. See "Description of the Notes--Book-Entry, Delivery and Form." 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. RAYOVAC, RENEWAL, LOUD'N CLEAR, POWER STATION, PROLINE, WORKHORSE, ROUGHNECK and SMART PACK are registered trademarks of the Company. LIFEX and SMART STRIP are trademarks of the Company. All other trademarks or tradenames referred to in this Prospectus are the property of their respective owners. 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. ii [THIS PAGE INTENTIONALLY LEFT BLANK] SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information and Combined Consolidated Financial Statements of the Company, together with the notes thereto, and the Unaudited Pro Forma Condensed Consolidated Financial Data of the Company, together with the notes thereto, included elsewhere in this Prospectus. Except as otherwise set forth herein, references herein to "pro forma" financial data of the Company are to financial data of the Company which gives effect to the Recapitalization and the sale of the Old Notes. The Company Rayovac Corporation ("Rayovac" or the "Company") is the third largest domestic manufacturer of general batteries (D, C, AA, AAA and 9-volt sizes). Within the general battery market, the Company is the leader in the household rechargeable and heavy duty battery segments. The Company is also the leading domestic manufacturer of certain specialty batteries, including hearing aid batteries, lantern batteries and lithium batteries for personal computer memory back-up. In addition, the Company is a leading marketer of flashlights and other battery-powered lighting devices. Established in 1906, the Rayovac brand name is one of the oldest and best recognized names in the battery industry. The Company attributes the longevity and strength of its brand name to its high-quality product line and to the success of its marketing and merchandising initiatives. For fiscal 1996, the Company had net sales, net income and Adjusted EBITDA (as defined herein) of $399.4 million, $14.3 million and $46.5 million, respectively. The Company's broad line of products includes (i) general batteries (including alkaline, heavy duty and household rechargeable batteries), (ii) specialty batteries (including hearing aid, watch, lantern and personal computer memory back-up batteries) and (iii) flashlights and other battery-powered lighting devices. The Company's products are marketed under the names Rayovac, Renewal, Loud'n Clear, ProLine, Lifex, Power Station, Workhorse and Roughneck, as well as several private labels. Since the early 1980s, the Company has implemented a number of important strategies that have greatly improved its competitive position. In the general battery market, the Company has become a leader in the mass merchandise retail channel by positioning its products as a value brand, offering batteries of substantially equivalent quality and performance at a discount to those offered by its principal competitors. The Company has also introduced industry-leading merchandising innovations such as the Smart Pack and Smart Strip merchandising systems, in which multiple battery packages are presented together in value-oriented formats. As a result of these programs, the Company had 27% and 26.6% market shares in the mass merchandise channel of the general battery market in fiscal 1996 in the Transition Period ended September 30, 1996, respectively. The Company has complemented its general battery business with successful new product introductions and leading market positions in selected high-margin specialty battery lines. In the domestic hearing aid segment, the Company has achieved a 50% market share as a result of its products' technological capabilities, a strong distribution system and a well developed marketing program. The Company is also the leader in the hearing aid battery market in the United Kingdom and continental Europe. Further, in 1993, the Company introduced the Renewal rechargeable battery, the first alkaline rechargeable battery sold in the United States. Renewal achieved 64% and 63% market shares in the rechargeable household battery category as of July 1996 and September 1996, respectively, and the Company had domestic sales of Renewal products of $27.0 million in fiscal 1996. The U.S. battery industry had aggregate sales in 1995 of $4.1 billion, including $2.3 billion of retail sales of general batteries. The Company estimates that retail sales of general batteries have experienced compound annual unit sales growth of approximately 5.3% since 1986. This growth has been largely due to (i) the proliferation and popularity 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 33 batteries per year in 1995. In addition, the hearing aid battery segment, in which the Company is the market leader, has experienced average annual dollar sales increases of 10.9% over the last four fiscal years, primarily as a result of the decreasing size of hearing aids and the increasing age of the U.S. population. The Company expects growth of this segment to continue in the United States as well as in Western Europe. See "Industry Market Data." 1 Business Strategy The Company's objective is to increase sales and profitability by pursuing the following strategies. Produce High-Quality Battery Products. In each of its battery product lines, the Company seeks to manufacture a high-quality product. In the alkaline segment, the Company manufactures high-performance battery products of substantially equivalent quality to those offered by its principal competitors. In some of its specialty product segments, such as hearing aid batteries, the Company believes its products have certain advantages over its competitors' products. The Company focuses its quality improvement efforts on lengthening service life and enhancing reliability and, in the case of hearing aid batteries, the Company also focuses on product miniaturization. Leverage Value Brand Position. The Company has established a position as the leading value brand in the U.S. general alkaline battery market, focusing on the mass merchandise channel. The Company achieved this position by (i) offering batteries of substantially equivalent quality and performance to those offered by its principal competitors at a retail price discount, (ii) emphasizing innovative in-store merchandising programs and (iii) offering retailers attractive wholesale margins. The mass merchandise segment has generated significant growth in the U.S. retail battery market over the last five years and the Company's positioning in this segment should allow it to continue to take advantage of any future segment growth. Expand Retail Distribution Channels. The Company plans to expand its presence in food stores, drug stores, warehouse clubs and other distribution channels on which the Company historically has not focused significant marketing and sales efforts. Food stores, drug stores and warehouse clubs accounted for 1.5 billion general battery units and $1.2 billion in revenues in the U.S. retail battery market in 1995. Management believes that Rayovac's value-oriented general battery products and merchandising programs make the Company an attractive supplier to these channels. Focus on Niche Markets. The Company has developed leading positions in several important niche markets. Total net sales of batteries in these markets (including those for hearing aid, rechargeable, lantern and heavy duty batteries and for lithium coin cells for personal computer memory back-up) comprised 47.9% of the Company's fiscal 1996 net sales. The Company tailors its strategy in each of these market niches to accommodate each market's characteristics and competitive profile. Expand Rechargeable Battery Market Segment. The Company intends to expand its leading share of the rechargeable household battery market through continued marketing of the economic benefit to consumers of Renewal, the Company's long-life alkaline rechargeable battery. Although approximately twice the retail price of a regular alkaline battery, a Renewal battery can be recharged at least 25 times, providing the approximate aggregate energy of 10 regular alkaline batteries. Consequently, Renewal provides significant economic benefits to consumers over regular alkaline batteries. In addition, alkaline rechargeables are superior to traditional nickel cadmium rechargeables because they are sold fully charged, retain their charge better and are environmentally safer. Management believes that as the Company educates consumers about these benefits, the Company will have a substantial opportunity to expand the rechargeable household battery segment and increase its market share. The Recapitalization Effective as of September 12, 1996, the Company, all of the shareholders of the Company, Thomas H. Lee Equity Fund III, L.P. (the "Lee Fund") and other affiliates of Thomas H. Lee Company ("THL Co.") completed a recapitalization of the Company (the "Recapitalization") pursuant to which, among other things: (i) the Company obtained senior financing 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 a revolving credit facility (the "Revolving Credit Facility"); (ii) the Company obtained $100.0 million in financing through the issuance of senior subordinated increasing rate notes of the Company (the "Bridge Notes"); (iii) the Company redeemed a portion of the shares of common stock, par value $.01 per share, of the Company (the "Common Stock") held by Thomas F. Pyle, Jr., 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. As a result of the Recapitalization, the Lee Fund and other affiliates of THL Co., together with David A. Jones, the Company's new President and Chief Executive Officer, own 80.2% of the outstanding Common 2 Stock, Mr. Pyle owns 9.9% of the outstanding Common Stock and existing management and certain former employees of the Company own 9.9% of the outstanding Common Stock. See "The Recapitalization." During the Transition Period ended September 30, 1996, 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." The net proceeds received by the Company from the sale of the Old Notes together with borrowings under the Revolving Credit Facility were used to repurchase the Bridge Notes (as defined herein) plus accrued interest thereon. See "Use of Proceeds." The Exchange Offer
The Exchange Offer The Company is offering to exchange up to $100.0 million aggregate principal amount of its 10-1/4% Series B Senior Subordinated Notes due 2006 for a like principal amount of its issued and outstanding 10-1/4% Senior Subordinated Notes due 2006 that are properly tendered and accepted. The terms of the New Notes and the Old Notes are identical in all material respects, except that the terms of the New Notes do not include certain transfer restrictions and registration rights relating to the Old Notes described below under "--Summary Description of the New Notes." See "The Exchange Offer" for a description of the procedures for tendering Old Notes. The Exchange Offer is intended to satisfy obligations of the Company under the Registration Rights Agreement dated as of October 17, 1996 among the Company, Donaldson Lufkin & Jenrette Securities Corporation and BA Securities, Inc. Tenders; Expiration Date; Withdrawal The Exchange Offer will expire at 5:00 P.M., New York City Time, on [ ], 1997, or such later date and time to which it is extended (the "Expiration Date"). The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Federal Income Tax Considerations The exchange pursuant to the Exchange Offer will not result in any income, gain or loss to holders exchanging Old Notes for New Notes pursuant thereto or to the Company for federal income tax purposes. See "Certain Federal Income Tax Considerations." Exchange Agent Marine Midland Bank is serving as Exchange Agent in connection with the Exchange Offer.
3 Consequences of Exchanging Old Notes Pursuant to the Exchange Offer Based on interpretations by the staff of the Commission issued to third parties, holders of Old Notes (other than any holder who is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer such New Notes for resale, resell such New Notes and otherwise transfer such New Notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided such New Notes are acquired in the ordinary course of the holders' business and such holders do not intend, and have no arrangement with any person, to participate in a distribution of such New Notes. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If any holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the date on which the Exchange Offer is Consummated (as defined in the Registration Rights Agreement), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." To comply with the securities laws of certain jurisdictions, if applicable, it may be necessary to qualify for sale or register the New Notes prior to offering or selling such New Notes. The Company does not currently intend to take any action to register or qualify the New Notes for resale in any such jurisdiction. If a holder of Old Notes does not exchange such Old Notes for New Notes pursuant to the Exchange Offer, such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register Old Notes under the Securities Act. See "Risk Factors--Consequences of Failure to Exchange Old Notes." Summary Description of the New Notes The terms of the New Notes and the Old Notes are identical in all material respects, except that the terms of the New Notes do not include certain transfer restrictions and registration rights relating to the Old Notes.
Securities Offered $100.0 million principal amount of 10-1/4% Series B Senior Subordinated Notes due 2006. Use of Proceeds The Company will not receive any proceeds from the Exchange Offer. The net proceeds to the Company from the sale of the Old Notes were approximately $97.0 million after deduction of discounts, commissions and offering expenses. The Company used such net proceeds, together with borrowings under the Revolving Credit Facility, to repurchase the Bridge Notes plus accrued interest thereon. See "The Recapitalization" and "Use of Proceeds." Issuer Rayovac Corporation. 4 Maturity Date November 1, 2006. Interest Payment Dates The New Notes will bear interest at the rate of 10-1/4% per annum, payable semiannually on May 1 and November 1 of each year commencing on May 1, 1997. Optional Redemption Except as set forth below, the New Notes are not redeemable prior to November 1, 2001. The New Notes may be redeemed at the option of the Company, in whole or in part, on or after November 1, 2001 at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. At any time during the first 36 months after the date of the Indenture (as defined herein), the Company may redeem up to 35% of the initial principal amount of the New Notes originally issued with the net proceeds of one or more public offerings of equity securities of the Company, at a redemption price equal to 109.25% of the principal amount of such New Notes, plus accrued and unpaid interest and Liquidated Damages (as defined herein), if any, to the date of redemption; provided that at least 65% of the principal amount of New Notes originally issued remains outstanding immediately after the occurrence of each such redemption and that each such redemption occurs within 60 days following the closing of each such public offering. Mandatory Redemption Except as set forth herein, the Company is not required to make mandatory redemption or sinking fund payments with respect to the New Notes. Guarantees The New Notes will be guaranteed (the "Guarantees") on an unsecured senior subordinated basis by ROV Holding, Inc., a wholly owned subsidiary of the Company that owns the Company's foreign operating subsidiaries ("ROV Holding"), and by any other Subsidiary (as defined herein) of the Company that executes a Guarantee in accordance with the provisions of the Indenture, and by their respective successors and assigns (collectively, the "Guarantors"). 5 Ranking The New Notes will be general unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Debt (as defined herein), including borrowings under the Credit Agreement (as defined herein). In addition, the New Notes will be effectively subordinated to the indebtedness of foreign subsidiaries of the Company. The New Notes will rank pari passu with the Old Notes. As of September 30, 1996, the Company and its subsidiaries had $128.5 million of Senior Debt and $5.2 million of indebtedness and capitalized lease obligations of foreign subsidiaries which would rank senior or effectively rank senior, as the case may be, in right of payment to the New Notes. The Indenture permits the incurrence of additional Senior Debt by the Company, subject to certain limitations, and prohibits the incurrence by the Company and its subsidiaries of indebtedness that is subordinate in right of payment to any Senior Debt and senior in any respect in right of payment to the New Notes. See "Description of the Notes--Subordination." Change of Control Upon a Change of Control (as defined herein), each holder of New Notes shall have the right to require the Company to repurchase all or any part of such holder's New Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase. See "Description of the Notes--Repurchase at the Option of Holders." Certain Covenants The Indenture contains covenants restricting or limiting 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 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 (as defined herein), (vii) enter into transactions with affiliates and (viii) issue or sell capital stock of wholly owned subsidiaries of the Company. See "Description of the Notes."
Risk Factors Prospective investors should carefully consider the information set forth under the caption "Risk Factors" and all other information set forth in this Prospectus before making any investment in the New Notes. 6 Summary Historical and Pro Forma Financial Data The following summary historical financial data for the three fiscal years ended June 30, 1996 and the Transition Period ended September 30, 1996 and the balance sheet data as of September 30, 1996 are derived from the audited Combined Consolidated Financial Statements of the Company, together with the notes thereto, included elsewhere in this Prospectus. The summary historical financial data for the period July 1, 1995 to September 30, 1995 is derived from the Unaudited Condensed Combined Consolidated Financial Statements of the Company, together with the notes thereto, included elsewhere in this Prospectus. The summary historical financial data of the Company for the two fiscal years ended June 30, 1993 is derived from audited combined consolidated financial statements of the Company which are not included herein.
Fiscal Year Ended June 30, ------------------------------------------------- Transition Period July 1, 1995 to Ended September 30, September 30, 1992 1993 1994 1995 1996 1995 1996 ---------------- --------------- (Dollars in millions) (unaudited) Statement of Operations Data: Net sales $332.2 $353.4 $386.2 $391.0 $399.4 $100.6 $ 95.0 Gross profit 140.1 152.0 151.3 153.9 160.0 36.5 35.7 Income (loss) from operations 31.0 31.2 10.9(1) 31.5 30.3 4.6 (23.7) Interest expense 14.1 6.0 7.7 8.6 8.4 2.4 4.4 Net income (loss) 5.5 15.0 4.4 16.4 14.3 $ 1.4 ($ 20.9)(2) Other Financial Data: Depreciation $ 6.1 $ 7.4 $ 10.3 $ 11.0 $ 11.9 $ 3.2 $ 3.3 Capital expenditures 15.3 30.3(3) 12.5 16.9 6.6 1.1 1.2 EBITDA (4) 37.6 39.3 21.2 41.3 42.2 7.7 (20.4) Adjusted EBITDA (5) 46.5 Pro forma cash interest expense (6) 21.8 Ratio of Adjusted EBITDA to pro forma cash interest expense 2.1x Ratio of net debt to Adjusted EBITDA (7) 5.0x
As of September 30, 1996 -------------------- (Dollars in millions) Balance Sheet Data: Working capital $ 63.2 Total assets 245.3 Total debt 224.8 Shareholders' deficit (85.7)
(1) Income (loss) from operations in fiscal 1994 was impacted by increased selling expenses due to higher advertising expenses related to the Renewal Introduction (as defined herein) and non-recurring manufacturing costs in connection with the Fennimore Expansion (as defined herein). See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Introduction." (2) Net income (loss) in the Transition Period was impacted by charges directly related to the Recapitalization and other special charges. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 7 (3) Fiscal 1993 capital expenditures include $19.7 million in connection with the Fennimore Expansion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Introduction." (4) EBITDA represents income from operations plus depreciation and reflects an adjustment of income from operations to eliminate the establishment and subsequent reversal of two reserves ($0.7 million established in 1993 and reversed in 1995, and $0.5 million established in 1992 and reversed in 1995). While EBITDA should not be construed as a substitute for income from operations, net income or cash flows from operating activities in analyzing the Company's operating performance, financial position or cash flows, the Company has included EBITDA because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance, leverage and liquidity and to determine a company's ability to service debt. A similar concept to EBITDA, defined as "Consolidated Cash Flow" in the Indenture and used in the calculation of certain covenants therein, represents operating income plus depreciation, amortization, any net loss realized in connection with an Asset Sale and certain other non-cash charges and certain non-recurring expenses. See "Description of the Notes--Certain Covenants" and "Description of the Notes--Certain Definitions." (5) Adjusted EBITDA is defined as EBITDA adjusted to add back (i) $1.7 million of expense related to the Company's leased aircraft, in excess of the estimated cost of commercial airline travel, which aircraft lease was terminated in connection with the Recapitalization, (ii) $0.8 million in litigation expense accrued in 1996 for litigation initiated in a prior period, (iii) $0.2 million of compensation expense for the Company's pre-Recapitalization senior management group, net of expected post-Recapitalization senior management compensation, including the Management Fee (as defined herein) and the Consulting Fee (as defined herein), and (iv) $1.6 million of advertising and promotional expense associated with the Company's sponsorship of two professional race cars, the contracts for which have been terminated. Management is reviewing a number of categories of expenditures following the Recapitalization, including advertising and promotional expenditure levels. Post-Recapitalization expenditure levels have not yet been determined. Adjusted EBITDA should not be construed as a substitute for income from operations, net income or cash flows from operating activities in analyzing the Company's operating performance, financial position or cash flows. (6) Pro forma cash interest expense excludes amortization of deferred financing costs of $1.6 million. (7) For purposes of computing this ratio, net debt represents borrowed money, including capital lease obligations, less cash and cash equivalents. 8 RISK FACTORS Holders of Old Notes should carefully consider the following risk factors, as well as all other information set forth in this Prospectus, before tendering their Old Notes in the Exchange Offer, although the risk factors set forth below (other than "Consequences of Failure to Exchange Old Notes") are generally applicable to the Old Notes as well as the New Notes. Consequences of Failure to Exchange Old Notes Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of the Old Notes. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register Old Notes under the Securities Act. Based on interpretations by the staff of the Commission issued to third parties, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such New Notes. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If any holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days from the date on which the Exchange Offer is Consummated (as defined in the Registration Rights Agreement), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, it may be necessary to qualify for sale or to register the New Notes prior to offering or selling such New Notes. The Company does not currently intend to take any action to register or qualify the New Notes for resale in any such jurisdiction. Substantial Leverage; Incurrence of Additional Senior Debt As of September 30, 1996, the Company had $233.7 million of total indebtedness. See "Capitalization." The Company's ability to make principal and interest payments on the New Notes will be dependent on the Company's future operating performance, which is itself dependent on a number of factors, many of which are out of the Company's control. These factors include prevailing economic conditions and financial, competitive, regulatory and other factors affecting the Company's business and operations. The Company's ability to make principal and interest payments on the New Notes may also be dependent on the availability of borrowings under the Credit Agreement (or any refinancing thereof) or other borrowings. Although the Company believes that, based on current levels of operations, its cash flow from operations, together with other sources of liquidity, will be adequate to make required payments of principal and interest on its debt (including the New Notes), whether at or prior to maturity, finance anticipated capital expenditures and fund working capital requirements, there can be no assurance in this regard. If the Company does not have sufficient available resources to repay any indebtedness under the Credit Agreement (or other indebtedness the Company may incur) when it becomes due and payable, the Company may find it necessary to refinance such indebtedness, and there can be no assurance that refinancing will be available, or available on reasonable terms. Additionally, the Company's high degree of leverage could have a material adverse effect on the Company's future operating performance, including, but not limited to, the following: (i) a substantial portion of the Company's 9 cash flow from operations must be dedicated to debt service payments, thereby reducing the funds available to the Company for other purposes; (ii) the Company's ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes or other purposes may be impaired; (iii) the Company is substantially more leveraged than certain of its competitors, which may place the Company at a competitive disadvantage; (iv) the Company's high degree of leverage may limit its ability to expand capacity and otherwise meet its growth objectives; (v) the Company's high degree of leverage may hinder its ability to adjust rapidly to changing market conditions and could make it more vulnerable in the event of a downturn in general economic conditions or its business; and (vi) the Company may not be able to sustain its value pricing strategy for alkaline batteries with its lower price points and attractive margins for retailers. The Indenture and the Credit Agreement permit the incurrence of additional Senior Debt, subject to certain limitations, and prohibit the incurrence by the Company and its subsidiaries of indebtedness that is subordinate in right of payment to any Senior Debt and senior in any respect in right of payment to the New Notes. See "Description of the Notes." Subordination The New Notes will be general unsecured obligations of the Company and will be subordinate in right of payment to all Senior Debt, including all indebtedness under the Credit Agreement. As of September 30, 1996, the Company and its subsidiaries had $128.5 million of Senior Debt and $5.2 million of indebtedness of foreign subsidiaries and capital lease obligations. The Indenture permits the Company and (under limited circumstances) its subsidiaries, to incur additional Senior Debt, subject to certain limitations, and the Company expects from time to time to incur additional indebtedness, including Senior Debt, subject to such limitations. By reason of the subordination provisions of the Indenture, in the event of the insolvency, liquidation, reorganization, dissolution or other winding-up of the Company, the lenders under the Credit Agreement and other creditors who are holders of Senior Debt must be paid in full before payment of amounts due on the New Notes. Accordingly, there may be insufficient assets remaining after such payments to pay amounts due on the New Notes. The Guarantees are subordinated to Senior Debt of each Guarantor to the same extent that the New Notes are subordinated to Senior Debt of the Company, and the ability to collect under any Guarantees may therefore be similarly limited. In addition, the Company may not pay principal of, premium, if any, or interest on, or any other amounts owing in respect of, the New Notes, or purchase, redeem or otherwise retire the New Notes, or make any deposit pursuant to defeasance provisions for the New Notes, if Designated Senior Debt or Significant Senior Debt (as each term is defined in the Indenture) is not paid when due, unless such default is cured or waived or has ceased to exist or such Designated Senior Debt or Significant Senior Debt has been repaid in full. Under certain circumstances, no payments may be made for a specified period with respect to the principal of, premium, if any, and interest on, and any other amounts owing in respect of, the New Notes if a default, other than a payment default, exists with respect to Designated Senior Debt, including indebtedness under the Credit Agreement, unless such default is cured, waived or has ceased to exist or such indebtedness has been repaid in full. See "Description of the Notes--Subordination." If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding New Notes may declare all the New Notes to be due and payable immediately. However, such a continuing Event of Default also would permit the acceleration of all outstanding obligations under the Credit Agreement. In such an event, the subordination provisions of the Indenture would prohibit any payments to holders of the New Notes unless and until such obligations (and any other accelerated Senior Debt) have been repaid in full. See "Description of the Notes--Subordination." Competition The industries in which the Company participates are very competitive. Competition is based upon price, quality, performance, brand name recognition, 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") and Energizer, Inc., a subsidiary of Ralston Purina Company (formerly known as Eveready Battery 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 product lines than the Company. On September 12, 1996, The Gillette 10 Company announced that it had entered into an agreement to acquire Duracell. The Company cannot predict what effects, if any, this acquisition will have on Duracell's competitive position or business strategies or whether there will be any resulting impact on the Company. 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. The battery-powered lighting device industry is also highly competitive and includes a greater number of competitors than the U.S. battery industry, some of which have greater capital and other resources than the Company. See "Business--Competition." The Company's principal competitors in the U.S. battery industry have recently introduced an on-the-label battery tester for alkaline batteries which is located on the battery label and displays the approximate remaining percentage of the battery's charge. The Company's products do not currently include any testers. The Company is in the process of evaluating initial customer reaction to competitors' testers and is attempting to estimate any potential negative impact on sales if the Company fails to include such a tester with its products and the significance of the costs associated with placement of such a tester, including whether such a feature will infringe any valid U.S. patents. U.S. patents covering various aspects of on-the-label battery testers are owned or controlled by Duracell, Eastman Kodak Company, Energizer and Strategic Electronics. These entities are currently involved in an "interference" proceeding before the United States Patent and Trademark Office to determine who has the right to patent the various aspects of the on-the-label battery tester and what the scope of such patents should be. Other U.S. patents covering various aspects of battery testers also exist. It appears likely that an attempt by a competitor, such as the Company, to market any tester covered by the existing patents would result in litigation by one or more of the current patent holders. The ultimate outcome of any such litigation would depend upon the outcome of the interference proceeding and the resolution of any challenges to the validity or enforceability of the existing patents which the Company might assert in its defense. The earliest the Company could market such a tester is Spring 1997. There can be no assurance that competitors' testers will not have a material adverse effect on the Company's business, financial condition or results of operations, or that the Company could market a tester without significant litigation risk. Dependence on Key Customers Wal-Mart Stores, Inc. ("Wal-Mart"), the Company's largest retailer customer, accounted for 19.0% of the Company's net sales in fiscal 1996. In addition, the Company's three largest retailer customers, including Wal-Mart, together accounted for 28.5% of the Company's net sales in fiscal 1996. The Company does not have long-term agreements with any of its major customers, and purchases are generally made 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--Marketing and Distribution." Battery Technology The battery industry has experienced, and is expected to continue to experience, regular technological change. 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 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 (including, for example, the hearing aid battery market), 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. 11 Limited Intellectual Property Protection The Company relies upon a combination of patent, trademark and trade secret laws, together with licenses, confidentiality agreements and other contractual covenants, to establish and protect its technology and other intellectual property rights. There can be no assurance that the steps taken by the Company will be adequate to prevent misappropriation of its technology or other intellectual property or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technology. Moreover, although the Company believes that its current products do not infringe upon the valid proprietary rights of others, there can be no assurance that third parties will not assert infringement claims against the Company and that, in the event of an unfavorable ruling on any such claim, a license or similar agreement will be available to the Company on reasonable terms. See "--Competition" for issues associated with the marketing of an on-the-label battery tester. Certain technology underlying the Company's Renewal line of alkaline rechargeable batteries is the subject of a non-exclusive license from a third party and could be made available to the Company's competitors after one year's prior notice to the Company (which has not been given). The licensing of such technology to a competitor could have a material adverse effect on the Company's business, financial condition or results of operations. 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, the Company has granted exclusive, perpetual, royalty-free licenses for the use of certain of its technology, patents and trademarks in a number of countries, including in Latin America. See "Business--Patents, Licenses and Trademarks." 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, 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. 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. Several of the Company's manufacturing facilities have been in operation for decades and have utilized substances such as cadmium and mercury in the battery manufacturing process. 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. In addition, the Company has been recently notified that its former manganese processing facility in Covington, Tennessee is being evaluated by the Tennessee Department of Environment and Conservation ("TDEC") for a determination as to whether the facility should be added to the National Priorities List as a Superfund site. Groundwater monitoring at the site conducted pursuant to the post-closure maintenance of solid waste lagoons on site, and recent groundwater testing beneath former process areas on site, indicate that there are elevated levels of certain inorganic contaminants, particularly (but not exclusively) manganese, in the groundwater underneath the site. As TDEC has just commenced its preliminary assessment, 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 waste at off-site disposal locations, under the federal Comprehensive Environmental Response, Compensation, and Liability Act ("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. In addition, the Company recently 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 nearby creek (the "Bergen County Site"). The Company is one of approximately 100 defendants named in these lawsuits and is commencing a review to determine the extent of any potential liability it may have at the Bergen County Site. Preliminary information from the plaintiffs suggests that they will take the position that the Company is one of the largest volumetric contributors to the environmental 12 conditions at the Bergen County Site. The cost to remediate the Bergen County Site has not been determined and the Company cannot predict the outcome of these proceedings. There can be no assurance that additional proceedings relating to off-site disposal locations will not arise in the future or that pending or future off-site disposal matters will not have a material adverse effect on the Company's business, financial condition or results of operations. See "Business--Environmental Matters." Fraudulent Transfer Considerations Under relevant federal bankruptcy law or state fraudulent transfer laws, the New Notes and Guarantees may be subject to avoidance or may be subordinated to existing or future indebtedness of the Company or the Guarantors, as applicable (in addition to the Senior Debt to which the New Notes and Guarantees are expressly subordinated). If a court in a suit by an unpaid creditor or representative of creditors, such as a trustee in bankruptcy or the Company as debtor-in-possession, were to find that at the time the Bridge Notes were issued or after giving effect to the sale of the Old Notes or the New Notes and the application of the net proceeds therefrom either (a) the Company received less than a reasonably equivalent value or fair consideration for the issuance of the Old Notes or the New Notes and either (i) was insolvent at the time of such issuance or was rendered insolvent thereby, (ii) was engaged in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay as such debts matured or (b) the Company issued the Old Notes or the New Notes with actual intent to hinder, delay or defraud its creditors, the court could avoid the New Notes and order that all or part of any payments on the New Notes be returned to the Company or to a fund for the benefit of its creditors, or subordinate the New Notes to all other indebtedness of the Company or take other action detrimental to the holders of the New Notes. Similarly, if a court in a suit by an unpaid creditor or representative of creditors of ROV Holding or any other subsidiary of the Company were to find that at the time ROV Holding issued its guarantee of the Bridge Notes (the "Bridge Guarantee") or at the time when any subsidiary of the Company, including without limitation ROV Holding, issued or became liable under a Guarantee, including without limitation the ROV Holding Guarantee (or when such subsidiary was required to perform thereunder), any of the conditions set forth in clauses (a) or (b) above were satisfied with respect to such subsidiary, the court could avoid ROV Holding's obligations under the Bridge Guarantee or such subsidiary's obligations under the Guarantee, as applicable, and direct the repayment of any amounts paid thereunder to such subsidiary or to a fund for the benefit of its creditors. The measure of insolvency for purposes of the foregoing varies based upon the law of the jurisdiction applied. Generally, however, an entity would be considered insolvent if the sum of its debts (including contingent liabilities) is greater than all of its property at a fair valuation, or if the present fair saleable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts (including contingent liabilities), as they become absolute and matured. In addition, an entity may be presumed insolvent under some fraudulent transfer laws if it is not generally paying its debts as they become due. The Company believes that, based upon forecasts and other financial information, the Company and ROV Holding were, at the time the indebtedness under the Bridge Notes and the Bridge Guarantee was incurred, and at the time the Old Notes and the ROV Holding Guarantee were issued, will be at the time the New Notes are issued and will continue to be, solvent, that they will have sufficient capital to carry on their business and are and will continue to be able to pay their debts as they mature. Accordingly, the Company believes that, in a bankruptcy case or a lawsuit by creditors of the Company or ROV Holding, none of the Bridge Notes, the Bridge Guarantee, the Old Notes, the New Notes nor the ROV Holding Guarantee should be held to have been issued in violation of applicable federal bankruptcy law or state fraudulent transfer laws. There can be no assurance, however, as to what standard a court would apply to determine whether the Company or ROV Holding was "insolvent" as of the date the indebtedness under the Bridge Notes and the Bridge Guarantee was incurred or the date the Old Notes, the New Notes or the ROV Holding Guarantee were issued or that, regardless of the method of valuation, a court would not determine that the Company or ROV Holding was insolvent on such relevant dates. Nor can there be any assurance that a court would not determine, regardless of whether the Company or ROV Holding was insolvent on the date the indebtedness under the Bridge Notes and the Bridge Guarantee was incurred or the date the Old Notes, the New Notes or the ROV Holding Guarantee were issued, that the payments constituted fraudulent transfers on another of the grounds listed above. 13 Controlling Shareholders Of the outstanding capital stock of the Company, 80.2% is held by the Lee Fund and certain other affiliates of THL Co. Consequently, the Lee Fund and such other affiliates, including the directors of the Company affiliated with the Lee Fund or THL Co. control the Company and have the power to elect the board of directors of the Company (the "Board") and to approve any action requiring shareholder approval, including the adoption of amendments to the Company's Restated Articles of Incorporation and the approval of mergers or sales of all or substantially all of the Company's assets. See "Ownership of Capital Stock." The Company's ability to take certain of these actions is limited by certain terms of the New Notes. See "Description of the Notes." Lack of Public Market for the Notes; Volatility; Restrictions on Resale The Old Notes are eligible for trading in the Private Offerings, Resales and Trading through Automatic Linkages ("PORTAL") market. The New Notes will be new securities, and there is no existing trading market for the New Notes. Accordingly, there can be no assurance regarding the future development of a trading market for the New Notes or the ability of the holders, or the price at which such holders may be able, to sell their New Notes. If such a market were to develop, the New Notes could trade at prices that may be higher or lower than the exchange tender price of the Old Notes. Prevailing market prices from time to time will depend on many factors, including then existing interest rates, the Company's operating results and cash flow and the market for similar securities. The Initial Purchasers (as defined herein) have advised the Company that they currently intend to make a market in the New Notes. The Initial Purchasers are not obligated to do so, however, and any market-making with respect to the New Notes may be discontinued at any time without notice. Accordingly, even if a trading market for the New Notes does develop, there can be no assurance as to the liquidity of that market. The Company does not intend to apply for listing or quotation of the New Notes on any securities exchange or in the over-the-counter market. In addition, the liquidity of, and trading markets for, the New Notes may be adversely affected by declines in the market for high-yield securities generally. Such a decline may adversely affect liquidity and trading markets independent of the financial performance of, and prospects for, the Company. 14 THE RECAPITALIZATION Effective as of September 12, 1996, the Company, all of the shareholders of the Company, the Lee Fund and other affiliates of THL Co. completed 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 the Bridge Notes; (iii) the Company redeemed a portion of the shares of Common Stock held by Thomas F. Pyle, Jr., the former President and Chief Executive Officer of the Company; (iv) the Lee Fund and other affiliates of THL Co. purchased for cash shares of Common Stock owned by shareholders of the Company (a group consisting of current and former directors and management of the Company and the Thomas Pyle and Judith Pyle Charitable Remainder Trust (the "Pyle Trust")); and (v) the Company repaid certain of its outstanding indebtedness, including prepayment fees and penalties. Immediately prior to the Recapitalization, Mr. Pyle, together with the Pyle Trust, owned 89.8% of the outstanding Common Stock. As a result of the Recapitalization, the Lee Fund and other affiliates of THL Co., together with David A. Jones, the Company's new President and Chief Executive Officer, own 80.2% of the outstanding Common Stock, Mr. Pyle owns 9.9% of the outstanding Common Stock and existing management and certain former employees of the Company own 9.9% of the outstanding Common Stock. In addition to fees and expenses paid in connection with the closing of the Recapitalization as specified below, $3.9 million of additional fees and expenses related to the Recapitalization were paid subsequent to the closing of the Recapitalization. The sources and uses of funds in connection with the Recapitalization are as follows:
Sources of Funds: (Dollars in millions) Revolving Credit Facility $ 26.0 Term Loan Facility 105.0 Bridge Notes 100.0 Equity from the Lee Fund and other affiliates of THL Co. 72.0 Continuing shareholders' equity investment 18.0 Foreign debt and capital leases 5.5 ------ Total sources $326.5 ====== Uses of Funds: Purchases of Common Stock from existing shareholders by: The Company $127.4 The Lee Fund and other affiliates of THL Co. 72.0 Continuing shareholders' equity investment 18.0 Repay existing Company debt 85.2 Fees and expenses paid at the closing of the Recapitalization 18.4 Foreign debt and capital leases 5.5 ------ Total uses $326.5 ======
USE OF PROCEEDS The Company will not receive any proceeds from the issuance of the New Notes offered pursuant to the Exchange Offer. In consideration for issuing the New Notes as contemplated in this Prospectus, the Company will receive in exchange Old Notes in like principal amount, the terms of which are identical in all material respects to the New Notes except for certain transfer restrictions and registration rights. The Old Notes surrendered in exchange for New Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the New Notes will not result in any increase in the indebtedness of the Company. The net proceeds to the Company from the sale of the Old Notes were approximately $97.0 million, after deduction of discounts, commissions and offering expenses. The Company used such net proceeds, together with $5.4 million in borrowings under the Revolving Credit Facility, to repurchase the Bridge Notes and pay accrued interest thereon of $1.3 million. The Bridge Notes are senior subordinated increasing rate notes of the Company due 1997, the initial interest rate of which is the prime reference rate from time to time of The Bank of New York, plus 3.5%. The Bridge Notes were used to finance the Recapitalization in part. See "The Recapitalization." 15 THE EXCHANGE OFFER Terms of the Exchange Offer; Period for Tendering Old Notes The Old Notes were sold by the Company on October 22, 1996 to ROV Holding and Donaldson, Lufkin & Jenrette Securities Corporation and BA Securities, Inc. (the "Initial Purchasers") pursuant to a Purchase Agreement dated October 17, 1996 by and among the Company the Initial Purchasers. Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, the Company will accept for exchange Old Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on [ ], 1997; provided, however, that if the Company, in its sole discretion, has extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $100,000,000 aggregate principal amount of the Old Notes was outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about the date set forth on the cover page to all holders of Old Notes at the addresses set forth in the security register with respect to Old Notes maintained by the Trustee. The Company's obligation to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "--Certain Conditions to the Exchange Offer" below. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any Old Notes, by giving oral or written notice of such extension to the holders thereof as described below. During any extension, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Company. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Old Notes tendered in the Exchange Offer must be $1,000 in principal amount or any integral multiple thereof. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "--Certain Conditions to the Exchange Offer." The Company will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the Old Notes as promptly as practicable, such notice in the case of any extension to be issued by means of a press release or other public announcement no later than 9:00 a.m. New York City time, on the next business day after the previously scheduled Expiration Date. Procedure for Tendering Old Notes The tender to the Company of Old Notes by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, together with all other documents required by such Letter of Transmittal, to Marine Midland Bank (the "Exchange Agent") at the address set forth below under "--Exchange Agent" on or prior to the Expiration Date. In addition, (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at the Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED IN ALL CASES. SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the Old Notes 16 who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is an eligible guarantor institution (bank, stockbroker, national securities exchange, registered securities association, savings and loan association or credit union with membership in a signature medallion program) pursuant to Exchange Act Rule 17Ad-15 (collectively, "Eligible Institutions"). If Old Notes are registered in the name of a person other than the person signing the Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder, with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes if acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right in its sole discretion to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Old Notes, such Old Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the Old Notes. If the Letter of Transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or other acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. By tendering Old Notes, each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If any holder of Old Notes is an "affiliate" of the Company, as defined under Rule 405 of the Securities Act, or is engaged in or intends to engage in or has any arrangement with any person to participate in the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Acceptance of Old Notes for Exchange; Delivery of New Notes Upon satisfaction or waiver of all the conditions to the Exchange Offer, the Company will accept, promptly after the Expiration Date, all Old Notes properly tendered and will issue the New Notes promptly after acceptance of the Old Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if the Company has given oral or written notice thereof to the Exchange Agent. For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from October 22, 1996. Accordingly, if the relevant record date for interest payment occurs after the consummation of the 17 Exchange Offer, registered holders of New Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from October 22, 1996. If, however, the relevant record date for interest payment occurs prior to the consummation of the Exchange Offer, registered holders of Old Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from October 22, 1996. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer, except as set forth in the immediately preceding sentence. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, (ii) a properly completed and duly executed Letter of Transmittal and (iii) all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if certificates representing Old Notes are submitted for a greater principal amount than the holder desires to exchange, certificates representing such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. Book-Entry Transfer The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Facility's procedure for transfer. ALTHOUGH DELIVERY OF OLD NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER AT THE BOOK-ENTRY TRANSFER FACILITY, THE LETTER OF TRANSMITTAL OR FACSIMILE THEREOF, WITH ANY REQUIRED SIGNATURE GUARANTEES AND ANY OTHER REQUIRED DOCUMENTS, MUST, IN ANY CASE, BE TRANSMITTED TO AND RECEIVED BY THE EXCHANGE AGENT AT THE ADDRESS SET FORTH BELOW UNDER "EXCHANGE AGENT" ON OR PRIOR TO THE EXPIRATION DATE OR THE GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW MUST BE COMPLIED WITH. Guaranteed Delivery Procedures If a registered holder of Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. 18 Withdrawal Rights Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amounts of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Certificates for any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "--Procedure for Tendering Old Notes" above at any time on or prior to the Expiration Date. Certain Conditions to the Exchange Offer Notwithstanding any other provision of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer if at any time before the acceptance of such Old Notes for exchange or the exchange of the New Notes for such Old Notes any of the following events shall occur: (a) there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission (i) seeking to restrain or prohibit the making or consummation of the Exchange Offer or any other transaction contemplated by the Exchange Offer, or assessing or seeking any damages as a result thereof, or (ii) resulting in a material delay in the ability of the Company to accept for exchange or exchange some or all of the Old Notes pursuant to the Exchange Offer; or any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the Exchange Offer by any government or governmental authority, domestic or foreign or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in the sole judgment of the Company might directly or indirectly result in any of the consequences referred to in clause (i) or (ii) above or, in the sole judgment of the Company, might result in the holders of New Notes having obligations with respect to resales and transfers of New Notes which are greater than those described in the interpretation of the Commission referred to on the cover page of this Prospectus or would otherwise make it inadvisable to proceed with the Exchange Offer; or (b) there shall have occurred (i) any general suspension of or general limitation on prices for, or trading in, securities on any national securities exchange or in the over-the-counter market, (ii) any limitation by any governmental agency or authority which may adversely affect the ability of the Company to complete the transactions contemplated by the Exchange Offer, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation by any governmental agency or authority which adversely affects the extension of credit or (iv) a commencement of a war, armed hostilities or other similar international calamity directly or indirectly involving the United States or, in the case of any of the foregoing existing at the time of the commencement of the Exchange Offer, a material acceleration or worsening thereof; or 19 (c) any change (or any development involving a prospective change) shall have occurred or be threatened in the business, properties, assets, liabilities, financial condition, operations, results of operations or prospects of the Company and its subsidiaries, taken as a whole, that, in the sole judgment of the Company, is or may be adverse to the Company, or the Company shall have become aware of facts that, in the sole judgment of the Company, have or may have adverse significance with respect to the value of the Old Notes or the New Notes; which, in the sole judgment of the Company, in any case, and regardless of the circumstances (including any action by the Company) giving rise to any such condition, makes it inadvisable to proceed with the Exchange Offer and/or with such acceptance for exchange or with such exchange. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, and each right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. Exchange Agent Marine Midland Bank has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent, addressed as follows: By Mail or by Hand: Marine Midland Bank, Exchange Agent Corporate Trust Operations 140 Broadway--A Level New York, New York 10005-1180 By Facsimile: (212) 658-2292 Confirm Facsimile by Telephone: (212) 658-5931 DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL. Fees and Expenses The Company will not make any payment to brokers, dealers or others soliciting acceptances of the Exchange Offer. The estimated cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be $[ ]. Transfer Taxes Holders who tender their Old Notes for exchange will not be obligated to pay any transfer tax in connection therewith, except that Holders who instruct the Company to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering Holder will be responsible for the payment of any applicable transfer tax thereon. 20 Consequences of Failure to Exchange Old Notes Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of the Old Notes. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register Old Notes under the Securities Act. Based on interpretations by the staff of the Commission issued to third parties, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by Holders thereof (other than any Holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holders' business and such Holders have no arrangement with any person to participate in the distribution of such New Notes. Each Holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If any Holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, it may be necessary to qualify for sale or to register the New Notes prior to offering or selling such New Notes. The New Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. The Company does not currently intend to take any action to register or qualify the New Notes for resale in any such jurisdiction. 21 CAPITALIZATION The following table sets forth as of September 30, 1996 the actual capitalization of the Company. This table should be read in conjunction with the Combined Consolidated Financial Statements of the Company, together with the notes thereto and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
As of September 30, 1996 ------------------------- (Dollars in millions) Debt Revolving Credit Facility (1) $ 23.5 Term Loan Facility (2) 105.0 Bridge Notes (3) 100.0 Capitalized leases and foreign currency borrowings 5.2 ------- Total debt 233.7 ------- Total shareholders' deficit (4) (85.7) ------- Total capitalization $148.0 =======
(1) The Revolving Credit Facility represents the outstanding portion under the $65.0 million facility provided by Bank of America National Trust and Savings Association and DLJ Capital Funding, Inc. to complete the Recapitalization. Future borrowings under the Revolving Credit Facility will be available for general corporate purposes. (2) For a description of the Term Loan Facility, see "Description of the Credit Agreement." (3) The Bridge Notes were repurchased utilizing the net proceeds from the sale of the Old Notes, together with borrowings under the Revolving Credit Facility, on October 22, 1996. Old Notes will be exchanged for New Notes pursuant to the Exchange Offer. (4) See "Unaudited Pro Forma Condensed Consolidated Balance Sheet Data." In accounting for the Recapitalization, no fair value adjustments were made to the book value of the Company's assets (other than the write-off of deferred financing costs) and no goodwill was recognized. 22 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA The unaudited pro forma condensed consolidated financial data presented below is derived from the Company's Combined Consolidated Financial Statements included elsewhere in this Prospectus, as adjusted to give effect to the Recapitalization or the issuance of the Notes, as applicable. The unaudited pro forma condensed consolidated statement of operations data for the fiscal year ended June 30, 1996 gives effect to the Recapitalization and the issuance of the Notes as if they had occurred at the beginning of the period, and the unaudited pro forma condensed consolidated statement of operations data for the Transition Period ended September 30, 1996 gives effect to the issuance of the Notes as if it had occurred at the beginning of the period. The unaudited pro forma condensed consolidated balance sheet data gives effect to the issuance of the Notes as if it had occurred on September 30, 1996. The pro forma adjustments are based upon available data and certain assumptions that the Company believes are reasonable. The unaudited pro forma condensed consolidated financial data does not purport to represent what the Company's results of operations or financial position would actually have been had the Recapitalization or the issuance of the Notes in fact occurred at such prior times or to project the Company's results of operations or financial position for or at any future period or date. The unaudited pro forma condensed consolidated financial data should be read in conjunction with the Combined Consolidated Financial Statements of the Company, together with the notes thereto, and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. Unaudited Pro Forma Condensed Consolidated Statement of Operations Data
Transition Period Ended Fiscal Year Ended June 30, 1996 September 30, 1996 ---------------------------------------- ----------------------------------------- Pro Forma Pro Pro Forma Pro Historical (1) Adjustments Forma Historical (1) Adjustments Forma (In millions, except per share amounts) Net sales $399.4 -- $399.4 $ 95.0 -- $ 95.0 Cost of goods sold 239.4 -- 239.4 59.3 -- 59.3 ------ ------ ------ ------ ------ ------- Gross profit 160.0 -- 160.0 35.7 -- 35.7 Selling expense 92.6 -- 92.6 20.9 -- 20.9 General and administrative expense 31.7 -- 31.7 8.6 -- 8.6 Research and development expense 5.4 -- 5.4 1.5 -- 1.5 Recapitalization and other special charges -- -- -- 28.4 (2) -- 28.4 Income (loss) from operations 30.3 -- 30.3 (23.7 ) -- (23.7 ) Interest expense 8.4 15.0(3) 23.4 4.4 1.3(3) 5.7 Other expense, net 0.6 -- 0.6 0.1 -- 0.1 ------ ------ ------ ------ ------ ------- Income (loss) before income taxes and extraordinary item 21.3 (15.0) 6.3 (28.2) (1.3) (29.5) Income tax (benefit) expense 7.0 (4.5)(4) 2.5 (8.9) (0.5)(5) (9.4) ------ ------ ------ ------ ------ ------- Income (loss) before extraordinary item $ 14.3 $(10.5) $ 3.8 $(19.3) $(0.8) $ (20.1) ====== ====== ====== ====== ====== ======= Net income (loss) per common share before extraordinary item $ 0.29 $ 0.08 $(0.44) $ (0.46) ====== ====== ====== ======= Weighted average shares of common stock outstanding 49.5 43.8 43.8 43.8 Ratio of earnings to fixed charges (6) 1.2x --
23 Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations Data (1) The Company has historically presented its financial statements on a combined consolidated basis with Rayovac International Corporation, a domestic international sales corporation (the "DISC"). The DISC was an entity established by shareholders of the Company prior to the Recapitalization to capture favorable tax advantages related to sales to foreign subsidiaries and export customers. The historical columns include the accounts of the Company and the DISC. The DISC was terminated on August 16, 1996 in connection with the Recapitalization. (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) The pro forma adjustments to record the incremental interest expense arising from the Recapitalization or the issuance of the Notes, as applicable, is computed as follows:
Fiscal Year Transition Period Ended Ended June 30, 1996 September 30, 1996 ---------------- -------------------- (Dollars in millions) Interest expense related to new debt: Revolving Credit Facility $ 2.1 $ 0.5 Term Loan Facility 8.5 2.1 Notes 10.3 2.6 Amortization of deferred financing costs 1.6 0.4 Interest on other debt, not refinanced 0.9 0.1 Subtotal 23.4 5.7 Less historical interest expense (8.4) (4.4) ------ ------ Pro forma adjustment $15.0 $ 1.3 ====== ======
Interest related to the Revolving Credit Facility is determined based on an annual average of $26 million of borrowings outstanding. Interest expense was calculated using the following average rates: (a) Revolving Credit Facility, 8.0%; (b) Term Loan Facility, 8.0% to 8.8%; and (c) Notes, 10.3%. (4) Represents the reduction in income tax expense related to pro forma income (loss) before income taxes and extraordinary item, which is computed using an effective income tax rate of 39.0%. (5) Represents the increase in the income tax benefit related to the pro forma adjustment for interest, which is computed using an effective income tax rate of 39.0%. (6) For purposes of computing this ratio, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred finance fees and one-third of the rent expense from operating leases, which management believes is a reasonable approximation of the interest factor of the rent. Since earnings for the Transition Period ended September 30, 1996 are inadequate to cover fixed charges by $28.2 million, the ratio for that period is not presented herein. 24 Unaudited Pro Forma Condensed Consolidated Balance Sheet Data
As of September 30, 1996 ----------------------------------------------- Pro Forma Historical Adjustments Pro Forma Assets (Dollars in millions) Current assets $155.7 $ -- $155.7 Property, plant and equipment, net 69.4 -- 69.4 Other 20.2 (2.0)(1) 18.2 ------- ------- ------- Total assets $245.3 $ (2.0) $243.3 ======= ======= ======= Liabilities and Shareholders' Deficit Current liabilities $ 92.5 $ (0.8)(1) $ 91.7 Long-term debt, net of current maturities: Revolving Credit Facility 23.5 -- 23.5 Term Loan Facility 101.0 -- 101.0 Bridge Notes 100.0 (100.0)(2) -- Notes -- 100.0(2) 100.0 Other 0.4 -- 0.4 ------- ------- ------- Total 224.9 -- 224.9 Other; noncurrent liabilities 13.6 -- 13.6 ------- ------- ------- Total liabilities 331.0 (0.8) 330.2 ------- ------- ------- Shareholders' deficit (85.7) (1.2)(1) (86.9) ------- ------- ------- Total liabilities and shareholders' deficit $245.3 $ (2.0) $243.3 ======= ======= =======
(1) Represents or reflects the write-off of deferred financing costs of $2.0 related to the Bridge Notes or the related income tax benefit, computed using an effective income tax rate of 39%. (2) Represents the repurchase of the Bridge Notes utilizing the net proceeds from the sale of the Old Notes, together with borrowings under the Revolving Credit Facility, on October 22, 1996. Old Notes will be exchanged for New Notes pursuant to the Exchange Offer. 25 SELECTED HISTORICAL COMBINED CONSOLIDATED FINANCIAL DATA The following table sets forth certain selected historical combined consolidated financial data of the Company. The selected historical combined consolidated financial data for the three fiscal years ended June 30, 1996 and the Transition Period ended September 30, 1996 have been derived from, and should be read in conjunction with, the audited Combined Consolidated Financial Statements of the Company, together with the notes thereto, included elsewhere in this Prospectus. The selected historical combined consolidated financial data of the Company for the period July 1, 1995 to September 30, 1995 have been derived from, and should be read in conjunction with, the Unaudited Condensed Combined Consolidated Financial Statements of the Company, together with the notes thereto, included elsewhere in this Prospectus. The selected historical combined consolidated financial data of the Company for the two fiscal years ended June 30, 1993 have been derived from the audited combined consolidated financial statements of the Company which are not included herein. See "Independent Accountants" and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
Fiscal Year Ended June 30, ------------------------------------------------- Transition Period July 1, 1995 to Ended September 30, September 30, 1992 1993 1994 1995 1996 1995 1996 ---------------- --------------- (Dollars in millions) (Unaudited) Statement of Operations Data: Net sales $332.2 $353.4 $386.2 $391.0 $399.4 $100.6 $ 95.0 Cost of goods sold 192.1 201.4 234.9 237.1 239.4 64.1 59.3 ------ ------ ------ ------ ------ ------ ------ Gross profit 140.1 152.0 151.3 153.9 160.0 36.5 35.7 Selling expense 72.2 79.8 103.8 84.5 92.6 23.2 20.9 General and administrative expense 31.1 35.4 29.4 32.9 31.7 7.4 8.6 Research and development expense 5.8 5.6 5.7 5.0 5.4 1.3 1.5 Recapitalization and other special charges -- -- 1.5 -- -- -- 28.4(1) ------ ------ ------ ------ ------ ------ ------ Income (loss) from operations 31.0 31.2 10.9(2) 31.5 30.3 4.6 (23.7) Interest expense 14.1 6.0 7.7 8.6 8.4 2.4 4.4 Other (income) expense, net (1.0) 1.2 (0.6) 0.3 0.6 0.1 0.1 ------ ------ ------ ------ ------ ------ ------ Income (loss) before income taxes, extraordinary item and cumulative effect of change in accounting 17.9 24.0 3.8 22.6 21.3 2.1 (28.2) Income tax expense (benefit) 5.8 9.0 (0.6) 6.2 7.0 0.7 (8.9) ------ ------ ------ ------ ------ ------ ------ Income (loss) before extraordinary item and cumulative effect of change in accounting 12.1 15.0 4.4 16.4 14.3 1.4 (19.3) ------ ------ ------ ------ ------ ------ Extraordinary item, net -- -- -- -- -- -- 1.6(3) Cumulative effect of change in accounting 6.6(4) -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ Net income (loss) $ 5.5 $ 15.0 $ 4.4 $ 16.4 $ 14.3 $ 1.4 ($ 20.9) ====== ====== ====== ====== ====== ====== ====== Other Data: Depreciation $ 6.1 $ 7.4 $ 10.3 $ 11.0 $ 11.9 $ 3.2 $ 3.3 Capital expenditures 15.3 30.3(5) 12.5 16.9 6.6 1.1 1.2 EBITDA (6) 37.6 39.3 21.2 41.3 42.2 7.7 (20.4) Adjusted EBITDA (7) -- -- -- -- 46.5 -- -- Ratio of earnings to fixed charges (8) 2.1x 3.8x 1.4x 3.0x 2.9x 1.7x -- Balance Sheet Data: Working capital $ 17.2 $ 31.6 $ 63.6 $ 55.9 $ 62.5 $ 68.5 $ 63.2 Total assets 156.0 189.0 222.4 220.6 221.9 241.5 245.3 Long-term debt 37.9 64.1 96.4 76.4 69.7 87.1 224.8 Shareholders' equity (deficit) 25.6 36.7 37.9 53.6 61.7 53.2 (85.7)
26 (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) Income from operations in fiscal 1994 was impacted by increased selling expenses due to higher advertising and promotion expenses related to the Renewal Introduction and non-recurring manufacturing costs in connection with the Fennimore Expansion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Introduction." (3) The Recapitalization of the Company included repayment of certain outstanding indebtedness, including prepayment fees and penalties. Such prepayment fees and penalties of $2.4 million, net of income tax benefit of $0.8 million, has been recorded as an extraordinary item in the Combined Consolidated Statement of Operations for the Transition Period ended September 30, 1996. (4) In fiscal 1992, the Company recorded a $6.6 million charge for the cumulative effect of adopting SFAS 109 "Accounting For Income Taxes." (5) Fiscal 1993 capital expenditures include $19.7 million in connection with the Fennimore Expansion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Introduction." (6) EBITDA represents income from operations plus depreciation and reflects an adjustment of income from operations to eliminate the establishment and subsequent reversal of two reserves ($0.7 million established in 1993 and reversed in 1995, and $0.5 million established in 1992 and reversed in 1995). While EBITDA should not be construed as a substitute for income from operations, net income or cash flows from operating activities in analyzing the Company's operating performance, financial position or cash flows, the Company has included EBITDA because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance, leverage and liquidity and to determine a company's ability to service debt. A similar concept to EBITDA, defined as "Consolidated Cash Flow" in the Indenture and used in the calculation of certain covenants therein, represents operating income plus depreciation, amortization, any net loss realized in connection with an asset sale and certain other non-cash charges and certain non-recurring expenses. See "Description of the Notes--Certain Covenants" and "Description of the Notes--Certain Definitions." (7) Adjusted EBITDA is defined as EBITDA adjusted to add back (i) $1.7 million of expense related to the Company's leased aircraft, in excess of the estimated cost of commercial airline travel, which aircraft lease was terminated in connection with the Recapitalization, (ii) $0.8 million in litigation expense accrued in 1996 for litigation initiated in a prior period, (iii) $0.2 million of compensation expense for the Company's pre-Recapitalization senior management group, net of expected post-Recapitalization senior management compensation, including the Management Fee and the Consulting Fee, and (iv) $1.6 million of advertising and promotional expense associated with the Company's sponsorship of two professional race cars, the contracts for which have been terminated. Management is reviewing a number of categories of expenditures following the Recapitalization, including advertising and promotional expenditure levels. Post-Recapitalization expenditure levels have not yet been determined. Adjusted EBITDA should not be construed as a substitute for income from operations, net income or cash flows from operating activities in analyzing the Company's operating performance, financial position or cash flows. (8) For purposes of computing this ratio, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred finance fees and one-third of the rent expense from operating leases, which management believes is a reasonable approximation of the interest factor of the rent. Since earnings in the Transition Period ended September 30, 1996 are inadequate to cover fixed charges by $28.2 million, the ratio is not presented herein. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Combined Consolidated Financial Statements, the Unaudited Condensed Combined Consolidated Financial Data and Unaudited Pro Forma Condensed Consolidated Financial Data of the Company, together with the notes thereto, included elsewhere herein. Introduction Fiscal Periods. 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. The Company is the third largest domestic manufacturer of general batteries (D, C, AA, AAA and 9-volt sizes). Within the general battery market, the Company is the leader in the household rechargeable and heavy duty battery segments. The Company is also the leading domestic manufacturer of certain specialty batteries, including hearing aid batteries, lantern batteries and lithium batteries for personal computer memory back-up. In addition, the Company is a leading marketer of flashlights and other battery-powered lighting devices. 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 impacted the Company's performance in recent years. Expansion of Production Facility. The Company has modernized and expanded its production lines at its Fennimore, Wisconsin facility (the "Fennimore Expansion"). In connection with the Fennimore Expansion, the Company more than doubled its aggregate capacity for AA and AAA size alkaline batteries and replaced its capacity for C and D size alkaline batteries from fiscal 1992 through fiscal 1995 by investing an aggregate of $36.7 million in new production lines. In addition to increased capacity, this investment resulted in better performing and higher quality alkaline batteries. Significant effects of the expansion on the Company's financial results include: $9.5 million of non-recurring manufacturing costs in fiscal 1994 associated with battery redesign and the start-up of mercury-free alkaline battery production; and temporary planned increases in raw material costs associated with sourcing of raw material from foreign vendors pursuant to the terms of the production line equipment purchase agreements. 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 will be substantially completed by the end of fiscal 1997. 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"). In connection with the Renewal Introduction, the Company's advertising and promotional expense increased significantly to $26.0 million in fiscal 1994. By comparison, the Company spent $15.7 million in fiscal 1995 and $20.3 million in fiscal 1996 on Renewal advertising and promotion, with the fiscal 1996 increase largely due to the Company's new promotional campaign featuring basketball superstar Michael Jordan. The Renewal Introduction was responsible in significant part for the increase in working capital from 1993 to 1994. Management believes that continued improvement in consumer awareness of the benefits of Renewal over nickel-cadmium rechargeables and disposable alkaline batteries will be necessary to further expand the rechargeable segment. The Company recently began discounting the Power Station recharging unit for Renewal batteries to encourage more consumers to try Renewal products. See "--Recent Developments." Management Incentives. The Company's historical financial results reflect the Company's former policy regarding payment of management bonuses. Under this policy, members of the Company's management earned cash incentive bonuses based on the achievement of certain targets based on the Company's income from operations. In fiscal 1994, fiscal 1996 and the Transition Period, no such cash incentive bonuses were paid. In fiscal 1992, 1993 and 1995, the Company paid bonuses of $2.5 million, $2.9 million and $4.0 million, respectively. 28 Seasonality. The Company's sales are seasonal, with the highest sales occurring in the fiscal quarter ended December 31, during the Christmas holiday buying season. During the past four fiscal years, the Company's sales in the quarter ended 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 first and second fiscal quarters of each year. Results of Operations 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:
Fiscal Year Ended June 30, ---------------------------- Transition Period July 1, 1995 to Ended September 30, September 30, 1994 1995 1996 1995 1996 Net sales 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold 60.8 60.6 59.9 63.7 62.4 ----- ----- ----- ----- ----- Gross profit 39.2 39.4 40.1 36.3 37.6 Selling expense 26.9 21.6 23.2 23.1 22.0 General and administrative expense 7.6 8.4 8.0 7.3 9.1 Research and development expense 1.5 1.3 1.4 1.4 1.6 Recapitalization and other special charges 0.4 -- -- -- 29.9 Income (loss) from operations 2.8% 8.1% 7.5% 4.5% (25.0%) ===== ===== ===== ===== =====
Transition Period Ended September 30, 1996 Compared to Three Months Ended September 30, 1995 Net Sales. The Company's total net sales decreased $5.6 million, or 5.6%, to $95.0 million in the Transition Period from $100.6 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 in fiscal 1995. Gross Profit. Gross profit decreased $0.8 million, or 2.2%, to $35.7 million in the Transition Period from $36.5 million in the Prior Fiscal Year Period, primarily as a result of decreased sales in the Transition Period, as discussed above. Selling Expenses. Selling expense decreased $2.3 million, or 9.9% to $20.9 million in the Transition Period from $23.2 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 in fiscal 1995. Research and Development Expense. Research and development expense increased $.1 million, or 7.1%, to $1.5 million in the Transition Period from $1.4 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 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: (i) $5.0 million consisting primarily of $2.2 million in advisory fees paid to the financial advisor to the Company's selling shareholders and various legal and consulting fees of $2.8 million; and 29 (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: (i) $2.7 million of charges related to the exit of certain manufacturing operations located in the United Kingdom; (ii) $1.7 million of charges for deferred compensation plan obligations to officers leaving 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 has determined will 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. Further, subsequent to September 30, 1996, the Company anticipates additional non-recurring charges of $2.7 million, primarily in connection with the exit of certain manufacturing operations located in the United Kingdom and organizational restructuring in the United States. In addition, the Company anticipates a write off of $2.0 million of unamortized debt issuance costs related to the Bridge Notes. 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) from $1.4 million in the Prior Fiscal Year Period, primarily because of non-recurring charges related to the Recapitalization and other special charges discussed above. In addition, amortization of deferred finance charges related to the Bridge Notes and an extraordinary loss on the early retirement of debt decreased net income in the Transition Period by $2.6 million, net of income taxes. Transition Period Ended September 30, 1996 Compared to Fiscal Year Ended June 30, 1996 Results of operations for the Transition Period Ended September 30, 1996 include amounts for a three-month period, while results for the fiscal year ended June 30, 1996 include amounts for a twelve-month period. Results (in terms of dollar amounts) for these periods are not directly comparable. Accordingly, management's discussion and analysis for these periods is generally based upon a comparison of specified results as a percentage of net sales. Net Sales. The Company's total net sales decreased $304.4 million, or 76.2%, to $95.0 million in the Transition Period from $399.4 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 $124.3 million, or 77.7%, to $35.7 million in the Transition Period from $160.0 million in fiscal 1996. As a percentage of net sales, gross profit decreased to 37.6% in the Transition Period from 40.1% 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 $71.7 million, or 77.4%, to $20.9 million in the Transition Period from $92.6 million in fiscal 1996. As a percentage of net sales, selling expenses decreased to 22.0% in the Transition Period from 23.2% 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 9.1% in the Transition Period from 8.0% 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 1.6% in the Transition Period from 1.4% in fiscal 1996, primarily as a result of increased support for ongoing product development efforts. 30 Recapitalization and Other Special Charges. During the Transition Period ended September 30, 1996, the Company recorded charges totalling $28.4 million, including non-recurring charges related to the Recapitalization and other special charges. Non-recurring charges of $12.3 million related to the Recapitalization: (i) $5.0 million consisting primarily of $2.2 million in advisory fees paid to the financial advisor to the Company's selling shareholders and various legal and consulting fees of $2.8 million; 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: (i) $2.7 million of charges related to the exit of certain manufacturing operations located in the United Kingdom; (ii) $1.7 million of charges for deferred compensation plan obligations to officers leaving 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 has determined will 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. Further, subsequent to September 30, 1996, the Company anticipates additional non-recurring charges of $2.7 million, primarily in connection with the exit of certain manufacturing operations located in the United Kingdom and organizational restructuring in the United States. In addition, the Company anticipates a write off of $2.0 million of unamortized debt issuance costs related to the Bridge Notes. 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 (25.0)% in the Transition Period from 7.5% in fiscal 1996 for the reasons discussed above. Net Income (loss). Net income (loss) for the Transition Period decreased $35.2 million, or 246.2%, to (20.9) from $14.3 million in fiscal 1996. As a percentage of net sales, net income (loss) decreased to (22.0)% in the Transition Period from 3.6% in fiscal 1996, primarily because of non-recurring charges related to the Recapitalization and other special charges discussed above. In addition, amortization of deferred finance charges related to the Bridge Notes and an extraordinary loss on the early retirement of debt decreased net income in the Transition Period by $2.6 million, net of income taxes. Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995 Net Sales. The Company's total net sales increased $8.4 million, or 2.1%, to $399.4 million in fiscal 1996 from $391.0 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. 31 Gross Profit. Gross profit increased $6.1 million, or 4.0%, to $160.0 million in fiscal 1996 from $153.9 million in fiscal 1995. Gross profit increased as a percentage of net sales to 40.1% in fiscal 1996 from 39.4% 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 $8.1 million, or 9.6%, to $92.6 million in fiscal 1996 from $84.5 million in fiscal 1995. Selling expense as a percentage of net sales increased to 23.2% in 1996 from 21.6% 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 $1.2 million, or 3.6%, to $31.7 million in fiscal 1996 from $32.9 million in fiscal 1995. General and administrative expense as a percentage of net sales decreased from 8.4% in fiscal 1995 to 8.0% in fiscal 1996. These decreases occurred primarily because the $4.0 million payment of management incentives in 1995, as discussed above, 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 7.5% of net sales in fiscal 1996, from $31.5 million, or 8.1% of net sales, in fiscal 1995 for the reasons discussed above and as a result of an increase in depreciation expense, resulting primarily from the Fennimore Expansion. Net Income. Net income for fiscal 1996 decreased $2.1 million, or 12.8%, to $14.3 million from $16.4 million in fiscal 1995, principally as a result of decreased income from operations and higher effective tax rates, which increased from 27.6% 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 the DISC, and fiscal 1995 was also impacted by the utilization of a foreign net operating loss carryforward. The termination of the DISC will result in higher effective tax rates for the Company in future years. Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994 Net Sales. The Company's total net sales increased $4.8 million, or 1.2%, to $391.0 million in fiscal 1995 from $386.2 million in fiscal 1994, primarily due to higher unit sales of hearing aid batteries and alkaline batteries, offset in part by decreases in unit sales of Renewal rechargeable batteries and lighting products. 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 and the success of a national advertising and promotional campaign by the Company featuring Arnold Palmer. Sales of alkaline batteries increased as a result of the overall unit increased in the market for alkaline batteries. Decreases in unit sales of Renewal rechargeable batteries were principally a result of inventory corrections relating to excess retail inventory accumulated at the time of Renewal's introduction in fiscal 1994 in anticipation of demand which materialized later than expected, and consequently delayed replacement sales. Unit sales of lighting devices decreased due primarily to the successful introduction in the retail flashlight market of a new flashlight product by a competitor. Gross Profit. Gross profit increased $2.6 million, or 1.7%, to $153.9 million in fiscal 1995 from $151.3 million in fiscal 1994. Gross profit increased as a percentage of net sales to 39.4% in fiscal 1995 from 39.2% in fiscal 1994. The comparison was favorable primarily because of the one-time $9.5 million manufacturing costs incurred in 1994 due to the Fennimore Expansion, as discussed above, the benefit of which was offset in part by a 1995 increase in foreign sourced raw material costs resulting from the Fennimore Expansion. Selling Expense. Selling expense decreased $19.3 million, or 18.6%, to $84.5 million in fiscal 1995 from $103.8 million in fiscal 1994 largely due to a $10.3 million decline in Renewal advertising and promotional expenses from fiscal 1994 when $26.0 million in initial advertising and promotional expenses were incurred in connection with the Renewal Introduction and reduced promotional expenses in other products. Selling expense decreased as a percentage of net sales to 21.6% in fiscal 1995 from 26.9% in fiscal 1994. General and Administrative Expense. General and administrative expense increased $3.5 million, or 11.9%, to $32.9 million in fiscal 1995 from $29.4 million in fiscal 1994. General and administrative expense as a percentage 32 of net sales increased from 7.6% in fiscal 1994 to 8.4% in fiscal 1995. This increase occurred as a result of the payment of $4.0 million in management incentives in fiscal 1995. Research and Development Expense. Research and development expense decreased $0.7 million, or 12.3%, to $5.0 million in fiscal 1995 from $5.7 million in fiscal 1994 largely due to the temporary assignment of development resources and personnel to the Fennimore Expansion, in fiscal 1995, as discussed above. Other Special Charges. In fiscal 1994, the Company recorded a charge of $1.5 million related to a head count reduction in connection with efforts to reduce cost and improve productivity. Income from Operations. Income from operations in 1995 increased $20.6 million to $31.5 million, or 8.1% of net sales in fiscal 1995, from $10.9 million, or 2.8% of net sales, in fiscal 1994, for the reasons discussed above. Net Income. Net income for fiscal 1995 increased $12.0 million, or 272.7%, to $16.4 million from $4.4 million in fiscal 1994, largely as a result of higher operating earnings (as described above), which were partially offset by increased income tax expense in comparison to a tax benefit in 1994. Liquidity and Capital Resources During the Transition Period, cash provided by operations decreased $18.9 million to $(1.1) million from $17.8 million in fiscal 1996 due primarily to lower net income (as discussed above) and the effect of increases in inventory to meet seasonal sales requirements. Cash provided by (used in) operating activities was $17.8 million, $35.5 million and $(18.7) million in fiscal 1996, 1995 and 1994, respectively. The reduction in cash flow from operating activities in fiscal 1996 compared to fiscal 1995 and the increase in cash flow from operating activities in fiscal 1995 compared to fiscal 1994 were primarily due to substantial inventory reductions in 1995 over 1994 levels that were affected by the Renewal Introduction, and the rebuilding of those inventories in 1996. In addition, cash used in operations in fiscal 1994 was impacted by costs associated with the Renewal Introduction and the Fennimore Expansion. See "--Introduction." Capital expenditures during the Transition Period were $1.2 million, reflecting maintenance level spending. Capital expenditures in fiscal 1996, 1995 and 1994 were $6.6 million, $16.9 million and $12.5 million, respectively. Capital expenditures in fiscal 1994 and 1995 reflect the acquisition of equipment used in the Company's improved alkaline production lines, as discussed above, and were therefore substantially in excess of maintenance level capital expenditure requirements. During the Transition Period, net cash provided by financing activities increased $15.7 million to $3.7 million from $(12.0) million in fiscal 1996 due primarily to the Recapitalization. Net cash used in financing activities was $12.0 million for fiscal 1996 as compared to $18.3 million in fiscal 1995. The cash was used primarily to reduce the Company's indebtedness. During fiscal 1994, net cash provided by financing activities was $30.8 million as a result of borrowings under the Company's prior revolving credit agreement to fund the working capital increases and capital expenditures discussed above. Since the Recapitalization, the Company's primary capital requirements have been, and will continue to be, for debt service, working capital and capital expenditures. The Company believes that cash flow from operating activities and periodic borrowings under the Credit Agreement will be adequate to meet the Company's short-term and long-term liquidity requirements prior to the maturity of its credit facilities, although no assurance can be given in this regard. Under the Credit Agreement, the Revolving Credit Facility provides $65.0 million of revolving credit availability (of which $26.0 million was borrowed at September 13, 1996, and $2.3 million was utilized for outstanding letters of credit). See "Risk Factors--Substantial Leverage; Incurrence of Additional Senior Debt." The Company estimates that capital expenditures for fiscal 1997 will be up to $15.0 million, and management is reviewing potential projects to increase manufacturing efficiencies, fund environmental, occupational safety projects and general and administrative projects and enhance the Company's competitiveness and profitability. 33 BUSINESS General The Company is the third largest domestic manufacturer of general batteries (D, C, AA, AAA and 9-volt sizes). Within the general battery market, the Company is the leader in the household rechargeable and heavy duty battery segments. The Company is also the leading domestic manufacturer of certain specialty batteries, including hearing aid batteries, lantern batteries and lithium batteries for personal computer memory back-up. In addition, the Company is a leading marketer of flashlights and other battery-powered lighting devices. Established in 1906, the Rayovac brand name is one of the oldest and best recognized names in the battery industry. The Company attributes the longevity and strength of its brand name to its high-quality product line and to the success of its marketing and merchandising initiatives. For the fiscal 1996, the Company had net sales, net income and Adjusted EBITDA (as defined herein) of $399.4 million, $14.3 million and $46.5 million, respectively. The Company's broad line of products includes (i) general batteries (including alkaline, heavy duty and rechargeable household batteries), (ii) specialty batteries (including hearing aid, watch, lantern and personal computer memory back-up batteries) and (iii) flashlights and other battery-powered lighting devices. The Company's products are marketed under the names Rayovac, Renewal, Loud'n Clear, ProLine, Lifex, Power Station, Workhorse and Roughneck, as well as several private labels. Since the early 1980s, the Company has implemented a number of important strategies that have greatly improved its competitive position. In the general battery market, the Company has become a leader in the mass merchandise retail channel by positioning its products as a value brand, offering batteries of substantially equivalent quality and performance at a discount to those offered by its principal competitors. The Company has also introduced industry-leading merchandising innovations such as the Smart Pack and Smart Strip merchandising systems, in which multiple battery packages are presented together in value-oriented formats. As a result of these programs, the Company had 27% and 26.6% market shares in the mass merchandise channel of the general battery market in fiscal 1996 and in the Transition Period ended September 30, 1996, respectively. The Company has complemented its general battery business with successful new product introductions and leading market positions in selected high-margin specialty battery lines. In the domestic hearing aid segment, the Company has achieved a 50% market share as a result of its products' technological capabilities, a strong distribution system and a well developed marketing program. The Company is also the leader in the hearing aid battery market in the United Kingdom and continental Europe. Further, in 1993, the Company introduced the Renewal rechargeable battery, the first alkaline rechargeable battery sold in the United States. Renewal achieved 64% and 63% market shares in the rechargeable household battery category as of July 1996 and September 1996, respectively, and the Company had domestic sales of Renewal products of $27.0 million in fiscal 1996. Rayovac markets and sells its products in the United States, Europe, Canada and the Far East through a wide variety of distribution channels, including retail, industrial, professional, original equipment manufacturer ("OEM") and government channels. Rayovac's principal executive offices are located at 601 Rayovac Drive, Madison, Wisconsin 53711-2497, and its telephone number is (608) 275-3340. 34 Business Strategy The Company's objective is to increase sales and profitability by pursuing the following strategies. Produce High-Quality Battery Products. In each of its battery product lines, the Company seeks to manufacture a high-quality product. In the alkaline segment, the Company manufactures high-performance battery products of substantially equivalent quality to those offered by its principal competitors. In some of its specialty product segments, such as hearing aid batteries, the Company believes its products have certain advantages over its competitors' products. The Company focuses its quality improvement efforts on lengthening service life and enhancing reliability and, in the case of hearing aid batteries, the Company also focuses on product miniaturization. Leverage Value Brand Position. The Company has established a position as the leading value brand in the U.S. general alkaline battery market, focusing on the mass merchandise channel. The Company achieved this position by (i) offering batteries of substantially equivalent quality and performance to those offered by its principal competitors at a retail price discount, (ii) emphasizing innovative in-store merchandising programs and (iii) offering retailers attractive wholesale margins. The mass merchandise segment has generated significant growth in the U.S. retail battery market over the last five years and the Company's positioning in this segment should allow it to continue to take advantage of any future segment growth. Expand Retail Distribution Channels. The Company plans to expand its presence in food stores, drug stores, warehouse clubs and other distribution channels on which the Company historically has not focused significant marketing and sales efforts. Food stores, drug stores and warehouse clubs accounted for 1.5 billion general battery units and $1.2 billion in revenues in the U.S. retail battery market in 1995. Management believes that Rayovac's value-oriented general battery products and merchandising programs make the Company an attractive supplier to these channels. Focus on Niche Markets. The Company has developed leading positions in several important niche markets. Total net sales of batteries in these markets (including those for hearing aid, rechargeable, lantern and heavy duty batteries and for lithium coin cells for personal computer memory back-up) comprised 47.9% of the Company's fiscal 1996 net sales. The Company tailors its strategy in each of these market niches to accommodate each market's characteristics and competitive profile. Expand Rechargeable Battery Market Segment. The Company intends to expand its leading share of the rechargeable household battery market through continued marketing of the economic benefit to consumers of Renewal, the Company's long-life alkaline rechargeable battery. Although approximately twice the retail price of a regular alkaline battery, a Renewal battery can be recharged at least 25 times, providing the approximate aggregate energy of 10 regular alkaline batteries. Consequently, Renewal provides significant economic benefits to consumers over regular alkaline batteries. In addition, alkaline rechargeables are superior to traditional nickel cadmium rechargeables because they are sold fully charged, retain their charge better and are environmentally safer. Management believes that as the Company educates consumers about these benefits, the Company will have a substantial opportunity to expand the rechargeable household battery segment and increase its market share. 35 Battery Industry The U.S. battery industry had aggregate sales in 1995 of approximately $4.1 billion as set forth below. 1995 U.S. Battery Industry Sales (Dollars in billions) Retail: General $2.3 Specialty: Hearing aid 0.2 Other specialty 0.9 Industrial, OEM and Government 0.7 ---- $4.1 ==== Retail sales of general batteries represented $2.3 billion of aggregate U.S. battery industry sales in 1995. As set forth below, this segment has experienced steady growth, with compound annual unit sales growth since 1986 of 5.3%. [typeset representation of line chart] RETAIL GENERAL BATTERY MARKET Total Retail General Batteries Dollars Units (Mil) (Mil) 1985 1426 1805 1986 1538 1923 1987 1648 2030 1988 1740 2132 1989 1792 2106 1990 1834 2225 1991 1912 2358 1992 2003 2543 1993 2099 2715 1994 2192 2910 1995 2310 3071 1996 2497 3250 Source: A.C. Nielsen Scanner Data A.C. Nielsen Consumer Panel Data [end line chart] Growth in retail battery industry sales has been largely due to (i) the proliferation and popularity of uses 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 33 batteries per year in 1995. Retail sales of general and specialty batteries represent the largest portion of the U.S. battery industry, accounting for 82.9% of sales in 1995. Batteries are popular with many retailers because they enjoy attractive profit margins on battery products and are able to maximize overall battery sales by displaying batteries in several locations within each store to attract impulse purchases. In line with general retailing trends, increased battery sales through mass merchandisers and warehouse clubs have driven the overall growth of retail battery sales. Mass merchandisers were responsible for 54.0% of the total increase in general battery retail dollar sales between 1991 and 1995 and, together with warehouse clubs, accounted for 45.0% of total retail battery sales in 1995. The U.S. battery industry is dominated by three manufacturers, including the Company, each of which manufactures and markets a wide variety of batteries. Together, Duracell, Energizer and Rayovac accounted for 90.3% and 89.6% of the U.S. retail general battery market in fiscal 1996 and in the Transition Period ended September 30, 1996, respectively. 36 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 batteries), (ii) specialty batteries (including hearing aid, watch, lantern and personal computer clock and memory back-up batteries) and (iii) flashlights and other battery-powered lighting devices. General batteries (D, C, AA, AAA and 9-volt sizes) are used in devices such as flashlights, 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 battery-powered lighting devices include flashlights, lanterns and similar portable products and related bulbs. A description of the Company's battery products including their typical uses is set forth below.
General Batteries Specialty Technology: Alkaline Zinc Lithium Silver Zinc Air Zinc Types/ - Disposable - Heavy Duty -- -- -- Lantern (Zinc Common Name: - Rechargeable (Zinc Chloride) Chloride and Zinc - General Carbon) Purpose (Zinc Carbon) Sizes: D, C, AA, AAA, 9-volt(1) for 5 primary sizes 10 primary sizes 5 sizes Standard lantern both Alkaline and Zinc Typical Uses: All standard household applications Personal computer Watches Hearing Beam lanterns including pagers, personal radios and clocks and memory aids Camping lanterns cassette players, remote controls and back-up a wide variety of industrial applications
(1) The Company does not produce 9-volt rechargeable batteries. Net sales data for the Company's products for fiscal 1995, fiscal 1996 and the Transition Period are set forth below. Percentage of Company Net Sales Fiscal Year Ended Transition June 30, Period Ended ------------------ September 30, Product Type 1995 1996 1996 ---- ---- ---- General: Alkaline 42.2% 43.0% 40.6% Heavy Duty 14.2 12.3 12.6 Rechargeable Batteries and Rechargers 5.5 7.0 5.1 ----- ----- ----- Total 61.9 62.3 58.3 Specialty Batteries: Hearing Aid 12.6 14.7 14.3 Other Specialty Batteries 16.9 13.9 16.3 ----- ----- ----- Total 29.5 28.6 30.6 Battery-Powered Lighting Devices/Other 8.6 9.1 11.1 ----- ----- ----- Total 100.0% 100.0% 100.0% ===== ===== ===== 37 General Batteries 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 86.0% and 86.3% of total battery unit sales in fiscal 1996 and in the Transition Period ended September 30, 1996, respectively, 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 sold primarily under the Rayovac name, 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. AA and AAA size batteries were the Company's best selling alkaline batteries in fiscal 1996. C and D size batteries are generally used in devices such as flashlights, lanterns, radios, cassette players and battery-powered toys. 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. Although relative performance varies based on battery size and device tests, the performance of the Company's alkaline batteries and those of its competitors are substantially equivalent on average. The Company's performance comparison results are corroborated by recently published independent test results. In fiscal 1996 and in the Transition Period ended September 30, 1996, the Company had 11.2% and 10.9% overall alkaline battery market shares, respectively, and, within the same period, the Company had 19.9% and 20.1% alkaline battery market shares, respectively, within the mass merchandise retail channel. Heavy Duty Batteries. Heavy duty batteries include zinc chloride batteries designed for low and medium-drain devices such as lanterns, flashlights, radios and remote controls. The Company produces a full line of heavy duty batteries, although AA, C and D size heavy duty batteries together accounted for 90% of the Company's heavy duty battery sales in fiscal 1996. The Company also produces zinc carbon ("general purpose") batteries which accounted for less than 1% of the Company's net sales. The Company had 44.5% and 44.0% market shares in the heavy duty battery market in fiscal 1996 and in the Transition Period ended September 30, 1996, respectively. 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. There are currently two types of rechargeable household batteries available to consumers. Traditional rechargeable batteries are based on a technology employing nickel and cadmium. Some states now impose costly and burdensome collection requirements on retailers of nickel-cadmium rechargeable batteries due to their cadmium content, and a nationwide voluntary collection program is now being introduced for these batteries. Alkaline rechargeable batteries are based on more advanced alkaline technology. Rayovac is currently the only domestic manufacturer of alkaline rechargeable batteries. In 1993, the Company introduced its rechargeable alkaline battery under the name Renewal. Renewal rechargeable batteries can be reused at least 25 times when recharged in a Power Station, the proprietary recharging unit designed specifically for Renewal batteries. A Renewal rechargeable battery can thus provide the aggregate charge of approximately 10 regular alkaline batteries. The actual and potential benefits of Renewal rechargeable batteries are significant. Although twice the price of a regular alkaline battery, a Renewal battery is approximately half the price of a traditional nickel-cadmium rechargeable battery, and its rechargeable feature gives it significant economic benefits over regular alkaline batteries with similar performance features. Moreover, unlike traditional nickel-cadmium rechargeable batteries, which must be charged before initial use and lose charge at a rate of approximately 1% per day, a Renewal rechargeable battery comes fully charged before its first use and can retain 85% of its initial charge for up to five years. Renewal batteries have no cadmium or mercury added and are, therefore, exempt from legislation relating to the collection and disposal of such substances. The Company believes that its Renewal rechargeable battery is the best performing, most environmentally responsible rechargeable battery for general household use on the market today. 38 The Company is the market leader in the household rechargeable battery market segment with market shares of 64.2% and 63.1% in fiscal 1996 and in the Transition Period ended September 30, 1996, respectively. The Company believes there is significant opportunity to further expand this market segment and that the key to the long-term success of the Renewal product line is to raise awareness and understanding of its benefits over nickel-cadmium rechargeables and alkaline disposables and to persuade more consumers to use rechargeable batteries. Specialty Batteries Hearing Aid Batteries. The U.S. hearing aid battery industry had aggregate sales in 1995 of approximately $213 million. The Company estimates that there are currently 26 million hearing-impaired individuals in the United States and only 5.5 million hearing aid users. There are several sizes of hearing aid batteries which are designed for use with various types and sizes of hearing aids. The trend in the hearing aid industry is toward miniaturization. As hearing aids have become smaller, hearing aid use has increased and hearing aid battery consumption has increased significantly, as smaller batteries generally must be replaced more often than larger batteries. Consistent with this trend, the Company's hearing aid battery unit sales have increased from 134.5 million units in fiscal 1992 to 193.4 million units in fiscal 1996, an average annual increase of 9.5%. As the appeal of hearing aids to potential users broadens with the decreasing size of hearing aids, and as the age of the U.S. and western European populations increases, the Company expects the hearing aid battery market to continue to grow. The Company produces five sizes and two types of zinc air button cells for use in hearing aids, which are sold under the Loud'n Clear and ProLine brand names and under several private labels, including Beltone, Miracle Ear and Siemens. Zinc air is a highly reliable, high energy density, lightweight battery system with performance superior to that of traditional hearing aid batteries. The Company had the number one market position in the U.S. hearing aid battery market in fiscal 1996, with a market share of 50%. This strong market position is the result of hearing aid battery products with superior technological capabilities, consistent product performance, a strong distribution system and an extensive marketing program. The Company is currently the only manufacturer of the smallest (5A size) hearing aid battery and is one of only two manufacturers of the next smallest (10A size) hearing aid battery. The Company's zinc air button cells offer consistently superior 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 and lantern 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 believes that the market for lithium personal computer memory back-up batteries has significant potential to grow as the personal computer market grows. The Company also produces a wide range of consumer and industrial lantern batteries. In fiscal 1996 and in the Transition Period ended September 30, 1996, the Company held 47.2% and 44.9% market shares, respectively, in the retail lantern battery market, which has experienced declines in recent years with the increased popularity of alternate technologies to lanterns. Battery-Powered Lighting Devices/Other The Company is a leading marketer of battery-powered lighting devices, including flashlights, lanterns and similar portable products and related bulbs for the retail and industrial markets. In fiscal 1996 and in the Transition Period ended September 30, 1996, the Company's products accounted for 9.9% and 14.2% of aggregate lighting product retail dollar sales in the mass merchandise retail market segment, respectively. Rayovac has established its position in this market based on consistent quality products and on innovative product packaging. The battery-powered lighting device industry is highly competitive and includes a greater number of competitors than the U.S. battery industry. 39 Marketing and Distribution General The Company promotes its batteries and lighting devices through a variety of means, including in-store displays, promotional programs and television advertising. The Company also sponsors various trade and consumer promotions intended to foster brand awareness and to maintain multiple, favorable display positions in retail stores. Generally, the Company tailors its marketing and distribution strategy to fit its respective products and the growth and competitive profiles of their respective markets. Rayovac maintains its own U.S. sales force and utilizes a network of independent brokers to service participants in selected distribution channels. General Batteries Alkaline and Heavy Duty. The Company has positioned its alkaline general batteries as a value brand, offering batteries of substantially equivalent quality and performance at a discount to those offered by its principal competitors. Value pricing is also important to the Company because it spends significantly less in advertising than its competitors to market its products. Rather, in addition to pricing, the Company has relied on product quality, innovative in-store merchandising programs and attractive margins for retailers to build market share. Rayovac's introduction of Smart Pack multiple battery packages with user-friendly features such as cardboard zipper tops and display concepts such as promotional pallet programs and Smart Strip vending devices have enabled the Company to incrementally merchandise its products and take full advantage of the impulse nature of many battery purchases. The Company also works with individual retail channel participants to develop unique promotions and attempts to provide retailers with attractive profit margins to encourage retailer brand support. Rechargeable Batteries. The Company's marketing strategy for its rechargeable battery product line focuses on generating consumer interest in Renewal rechargeable batteries. Under this strategy, the Company has made substantial advertising and marketing investments to establish the Renewal brand as the industry standard. From fiscal 1994 through fiscal 1996, the Company spent an aggregate of $62.0 million to promote Renewal battery products. As part of its marketing strategy, the Company actively pursues OEM arrangements and other alliances with major electronic device manufacturers. To date, the Company has entered into agreements with thirteen such manufacturers including Phillips Consumer Electronics' Magnavox Division, Texas Instruments, Case Logic and Gerber Products. In each case, the particular consumer product is shipped with Renewal batteries and/or a rebate offer for a Power Station recharging unit. The Company expects to continue to enter into similar arrangements with other manufacturers of consumer products. Specialty Batteries Hearing Aid Batteries. To market and distribute its hearing aid battery products, the Company has developed a highly successful national advertising campaign for its products, which features 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. Additionally, the Company believes that it has developed strong relationships with hearing aid manufacturers and audiologists, the primary purveyors of hearing aids. The Company has also established relationships with major Pacific Rim hearing aid battery distributors to take full advantage of anticipated global market growth. Other Specialty Batteries. 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 continue to penetrate further 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. The Company's lantern battery strategy is to focus on profit maximization and to maintain sales volume. Lighting Devices/Other The Company plans to further expand its lighting devices market share by focusing on non-mass merchandise retail channels such as hardware and home centers and warehouse clubs, and by using the strategies that have brought success to the Company in the mass merchandise retail channel. 40 Manufacturing and Raw Materials The Company has modernized many of its manufacturing lines and its manufacturing processes are highly automated and efficient. During the past five years, Rayovac has spent significant resources on capital improvements, which have enabled Rayovac to increase the quality and service life of its alkaline batteries and to increase its manufacturing capacity. Management believes that Rayovac's manufacturing capacity is sufficient to meet its anticipated production requirements. The most significant raw materials used by Rayovac in its manufacture of batteries are graphite, steel, zinc powder and electrolytic manganese dioxide powder. 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. Rayovac manufactures batteries in the United States and the United Kingdom. Research and Development The Company's research and development group includes approximately 110 employees. The Company's research and development efforts focus primarily on performance and cost improvements of existing products and technologies and in recent years 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 success of these efforts is most apparent with hearing aid battery products where the Company is the only manufacturer of the smallest (5A size) hearing aid battery and is one of only two manufacturers of the next smallest (10A size) hearing aid battery. The Company continues to engage in research and development efforts in an attempt to assure that the Company's products remain technologically competitive in the future. Patents, Trademarks and Licenses The Company's success and ability to compete is dependent 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. Rayovac owns or licenses from third parties a considerable number of patents and patent applications throughout the world, primarily for battery product improvements, additional features and manufacturing equipment. The Company also uses a number of trademarks in its business, including Rayovac(R), Renewal(R), Loud' n Clear(R), ProLine(R), Lifex(tm), Smart Pack(R), Smart Strip(tm), Workhorse(R) and Roughneck(R). The Company relies on both registered and common law trademarks in the United States to protect its trademark rights. The Rayovac(R) mark is also registered in countries outside the United States, including in Europe and the Far East. The Company does not have any right to the trademark "Rayovac" in Brazil, where the mark is owned by an independent third-party battery manufacturer. The Company has obtained a non-exclusive license to use certain technology underlying its Renewal 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 and, although non-exclusive, the license provides that the source technology will not be licensed (i) to any new licensee for manufacturing rights within the United States, Puerto Rico or Mexico or (ii) to Duracell or Energizer anywhere in the world, pursuant to which the new licensee may commence manufacture of products employing such licensed technology before a period of 12 months has expired from the giving of written notice to the Company of the commencement of a manufacturing right under such a license. No such notice has been served. In addition, in the conduct of its business, the Company relies upon other licensed technology in the manufacture of its products. Rayovac has granted exclusive, perpetual, royalty-free licenses for the use of certain of the Company's technology, patents and 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. 41 Competition The Company believes that the markets for its products are highly competitive. Duracell and Energizer are the Company's primary battery industry competitors. Although other competitors often seek to enter this market, the Company believes that the new market entrants will need significant financial and other resources to service the U.S. marketplace. Substantial capital expenditures would be required to establish battery manufacturing operations. Rayovac and its primary competitors enjoy significant advantages in having established brand recognition and distribution channels, which have historically been and will likely continue to be difficult for new market entrants to overcome. Competition in the battery industry is based upon price, quality, performance, brand name recognition, product packaging and design innovation, as well as creative marketing, promotion and distribution strategies. In comparison to the U.S. battery market, the international battery market generally has more competitors, is as highly competitive and has similar methods of competition. Employees As of November 15, 1996, the Company had approximately 2,295 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 a collective bargaining agreement with its Madison, Wisconsin employees which expires in 2000. The Company's other collective bargaining agreements are scheduled to expire in 1997 and 1998. Properties and Equipment The following table sets forth information regarding the Company's eight manufacturing sites in the United States and the United Kingdom:
Location Product Owned/Leased Square Feet Fennimore, WI Alkaline batteries and Renewal Owned 176,000 rechargeable batteries Kinston, NC Battery-powered flashlights and Owned 164,800 lanterns Madison, WI Heavy duty/general purpose Owned 158,000 batteries Portage, WI Zinc air and silver button cells Owned 62,000 Appleton, WI Lithium coin cells and alkaline Owned 60,600 computer batteries Wonewoc, WI Battery-powered lanterns and Leased 60,000 lantern batteries Newton Aycliffe, UK Alkaline and zinc carbon batteries Leased 95,000 Washington, UK Mercuric oxide and zinc air button Leased 63,000 cells
Over the last four years the Company has invested in all of its major battery facilities. During this period, the Company invested $35.0 million in connection with the Fennimore Expansion. Additional investments in zinc air battery production have helped to increase output and precision of assembly as well as to increase the capacity of critical component manufacturing. Investments in lithium coin cell production have been used to build capacity for newly developed sizes of lithium coin cells as well as to increase capacity of the largest volume sizes of such cells. The Company 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, 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, which program includes the use of periodic comprehensive environmental 42 audits to detect and correct practices that are in violation of environmental laws or 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. The Company has from time to time been required to address the impact of historic activities on the environmental condition of its properties, including without limitation the impact of releases from underground storage tanks. Several Company facilities have been in operation for many years and are constructed on fill that includes, among other materials, used batteries containing various heavy metals. The Company has accepted deed restrictions on certain of these properties as a means of providing notice to others of conditions on these properties. 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 recently been notified that its former manganese processing facility in Covington, Tennessee is being evaluated by TDEC for a determination as to whether the facility should be added to the National Priorities List as a Superfund site pursuant to CERCLA. Groundwater monitoring 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 has completed closure of the aforementioned lagoons and has completed the remediation of a stream that borders the site. The Company is seeking to address any remaining issues with respect to this site through Tennessee's voluntary cleanup program and believes it is possible that action will not be required under the Superfund program. However, as TDEC has just commenced its preliminary assessment, the Company cannot predict with assurance the outcome of TDEC's investigation of the site. The Company has been and is subject to several proceedings related to its disposal of industrial and hazardous waste at off-site disposal locations, under CERCLA or analogous state laws that hold persons who "arranged for" the disposal or treatment of such substances strictly liable for the costs incurred in responding to the release or threatened release of hazardous substances from such sites. Current and former owners and operators of such sites, and transporters of waste who participated in the selection of such sites, are also strictly liable for such costs. Liability under CERCLA is generally "joint and several," so that a responsible party under CERCLA may be held liable for all of the costs incurred at a particular site. However, as a practical matter, liability at such sites generally is allocated among all of the viable responsible parties. Some of the most significant factors for allocating liabilities to persons that disposed of wastes at Superfund sites are the relative volume of waste such persons sent to the site and the toxicity of their waste streams. The Company recently 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 the Bergen County Site. The Company is one of approximately 100 defendants named in these lawsuits and is commencing a review to determine the extent of any potential liability it may have at the Bergen County Site. Preliminary information from the plaintiffs suggests that they will take the position that the Company sent used batteries and other materials to the Bergen County Site for reclamation and thereby "arranged" for the disposal of hazardous substances generated during the reclamation process. Based on this information, it appears that the plaintiffs may take the position that the Company is one of the largest volumetric contributors to the environmental conditions at the Bergen County Site. The cost to remediate the Bergen County Site has not been determined and the Company cannot predict the outcome of these proceedings. There can be no assurances that additional proceedings relating to off-site disposal locations will not arise in the future or that pending or future off-site disposal matters will not have a material adverse effect on the Company's business, financial condition or results of operations. See "Risk Factors--Environmental Matters." As of September 30, 1996, the Company has reserved $2.1 million for known on-site and off-site environmental liabilities. The Company believes these reserves are adequate, although there can be no assurance that this amount will be adequate to cover such matters. 43 Legal Proceedings In the ordinary course of business, various suits and claims are filed against the Company. Except as otherwise set forth herein, the Company is not party to any legal proceedings which, in the opinion of management of the Company, will have a material adverse effect on the Company's business or financial condition. 44 MANAGEMENT Directors and Executive Officers Set forth below is certain information regarding each director and executive officer of the Company: Name Age Position and Offices David A. Jones 47 Chairman of the Board, Chief Executive Officer and President Kent J. Hussey 50 Executive Vice President of Finance and Administration and Chief Financial Officer Roger F. Warren 55 President/International and Contract Micropower and Director Trygve Lonnebotn 59 Executive Vice President of Operations and Director Merrell M. Tomlin 44 Senior Vice President Sales James A. Broderick 53 Vice President and General Counsel Kenneth V. Biller 48 Vice President and General Manager of Lighting Products & Industrial Scott A. Schoen 38 Director Thomas R. Shepherd 66 Director Warren C. Smith, Jr. 40 Director Mr. Jones is the Chairman of the Board, Chief Executive Officer and 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. From 1989 to 1994, he served as President and Chief Executive Officer of The Regina Company, a manufacturer of vacuum cleaners and other floor care equipment. Mr. Jones has over 25 years of experience working in the consumer durables industry, most recently in management of operations, manufacturing and marketing. Mr. Hussey is a director of the Company and has served as Executive Vice President of Finance and Administration and Chief Financial Officer since October 1, 1996. Prior to that time and since 1994, Mr. Hussey was Vice President and Chief Financial Officer of ECC International, a producer of industrial minerals and specialty chemicals, and from 1991 to 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. Since joining the Company in 1985, Mr. Warren 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. Tomlin is the Senior Vice President 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 Sales of various divisions of Casio Electronics. Mr. Broderick is Vice President and General Counsel for Rayovac and has held these positions since 1985. Mr. Biller has been Vice President and General Manager of Lighting Products & Industrial since 1995. Mr. Biller joined the Company in 1972 and has held several positions, including Director of Technology/Battery Products, Madison Plant Manager and Vice President of Manufacturing. Mr. Schoen is a Managing Director of THL Co., which he joined in 1986. In addition, Mr. Schoen is a Vice President of Thomas H. Lee Advisors I and Thomas H. Lee Advisors II. He is also a director of First Alert, Inc., Health o meter Products, Inc., LaSalle Re Holdings and various private corporations. Mr. Shepherd is a Managing Director of THL Co. and has been engaged as a consultant to THL Co. since 1986. In addition, Mr. Shepherd is 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. 45 Mr. Smith is a Managing Director of THL Co. and has been employed by THL Co. since 1990. In addition, Mr. Smith is Vice President of Thomas H. Lee Advisors II. He is also a director of Finlay Enterprises, Inc., Finlay Fine Jewelry Corporation and various private corporations. Board Committees The Board has established an Audit Committee and a Compensation Committee. The members of the Audit Committee and the Compensation Committee are Messrs. Schoen, Shepherd and Smith. Executive Compensation The following table sets forth compensation paid to the former Chief Executive Officer of the Company and the other four most highly compensated executive officers of the Company during fiscal 1996 and during the Transition Period ended September 30, 1996 (the "Named Executive Officers") for services rendered in all capacities to the Company.
Other Annual All Other Compen- Compensation Name and Principal Position Year Salary ($) Bonus ($) sation ($) ($) Thomas F. Pyle, Jr., Former Chairman, President and Chief 1996 $640,500 $25,300 Executive Officer Transition Period 138,800 26,900 David A. Jones, Chairman, President and Chief Executive Officer Transition Period 19,700 $179,500 Judith D. Pyle, Former Vice Chairman and Senior Vice 1996 248,100 6,500 President of Marketing Transition Period 53,800 8,200 Marvin G. Siegert, Former Executive Vice President of Finance and Administration and 1996 231,000 11,600 Chief Financial Officer Transition Period 60,100 10,800 Roger F. Warren, Executive Vice President and 1996 248,100 11,000 General Manager Transition Period 64,500 $486,600(1) Trygve Lonnebotn, Executive Vice President 1996 231,000 9,300 of Operations Transition Period 60,100 377,800(1)
(1) Represents amounts paid by the Company in connection with the Recapitalization. Option Grants and Exercises In connection with the Recapitalization, the Board adopted the Rayovac Corporation 1996 Stock Option Plan (the "Plan"). Pursuant to the Plan, the aggregate number of shares of Common Stock as to which options may be granted equals 3,000,000. The Board has granted an aggregate of 1,464,339 options, 911,577 of which have been granted to David A. Jones in accordance with the terms of his employment agreement. See "--Employment Agreement." The following table discloses the grants of stock options during fiscal 1996 to the Named Executive Officers. Other than Mr. Siegert, the Named Executive Officers did not receive any grant of stock options in fiscal 1996 or in the Transition Period ended September 30, 1996. 46 Option/SAR Grants in Fiscal Year 1996
Potential realizable value at assumed annual rates of stock price appreciation for Individual Grants option term ----------------------------------------------------------- -------------------------- Number of Percent of Total Securities Options/SARs Exercise Underlying Granted to or Base Options/SARs Employees in Price Name Granted (#) Fiscal Year ($/Sh) Expiration Date 5% ($) 10% ($) Marvin G. Siegert 350,000 100% $1.15 1/4/2006 $2,097,756 $3,579,569
Mr. Siegert's options were exercised and the shares of Common Stock received upon such exercise were sold in connection with the Recapitalization. Compensation Committee Interlocks and Insider Participation During fiscal 1996, the Compensation Committee of the Board was comprised of Benjamin Garmer, Judith D. Pyle and Marvin G. Siegert. During their fiscal 1996 service on the Compensation Committee, Ms. Pyle was the Vice Chairman and Senior Vice President of Marketing of the Company and Mr. Seigert was the Executive Vice President of Finance and Administration and Chief Financial Officer and Ms. Pyle and Mr. Siegert participated in all compensation decisions including those relating to their own compensation. Ms. Pyle is the wife of Thomas F. Pyle, Jr., former Chairman, President and Chief Executive Officer of the Company and currently a consultant to the Company. See "Certain Relationships and Related Transactions." Employment Agreement Under the employment agreement between David A. Jones and the Company (the "Jones Employment Agreement"), Mr. Jones is entitled to a salary of $400,000 per annum (which may be increased from time to time at the discretion of the Board) and an annual bonus based upon the Company achieving certain annual performance goals established by the Board. The Company has also granted Mr. Jones options to purchase 911,577 shares of Common Stock at $4.39 per share, half of which become exercisable at a rate of 20% per year over a five-year period and the other half of which become exercisable at the end of ten years with accelerated vesting over each of the next five fiscal years if the Company achieves certain performance goals. In connection with the Recapitalization, Mr. Jones individually also purchased 227,895 shares of Common Stock at approximately $4.39 per share. One-half of the purchase price was paid in cash and one-half with a promissory note. The Jones Employment Agreement (other than certain restrictive covenants of Mr. Jones and certain severance obligations of the Company) may be cancelled by either party by giving a sixty-day notice or may be cancelled immediately by the Company for Cause (as defined in the Jones Employment Agreement). The Jones Employment Agreement took effect September 12, 1996 and expires on September 30, 1999. Severance Agreements Each of Kent J. Hussey, Chief Financial Officer of the Company, Roger F. Warren, Executive Vice President and General Manager of the Company, and Trygve Lonnebotn, Executive Vice President of Operations of the Company, has entered into a severance agreement (each, a "Severance Agreement") with the Company pursuant to which, in the event that his employment is terminated during the term of the Severance Agreement (a) by the Company without Cause (as defined in the Severance Agreement) or (b) by reason of death or Disability (as defined in the Severance Agreement), the Company shall pay him an amount in cash equal to the sum of (i) his base salary as in effect for the fiscal year ending immediately prior to the fiscal year in which such termination occurs and (ii) the annual bonus (if any) earned by him pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year ending immediately prior to the fiscal year in which such termination occurs, such amount to be paid ratably monthly in arrears over the remaining term of the Severance Agreement. In the event of such termination, the Company shall also maintain for the twelve month period following such termination insurance benefits for such individual and his dependents similar to those provided immediately prior to such termination. Under the Severance Agreements, each of Messrs. Hussey, Warren and Lonnebotn has agreed that for one year following the later of the end of the term of the Severance Agreement or the date of termination, that he 47 will not engage or have a financial interest in any business which is involved in the industries in which the Company is engaged. The initial term of each Severance Agreement is one year with automatic one-year renewals thereafter, subject to thirty days notice of non-renewal prior to the end of the then current term. Director Compensation Directors who are employees of the Company receive no compensation for serving on the Board. Non-employee directors of the Company are reimbursed for their out-of-pocket expenses in attending meetings of the Board. Messrs. Schoen, Shepherd and Smith receive no fees in their capacities as directors. See "Certain Relationships and Related Transactions" for a description of certain other arrangements pursuant to which THL Co., of which they are managing directors, receives compensation from the Company. 48 OWNERSHIP OF CAPITAL STOCK The following table sets forth share ownership information about persons known to the Company to own beneficially more than 5% of the outstanding Common Stock, each director of the Company, each Named Executive Officer and all directors and executive officers of the Company as a group, in each case as of October 15, 1996. Shares Beneficially Owned(2) ------------------------ Name and Address(1) of Beneficial Owner Number Percent Thomas H. Lee Equity Fund III, L.P. (3) 13,864,135 67.6% 75 State Street, Ste. 2600 Boston, MA 02109 Thomas H. Lee Foreign Fund III, L.P. (3) 858,950 4.2 75 State Street, Ste. 2600 Boston, MA 02109 THL-CCI Limited Partnership (4) 1,457,405 7.1 75 State Street, Ste. 2600 Boston, MA 02109 Thomas F. Pyle, Jr. 2,022,785 9.9 415 Farwell Drive Madison, WI 53704 David A. Jones (5) 232,025 1.1 Judith D. Pyle 0 0.0 Marvin G. Siegert 205,105 1.0 Kent J. Hussey 0 0.0 Roger F. Warren 569,735 2.8 Trygve Lonnebotn 410,210 2.0 Scott A. Schoen (3)(6) 69,955 * Thomas R. Shepherd (6) 36,435 * Warren C. Smith, Jr. (3)(6) 58,305 * All directors and executive officers of the Company as a group (10 persons) (3)(6) 1,672,930 8.2% *Less than 1%. (1) Addresses are given only for beneficial owners of more than 5% of the outstanding shares of Common Stock. (2) Unless otherwise noted, the nature of beneficial ownership is sole voting and/or investment power, except to the extent authority is shared by spouses under applicable law. Shares of Common Stock not outstanding but deemed beneficially owned by virtue of the right of a person or group to acquire them within 60 days are treated as outstanding only for purposes of determining the number and percent of shares of Common Stock owned by such person or group, except that 40,000 immediately exercisable options to purchase Common Stock of an employee of the Company who is not an executive officer of the Company are included for all purposes. (3) THL Equity Advisors III Limited Partnership ("Advisors"), the general partner of Thomas H. Lee Equity Fund III, L.P. 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 4,130 shares representing Mr. Jones' proportional interest in Thomas H. Lee Equity Fund III, L.P. (6) Includes 69,955 shares, 36,435 shares and 58,305 shares, representing the proportional interests of Messrs. Schoen, Shepherd and Smith, respectively, in THL-CCI Limited Partnership; and 13,680 shares which Mr. Smith 49 may be deemed to beneficially own as a result of Mr. Smith's children's proportional beneficial interest in THL-CCI Limited Partnership. CERTAIN RELATIONSHIPS AND RELATED 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 12, 2001. Under the Management Agreement and in connection with the closing of the Recapitalization, the Company paid THL Co. and an affiliate an aggregate fee of $3.25 million (the "THL Transaction Fee"). In consideration of the consulting and management advisory services, the Company pays THL Co. and its affiliate an aggregate annual fee of $360,000 plus expenses (the "Management Fee"). The Company believes that this Management Agreement is on terms no less favorable to the Company than could have been obtained from an independent third party. The Company and Thomas F. Pyle, Jr. are parties to a Consulting Agreement (the "Consulting Agreement") and a Confidentiality, Non-Competition, No-Solicitation and No-Hire Agreement (the "Non-Competition Agreement"). Under the Consulting Agreement, the Company has engaged Mr. Pyle to provide consulting services for an annual fee of $200,000 plus expenses (the "Consulting Fee") for such period as Mr. Pyle is entitled to the Consulting Fee. Mr. Pyle is not entitled to the Consulting Fee in the event that (a) THL Co. or an affiliate of THL Co. no longer receives the Management Fee or (b) Mr. Pyle (i) is no longer subject to the provisions of the Non-Competition Agreement or (ii) ceases to retain at least 5% of the outstanding capital stock of the Company (on a fully diluted basis). In the event that the Management Fee is reduced or increased, the Consulting Fee shall also be reduced or increased on a pro rata basis. Under the Non-Competition Agreement, Mr. Pyle has agreed, among other things, to hold in strict confidence and to not disclose to any person or use any confidential information or materials received by Mr. Pyle from the Company. Additionally, Mr. Pyle has agreed not to engage or have a financial interest in any business which is involved in industries in which the Company is engaged, for a period of five years. The Company leases its corporate headquarters facilities and other properties from partnerships in which Thomas F. Pyle, Jr. is a partner. The Company has annual minimum rental commitments on its corporate headquarters facilities of approximately $3.0 million, subject to adjustment based upon changes in the consumer price index. The Company and David A. Jones are parties to the Jones Employment Agreement pursuant to which Mr. Jones agreed to be the Chairman of the Board, Chief Executive Officer and President of the Company. Mr. Jones also purchased from the Company 227,895 shares of Common Stock with cash and a $500,000 promissory note held by the Company with interest payable at a rate of 7% per annum and principal payable on the earliest of the following to occur: (a) the fifth anniversary of the note; (b) the date on which (i) Mr. Jones terminates his employment for any reason other than a Constructive Termination (as defined in the Jones Employment Agreement) and (ii) he is no longer a director of the Company; or (c) the date the Company terminates Mr. Jones' employment for Cause (as defined in the Jones Employment Agreement). Proceeds from any sale of Mr. Jones' shares must be used to immediately prepay, in whole or in part, the principal amount of the promissory note outstanding and any accrued and unpaid interest on the portion prepaid or the holder of the promissory note may declare the entire principal amount of such note to be forthwith due and payable. See "Management--Employment Agreement." DESCRIPTION OF THE CREDIT AGREEMENT Pursuant to the Credit Agreement, BA Securities, Inc., Donaldson, Lufkin & Jenrette Securities Corporation and certain of its affiliates (collectively, the "Arrangers"), as Arrangers for a group of financial institutions and other accredited investors, have agreed to provide senior bank facilities in an aggregate amount of $170.0 million. The following summary describes certain provisions of the Credit Agreement. The Credit Agreement provides for a six-year Tranche A term loan of up to $55.0 million, a seven-year Tranche B term loan of up to $25.0 million and an eight-year Tranche C term loan of up to $25.0 million (collectively the "Term Loan Facility"), and a six-year Revolving Credit Facility of up to $65.0 million under which working capital loans may be made and with a $10.0 million sublimit for letters of credit (the Revolving Credit Facility, and, together with the Term Loan Facility, referred to collectively as the "Bank Facilities"). On September 13, 1996 (the "Closing Date"), the Company borrowed an aggregate amount of $131.0 million comprised of $26.0 million of Revolving Loans, $55.0 million of Term A Loans, $25.0 million of Term B Loans and $25.0 million of Term C Loans. 50 As shown in the table below, quarterly amortization of the Tranche A loans is in aggregate amounts ranging from $1.0 million to $3.75 million beginning December 31, 1996. Amortization of the Tranche B loans is in aggregate quarterly amounts of $0.0625 million during each of the first six years and $5.875 million during the seventh year beginning December 31, 1996. Amortization of the Tranche C loans will be in aggregate quarterly amounts of $0.0625 million during each of the first seven years and $5.8125 million during the eighth year beginning December 31, 1996. The Revolving Credit Facility must be reduced for 30 consecutive days each year to no more than $10.0 million for the fiscal year ending September 30, 1997, $5.0 million for fiscal year ending September 30, 1998 and is not required to be reduced for any fiscal year thereafter. Term Loan Quarterly Amortization (Dollars in millions) Year Tranche A Tranche B Tranche C 1 $ 1.0 $ .0625 $ .0625 2 1.5 .0625 .0625 3 2.0 .0625 .0625 4 2.5 .0625 .0625 5 3.0 .0625 .0625 6 3.75 .0625 .0625 7 -- 5.875 .0625 8 -- -- 5.8125 Borrowings under the Credit Agreement bear interest, in each case at the Company's option, as follows: (i) with respect to the Tranche A loans and the Revolving Credit Facility, at Bank of America National Trust and Savings Association's base rate plus 1.50% per annum, or at LIBOR plus 2.50% per annum; (ii) with respect to the Tranche B loans, at Bank of America National Trust and Savings Association's base rate plus 2.00% per annum, or at LIBOR plus 3.00% per annum; and (iii) with respect to the Tranche C loans, at Bank of America National Trust and Savings Association's base rate plus 2.25% per annum, or at LIBOR plus 3.25% per annum. Performance-based reductions of the Tranche A and Revolving Credit Facility interest rates are available. The Company also incurs standard letter of credit fees to issuing institutions and other standard commitment fees. The Company obtained interest rate protection in the form of an interest rate swap for $62.5 million of the Term Loan Facility on October 7, 1996. The indebtedness outstanding under the Credit Agreement has been guaranteed by ROV Holding and will be secured by all existing and after-acquired personal property of the Company and its domestic subsidiaries, including the stock of all domestic subsidiaries of the Company and any intercompany debt obligations and 65% of the stock of all foreign subsidiaries (other than dormant subsidiaries) held directly by the Company or its domestic subsidiaries, and, subject to certain exceptions, all existing and after-acquired real and intangible property. The Credit Agreement contains financial and other restrictive covenants customary and usual for credit facilities of this type, including those involving maintenance of minimum coverage for fixed charges, a required minimum level of earnings before income taxes, depreciation and amortization, a required minimum net worth and a required maximum leverage. Credit Agreement covenants also restrict the ability of the Company to incur additional indebtedness, create liens, make investments or specified payments, give guarantees, merge or acquire or sell assets, make capital expenditures and restrict certain other activities. "Events of Default" under the Credit Agreement include, among other things, failure to make payments when due, defaults under certain other agreements or instruments of indebtedness, noncompliance with covenants, breaches of representations and warranties, certain bankruptcy or insolvency events, judgments in excess of specified amounts, pension plan defaults, impairment of security interests in collateral, invalidity of guarantees and certain "changes of control" (as defined in the Credit Agreement). 51 DESCRIPTION OF THE NOTES General As used below in this "Description of the Notes" section, references to the "Notes" refer to the Old Notes and the New Notes, unless the context otherwise requires. The Old Notes were issued and the New Notes will be issued pursuant to an Indenture (the "Indenture") between the Company and Marine Midland Bank, as trustee (the "Trustee"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. Copies of the Indenture and the Registration Rights Agreement are available as set forth under "--Additional Information." The definitions of certain terms used in the following summary are set forth below under "--Certain Definitions." The Notes are general unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Debt, and ranking senior in right of payment to all future subordinated Indebtedness of the Company. The Company's payment obligations under the Notes are guaranteed on a senior subordinated basis by the Guarantors. The Guarantees are subordinated to the guarantees by the Guarantors of Senior Debt. See "--Subordination"; "--Subsidiary Guarantees." The operations of the Company are conducted in part through its Subsidiaries and, therefore, the Company is dependent in part upon the cash flow of its Subsidiaries to meet its obligations, including its obligations under the Notes. The Notes are effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company's Subsidiaries that are not Guarantors. Any right of the Company to receive assets of any of its Subsidiaries upon the latter's liquidation or reorganization (and the consequent right of the Holders of the Notes to participate in those assets) are effectively subordinated to the claims of that Subsidiary's creditors, except to the extent that the Company is itself recognized as a creditor of such Subsidiary, in which case the claims of the Company would still be subordinate to any security in the assets of such Subsidiary and any indebtedness of such Subsidiary senior to that held by the Company. Principal, Maturity and Interest The Notes are limited in aggregate principal amount to $100.0 million and will mature on November 1, 2006. Interest on the Notes will accrue at the rate of 10-1/4% per annum and will be payable semi-annually in arrears on May 1 and November 1, commencing on May 1, 1997, to Holders of record on the immediately preceding April 15 and October 15. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium and interest and Liquidated Damages, if any, on the Notes will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments with respect to Global Notes and Certificated Securities the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1,000 and integral multiples thereof. Subsidiary Guarantees The Company's payment obligations under the Notes will be jointly and severally guaranteed by the Guarantors. The Guarantee of each Guarantor will be subordinated to the prior payment in full of all Senior Debt of such Guarantor, which on a pro forma basis would have had no Senior Debt outstanding at June 30, 1996 (except the Guarantee of obligations under the Credit Agreement), and the amounts for which the Guarantors will be liable 52 under the guarantees issued from time to time with respect to Senior Debt (including obligations under the Credit Agreement). The obligations of each Guarantor under its Guarantee will be limited so as not to constitute a fraudulent conveyance under applicable law. Subordination The payment of principal of, premium, if any, interest and Liquidated Damages, if any, on the Notes is subordinated in right of payment, as set forth in the Indenture, to the prior payment in full, in cash, of all Obligations with respect to Senior Debt, whether outstanding on the date of the Indenture or thereafter incurred. Upon any payment or distribution to creditors of the Company or any Guarantor in a liquidation or dissolution of the Company or any Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or any Guarantor or its property, an assignment for the benefit of creditors or any marshalling of the assets and liabilities of the Company or any Guarantor, the holders of Senior Debt of the Company or such Guarantor, as applicable, will be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including interest accruing after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before the Holders of Notes will be entitled to receive any payment or distribution with respect to the Notes or the Guarantees, as applicable, and until all Obligations with respect to the Senior Debt are paid in full in cash, any payment or distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Notes may receive securities under a plan of reorganization that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from the trust described under "--Legal Defeasance and Covenant Defeasance"). Neither the Company nor any Guarantor may make any payment or distribution upon or in respect of the Notes, including, without limitation, by way of set-off or otherwise, or redeem (or make a deposit in redemption of), defease or acquire any of the Notes, for cash, property or securities (except in such subordinated securities in such plan of reorganization) if (i) a default in the payment of any Obligation of the Company or such Guarantor, as applicable, with respect to (a) any Designated Senior Debt or (b) any Senior Debt permitted by clause (xiv) of the second paragraph of the covenant described under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock" and any other Senior Debt issued in a single transaction or a series of related transactions having an aggregate principal amount outstanding of $5.0 million or more ("Significant Senior Debt"), occurs and is continuing or (ii) any other default (or any event that, after notice or passage of time would become an event of default) occurs and is continuing with respect to any Designated Senior Debt and, in the case of clause (ii), the Trustee receives notice of such default (a "Payment Blockage Notice") from the holders (or the agent or representative of such holders) of any Designated Senior Debt. Payment on the Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such default is cured or waived and (ii) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any such Designated Senior Debt or Significant Senior Debt has been accelerated. No new period of payment blockage may be commenced unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Indenture further requires that the Company promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. As of June 30, 1996, on a pro forma basis giving effect to the Recapitalization, including borrowings under the Credit Agreement, and the sale of the Notes, the Company and its subsidiaries would have had $131.0 million of Senior Debt and $5.2 million of indebtedness and capitalized lease obligations of foreign subsidiaries which would rank senior or effectively rank senior, as the case may be, in right of payment to the Notes. The Indenture limits, subject to certain financial tests, the amount of additional Indebtedness, including Senior Debt, that the Company and its subsidiaries can incur. See "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." 53 Optional Redemption The Notes are not redeemable at the Company's option prior to November 1, 2001. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on November 1 of the years indicated below: Year Percentage 2001 105.125% 2002 103.417 2003 101.708 2004 and thereafter 100.000% Notwithstanding the foregoing, at any time during the first 36 months after the date of the Indenture, the Company may redeem up to 35% of the initial principal amount of the Notes originally issued with the net proceeds of one or more public offerings of equity securities of the Company, at a redemption price equal to 109.250% of the principal amount of such Notes, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remain outstanding immediately after the occurrence of any such redemption and that such redemption occurs within 60 days following the closing of each such public offering. Mandatory Redemption Except as set forth below under "--Repurchase at the Option of Holders," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. Repurchase at the Option of Holders Change of Control Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase (the "Change of Control Payment"). Within 30 calendar days following any Change of Control, the Company will mail a notice to each Holder stating: (i) that the Change of Control Offer is being made pursuant to the covenant entitled "Change of Control" and that all Notes tendered will be accepted for payment; (ii) the purchase price and the purchase date, which will be no earlier than 30 calendar days nor later than 60 calendar days from the date such notice is mailed (the "Change of Control Payment Date"); (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (v) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing such Holder's election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes in connection with a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) 54 deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of the Notes or portions thereof required to be purchased by the Company. The Paying Agent will promptly mail to each Holder of Notes so accepted the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture provides that, prior to complying with the provisions of this covenant, but in any event within 90 calendar days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above would be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar restructuring, nor does it contain any other similar "event risk" protections for Holders of the Notes. Although the Change of Control provision may not be waived by the Company, and may be waived by the Trustee only in accordance with the provisions of the Indenture unless the Notes are defeased, there can be no assurance that any particular transaction (including a highly leveraged transaction) cannot be structured or effected in a manner not constituting a Change of Control. The Credit Agreement currently prohibits the Company from prepaying or redeeming any Notes prior to maturity (except that the Company may redeem up to $35.0 million principal amount of the Notes with the net cash proceeds of an initial public offering), and also provides that certain change of control events with respect to the Company would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Credit Agreement. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes. "Change of Control" means the occurrence of any of the following: (i) (a) any transaction (including a merger or consolidation) the result of which is that any "person" or "group" (each within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than the Principals, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of all Capital Stock of the Company or a successor entity normally entitled to vote in the election of directors, managers or trustees, as applicable, calculated on a fully diluted basis, and (b) as a result of the consummation of such transaction, any "person" or "group" (each as defined above) becomes the "beneficial owner" (as defined above), directly or indirectly, of more of the voting stock of the Company than is at the time "beneficially owned" (as defined above) by the Principals, or (ii) the first day on which a majority of the members of the Board of Directors are not Continuing Directors, or (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than the Principals or their Related Parties. For purposes of this definition, any transfer of an Equity Interest of an entity that was formed for the purpose of acquiring voting stock of the Company shall be deemed to be a transfer of such percentage of such voting stock as corresponds to the percentage of the equity of such entity that has been so transferred. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors who (i) was a member of such Board of Directors on the date of the Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. 55 "Principals" means Thomas H. Lee Equity Fund III, L.P. and its co-investors, Thomas H. Lee Foreign Fund III, L.P. and Thomas H. Lee Company, and any Affiliates of Thomas H. Lee Company. "Related Party" with respect to any Principal means (i) any controlling stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family member (in the case of an individual) of such Principal or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (i). Asset Sales The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, (i) sell, lease, convey or otherwise dispose of any assets (including by way of a sale and leaseback) other than sales of inventory in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company is governed by the provisions of the Indenture described under the caption "--Change of Control" and/or the provisions described under the caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions of this covenant), or (ii) issue or sell Equity Interests of any of its Restricted Subsidiaries, in the case of either clause (i) or (ii) above, whether in a single transaction or a series of related transactions, (a) that have a fair market value in excess of $1.0 million, or (b) for net proceeds in excess of $1.0 million (each of the foregoing, an "Asset Sale"), unless (x) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by an Officers' Certificate delivered to the Trustee, and for Asset Sales having a fair market value or net proceeds in excess of $5.0 million, evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets sold or otherwise disposed of and (y) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; provided, however, that the amount of (A) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (B) any notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received) or Cash Equivalents, shall be deemed to be cash for purposes of this provision; and provided, further, that the 75% limitation referred to in this clause (y) shall not apply to any Asset Sale in which the cash portion of the consideration received therefrom, determined in accordance with the foregoing proviso, is equal to or greater than what the after-tax proceeds would have been had such Asset Sale complied with the aforementioned 75% limitation. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity Interests (other than Disqualified Stock) by a Wholly Owned Restricted Subsidiary to the Company or another Wholly Owned Restricted Subsidiary, (iii) issuances of Equity Interests by the Company pursuant to warrants outstanding on the date of the Indenture, (iv) a Restricted Payment that is permitted by the covenant described under the caption "--Certain Covenants--Restricted Payments," (v) the surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind (other than assignment of such rights or claims for value outside the ordinary course of business) or (vi) the grant in the ordinary course of business of any non-exclusive license of patents, trademarks, registration therefor and other similar intellectual property, is not deemed to be an Asset Sale. In addition, notwithstanding the foregoing, the Company and any of its Restricted Subsidiaries may create or assume Liens (or permit any foreclosure thereon) securing Indebtedness to the extent that such Lien does not violate the covenant described under the caption "--Certain Covenants--Liens". Within 270 days after the receipt of any Net Proceeds from any Asset Sale, the Company may apply such Net Proceeds from such Asset Sale to permanently reduce Senior Debt in accordance with the terms of the Credit Agreement, if applicable, or to the extent not required to be applied thereunder, may, at its option, apply such Net Proceeds to repayment of Indebtedness of a Restricted Subsidiary (in the case of Net Proceeds from an Asset Sale effected by a Restricted Subsidiary) or to an investment in a Restricted Subsidiary or in another business or capital expenditure or other long-term/tangible assets, in each case, in the same or a similar line of business as the Company 56 or any of its Restricted Subsidiaries were engaged in on the date of the Indenture or in businesses reasonably related thereto. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from an Asset Sale that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Selection and Notice If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. Certain Covenants Restricted Payments The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to any direct or indirect holders of the Company's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or such Restricted Subsidiary or dividends or distributions payable to the Company or any Wholly Owned Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Restricted Subsidiary or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary of the Company that is a Guarantor); (iii) purchase, redeem, defease or otherwise acquire or retire for value prior to a scheduled mandatory sinking fund payment date or final maturity date any Indebtedness that is pari passu with or subordinated to the Notes; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;" and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (including Restricted Payments 57 permitted by the next succeeding paragraph), is less than (w) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, 100% of such deficit), plus (x) 100% of the aggregate net cash proceeds received by the Company from the issuance or sale after the date of the Indenture of Equity Interests of the Company or of debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Restricted Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted into Disqualified Stock), plus (y) $2.0 million, plus (z) to the extent that any Unrestricted Subsidiary is designated to be a Restricted Subsidiary, the fair market value (as determined in good faith by the Board of Directors) of the Company's Equity Interests in such Subsidiary at the time of such designation. The foregoing provisions do not prohibit: (i) the payment of any dividend or other distribution within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(x) of the preceding paragraph; (iii) the defeasance, redemption or repurchase of pari passu or subordinated Indebtedness with the net proceeds from an incurrence of Refinancing Indebtedness or the substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(x) of the preceding paragraph; (iv) the purchase, redemption or other acquisition prior to the stated maturity thereof of Indebtedness that is subordinated to the Notes in exchange for or out of the net cash proceeds of a substantially concurrent issue and sale (other than to the Company or any of its Restricted Subsidiaries) of new Indebtedness; provided that (x) the principal amount of such new Indebtedness shall not exceed the principal amount of Indebtedness so refinanced (plus the amount of such reasonable expenses incurred in connection therewith), (y) such new Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being refinanced, and (z) the new Indebtedness shall be subordinate in right of payment to the Notes; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company held by any member of the Company's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement or in connection with the termination of employment of any employees or management of the Company or its Subsidiaries; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $2.0 million in the aggregate plus the aggregate cash proceeds received by the Company after the date of the Indenture from any reissuance of Equity Interests by the Company to members of management of the Company and its Restricted Subsidiaries; (vi) Investments received by the Company and its Restricted Subsidiaries as non-cash consideration from Asset Sales to the extent permitted by the covenant described under the caption "--Repurchase at the Option of Holders--Asset Sales;" and (vii) the repurchase of Notes pursuant to a Change of Control Offer or an Asset Sale Offer; and no Default or Event of Default shall have occurred and be continuing immediately after any such transaction. The Board of Directors may designate a Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash or Government Securities) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The amount of all Restricted Payments (other than cash or Government Securities) shall be the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than the date of making any Restricted 58 Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant described under the caption "--Restricted Payments" were computed, which calculations may be based upon the Company's latest available financial statements. Incurrence of Indebtedness and Issuance of Preferred Stock The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio 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 is incurred or such Disqualified Stock is issued 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, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The foregoing limitations do not apply to: (i) the incurrence by the Company of Senior Bank Debt; (ii) Guarantees of the Senior Bank Debt permitted under or required by the Credit Agreement and Guarantees permitted under or required by the Indenture; (iii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iv) the incurrence by the Company of Indebtedness represented by the Notes and the Indenture, and the incurrence by Restricted Subsidiaries of Guarantees required or permitted to be incurred under the Indenture; (v) the incurrence by the Company or any of its Restricted Subsidiaries of Capital Lease Obligations and/or additional Indebtedness constituting purchase money obligations in an aggregate principal amount not to exceed $5.0 million at any time outstanding; (vi) the incurrence by the Company of additional Indebtedness for any corporate purposes in an outstanding principal amount (or accreted value, as applicable) at no time exceeding $25.0 million (which may, but need not be, borrowed under the Credit Agreement); (vii) the incurrence by any Foreign Subsidiary of Indebtedness, which when aggregated with the principal amount of Indebtedness of all Foreign Subsidiaries then outstanding and incurred pursuant to this clause (vii) does not exceed $5.0 million (or the equivalent thereof in any other currency) at any one time outstanding; (viii) the incurrence by any Restricted Subsidiary of the Company of Acquired Debt in an aggregate principal amount not to exceed $20.0 million for all Restricted Subsidiaries (reduced by the amount of Acquired Debt repaid with the Net Proceeds of Asset Sales of any Restricted Subsidiary subject to such Acquired Debt) that (a) has not been incurred in connection with, or in contemplation of such Restricted Subsidiary becoming a Restricted Subsidiary, or a merger of a Person subject to such Acquired Debt with or into such Restricted Subsidiary, and (b) is without recourse to the Company or any of its Restricted Subsidiaries or any of their respective assets (other than the Restricted Subsidiary subject to such Acquired Debt and its assets), and is not guaranteed by any such Person; provided that (A) after giving pro forma effect to the incurrence thereof as if incurred by the Company, the Company could incur at least $1.00 of Indebtedness under the first paragraph of this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, (B) any Refinancing Indebtedness with respect thereto may not be incurred by any Person other than the Restricted Subsidiary that is the obligor on such Acquired Indebtedness, and (C) such Restricted Subsidiary becomes an Additional Guarantor upon incurrence of such Acquired Debt in accordance with the Indenture; (ix) the incurrence by the Company of Indebtedness in connection with the issuance of notes in payment of the repurchase, redemption, acquisition or retirement of Equity Interests of the Company or any Restricted Subsidiary of the Company to the extent permitted by the covenant described under the caption "--Restricted Payments;" (x) Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the Credit Agreement or the Indenture to be outstanding; (xi) Indebtedness arising out of letters of credit, performance bonds, surety bonds, guarantees resulting from endorsements of negotiable instruments and bankers' acceptances, incurred in the ordinary course of business; (xii) all Obligations with respect to the foregoing; (xiii) the incurrence by the Company and its Restricted Subsidiaries of Indebtedness issued in exchange for, or the proceeds of which are used to repay, redeem, defease, extend, refinance, renew, replace or refund Indebtedness referred to in clauses (ii) through (xii) above, and this clause (xiii) (the "Refinancing Indebtedness"); provided that (a) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount of Indebtedness so extended, refinanced, renewed, replaced, substituted or refunded 59 (plus the amount of fees, premiums, consent fees, prepayment penalties and expenses incurred in connection therewith); (b) in the case of Refinancing Indebtedness for Indebtedness permitted under clause (iii) or (viii) of this paragraph, the Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, refinanced, renewed, replaced or refunded or shall mature after the scheduled maturity date of the Notes; (c) to the extent such Refinancing Indebtedness refinances Indebtedness subordinate to the Notes, such Refinancing Indebtedness shall be subordinated in right of payment to the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced or refunded; and (d) with respect to Refinancing Indebtedness incurred by a Guarantor, such Refinancing Indebtedness shall rank no more senior, and shall be at least as subordinated, in right of payment to the Guarantee of such Guarantor as the Indebtedness being extended, refinanced, renewed, replaced or refunded; (xiv) Indebtedness of the Company (A) not to exceed an aggregate principal amount of $8.0 million outstanding at any time arising as a result of the issuance of tax-exempt industrial development bonds or similar tax-exempt public financing, and (B) additional Indebtedness arising out of the issuance of additional tax-exempt public financing obligations, but only to the extent that Indebtedness owing under the Credit Agreement is prepaid, concurrently with the receipt of the net proceeds of such issuance, in an amount at least equal to the amount of such net proceeds, and term indebtedness or the availability of revolving credit borrowings under the Credit Agreement is permanently reduced by the amount of such net proceeds; and (xv) the incurrence of Indebtedness between (a) the Company and its Restricted Subsidiaries and (b) the Restricted Subsidiaries; provided that (x) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary and (y) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be. Liens The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any of their property, assets or revenue now owned or hereafter acquired by them, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens; provided, however, that in addition to creating Permitted Liens on its properties or assets, the Company may create any Lien upon any of its properties or assets if the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (x) on its Capital Stock or (y) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of the Indenture, (b) the Credit Agreement and all related Senior Bank Debt documents as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Credit Agreement as in effect on the date of the Indenture, (c) the Indenture, the Guarantee and the Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that the Consolidated Cash Flow of such Person is not taken into account in determining whether such acquisition was permitted by the terms of the Indenture, (f) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations or Capital Lease Obligations for property acquired in the 60 ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (h) permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, (i) customary restrictions imposed on the transfer of copyrighted or patented materials and customary provisions in agreements that restrict the assignees of such agreements or any rights thereunder or (j) restrictions with respect to a Subsidiary of the Company imposed pursuant to a binding agreement which has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary. Merger, Consolidation, or Sale of Assets The Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless: (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (a) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (b) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;" provided, however, that this provision shall not prohibit any merger or consolidation among the Company and one or more of its Wholly Owned Restricted Subsidiaries that is a Guarantor. The term "all or substantially all" is not defined in the Indenture. Accordingly, the term would likely be interpreted by reference to applicable state law at the time, and the interpretation will be dependent on the facts and circumstances existing at the time. As a result, under certain circumstances there could be uncertainty as to whether a particular transaction is prohibited by the Indenture. Transactions with Affiliates The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to or enter into any other transaction with, or for the benefit of, an Affiliate of the Company (an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing; provided that (v) the Employment Agreement and any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice (other than past practice with respect to Thomas F. Pyle) of the Company or such Restricted Subsidiary, (w) transactions between or among the Company and/or its Restricted Subsidiaries, (x) investment banking and management fees in an aggregate amount no greater than $360,000 per annum plus reimbursement of expenses to be paid by the Company to Thomas H. Lee Company, (y) payments to Thomas F. Pyle pursuant to the Consulting Agreements (whether or not Thomas F. Pyle would be considered an Affiliate) and (z) transactions permitted by the covenant described under the caption "--Restricted Payments," in each case, shall not be deemed 61 Affiliate Transactions; further provided, however, that (A) the provisions of clause (ii) shall not apply to sales of inventory by the Company or any Restricted Subsidiary to any Affiliate in the ordinary course of business and (B) the provisions of clause (ii)(b) shall not apply to loans or advances to the Company or any Restricted Subsidiary from, or equity investments in the Company or any Restricted Subsidiary by, any Affiliate to the extent permitted by the covenant described under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock." No Senior Subordinated Debt The Indenture provides that (i) the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinated or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes and (ii) the Company will not permit any Guarantor to incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinated or junior in right of payment to its Senior Debt and senior in any respect in right of payment to its Guarantee. Limitations on Guarantees of Company Indebtedness by Restricted Subsidiaries The Indenture provides that in the event that any Restricted Subsidiary, directly or indirectly, guarantees any Indebtedness of the Company other than the Notes (the "Other Indebtedness"), the Company shall cause such Restricted Subsidiary to deliver to the Trustee a supplemental indenture pursuant to which such Restricted Subsidiary shall concurrently guarantee the Company's Obligations under the Indenture and the Notes to the same extent that such Restricted Subsidiary guaranteed the Company's Obligations under the Other Indebtedness (including waiver of subrogation, if any), provided that if such Other Indebtedness is Senior Debt, the Additional Guarantee shall be subordinated in right of payment to the guarantee of such Other Indebtedness, as provided by the provisions of the Indenture described under the caption "--Subordination," and such Additional Guarantee shall be on the same terms and subject to the same conditions as the initial Guarantee given by ROV Holding under the Indenture. Each Additional Guarantee shall by its terms provide that the Additional Guarantor making such Additional Guarantee will be automatically and unconditionally released and discharged from its obligations under such Additional Guarantee upon the release or discharge of the guarantee of the Other Indebtedness that resulted in the creation of such Additional Guarantee, except a discharge or release by, or as a result of, any payment under the guarantee of such Other Indebtedness by such Additional Guarantor. Additional Guarantees The Indenture provides that (i) if the Company or any of its Restricted Subsidiaries shall, after the date of the Indenture, transfer or cause to be transferred, including by way of any Investment, in one or a series of transactions (whether or not related), any assets, businesses, divisions, real property or equipment having an aggregate fair market value (as determined in good faith by the Board of Directors) in excess of $1.0 million to any Restricted Subsidiary that is not a Guarantor, (ii) if the Company or any of its Restricted Subsidiaries shall acquire another Restricted Subsidiary having total assets with a fair market value (as determined in good faith by the Board of Directors) in excess of $1.0 million, or (iii) if any Restricted Subsidiary shall incur Acquired Debt, then the Company shall, at the time of such transfer, acquisition or incurrence, (i) cause such transferee, acquired Restricted Subsidiary or Restricted Subsidiary incurring Acquired Debt (if not then a Guarantor) to execute a Guarantee of the Obligations of the Company hereunder in the form set forth in the Indenture and (ii) deliver to the Trustee an Opinion of Counsel, in form reasonably satisfactory to the Trustee, that such Guarantee is a valid, binding and enforceable obligation of such transferee, acquired Restricted Subsidiary or Restricted Subsidiary incurring Acquired Debt, subject to customary exceptions for bankruptcy and equitable principles. Notwithstanding the foregoing, the Company or any of its Restricted Subsidiaries may make a Restricted Investment in any Wholly Owned Restricted Subsidiary of the Company without compliance with this covenant provided that such Restricted Investment is permitted by the covenant described under the caption, "Restricted Payments." The Indenture provides that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person (other than the Company) whether or not affiliated with such Guarantor unless: (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under its Guarantee, the Notes and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger, (a) would 62 have Consolidated Net Worth (immediately after giving effect to such transaction), equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction and (b) would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio to incur, immediately after giving effect to such transaction, at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock." The Indenture provides that in the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the Person acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "--Repurchase at the Option of Holders --Asset Sales." In the event the Board of Directors designates a Guarantor to be an Unrestricted Subsidiary, such Guarantor will be released and relieved of any obligation under its Guarantee, provided that such designation is conducted in accordance with the applicable provisions of the Indenture including, but not limited to, the covenant described under the caption "--Restricted Payments." Reports The Indenture provides that, whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Notes are outstanding, the Company and, if the Company is required to file separate financial statements for any Guarantor, such Guarantor will furnish to the Trustee and to all Holders (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company and/or any Guarantor were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's and/or the Guarantor's certified independent accountants and (ii) all financial information that would be required to be filed with the Commission on Form 8-K if the Company and/or any Guarantor were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information with the Commission for public availability (unless the Commission will not accept such a filing) and promptly make such information available to all securities analysts and prospective investors upon written request. In addition, the Company and the Guarantors have agreed that, for so long as any Notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Events of Default and Remedies The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to, the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company to comply with the provisions described under the caption "--Repurchase at the Option of Holders--Change of Control;" (iv) failure by the Company or any Guarantor for 60 days after notice to comply with any of its other agreements in the Indenture, the Notes or the Guarantees; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, if (a) such default results in the acceleration of such Indebtedness prior to its express maturity or shall constitute a default in the payment of such Indebtedness at final maturity of such Indebtedness, and (b) the principal amount of any such Indebtedness that has been accelerated or not paid at maturity, when added to the aggregate principal amount of all other Indebtedness that has been accelerated or not paid at maturity, exceeds $5.0 million; (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries; and (viii) except as permitted by the Indenture, any Guarantee issued by a Guarantor shall 63 be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on behalf of any Guarantor shall deny or disaffirm its obligations under its Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, however, that if any Obligation with respect to Designated Senior Debt is outstanding upon a declaration of acceleration of the Notes, the principal, premium, if any, interest and Liquidated Damages, if any, on the Notes will not be payable until the earlier of (i) the day which is five business days after written notice of acceleration is received by the Bank Agent or any other agent acting in a similar capacity with regard to any Designated Senior Debt, or (ii) the date of acceleration of any Designated Senior Debt. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any Restricted Subsidiary that is a Significant Subsidiary, the principal of, and premium, if any, and any accrued and unpaid interest and Liquidated Damages, if any, on all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. In the event of a declaration of acceleration of the Notes because an Event of Default has occurred and is continuing as a result of the acceleration of any Indebtedness described in clause (v) of the preceding paragraph, the declaration of acceleration of the Notes shall be automatically annulled if the holders of any Indebtedness described in clause (v) have rescinded the declaration of acceleration in respect of such Indebtedness within 30 days of the date of such declaration and if (a) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction, and (b) all existing Events of Default, except nonpayment of principal or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to November 1, 2001 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on the Notes. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. No Personal Liability of Directors, Officers, Employees and Stockholders No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, the Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note and the related Guarantees waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes and the Guarantees. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 64 Legal Defeasance and Covenant Defeasance The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership and insolvency events) described under "--Events of Default and Remedies" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 123rd day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 123rd day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Transfer and Exchange A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. 65 Amendment, Supplement and Waiver Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder) (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes in a manner adverse to the Holders of the Notes, (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described under the caption "--Repurchase at the Option of Holders"), (viii) except pursuant to the Indenture, release any Guarantor from its obligations under its Guarantee, or change any Guarantee in any manner that would adversely affect the Holders, or (ix) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of the Indenture (which relate to subordination) will require the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders. Notwithstanding the foregoing, without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. Concerning the Trustee The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of his or her own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. Additional Information Anyone who receives this Prospectus may obtain a copy of the Indenture and the Registration Rights Agreement without charge by writing to Rayovac Corporation, 601 Rayovac Drive, Madison, Wisconsin 53711-2497, Attention: Secretary. 66 Book-Entry, Delivery and Form Except as set forth in the next paragraph, the Notes to be resold as set forth herein will initially be issued in the form of one Global Note (the "Global Note"). The Global Note will be deposited on the date of the closing of the sale of the Notes offered hereby (the "Closing Date") with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in the name of Cede & Co., as nominee of the Depositary (such nominee being referred to herein as the "Global Note Holder"), or will remain in the custody of the Trustee pursuant to the FAST Balance Certificate Agreement between the Depositary and the Trustee. In the case of Old Notes that were (i) originally issued to or transferred to "institutional accredited investors" who are not "qualified institutional buyers" (as such terms are defined under "Notice to Investors" elsewhere herein) (the "Non-Global Purchasers") or (ii) issued as described below under "Certificated Securities," New Notes will be issued in the form of registered definitive certificates (the "Certificated Securities"). Upon the transfer to a qualified institutional buyer of Certificated Securities initially issued to a Non-Global Purchaser, such Certificated Securities may, unless the Global Note has previously been exchanged for Certificated Securities, be exchanged for an interest in the Global Note representing the principal amount of Notes being transferred. The Depositary is a limited-purpose trust company that was created to hold securities for its participating organizations (collectively, the "Participants" or the "Depositary's Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. The Depositary's Participants include securities brokers and dealers (including the Initial Purchaser), banks and trust companies, clearing corporations and certain other organizations. Access to the Depositary's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants" or the "Depositary's Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of the Depositary only through the Depositary's Participants or the Depositary's Indirect Participants. The Company expects that, pursuant to procedures established by the Depositary, (i) upon deposit of the Global Note, the Depositary will credit the accounts of Participants designated by the Initial Purchaser with portions of the principal amount of the Global Note and (ii) ownership of the Notes evidenced by the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depositary (with respect to the interests of the Depositary's Participants), the Depositary's Participants and the Depositary's Indirect Participants. Prospective purchasers are advised that the laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer Notes evidenced by the Global Note will be limited to such extent. So long as the Global Note Holder is the registered owner of any Notes, the Global Note Holder will be considered the sole Holder under the Indenture of any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the Global Note will not be considered the owners or Holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee thereunder. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records of the Depositary or for maintaining, supervising or reviewing any records of the Depositary relating to the Notes. Payments in respect of the principal of, premium, if any, interest and Liquidated Damages, if any, on any Notes registered in the name of the Global Note Holder on the applicable record date will be payable by the Trustee to or at the direction of the Global Note Holder in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names Notes, including the Global Note, are registered as the owners thereof for the purpose of receiving such payments. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Notes. The Company believes, however, that it is currently the policy of the Depositary to immediately credit the accounts of the relevant Participants with such payments, in amounts proportionate to their respective holdings of beneficial interests in the relevant security as shown on the records of the Depositary. Payments by the Depositary's Participants and the Depositary's Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practice and will be the responsibility of the Depositary's Participants or the Depositary's Indirect Participants. 67 Certificated Securities Subject to certain conditions, any person having a beneficial interest in the Global Note may, upon request to the Trustee, exchange such beneficial interest for Notes in the form of Certificated Securities. Upon any such issuance, the Trustee is required to register such Certificated Securities in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). All such certificated Old Notes will continue to be subject to the legend requirements described thereon. In addition, if (i) the Company notifies the Trustee in writing that the Depositary is no longer willing or able to act as a depositary and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of Certificated Securities under the Indenture, then, upon surrender by the Global Note Holder of its Global Note, Notes in such form will be issued to each person that the Global Note Holder and the Depositary identify as being the beneficial owner of the related Notes. Neither the Company nor the Trustee will be liable for any delay by the Global Note Holder or the Depositary in identifying the beneficial owners of Notes and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note Holder or the Depositary for all purposes. Same-Day Settlement and Payment The Indenture requires that payments in respect of the Notes represented by the Global Note (including principal, premium, if any, interest and Liquidated Damages, if any) be made by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. With respect to Certificated Securities, the Company will make all payments of principal, premium, if any, interest and Liquidated Damages, if any, by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, the New Notes represented by the Global Note are expected to trade in the Depositary's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by the Depositary to be settled in immediately available funds. The Company expects that secondary trading in the Certificated Securities will also be settled in immediately available funds. Registration Rights; Liquidated Damages Holders of New Notes are not entitled to any registration rights with respect to the New Notes. Pursuant to the Registration Rights Agreement, holders of Old Notes were entitled to certain registration rights. Under the Registration Rights Agreement, the Company agreed to file with the Commission the Exchange Offer Registration Statement on the appropriate form under the Securities Act with respect to the New Notes. Upon the effectiveness of the Exchange Offer Registration Statement, the Company will offer to the Holders of Transfer Restricted Securities pursuant to the Exchange Offer who are able to make certain representations the opportunity to exchange their Transfer Restricted Securities for New Notes. If (i) the Company is not required to file the Exchange Offer Registration Statement or permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy or (ii) any Holder of Transfer Restricted Securities notifies the Company within the specified time period that (a) it is prohibited by law or Commission policy from participating in the Exchange Offer or (b) that it may not resell the New Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales or (c) that it is a broker-dealer and owns Notes acquired directly from the Company or an affiliate of the Company, the Company will file with the Commission a Shelf Registration Statement to cover resales of the Notes by the Holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. The Company will use its reasonable best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the foregoing, "Transfer Restricted Securities" means each Old Note until (i) the date on which such Old Note has been exchanged by a person other than a broker-dealer for a New Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of an Old Note for a New Note, the date on which such New Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Note is distributed to the public pursuant to Rule 144 under the Act. 68 The Registration Rights Agreement provides that (i) the Company will file an Exchange Offer Registration Statement with the Commission on or prior to December 21, 1996, (ii) the Company will use its reasonable best efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to March 7, 1997, (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will commence the Exchange Offer and use its reasonable best efforts to issue, on or prior to 30 business days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, New Notes in exchange for all Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf Registration Statement, the Company will use its reasonable best efforts to file the Shelf Registration Statement with the Commission on or prior to 60 days after such filing obligation arises and to cause the Shelf Registration Statement to be declared effective by the Commission on or prior to April 16, 1997. If (a) the Company fails to file any of the Registration Statements required by the Registration Rights Agreement on or before the date specified for such filing, (b) any of such Registration Statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), (c) the Company fails to consummate the Exchange Offer within 30 business days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement, or (d) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (d) above, a "Registration Default"), then the Company will pay Liquidated Damages to each Holder of Notes, with respect to the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $.05 per week per $1,000 principal amount of Notes held by such Holder. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal amount of Notes. All accrued Liquidated Damages will be paid by the Company on each Damages Payment Date to the Global Note Holder by wire transfer of immediately available funds or by federal funds check and to Holders of Certificated Securities by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. Holders of Old Notes will be required to make certain representations to the Company (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth above. Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness encumbering any asset acquired by such specified Person. "Additional Guarantee" means any guarantee of the Company's obligations under the Indenture and the Notes issued after the Issue Date as described in "--Certain Covenants--Limitations on Guarantees of Company Indebtedness by Restricted Subsidiaries" and "--Certain Covenants--Additional Guarantees." "Additional Guarantor" means any Subsidiary of the Company that guarantees the Company's obligations under the Indenture and the Notes issued after the Issue Date as described in "--Certain Covenants--Limitations on Guarantees of Company Indebtedness by Restricted Subsidiaries" and "--Certain Covenants--Additional Guarantees." "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" 69 (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Bank Agent" means Bank of America National Trust and Savings Association, in its capacity as administrative agent for the lenders party to the Credit Agreement, or any successor or successors thereto in such capacity. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person (including, without limitation, membership interests in a limited liability company). "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States of America or guaranteed by a government that is a member of the Organization for Economic Cooperation and Development ("OECD Country") or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America or such OECD Country, as applicable, is pledged in support thereof) having maturities of not more than three years from the date of acquisition of such security, (ii) marketable direct obligations issued by any State of the United States of America or any local government or other political subdivision thereof rated (at the time of acquisition of such security) at least AA by Standard & Poor's Ratings Service, a division of the McGraw-Hill Companies, Inc. ("S&P") or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's") having maturities of not more than one year from the date of acquisition of such security, (iii) U.S. dollar denominated time deposits, certificates of deposit and bankers' acceptances of (a) any domestic commercial bank of recognized standing having capital and surplus in excess of $250 million or (b) any bank whose short-term commercial paper rating (at the time of acquisition of such security) by S&P is at least A-1 or the equivalent thereof, in each case with maturities of not more than six months from the date of acquisition of such security, (iv) commercial paper and variable rate notes issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating (at the time of acquisition of such security) of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's, or guaranteed by any industrial company with a long-term unsecured debt rating (at the time of acquisition of such security) of at least AA or the equivalent thereof by Moody's and in each case maturing within one year after the date of acquisition of such security and (v) repurchase agreements with any lender under the Credit Agreement or any primary dealer maturing within one year from the date of acquisition that are fully collateralized by investment instruments that would otherwise be Cash Equivalents; provided that the terms of such repurchase agreements comply with the guidelines set forth in the Federal Financial Institutions Examination Council Supervisory Policy--Repurchase Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication, (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and other charges incurred in respect of letters of credit or bankers' acceptance financings and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated 70 Net Income, (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period and deferred finance charges) and other non-cash charges of such Person and its Restricted Subsidiaries for such period (excluding non-cash charges to the extent that such non-cash charges represent an accrual of or reserve for cash charges to be incurred in any future period), to the extent that such depreciation, amortization and other non-cash charges were deducted in computing such Consolidated Net Income, including without limitation non-cash charges recorded in the period ended September 30, 1996 for the write-offs or write-downs of assets related to (A) the rationalization of manufacturing operations located in the United Kingdom, and (B) adjustments of Renewal Power Station inventory valuation, and (v) the following non-recurring expenses related to the recapitalization of the Company consummated on September 13, 1996 (the "Recapitalization"): (A) up to $2.3 milion of debt prepayment penalties incurred in connection with the prepayment of the Company's Indebtedness outstanding prior to the Recapitalization; (B) up to $2.2 million of advisory fees paid to the financial advisor to the Company's shareholders who sold shares in the Recapitalization; (C) legal and consulting fees incurred in connection with the Recapitalization of up to $4.2 million; and (D) up to $7.1 million of compensation expense paid to present and former officers of the Company with respect to obligations to such present and former officers arising as a result of the Recapitalization, in each case to the extent that such expenses were paid in cash during the period ended September 30, 1996 (or, in the case of up to $2.0 million of expenses incurred pursuant to clause (D) above, during the period ended September 30, 1998), and deducted in computing Consolidated Net Income for such period. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Restricted Subsidiary that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the Company or any of its Wholly Owned Restricted Subsidiaries, (ii) the Net Income of any Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary shall only be included to the extent of the amount of dividends or distribution paid to the Company or any of its Wholly Owned Restricted Subsidiaries, provided, however, that notwithstanding the foregoing, if at least 80% of the Equity Interests having ordinary voting power (without regard to the occurrence of any contingency) for the election of directors or other governing body of a Restricted Subsidiary is owned by the Company directly or indirectly through one or more of its Wholly Owned Restricted Subsidiaries, all of the Net Income of such Restricted Subsidiary shall be included, (iii) the Net Income of any Restricted Subsidiary acquired directly or indirectly by the Company in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, (v) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained), directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders and (vi) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Subsidiaries. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Restricted Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (a) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date 71 of the Indenture in the book value of any asset owned by such Person or a consolidated Restricted Subsidiary of such Person, and (b) all investments as of such date in unconsolidated Restricted Subsidiaries and in Persons that are not Restricted Subsidiaries (except, in each case, Permitted Investments), and (c) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Consulting Agreements" means (i) the Consulting Agreement dated September 12, 1996 between the Company and Thomas H. Pyle and (ii) the Confidentiality, Non-Competition, No Solicitation and No Hire Agreement between the Company and Thomas H. Pyle, each as in effect on the date of the Indenture and as amended from time to time in a manner no less favorable, taken as a whole, to the Company. "Credit Agreement" means that certain Credit Agreement, dated as of September 12, 1996, by and among the Company, the lenders party thereto, DLJ Capital Funding, Inc., as documentation and joint syndication agent, and the Bank Agent, as amended, supplemented or otherwise modified from time to time. References to the Credit Agreement shall also include any credit agreement or agreements entered into by the Company to replace, extend, renew, increase, refund or refinance all or a portion of the Indebtedness under the Credit Agreement; provided that the aggregate principal amount of Indebtedness outstanding or available thereunder will not be increased except to the extent permitted by the covenant described above under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." "Default" means any event or condition that is or with the passage of time or the giving of notice or both would, unless cured or waived, be an Event of Default. "Designated Senior Debt" means (i) so long as Senior Bank Debt is outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior Debt permitted under the Indenture the principal amount of which is $25.0 million or more and which has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable, mandatorily or at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date on which the Notes are scheduled to mature. "Employment Agreement" means the Employment Agreement dated September 12, 1996 between the Company and David A. Jones, as in effect on the date of the Indenture and as amended from time to time in a manner no less favorable, taken as a whole, to the Company. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Existing Indebtedness" means (i) Indebtedness of the Company and its Subsidiaries (other than under the Credit Agreement) in existence on the date of the Indenture, until such amounts are repaid, and (ii) Indebtedness incurred after the date of the Indenture pursuant to the following agreements in aggregate principal amount outstanding not to exceed $7.0 million (or the equivalent thereof in any foreign currency), as each such agreement is in effect as of the date of the Indenture and as the same may be amended on terms, taken as a whole, that are no less favorable to the Company: (a) the Credit Agreement between Rayovac Europe B.V. and ABN Amro Bank N.V.; (b) the Credit Agreement between Rayovac (UK), Ltd. and NatWest Bank plc (England); and (c) the Credit Agreement between Rayovac (UK), Ltd. and NationsBank, N.A. "Financing Lease" means any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "Fixed Charges" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense of such Person for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, non-cash interest payments and the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letters of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations, but 72 excluding amortization of deferred financing fees) and (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee is called upon or Lien is enforced) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a person that is a Subsidiary) on any series of preferred stock of such Person, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Subsidiaries following the Calculation Date. "Foreign Subsidiary" means a Restricted Subsidiary not organized or existing under the laws of the United States, any state or territory thereof, or the District of Columbia. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged. "Guarantee" of a Person means any agreement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes liable upon, the obligation of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement or take-or-pay contract and shall include, without limitation, the contingent liability of such Person in connection with any application for a letter of credit or letter of guarantee. "Guarantor" means, collectively, ROV Holding, Inc., a Delaware corporation, and each Subsidiary of the Company that has executed a Guarantee in accordance with the covenants described under the captions "--Certain Covenants--Limitations on Guarantees of Company Indebtedness by Restricted Subsidiaries" and "--Certain Covenants--Additional Guarantees," and their successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. 73 "Indebtedness" means, with respect to any Person, without duplication: (i) all indebtedness of such Person for borrowed money; (ii) all obligations issued, undertaken or assumed by such Person as the deferred purchase price of property or services (other than trade payables entered into and accrued expenses arising in the ordinary course of business on ordinary terms); (iii) all non-contingent reimbursement or payment obligations with respect to surety instruments; (iv) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments; (v) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (vi) all Capital Lease Obligations of such Person; (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; (viii) all Hedging Obligations of such Person; and (ix) all Guarantees of such Person in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (viii) above. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including Guarantees), advances or capital contributions (excluding commission, travel and similar advances and loans and other arrangements, in each case made to officers and employees in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of common equity securities of the Company shall not be deemed to be an Investment. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of. "Joint Venture" means a corporation, partnership, limited liability company, joint venture or other similar legal arrangement (whether created by contract or conducted through a separate legal entity) which is not a Subsidiary of the Company or any of its Restricted Subsidiaries and which is now or hereafter formed by the Company or any of its Restricted Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person. "Legal Holiday" means a Saturday, a Sunday or a day on which commercial banks in the City of New York, Chicago or San Francisco or at a place of payment are authorized or required by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement and any Financing Lease having substantially the same economic effect as any of the foregoing (other than any option, call or similar right relating to treasury shares of the Company to the extent that such option, call or similar right is granted (i) under any employee stock option plan, employee stock ownership plan or similar plan or arrangement of the Company or its Subsidiaries or (ii) in connection with the issuance of Indebtedness permitted under the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock"). "Liquidated Damages" means the additional amounts (if any) payable by the Company in the event of a Registration Default under, and as defined in, the Registration Rights Agreement. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment 74 of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale, which amount is equal to the excess, if any, of (i) the cash received by the Company or such Restricted Subsidiary (including any cash payments received by way of deferred payment pursuant to, or monetization of, a note or installment receivable or otherwise, but only as and when received) in connection with such disposition over (ii) the sum of (a) the amount of any Indebtedness which is secured by such asset and which is required to be repaid in connection with the disposition thereof, plus (b) the reasonable out-of-pocket expenses incurred by the Company or such Restricted Subsidiary, as the case may be, in connection with such disposition or in connection with the transfer of such amount from such Restricted Subsidiary to the Company, plus (c) provisions for taxes, including income taxes, reasonably estimated to be attributable to the disposition of such asset or attributable to required prepayments or repayments of Indebtedness with the proceeds thereof, plus (d) if the Company does not first receive a transfer of such amount from the relevant Restricted Subsidiary with respect to the disposition of an asset by such Restricted Subsidiary and such Restricted Subsidiary intends to make such transfer as soon as practicable, the out-of-pocket expenses and taxes that the Company reasonably estimates will be incurred by the Company or such Restricted Subsidiary in connection with such transfer at the time such transfer is expected to be received by the Company (including, without limitation, withholding taxes on the remittance of such amount). "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender, and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, any Assistant Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer, or the principal accounting officer of the Company, that meets the requirements of the Indenture. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of the Indenture. The counsel may be an employee of or counsel to the Company (or any Guarantor, if applicable), any Subsidiary of the Company or the Trustee. "Permitted Investments" means: (i) any Investments in the Company or in a Wholly Owned Restricted Subsidiary of the Company which, with respect to any such Wholly Owned Restricted Subsidiary, has a fair market value which does not exceed $1.0 million in the aggregate, or any Investments in a Wholly Owned Restricted Subsidiary that (A) is a Guarantor, or (B) is not a Guarantor, but is a Foreign Subsidiary and the aggregate fair market value of all Investments made after the date of the Indenture in Foreign Subsidiaries does not exceed $3.0 million (or the equivalent thereof in one or more foreign currencies); (ii) any Investments in Cash Equivalents; (iii) Investments by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (a) such Person becomes a Wholly Owned Restricted Subsidiary of the Company that is a Guarantor or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company that is a Guarantor; (iv) Investments in accounts and notes receivable acquired in the ordinary course of business; (v) notes from employees, officers, directors, and their transferees and Affiliates issued to the Company representing payment of the exercise price of options to purchase common stock of the Company; (vi) other Investments made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described under the caption "--Repurchase at the Option of Holders--Asset Sales;" (vii) Investments by the Company and its Subsidiaries in Joint Ventures in the form of 75 contributions of capital, loans, advances or Guarantees; provided that, immediately before and after giving effect to such Investment, (a) no Event of Default shall have occurred and be continuing, and (b) the aggregate fair market value of all Investments pursuant to this clause (vii) shall not exceed $2.0 million in the aggregate; (viii) Hedging Obligations permitted by the terms of the Credit Agreement and the Indenture to be outstanding; and (ix) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value) not to exceed $5.0 million at any time outstanding. For purposes of this definition, the aggregate fair market value of any Investment shall be measured on the date such Investment is made without giving effect to subsequent changes in value and shall be valued at the cash amount thereof, if in cash, the fair market value thereof as determined by the Board of Directors, if in property, and at the maximum amount thereof, if in Guarantees. "Permitted Liens" means (i) any Lien existing on property of the Company or any Subsidiary on the date of the Indenture securing Indebtedness outstanding on such date; (ii) any Lien securing obligations under the Senior Bank Debt and any Guarantee thereof, which obligations or Guarantee are permitted by the terms hereof to be incurred and outstanding; (iii) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP are being maintained; (iv) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (v) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (vi) Liens on property of the Company or any Subsidiary securing (a) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases and statutory obligations, (b) surety bonds (excluding appeal bonds and bonds posted in connection with court proceedings or judgments) and (c) other non-delinquent obligations of a like nature, including pledges or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security legislation, in each case, incurred in the ordinary course of business; (vii) Liens consisting of judgment or judicial attachment Liens and Liens securing contingent obligations on appeal bonds and other bonds posted in connection with court proceedings or judgments; provided that the enforcement of such Liens is effectively stayed and all such Liens in the aggregate at any time outstanding for the Company and its Subsidiaries do not exceed $3.0 million; (viii) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Company and its Subsidiaries taken as a whole; (ix) purchase money security interests on any property acquired by the Company or any Subsidiary in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; provided that (a) any such Lien attaches to such property concurrently with or within 90 days after the acquisition thereof, (b) such Lien attaches solely to the property so acquired in such transaction, (c) the principal amount of the Indebtedness secured thereby does not exceed 100% of the cost of such property and (d) the principal amount of the Indebtedness secured by all such purchase money security interests shall not at any time exceed $5.0 million; (x) Liens securing obligations in respect of Capital Lease Obligations on assets subject to such leases, provided that such Capital Lease Obligations are otherwise permitted hereunder; 76 (xi) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (a) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board, and (b) such deposit account is not intended by the Company or any Subsidiary to provide collateral to the depository institution; (xii) Liens in favor of the Company or any Wholly Owned Restricted Subsidiary that is a Guarantor; (xiii) Liens on property of a Person existing at the time such Person becomes a Restricted Subsidiary or such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (xiv) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such acquisition; (xv) extensions, renewals and replacements of Liens referred to in clauses (i) through (xiv) above; provided that any such extension, renewal or replacement Lien is limited to the property or assets covered by the Lien extended, renewed or replaced and does not secure any Indebtedness in addition to that secured immediately prior to such extension, renewal or replacement; (xvi) Liens securing Indebtedness permitted by clause (xiv) of the second paragraph of the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock;" and (xvii) Liens securing other Indebtedness of the Company and its Subsidiaries not expressly permitted by clauses (i) through (xvi) above; provided that the aggregate amount of the Indebtedness secured by Liens permitted pursuant to this clause (xvii) does not exceed $3.0 million in the aggregate. "Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or any agency or political subdivision thereof) or other entity of any kind. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Subsidiary" means, with respect to any Person, any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Senior Bank Debt" means all Obligations outstanding under or in connection with the Credit Agreement as such agreement may be restated, further amended, supplemented or otherwise modified or replaced from time to time hereafter, together with any refunding or replacement of such Indebtedness, up to an aggregate maximum principal amount outstanding or available at any time of $170 million plus the aggregate principal amount of Indebtedness issued under the Credit Agreement pursuant to clause (vi) of the second paragraph of the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," less all outstanding Obligations with respect to Existing Indebtedness, less the aggregate principal amount of Indebtedness issued pursuant to clause (xiv) (B) of the second paragraph of the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," less, without duplication, the aggregate amount of all mandatory repayments of principal (which may not be reborrowed) of and/or mandatory permanent reductions of availability of Indebtedness under such Senior Bank Debt and any optional prepayments on any term loans under the Credit Agreement that have been made since the date of the Indenture (including, without limitation, the aggregate amount of all such mandatory payments and reductions made pursuant to the covenant described under the caption "--Repurchase at the Option of Holders--Asset Sales"). "Senior Debt" means (i) the Senior Bank Debt and (ii) any other Indebtedness permitted to be incurred by the Company or any Guarantor, as the case may be, under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes; provided that the amount of any Guarantee of Senior Bank Debt that constitutes Senior Debt with respect to any Guarantor shall be determined without regard to any reduction in the amount of any Guarantee of 77 such Senior Bank Debt necessary to cause such Guarantee not to be a fraudulent conveyance. Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include (a) any liability for federal, state, local or other taxes owed or owing by the Company, (b) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (c) any trade payables or (d) any Indebtedness that is incurred in violation of the Indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof. "Subsidiary Guarantee" means, individually and collectively, the guarantees given by ROV Holding, Inc. and any Additional Guarantor pursuant to the terms of the Indenture. "Unrestricted Subsidiary" means (i) Minera Vidaluz, S.A. de C.V., (ii) Zoe Phos International, N.V., (iii) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary of the Company than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interest or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by the covenant described under the caption "--Certain Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," and (ii) no Default or Event of Default would be in existence following such designation. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of the Company all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by the Company or by one or more Wholly Owned Restricted Subsidiaries of the Company. 78 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a general summary of certain U.S. federal income tax consequences associated with the exchange of the Old Notes for the New Notes pursuant to the Exchange Offer. The summary is based upon current laws, regulations, rulings and judicial decisions all of which are subject to change, possibly with retroactive effect. The discussion below does not address all aspects of U.S. federal income taxation that may be relevant to particular holders in the context of their specific investment circumstances or certain types of holders subject to special treatment under such laws (e.g., financial institutions, tax-exempt organizations, foreign corporations, and individuals who are not citizens or residents of the U.S.). In addition, the discussion does not address any aspect of state, local or foreign taxation. The exchange of the Old Notes for the New Notes pursuant to the Exchange Offer will not be treated as an "exchange" for federal income tax purposes because the New Notes do not differ materially in either kind or extent from the Old Notes. Rather, the New Notes received by a holder will be treated as a continuation of the Old Notes in the hands of such holder. As a result, there generally will be no federal income tax consequences to holders exchanging the Old Notes for the New Notes pursuant to the Exchange Offer. In addition, any "market discount" on the Old Notes should carry over to the New Notes. Holders should consult their tax advisors regarding the application of the market discount rules to the New Notes received in exchange for the Old Notes pursuant to the Exchange Offer. Interest accruing throughout the term of the New Notes at a rate of 10-1/4% per annum will be includable in gross income in accordance with a holder's regular method of accounting. If Liquidated Damages are paid (in addition to the accrual of interest at a rate of 10-1/4% per annum) on the Old Notes as described above under "Description of the Notes--Registration Rights; Liquidated Damages," such Liquidated Damages payments generally should be includable in a holder's gross income as ordinary income when such payment is made. EACH HOLDER SHOULD CONSULT HIS TAX ADVISOR IN DETERMINING THE FEDERAL, STATE, LOCAL AND ANY OTHER TAX CONSEQUENCES TO THE PARTICULAR HOLDER OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE OLD NOTES AND THE NEW NOTES. PLAN OF DISTRIBUTION Each broker-dealer who holds Old Notes for its own account as a result of market-making activities or other trading activities, and who receives New Notes in exchange for such Old Notes pursuant to the Exchange Offer, may be a statutory underwriter and must deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 180 days after the date of this Prospectus, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until [ ], 1997 (180 days after the date of this Prospectus), all dealers effecting transactions in the New Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that is an "underwriter" within the meaning the Securities Act. For a period of 180 days after the date of this Prospectus, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. 79 LEGAL MATTERS Certain legal matters with respect to the validity of the issuance of the New Notes will be passed upon for the Company by Whyte Hirschboeck Dudek S.C. EXPERTS The financial statements and schedules of the Company and Subsidiaries as of June 30, 1995 and 1996 and as of September 30, 1996 and for each of the years in the three-year period ended June 30, 1996, and the Transition Period ended September 30, 1996 included herein and elsewhere in the Registration Statement have been included herein and in the Registration Statement in reliance upon the reports of Coopers & Lybrand L.L.P., independent certified public accountants, appearing elsewhere herein, given upon the authority of said firm as experts in accounting and auditing. 80 RAYOVAC CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants F-2 Combined Consolidated Balance Sheets as of June 30, 1995 and 1996 and September 30, 1996 F-3 Combined Consolidated Statements of Operations for the Years Ended June 30, 1994, 1995 and 1996 and the Transition Period Ended Sep- tember 30, 1996 F-4 Combined Consolidated Statements of Cash Flows for the Years Ended June 30, 1994, 1995 and 1996 and the Transition Period Ended Sep- tember 30, 1996 F-5 Combined Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended June 30, 1994, 1995 and 1996 and the Transition Period Ended September 30, 1996 F-6 Notes to Combined Consolidated Financial Statements F-7 Unaudited Condensed Combined Consolidated Balance Sheet as of Septem- ber 30, 1995 F-31 Unaudited Condensed Combined Consolidated Statement of Operations for the period July 1, 1995 through September 30, 1995 F-32 Unaudited Condensed Combined Consolidated Statement of Cash Flows for the period July 1, 1995 through September 30, 1995 F-33 Notes to Unaudited Condensed Combined Consolidated Financial State- ments F-34
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Rayovac Corporation We have audited the accompanying combined consolidated balance sheets of Rayovac Corporation and Subsidiaries as of June 30, 1995 and 1996 and September 30, 1996, and the related combined consolidated statements of operations, shareholders' equity (deficit), and cash flows for each of the three years in the period ended June 30, 1996 and the period July 1, 1996 to September 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rayovac Corporation and Subsidiaries as of June 30, 1995 and 1996 and September 30, 1996, and the results of their operations and their cash flows for each of the three 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. Milwaukee, Wisconsin November 22, 1996 F-2 RAYOVAC CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
June 30, June 30, September 30, 1995 1996 1996 --------- --------- --------- Assets Current assets: Cash and cash equivalents $ 2,645 $ 2,190 $ 4,255 Receivables: Trade accounts receivable, net of allowances for doubtful accounts of $702, $786, and $722, respectively 50,887 55,830 62,320 Other 1,811 2,322 4,156 Inventories 65,540 66,941 70,121 Deferred income taxes 5,668 5,861 9,958 Prepaid expenses and other 5,651 4,975 4,864 --------- --------- --------- Total current assets 132,202 138,119 155,674 Property, plant and equipment, net 77,963 73,938 69,397 Deferred charges and other 10,270 9,655 7,413 Debt issuance costs 155 173 12,764 --------- --------- --------- Total assets $ 220,590 $ 221,885 $ 245,248 ========= ========= ========= Liabilities and Shareholders' Equity (Deficit) Current liabilities: Current maturities of long-term debt $ 11,916 $ 11,631 $ 8,818 Accounts payable 39,171 38,695 46,921 Accrued liabilities: Wages and benefits 9,372 6,126 5,894 Other 15,861 19,204 15,904 Recapitalization and other special charges -- -- 14,942 --------- --------- --------- Total current liabilities 76,320 75,656 92,479 Long-term debt, net of current maturities 76,377 69,718 224,845 Employee benefit obligations, net of current portion 10,954 12,141 12,138 Deferred income taxes 2,394 2,584 942 Other 958 162 564 Shareholders' equity (deficit): Common stock, $.01 par value, authorized 90,000 shares; issued 50,000 shares; outstanding 50,000, 49,500 and 20,470 shares, respectively 500 500 500 Rayovac International Corporation common stock, $.50 par value, authorized 18 shares; issued and outstanding 10, 10 and 0 shares, respectively 5 5 -- Additional paid-in capital 12,000 12,000 15,970 Foreign currency translation adjustment 1,979 1,650 1,689 Note receivable officer/shareholder -- -- (500) Retained earnings 39,103 48,002 25,143 --------- --------- --------- 53,587 62,157 42,802 Less treasury stock, at cost, 500 and 29,530 shares, respectively -- (533) (128,522) --------- --------- --------- Total shareholders' equity (deficit) 53,587 61,624 (85,720) --------- --------- --------- Total liabilities and shareholders' equity (deficit) . $ 220,590 $ 221,885 $ 245,248 ========= ========= =========
The accompanying notes are an integral part of these combined consolidated financial statements. F-3 RAYOVAC CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
Years Ended Transition June 30, Period Ended ----------------------------------- September 30, 1994 1995 1996 1996 ------------------------ ----------- --------------- Net sales $386,176 $ 390,988 $399,384 $ 94,981 Cost of goods sold 234,870 237,126 239,343 59,242 -------- -------- ------- -------- Gross profit 151,306 153,862 160,041 35,739 -------- -------- ------- -------- Operating expenses: Selling 103,846 84,467 92,555 20,897 General and administrative 29,356 32,861 31,767 8,628 Research and development 5,684 5,005 5,442 1,495 Recapitalization charges -- -- -- 12,326 Other special charges 1,522 -- -- 16,065 -------- -------- ------- -------- 140,408 122,333 129,764 59,411 -------- -------- ------- -------- Income (loss) from operations 10,898 31,529 30,277 (23,672) Interest expense 7,725 8,644 8,435 4,430 Other (income) expense, net (601) 230 552 76 -------- -------- ------- -------- Income (loss) before income taxes and extraordinary item 3,774 22,655 21,290 (28,178) Income tax expense (benefit) (582) 6,247 7,002 (8,904) -------- -------- ------- -------- Income (loss) before extraordinary item 4,356 16,408 14,288 (19,274) Extraordinary item, loss on early extinguishment of debt, net of income tax benefit of $777 -- -- -- (1,647) -------- -------- ------- -------- Net income (loss) $ 4,356 $ 16,408 $ 14,288 $(20,921) ======== ======== ======= ======== Net income (loss) per common share: Income (loss) before extraordinary item $ 0.09 $ 0.33 $ 0.29 $ (0.44) Extraordinary item -- -- -- (0.04) -------- -------- ------- -------- Net income (loss) $ 0.09 $ 0.33 $ 0.29 $ (0.48) ======== ======== ======= ======== Weighted average shares of common stock outstanding 50,000 50,000 49,500 43,820 ======== ======== ======= ========
The accompanying notes are an integral part of these combined consolidated financial statements. F-4 RAYOVAC CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended Transition June 30, Period Ended ------------------------------------ September 30, 1994 1995 1996 1996 ----------- ------------ ------------ --------------- Cash flows from operating activities: Net income (loss) $ 4,356 $ 16,408 $ 14,288 $(20,921) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Recapitalization and other special charges -- -- -- 28,391 Extraordinary item, loss on early extinguishment of debt -- -- -- 2,424 Amortization of debt issuance costs 101 103 53 1,609 Depreciation 10,252 11,024 11,932 3,279 Deferred income taxes (1,086) 346 3 (5,739) Loss (gain) on disposal of fixed assets 340 110 (108) 1,289 Changes in assets and liabilities: Accounts receivable (9,211) (2,537) (6,166) (8,940) Inventories (18,545) 9,004 (1,779) (3,078) Prepaid expenses and other (489) (990) 1,148 741 Accounts payable and accrued liabilities (4,426) 2,051 (1,526) (185) -------- --------- -------- --------- Net cash (used in) provided by operating activities (18,708) 35,519 17,845 (1,130) -------- --------- -------- --------- Cash flows from investing activities: Purchases of property, plant and equipment (12,464) (16,938) (6,646) (1,248) Proceeds from sale of property, plant and equipment 35 139 298 1,281 Notes receivable officer/shareholder -- -- -- (500) -------- --------- -------- --------- Net cash used in investing activities (12,429) (16,799) (6,348) (467) -------- --------- -------- --------- Cash flows from financing activities: Reduction of debt (79,844) (106,383) (104,526) (107,090) Proceeds from debt financing 114,350 85,698 96,252 259,489 Cash overdraft (202) 3,925 2,339 (2,493) Debt issuance costs -- -- -- (14,373) Extinguishment of debt -- -- -- (2,424) Distributions from DISC (3,500) (1,500) (5,187) (1,943) Acquisition of treasury stock -- -- (533) (127,425) Payments on capital lease obligation -- -- (295) (84) -------- --------- -------- --------- Net cash provided by (used in) financing activities 30,804 (18,260) (11,950) 3,657 -------- --------- -------- --------- Effect of exchange rate changes on cash and cash equivalents 57 (345) (2) 5 -------- --------- -------- --------- Net (decrease) increase in cash and cash equivalents (276) 115 (455) 2,065 Cash and cash equivalents, beginning of period 2,806 2,530 2,645 2,190 -------- --------- -------- --------- Cash and cash equivalents, end of period $ 2,530 $ 2,645 $ 2,190 $ 4,255 ======== ========= ======== ========= Supplemental disclosure of cash flow information: Cash paid for interest $ 7,692 $ 8,789 $ 7,535 $ 7,977 Cash paid for income taxes $ 4,664 $ 8,821 $ 5,877 $ 419
The accompanying notes are an integral part of these combined consolidated financial statements. F-5 RAYOVAC CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (in thousands)
Rayovac International Corporation Common Stock Common Stock Additional (DISC) ---------------------- Paid-in ----------------- Shares Amount Capital Shares Amount ---------- ---------- ---------- -------- ------- Balances July 1, 1993 50,000 $500 $12,000 10 $ 5 Net income -- -- -- -- -- Distributions from DISC -- -- -- -- -- Translation adjustment -- -- -- -- -- Adjustment of additional minimum pension liability -- -- -- -- -- -------- ------ -------- ----- ------ Balances June 30, 1994 50,000 500 12,000 10 5 Net income -- -- -- -- -- Distributions from DISC -- -- -- -- -- Translation adjustment -- -- -- -- -- Adjustment of additional minimum pension liability -- -- -- -- -- -------- ------ -------- ----- ------ Balances June 30, 1995 50,000 500 12,000 10 5 Net income -- -- -- -- -- Distributions from DISC -- -- -- -- -- Translation adjustment -- -- -- -- -- Adjustment of additional minimum pension liability -- -- -- -- -- Treasury stock acquired (500) -- -- -- -- -------- ------ -------- ----- ------ Balances June 30, 1996 49,500 500 12,000 10 5 Net loss -- -- -- -- -- Common stock acquired in Recapitalization (29,030) -- -- -- -- Exercise of stock options -- -- 3,970 -- -- Increase in cost of existing treasury stock -- -- -- -- -- Note receivable, officer/ shareholder -- -- -- -- -- Termination of DISC -- -- -- (10) (5) Translation adjustment -- -- -- -- -- -------- ------ -------- ----- ------ Balances September 30, 1996 20,470 $500 $15,970 -- $-- ======== ====== ======== ===== ======
Foreign Notes Total Currency Receivable Shareholders' Translation Officer/ Retained Treasury Equity Adjustment Shareholder Earnings Stock (Deficit) Balances July 1, 1993 $1,415 $ -- $ 23,029 $ -- $ 36,949 Net income -- -- 4,356 -- 4,356 Distributions from DISC -- -- (3,500) -- (3,500) Translation adjustment 140 -- -- -- 140 Adjustment of additional minimum pension liability -- -- (23) -- (23) ------ ------ -------- ------- -------- Balances June 30, 1994 1,555 -- 23,862 -- 37,922 Net income -- -- 16,408 -- 16,408 Distributions from DISC -- -- (1,500) -- (1,500) Translation adjustment 424 -- -- -- 424 Adjustment of additional minimum pension liability -- -- 333 -- 333 ------ ------ -------- ------- -------- Balances June 30, 1995 1,979 -- 39,103 -- 53,587 Net income -- -- 14,288 -- 14,288 Distributions from DISC -- -- (5,187) -- (5,187) Translation adjustment (329) -- -- -- (329) Adjustment of additional minimum pension liability -- -- (202) -- (202) Treasury stock acquired -- -- -- (533) (533) ------ ------ -------- ------- -------- Balances June 30, 1996 1,650 -- 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, officer/ shareholder -- (500) -- -- (500) Termination of DISC -- -- (1,938) -- (1,943) Translation adjustment 39 -- -- -- 39 ------ ------ -------- ------- -------- $1,689 $(500) $ 25,143 $(128,522) $ (85,720) ====== ====== ======== ======= ========
The accompanying notes are an integral part of these combined consolidated financial statements. F-6 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS 1. RECAPITALIZATION Rayovac Corporation and its wholly-owned subsidiaries (the "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. (the "Lee Fund") and other affiliates of Thomas H. Lee Company (THL Co.) completed a recapitalization of the Company (the "Recapitalization") pursuant to which: (i) the Company obtained senior financing in an aggregate of $170.0 million, of which $131.0 million was borrowed at the closing of the Recapitalization; (ii) the Company obtained $100.0 million in financing through the issuance of senior subordinated increasing rate notes of the Company (the "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 Combined Consolidated Statements of Operations. Other non-recurring charges of $12,326,000 related to the Recapitalization were also expensed. The Company has 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 The following is a summary of significant accounting policies of the Company: a. Principles of Combination and Consolidation: The combined consolidated financial statements include the accounts of Rayovac Corporation and its wholly-owned subsidiaries and Rayovac International Corporation, a Domestic International Sales Corporation (DISC) which is owned by the Company's shareholders. All intercompany transactions have been eliminated. See also Note 6. 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: The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. e. Concentrations of Credit Risk and Major Customers: The Company's trade receivables are subject to concentrations of credit risk as three principal customers accounted for 21%, 26% and 24% of the outstanding trade receivables as of June 30, 1995 and 1996 and September 30, 1996, respectively. The Company derived 28%, 27%, 28% and 25% of its net sales during the years ending June 30, 1994, 1995 and 1996 and the Transition Period, respectively, from the same three customers. The Company has one customer that represented over 10% of its net sales. The Company derived 17%, 16%, 19% and 18% of its net sales from this customer during the years ending June 30, 1994, 1995 and 1996 and the Transition Period, respectively. F-7 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 $1,300,000, $1,068,000 and $730,000 as of June 30, 1995 and 1996 and September 30, 1996, respectively. g. Inventories: Inventories are stated at lower of cost (first-in, first-out (FIFO) method) or market (net realizable value). h. Property, Plant and Equipment: Property, plant and equipment are recorded at cost. The Company provides for depreciation over the estimated useful lives of plant and equipment on the straight-line basis. Depreciable lives by major classification are as follows: Building and improvements 20-30 years Machinery, equipment and other 5-20 years Maintenance and repairs are charged to operations as incurred and major renewals and betterments are capitalized. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. i. Debt Issuance Costs: Debt issuance costs are capitalized and amortized to interest expense over the lives of the debt agreements. Amortization of debt issuance costs during the Transition Period relates principally to the Bridge Notes. j. Accounts Payable: Included in accounts payable at June 30, 1995 and 1996 and September 30, 1996 is approximately $5,466,000, $7,805,000 and $5,312,000, respectively, of book overdrafts on disbursement accounts which were replenished prior to the presentation of checks for payment. k. Income Taxes: Deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. 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. Exchange gains (losses) on foreign currency transactions aggregating $290,000, ($112,000), ($750,000) and ($70,000) for the years ended June 30, 1994, 1995 and 1996, and the Transition Period, respectively, are included in other expense, net, in the Combined Consolidated Statements of Operations. m. Advertising Costs: The Company incurred expenses for advertising of $34,139,000, $25,014,000, $23,466,000 and $5,191,000 in the years ended June 30, 1994, 1995 and 1996, and the Transition Period, respectively. The Company's policy with regard to advertising production costs is to expense such costs as incurred. n. Net Income Per Share: Net income (loss) per common share is computed using the weighted average number of common shares outstanding during the period. o. Financial Instruments: At September 30, 1996, the Company had approximately $2,850,000 of commodity hedge contracts outstanding. The commodity contracts relate to certain metals used in the manufacturing process and are short-term in nature. 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. F-8 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) q. Stock Split: In September 1996, the Company's board of directors declared a five-for-one stock split. A total of 16,376,000 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 . 3. INVENTORIES Inventories consist of the following (in thousands): June 30, June 30, September 30, 1995 1996 1996 -------- -------- -------- Raw material $19,815 $17,592 $21,325 Work-in-process 20,832 26,104 19,622 Finished goods 24,893 23,245 29,174 -------- -------- -------- $65,540 $66,941 $70,121 ======== ======== ======== 4. PROPERTY PLANT AND EQUIPMENT Property, plant and equipment consists of the following (in thousands): June 30, June 30, September 30, 1995 1996 1996 ----------- ----------- --------------- Land, building and improvements $ 16,472 $ 15,469 $ 16,824 Machinery, equipment and other 114,341 119,619 120,125 Construction in process 4,233 5,339 6,232 -------- --------- --------- 135,046 140,427 143,181 Less accumulated depreciation 57,083 66,489 73,784 -------- --------- --------- $ 77,963 $ 73,938 $ 69,397 ======== ========= ========= 5. DEBT Debt consists of the following (in thousands):
June 30, June 30, September 30, 1995 1996 1996 ------- -------- -------- Term loan facility $ -- $ -- $105,000 Bridge Notes -- -- 100,000 Revolving credit facility -- -- 23,500 Debt paid September 1996 due to Recapitalization: Senior Secured Notes due 1997 through 2002 32,429 29,572 -- Subordinated Notes due through 2003 8,180 7,270 -- Revolving credit facility 39,500 39,250 -- Other: Notes payable in Pounds Sterling to a foreign bank, due on demand, with interest at bank's base rate plus 1.87% (7.87% at September 30, 1996) 2,551 1,242 939 Capitalized lease obligation -- 1,330 1,246 Notes and obligations, with a weighted average interest rate of 8.0% at September 30, 1996 5,633 2,685 2,978 ------- -------- -------- 88,293 81,349 233,663 Less current maturities 11,916 11,631 8,818 ------- -------- -------- Long-term debt $76,377 $ 69,718 $224,845 ======== ======== ========
F-9 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. DEBT (Continued) On September 12, 1996, the Company executed a new Credit Agreement (the "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 $170.0 million, as described below. Interest on borrowings is computed, at the Company's option, based on the Bank of America National Trust and Savings Association's base rate (as defined) ("Base Rate") or the Interbank Offering Rate ("IBOR"). The term loan facility includes: (i) Tranche A term loan of $55.0 million, quarterly amortization ranging from $1.0 million to $3.75 million 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 (9.75 % at September 30, 1996); (ii) Tranche B term loan of $25.0 million, quarterly amortization amounts of $62,500 during each of the first six years and $5.875 million 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 (10.25% at September 30, 1996); (iii) Tranche C term loan of $25.0 million, quarterly amortization of $62,500 during each of the first seven years and $5.8125 million 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 (10.50% at September 30, 1996). The revolving credit facility provides for aggregate working capital loans up to $65.0 million through September 30, 2002, reduced by outstanding letters of credit ($10.0 million limit). Interest on borrowings is at the Base Rate plus 1.5% per annum or LIBOR plus 2.5% per annum (9.75% at September 30, 1996). The Company had outstanding letters of credit of approximately $3.1 million at September 30, 1996. The Agreement contains financial covenants with respect to borrowings which include, minimum earnings before interest, income taxes, depreciation, and amortization, fixed charge coverage and tangible net worth. 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. Borrowings under the Agreement are collateralized by substantially all the assets of the Company. The Bridge Notes bear interest at prime plus 3.5% (11.75% at September 30, 1996). The Bridge Notes were paid in full in October 1996. See also Note 16. The aggregate scheduled maturities of debt during subsequent years are as follows (in thousands): Year ending September 30, 1997 $ 8,818 1998 6,970 1999 8,886 2000 10,500 2001 12,500 Thereafter 185,989 -------- $233,663 ======== The capital lease obligation is payable in Pounds Sterling in installments of $390,000 in 1997, $470,000 in 1998 and $386,000 in 1999. For purposes of the Combined Consolidated Statements of Cash Flows, the assets acquired under capital lease and the obligation are considered a non-cash transaction. The carrying values of the debt instruments noted above approximate their estimated fair values. F-10 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. SHAREHOLDERS' EQUITY (DEFICIT) During the year ended June 30, 1996, the former principal shareholder of the Company granted an officer and a director consideration options to purchase 235,000 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 $3,970,000 during the Transition Period and an increase in additional paid-in capital in the Combined 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 $564,000, which is reflected as an increase in treasury stock in the Combined Consolidated Statements of Shareholders' Equity (Deficit). Retained earnings includes DISC retained earnings of $3,605,000 and $1,594,000 at June 30, 1995 and 1996, respectively. In August 1996, the DISC was terminated and the net assets were distributed to its shareholders. 7. STOCK OPTION PLAN Effective September 1996, the Company's Board of Directors (the "Board") approved the Rayovac Corporation Stock Option Plan (the "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 Plan, stock options to acquire up to 3.0 million 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 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. A summary of the status of the Company's Plan is as follows: Weighted-Average Shares Exercise Price --------- --------- Granted 1,464,339 $4.39 Exercised -- -- Forfeited -- -- --------- --------- Outstanding, end of period 1,464,339 $4.39 ========= ========= The stock options outstanding on September 30, 1996 have a weighted-average remaining contractual life estimated at eight years. The weighted average fair value of each option issued was $1.92. The risk free interest rate utilized to determine the fair value of the options was 6.78%. None of these options are currently exercisable. The Company applies APB Opinion 25 and related Interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized in the statement of operations. Had the Company recognized compensation expense determined based on the fair value at the grant date for awards under the plans, consistent with the method prescribed by FASB Statement 123, the Company's net loss and loss per share, on a pro forma basis, for the Transition Period would have been increased to $21,035,000 and $0.48 per share, respectively. F-11 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. INCOME TAXES Pretax earnings (earnings before income taxes and extraordinary item) and income tax (benefit) expense consists of the following (in thousands):
Years Ended Transition June 30, Period Ended --------------------------------- September 30, 1994 1995 1996 1996 -------- -------- -------- --------- Pretax earnings: United States $ 1,031 $ 16,505 $ 17,154 $(27,713) Outside the United States 2,743 6,150 4,136 (2,889) -------- -------- -------- --------- Total pretax earnings $ 3,774 $ 22,655 $ 21,290 $(30,602) ======== ======== ======== ========= Income tax (benefit) expense: Current: Federal $ 230 $ 3,923 $ 5,141 $ (3,870) Foreign 528 797 1,469 (72) State (254) 1,181 389 -- -------- -------- -------- --------- Total current 504 5,901 6,999 (3,942) -------- -------- -------- --------- Deferred: Federal (1,342) 799 54 (3,270) Foreign 386 (544) (57) (847) State (130) 91 6 (1,622) -------- -------- -------- --------- Total deferred (1,086) 346 3 (5,739) -------- -------- -------- --------- $ (582) $ 6,247 $ 7,002 $ (9,681) ======== ======== ======== =========
The following reconciles the Federal statutory income tax rate with the Company's effective tax rate:
Years Ended Transition June 30, Period Ended ----------------------------- September 30, 1994 1995 1996 1996 ----------- ------- -------- --------------- Statutory Federal income tax rate 35.0% 35.0% 35.0% 35.0% DISC commission income (27.4) (5.9) (5.2) 0.4 Effect of foreign items and rate differentials (5.6) (4.0) 1.0 (1.2) State income taxes, net (8.5) 3.6 1.1 3.9 Prior year taxes (11.4) -- -- -- Nondeductible recapitalization charges -- -- -- (6.2) Other 2.5 (1.1) 1.0 (0.3) ------ ------ ------ ------ (15.4)% 27.6% 32.9% 31.6% ====== ====== ====== ======
F-12 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. INCOME TAXES (Continued) The components of the net deferred tax asset and types of significant basis differences were as follows (in thousands):
June 30, June 30, September 30, 1995 1996 1996 ---------------------- --------------- Current deferred tax assets: Recapitalization charges $ -- $ -- $ 3,791 Inventories and receivables 1,894 1,395 1,407 Marketing and promotional accruals 906 1,498 1,252 Employee benefits 1,312 1,554 1,780 Environmental accruals 442 420 752 Other 1,114 994 976 ------- ------- ------- Total current deferred tax assets $ 5,668 $ 5,861 $ 9,958 ======= ======= ======= Noncurrent deferred tax assets: Employee benefits $ 2,719 $ 3,053 $ 3,704 State net operating loss carryforwards -- -- 1,249 Package design expense 661 532 523 Promotional expense 216 784 854 Other 1,410 1,516 1,475 ------- ------- ------- Total noncurrent deferred tax assets 5,006 5,885 7,805 ------- ------- ------- Noncurrent deferred tax liabilities: Property, plant, and equipment (7,395) (8,430) (8,708) Other (5) (39) (39) ------- ------- ------- Total noncurrent deferred tax liabilities (7,400) (8,469) (8,747) ------- ------- ------- Net noncurrent deferred tax liabilities $(2,394) $(2,584) $ (942) ======= ======= =======
At September 30, 1996, the Company has operating loss carryforwards for state income tax purposes of approximately $2.2 million, which expire generally in years through 2011. During 1995, the Company used approximately $3,200,000 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 $1,240,000 recorded at June 30, 1994 in 1995. Provision has not been made for United States income taxes on a portion of the undistributed earnings of the Company's foreign subsidiaries (approximately $2,563,000, $4,342,000 and $4,216,000 at June 30, 1995 and 1996, and September 30, 1996, 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. F-13 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. LEASES Future minimum rental commitments under noncancelable operating leases, principally pertaining to land, buildings and equipment, are as follows (in thousands): Year ending September 30: 1997 $ 7,140 1998 6,088 1999 5,293 2000 4,613 2001 4,311 Thereafter 11,706 -------- $39,151 ======== 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 shareholders is a partner. Annual minimum rental commitments on the headquarters facility of $3,042,000 are subject to an adjustment based upon changes in the Consumer Price Index. The leases on the other properties require annual lease payments of $451,000 subject to annual 3% increases. All of the leases expire during the years 2003 through 2021. Total rental expense was $8,006,000, $8,189,000, $8,213,000 and $1,995,000 for the years ended June 30, 1994, 1995, and 1996 and the Transition Period, 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. Net periodic pension cost for the aforementioned plans is summarized as follows (in thousands):
Years Ended Transition June 30, Period Ended ------------------------------- September 30, 1994 1995 1996 1996 --------- --------- --------- --------------- Service cost $ 1,576 $ 1,711 $ 1,501 $ 2,149 Interest cost 3,069 3,390 3,513 944 Actual return on plan assets (2,377) (2,054) (7,880) (605) Net amortization and deferral (181) (708) 4,994 (166) ------- -------- -------- ------- Net periodic pension cost $ 2,087 $ 2,339 $ 2,128 $ 2,322 ======= ======== ======== =======
F-14 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. POSTRETIREMENT PENSION BENEFITS (Continued) The following tables set forth the plans' funded status (in thousands):
June 30, 1995 -------------------------------- Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets -------------- ---------------- Actuarial present value of benefit obligations: Vested benefit obligation $19,860 $18,844 ======= ======= Accumulated benefit obligation $20,292 $19,636 ======= ======= Projected benefit obligation $ 25,209 $ 19,636 Plan assets at fair value, primarily listed stocks, bonds and cash equivalents 25,358 10,196 ------- ------- Projected benefit obligation (less than) in excess of plan assets (149) 9,440 Unrecognized net loss 684 1,384 Unrecognized net obligation (asset) 589 (5,245) Additional minimum liability -- 3,866 ------- ------- Pension liability $ 1,124 $ 9,445 ======= =======
June 30, 1996 -------------------------------- Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets -------------- ---------------- 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 (less than) in excess of plan assets (835) 10,583 Unrecognized net loss 2,341 893 Unrecognized net obligation (asset) (4,711) 211 Additional minimum liability -- 3,823 ------- ------- Pension liability $ 1,717 $ 10,588 ======= =======
F-15 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. POSTRETIREMENT PENSION BENEFITS (Continued)
September 30, 1996 -------------------------------- Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets --------------- ---------------- 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 (less than) in excess of plan assets (431) 10,941 Unrecognized net loss 2,147 832 Unrecognized net obligation (asset) 208 (2,894) Additional minimum liability -- 2,067 Contribution (86) (756) ------- ------- Pension liability $ 1,838 $ 10,190 ======= ========
Assumptions used in the aforementioned actuarial valuations were:
Years Ended Transition June 30, Period Ended ------------------------------- September 30, 1994 1995 1996 1996 --------- --------- --------- ----------------- Discount rate used for funded status calculation 7.5 % 8.0 % 7.5 % 7.5 % Discount rate used for net periodic pension cost calculations 7.5 % 7.5 % 8.0 % 7.5 % Rate of increase in compensation levels (salaried plan only) 5.5 % 5.5 % 5.0 % 5.0 % Expected long-term rate of return on assets 9.0 % 9.0 % 9.0 % 9.0 %
The Company has recorded an additional minimum pension liability of $3,866,000, $3,823,000 and $2,067,000 at June 30, 1995 and 1996, and September 30, 1996, respectively, to recognize the underfunded position of certain of its benefits plans. An intangible asset of $3,827,000, $3,582,000 and $1,826,000 at June 30, 1995 and 1996, and September 30, 1996, 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 $39,000 at June 30, 1995 and $241,000 at June 30 and September 30, 1996, has been recorded as a reduction of shareholders' equity. 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, 1994, 1995 and 1996, and the Transition Period were $827,000, $1,273,000, $1,000,000 and $181,000, respectively. F-16 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 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 combined consolidated balance sheet (in thousands):
June 30, June 30, September 30, 1995 1996 1996 ------ ------- ------- Accumulated postretirement benefit obligation (APBO): Retirees $ 444 $ 723 $ 687 Fully eligible active participants 489 805 820 Other active participants 495 896 970 ------ ------- ------- Total APBO 1,428 2,424 2,477 Unrecognized net loss (287) (1,269) (1,246) Unrecognized transition obligation (681) (641) (631) ------ ------- ------- Accrued postretirement benefit liability $ 460 $ 514 $ 600 ====== ======= =======
Net periodic postretirement benefit cost includes the following components (in thousands):
Years Ended Transition June 30, Period Ended --------------------- September 30, 1994 1995 1996 1996 ------ ------ ------ --------------- Service cost $102 $110 $129 $ 58 Interest 79 85 111 44 Net amortization and deferral 40 40 54 35 ---- ---- ---- ---- Net periodic postretirement benefit cost $221 $235 $294 $137 ==== ==== ==== ====
A 9.5% annual rate of increase in the per capita costs of covered health care benefits was assumed for fiscal 1996, gradually decreasing to 5.5% by fiscal 2025. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of June 30, 1995 and 1996, and September 30, 1996 by $78,000, $144,000 and $147,000 respectively, and increase the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for the year ended June 30, 1994, 1995 and 1996, and the Transition Period by $16,000, $13,000, $12,000 and $3,000, respectively. A discount rate of 7.5% was used to determine the accumulated postretirement benefit obligation. F-17 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. BUSINESS SEGMENT AND INTERNATIONAL OPERATIONS Information about the Company's operations in different geographic areas is summarized as follows (in thousands):
Years Ended Transition June 30, Period Ended ------------------------------------- September 30, 1994 1995 1996 1996 ------------ ------------ ------------ --------------- Net sales to unaffiliated customers: United States $320,933 $ 315,579 $ 321,866 $ 76,434 Foreign: Western Europe 51,270 59,560 61,336 14,527 Other 13,973 15,849 16,182 4,020 -------- --------- --------- --------- Total $386,176 $ 390,988 $ 399,384 $ 94,981 ======== ========= ========= ========= Transfers between geographic areas: United States $ 23,393 $ 26,928 $ 27,097 $ 7,431 Foreign: Western Europe 1,722 1,637 730 422 Other 54 49 -- -- -------- --------- --------- --------- Total $ 25,169 $ 28,614 $ 27,827 $ 7,853 ======== ========= ========= ========= Net sales: United States $344,326 $342,507 $348,963 $ 83,865 Foreign: Western Europe 52,992 61,197 62,066 14,949 Other 14,027 15,898 16,182 4,020 Eliminations (25,169) (28,614) (27,827) (7,853) -------- --------- --------- --------- Total $386,176 $390,988 $399,384 $ 94,981 ======== ========= ========= ========= Income from operations: United States $ 7,709 $ 24,335 $ 24,759 $(20,983) Foreign: Western Europe 2,851 5,410 5,002 (2,539) Other 338 1,784 516 (150) -------- --------- --------- --------- $ 10,898 $ 31,529 $ 30,277 $ (23,672) ======== ========= ========= ========= Total assets: United States $199,840 $189,557 $193,198 $215,287 Foreign: Western Europe 30,174 34,345 33,719 35,065 Other 12,032 16,093 17,532 18,782 Eliminations (19,610) (19,405) (22,564) (23,886) -------- --------- --------- --------- Total $222,436 $220,590 $221,885 $245,248 ======== ========= ========= =========
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 annual royalties of $1,500,000 for the first five years, beginning in 1993, plus $500,000 for each year thereafter, as long as the related equipment patents are enforceable (2012). In a March 1994 agreement, the Company committed to pay annual royalties of $500,000 for five years beginning in 1995. F-18 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. COMMITMENTS AND CONTINGENCIES (Continued) The estimated fair value of these commitments, based on current rates offered to the Company for debt with the same remaining maturities, is $8,498,000 at September 30, 1996. Additionally, the Company has committed to purchase tooling of $1,466,000 related to this equipment at an unspecified date in the future and purchase manganese ore amounting to $560,000 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 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 $2.1 million, 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 result in a loss in excess of amounts recorded of $750,000 at September 30, 1996. 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 12, 2001. Under the Management Agreement and in connection with the closing of the Recapitalization, the Company paid THL Co. and an affiliate $3.25 million. In consideration of ongoing consulting and management advisory services, the Company will pay THL Co. an aggregate annual fee of $360,000 plus expenses. The Company and 9.9% shareholder of the Company (the principal shareholder prior to the Recapitalization) are parties to a Consulting Agreement which includes noncompetition provisions. Terms of the agreement require the shareholder to provide consulting services for an annual fee of $200,000 plus expenses. The term of this agreement runs concurrent with the Management Agreement, subject to certain conditions as defined in the agreement. The Company has a note receivable from an officer/shareholder in the amount of $500,000, generally payable in five years, which bears interest at 7%. Since the officer/shareholder utilized the proceeds of the note to purchase common stock of the Company, the note has been recorded as a reduction of shareholders' equity. 15. OTHER SPECIAL CHARGES During the Transition Period, the Company recorded special charges as follows: (i) $2.7 million of charges related to the exit of certain manufacturing operations, (ii) $1.7 million of charges to increase net deferred compensation plan obligations to reflect curtailment of such plans; (iii) $1.5 million 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) $6.9 million in costs and asset write-downs principally related to changes in product pricing strategies adopted by management subsequent to the Recapitalization; and (v) $3.3 million of employee termination benefits and other charges. In 1994, the Company recorded a pre-tax charge 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 worldwide basis. This charge included severance costs, out-placement service, and other employee benefits, the majority of which was completed during 1995. F-19 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS Subsequent to September 30, 1996, the Company recorded a pre-tax charge of approximately $2.7 million related to a reduction of employees. The charge included severance, out-placement services and other employee benefits. On October 22, 1996, the Company paid the Bridge Notes described in Note 5 utilizing the proceeds from a private debt offering of Senior Subordinated Notes (the "Notes"). On or after November 1, 2001 or in certain circumstances, after a public offering of equity securities of the Company, the Notes will be redeemable at the option of the Company, in whole or in part, at prescribed redemption prices plus accrued and unpaid interest. The terms of the 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 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 Notes will be 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 will not guarantee the payment obligations under the Notes (Nonguarantor Subsidiaries), are directly and wholly-owned by ROV. The following condensed combined consolidating financial data illustrates the composition of the combined 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-20 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 1996 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ------------ ------------- --------------- --------------- --------------- 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 8,688 1,026 244 -- 9,958 Prepaid expenses and other 3,457 -- 1,407 -- 4,864 --------- ------- ------- -------- -------- Total current assets 133,485 1,245 32,970 (12,026) 155,674 Property, plant and equipment, net 62,252 -- 7,145 -- 69,397 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 $ 227,372 13,343 $ 40,713 $(36,180) $ 245,248 ========= ======= ======== ======== ======== 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 Other 12,915 484 2,505 -- 15,904 Recapitalization and other special charges 11,645 -- 3,297 -- 14,942 --------- ------- ------- -------- -------- Total current liabilities 74,649 1,081 27,760 (11,011) 92,479 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 736 206 -- -- 942 Other 564 -- -- -- 564 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 Note receivable officer/shareholder (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 (128,522) -- -- -- (128,522) --------- ------- ------- -------- -------- Total shareholders' equity (deficit) (84,705) 12,056 12,098 (25,169) (85,720) --------- ------- ------- -------- -------- Total liabilities and shareholders' equity (deficit) $ 227,372 $13,343 $40,713 $(36,180) $ 245,248 ========= ======= ======= ======== ========
F-21 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS TRANSITION PERIOD ENDED SEPTEMBER 30, 1996 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated --------- --------- ------------ ------------ ------------ Net sales $ 83,865 $ -- $18,970 $ (7,854) $ 94,981 Cost of goods sold 53,480 -- 13,470 (7,708) 59,242 --------- --------- --------- --------- --------- Gross profit 30,385 -- 5,500 (146) 35,739 --------- --------- --------- --------- --------- Operating expenses: Selling 17,644 -- 3,253 -- 20,897 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 --------- --------- --------- --------- --------- 50,741 2 8,659 9 59,411 --------- --------- --------- --------- --------- 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) ========= ========= ========= ========= =========
F-22 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS TRANSITION PERIOD ENDED SEPTEMBER 30, 1996 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ------------ ------------- --------------- --------------- --------------- Net cash provided by (used in) 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 Notes receivable officer/shareholder (500) -- -- -- (500) -------- ----- ------- ---- -------- Net cash provided by (used in) investing activities (131) -- (336) -- (467) -------- ----- ------- ---- -------- 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 (127,425) -- -- -- (127,425) Payments on capital lease obligation -- -- (84) -- (84) -------- ----- ------- ---- -------- Net cash provided by (used in) financing activities 3,704 -- (47) -- 3,657 -------- -------- -------- ---- -------- 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 ======== ======== ======== ===== ========
F-23 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING BALANCE SHEET JUNE 30, 1996 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ------------ ---------------------------- --------------- --------------- 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 66,504 -- 7,434 -- 73,938 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 $ 206,648 $15,208 $39,929 $(39,900) $ 221,885 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 Other 15,375 (14) 3,843 -- 19,204 -------- -------- -------- -------- -------- Total current liabilities 60,708 478 24,318 (9,848) 75,656 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 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) $206,648 $15,208 $39,929 (39,900) $221,885 ======== ======== ======== ======== ========
F-24 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ------------ ------------- --------------- --------------- --------------- Net sales $348,964 $ -- $78,247 $(27,827) $399,384 Cost of goods sold 213,349 -- 53,846 (27,852) 239,343 -------- ------- ------- -------- -------- Gross profit 135,615 -- 24,401 25 160,041 -------- ------- ------- -------- -------- Operating expenses: Selling 79,385 -- 13,170 -- 92,555 General and administrative 25,967 12 5,775 13 31,767 Research and development 5,442 -- -- -- 5,442 -------- ------- ------- -------- -------- 110,794 12 18,945 13 129,764 -------- ------- ------- -------- -------- 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 ======== ======= ======= ======== ========
F-25 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1996 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ----------- ---------------------------- --------------- --------------- Net cash provided by (used in) 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 by (used in) 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 by (used in) 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 year 707 203 1,735 -- 2,645 -------- -------- -------- ----- --------- Cash and cash equivalents, end of year $ 1,488 $ 41 $ 661 $-- $ 2,190 ======== ======== ======== ====== =========
F-26 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING BALANCE SHEET JUNE 30, 1995 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ----------- ------------- --------------- --------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 707 $ 203 $ 1,735 $ -- $ 2,645 Receivables: Trade accounts receivable, net 37,698 -- 13,189 -- 50,887 Other 8,312 119 254 (6,874) 1,811 Inventories 52,076 -- 14,136 (672) 65,540 Deferred income taxes 5,509 -- 159 -- 5,668 Prepaid expenses and other 3,936 -- 1,715 -- 5,651 -------- ------- ------- -------- ------- Total current assets 108,238 322 31,188 (7,546) 132,202 Property, plant and equipment, net 70,480 -- 7,483 -- 77,963 Deferred charges and other 9,609 -- 661 -- 10,270 Debt issuance costs 155 -- -- -- 155 Investment in subsidiaries 12,346 12,961 -- (25,307) -- -------- ------- ------- -------- -------- Total assets $200,828 $13,283 $39,332 $(32,853) $220,590 ======== ======= ======= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt $ 3,777 $ -- $ 8,139 $ -- $ 11,916 Accounts payable 33,419 222 12,207 (6,677) 39,171 Accrued liabilities: Wages and benefits 8,514 -- 858 -- 9,372 Other 11,055 715 4,091 -- 15,861 -------- ------- ------- -------- --------- Total current liabilities 56,765 937 25,295 (6,677) 76,320 Long-term debt, net of current maturities 76,377 -- -- -- 76,377 Employee benefit obligations, net of current portion 10,836 -- 118 -- 10,954 Deferred income taxes 2,394 -- -- -- 2,394 Other -- -- 958 -- 958 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 1,979 1,979 1,979 (3,958) 1,979 Retained earnings 39,972 6,842 (1,840) (5,871) 39,103 -------- ------- ------- -------- --------- Total shareholders' equity (deficit) 54,456 12,346 12,961 (26,176) 53,587 -------- ------- ------- -------- --------- Total liabilities and shareholders' equity (deficit) $200,828 $13,283 $ 39,332 $(32,853) $220,590 ======== ======= ======= ======== ========
F-27 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ------------ ------------- --------------- --------------- --------------- Net sales $342,507 $ -- $77,095 $(28,614) $390,988 Cost of goods sold 214,119 -- 51,781 (28,774) 237,126 -------- -------- -------- -------- -------- Gross profit 128,388 -- 25,314 160 153,862 -------- -------- -------- -------- -------- Operating expenses: Selling 71,626 -- 12,841 -- 84,467 General and administrative 27,556 (651) 5,872 84 32,861 Research and development 5,005 -- -- -- 5,005 -------- -------- -------- -------- -------- 104,187 (651) 18,713 84 122,333 -------- -------- -------- -------- -------- 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 ======== ======== ======== ======== ========
F-28 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1995 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ------------ ------------- --------------- --------------- --------------- Net cash provided by (used in) 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 in 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 by (used in) 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 year 824 127 1,579 -- 2,530 -------- ------- ------- ------- -------- Cash and cash equivalents, end of year $ 707 $ 203 $ 1,735 $ -- $ 2,645 ======== ======= ======= ======= ========
F-29 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1994 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ---------- ------------- --------------- ------------ --------------- Net sales $344,325 $ -- $67,020 $(25,169) $386,176 Cost of goods sold 213,551 -- 46,756 (25,437) 234,870 -------- -------- -------- -------- ------- Gross profit 130,774 -- 20,264 268 151,306 -------- -------- -------- -------- ------- Operating expenses: Selling 92,317 -- 11,529 -- 103,846 General and administrative 24,482 7 4,841 26 29,356 Research and development 5,684 -- -- -- 5,684 Other special charges 1,522 -- -- -- 1,522 -------- -------- -------- -------- ------- 124,005 7 16,370 26 140,408 -------- -------- -------- -------- ------- Income (loss) from operations 6,769 (7) 3,894 242 10,898 Interest expense 7,072 -- 653 -- 7,725 Equity in income of subsidiary (1,998) (2,251) -- 4,249 -- Other (income) expense, net (1,081) 407 73 -- (601) -------- -------- -------- -------- ------- Income before income taxes 2,776 1,837 3,168 (4,007) 3,774 Income tax (benefit) expense (1,338) (161) 917 -- (582) -------- -------- -------- -------- ------- Net income $ 4,114 $ 1,998 $ 2,251 $ (4,007) $ 4,356 ======== ======== ======== ======== =======
F-30 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. SUBSEQUENT EVENTS (Continued) CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1994 (in thousands)
Parent Guarantor Nonguarantor Combined and DISC Subsidiary Subsidiaries Eliminations Consolidated ---------- ------------ -------------- -------------- ------------- Net cash provided by (used in) operating activities $(17,709) $(747) $ (979) $ 727 $ (18,708) Cash flows from investing activities: Purchases of property, plant and equipment (11,475) -- (989) -- (12,464) Proceeds from sale of property, plant and equipment 35 -- -- -- 35 -------- ------ ------- ------ -------- Net cash used in investing activities (11,440) -- (989) -- (12,429) -------- ------ ------- ------ -------- Cash flows from financing activities: Reduction of debt (77,751) -- (2,093) -- (79,844) Proceeds from debt financing 110,775 -- 4,300 (725) 114,350 Cash overdraft (202) -- -- -- (202) Distributions from DISC (3,500) -- -- -- (3,500) Intercompany dividends -- 150 (150) -- -- -------- ------ ------- ------ -------- Net cash provided by (used in) financial activities 29,322 150 2,057 (725) 30,804 -------- ------ ------- ------ -------- Effect of exchange rate changes on cash and cash equivalents -- -- 59 (2) 57 -------- ------ ------- ------ -------- Net increase (decrease) in cash and cash equivalents 173 (597) 148 -- (276) Cash and cash equivalents, beginning of year 651 724 1,431 -- 2,806 -------- ------ ------- ------ -------- Cash and cash equivalents, end of year $ 824 $ 127 $ 1,579 $ -- $ 2,530 ======== ====== ======= ====== ========
F-31 RAYOVAC CORPORATION AND SUBSIDIARIES CONDENSED COMBINED CONSOLIDATED BALANCE SHEET (Unaudited) September 30, 1995 (in thousands, except per share amounts)
Assets Current assets: Cash and cash equivalents $ 2,431 Receivables: Trade accounts receivable, net of allowances for doubtful accounts of $433 66,833 Other 1,009 Inventories 73,189 Deferred income taxes 5,757 Prepaid expenses and other 6,208 -------- Total current assets 155,427 Property, plant and equipment, net 75,833 Deferred charges and other 10,289 -------- Total assets $241,549 ======== Liabilities and Shareholders' Equity Current liabilities: Current maturities of long-term debt $ 11,973 Accounts payable 49,877 Accrued liabilities: Wages and benefits 6,095 Other 18,962 -------- Total current liabilities 86,907 Long-term debt, net of current maturities 87,127 Employee benefit obligations, net of current portion 11,035 Deferred income taxes 2,339 Other 938 Shareholders' equity: Common stock, $.01 par value, authorized 90,000 shares; issued 50,000 shares; outstanding 49,500 shares 500 Rayovac International Corporation common stock, $.50 par value, authorized 18 shares; issued and outstanding 10 shares 5 Additional paid-in capital 12,000 Foreign currency translation adjustment 2,362 Retained earnings 38,869 -------- 53,736 Less treasury stock, at cost, 500 shares (533) -------- Total shareholders' equity 53,203 -------- Total liabilities and shareholders' equity $241,549 ========
The accompanying notes are an integral part of these condensed combined consolidated financial statements. F-32 RAYOVAC CORPORATION AND SUBSIDIARIES CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Period July 1, 1995 Through September 30, 1995 (in thousands, except per share amount)
Net sales $100,627 Cost of goods sold 64,116 -------- Gross profit 36,511 -------- Operating expenses: Selling 23,214 General and administrative 7,386 Research and development 1,361 -------- 31,961 -------- Income from operations 4,550 Interest expense 2,413 Other expense, net 29 -------- Income before income taxes 2,108 Income taxes 742 -------- Net income $ 1,366 ======== Net income per common share $ 0.28 ======== Weighted average shares of common stock outstanding 49,500 ========
The accompanying notes are an integral part of these condensed combined consolidated financial statements. F-33 RAYOVAC CORPORATION AND SUBSIDIARIES CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Period July 1, 1995 Through September 30, 1995 (in thousands)
Net cash used in operating activities $ (9,627) -------- Cash flows from investing activities: Purchases of property, plant and equipment (1,097) -------- Net cash used in investing activities (1,097) -------- Cash flows from financing activities: Reduction of debt (18,424) Proceeds from debt financing 29,230 Cash overdraft 1,293 Distributions from DISC (1,600) -------- Net cash provided by financing activities 10,499 -------- Effect of exchange rate changes on cash and cash equivalents 11 -------- Net decrease in cash and cash equivalents (214) Cash and cash equivalents, beginning of period 2,645 -------- Cash and cash equivalents, end of period $ 2,431 ========
The accompanying notes are an integral part of these condensed combined consolidated financial statements. F-34 RAYOVAC CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The condensed combined consolidated financial statements for the period July 1, 1995 through September 30, 1995 are unaudited. These financial statements have been prepared by the Company 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, results of operations and cash flows. 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 combined consolidated financial statements should be read in conjunction with the annual audited financial statements and notes thereto. 2. INVENTORIES Inventories at September 30, 1995 consist of the following (in thousands): Raw material $21,400 Work-in-process 24,224 Finished goods 27,565 ------- $73,189 ======= 3. COMMON STOCK In September 1996, the Company's Board of Directors declared a five-for-one stock split. All applicable share and per share amounts herein have been restated to reflect the stock split retroactively. 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 $1,500,000 for the first five years, beginning in 1993, plus $500,000 for each year thereafter, as long as the related equipment patents are enforceable (2012). In a March 1994 agreement, the Company committed to pay annual royalties of $500,000 for five years beginning in 1995. Additionally, the Company has committed to purchase tooling of $1,745,000 related to this equipment at an unspecified date in the future. The Company is involved in various stages of investigation relative to hazardous waste sites, some of which are on the United States EPA National Priorities List (Superfund). While it is impossible at this time to determine with certainty the ultimate outcome of such environmental matters, they are not expected to materially affect the Company's financial position. F-35 No dealer, sales representative, or any other person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Initial Purchasers. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any securities other than the Notes to which it relates or an offer to, or a solicitation of, any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the Company or that information contained herein is correct as of any time subsequent to the date hereof. ----------------- TABLE OF CONTENTS Page Summary 1 Risk Factors 9 The Recapitalization 15 Use of Proceeds 15 Capitalization 22 Unaudited Pro Forma Condensed Consolidated Financial Data 23 Selected Historical Combined Consolidated Financial Data 26 Management's Discussion and Analysis of Financial Condition and Results of Operations 28 Business 34 Management 45 Ownership of Capital Stock 49 Certain Relationships and Related Transactions 50 Description of the Credit Agreement 50 Description of the Notes 52 Certain United States Federal Income Tax Considerations 79 Plan of Distribution 79 Legal Matters 80 Experts 80 Index to Consolidated Financial Statements F-1 Until , 1997 (90 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. $100,000,000 [Rayovac logo] Rayovac Corporation 10-1/4% Series B Senior Subordinated Notes due 2006 ---------- PROSPECTUS ---------- , 1997 Part II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. Set forth below is an estimate (except for the Securities and Exchange Commission Registration Fee) of the fees and expenses all of which are payable by the Company, other than any underwriting discounts and commissions, in connection with the registration and sale of the securities being registered: Securities and Exchange Commission Registration Fee $34,500 Legal Fees and Expenses $95,000 Trustee's and Exchange Agent's Fees and Expenses 3,500 Accounting Fees and Expenses 70,000 Printing Expenses * Miscellaneous * ------- Total $ * ======= - - ------------- * To be supplied by amendment. Item 14. Indemnification of Directors and Officers. Sections 180.0851 through 180.0859 of Chapter 180 of the Wisconsin Business Corporation Law, as amended ("BCL"), provide that a corporation shall indemnify a director or officer to the extent and under the circumstances set forth therein. Article VIII of the Company's Restated By-Laws, as amended (the "By-Laws"), a copy of which is filed herein as Exhibit 3.2, provides for indemnification of directors and officers of the Company to the fullest extent permitted or required by the BCL, but not for any action, suit, arbitration or other proceeding initiated by a director or officer. However, the By-Laws provide that no indemnification shall be required to be paid by the Company if (i) a disinterested quorum determines, by majority vote, that the director or officer requesting indemnification engaged in misconduct constituting a breach of duty or (ii) a disinterested quorum cannot be obtained. The By-Laws also provide that the Company shall pay or reimburse the reasonable expenses of the director or officer as such expenses are incurred provided the director or officer furnishes an executed written certificate affirming his or her good faith belief that he or she has not engaged in misconduct which constitutes a breach of duty, and an unsecured executed written agreement to repay any advances made if it is ultimately determined that he or she is not entitled to be indemnified. The By-Laws require the Company to indemnify a director or officer of an affiliate (who is not otherwise serving as a director or officer) against all liabilities and advance the reasonable expenses incurred by such director or officer in a proceeding, if such director or officer is a party because he or she is or was a director or officer of the affiliate. The Company may also indemnify its employees or agents for liabilities incurred and/or reasonable expenses pursuant to a majority vote of the Board of Directors. The Company currently maintains liability insurance for the benefit of its directors and officers. Item 15. Recent Sales of Unregistered Securities 1. Credit Agreement Financing As of September 12, 1996, in connection with the recapitalization of the Company, the Company entered into a Credit Agreement, a copy of which is filed herein as Exhibit 4.4, with BA Securities, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation, as arrangers for a group of financial institutions and other accredited investors, pursuant to which, among other things, the Company issued notes representing aggregate loans to the Company of $170.0 million. These securities were not registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on the exemption provided by Section 4(2) thereof as an offer and sale of securities which does not involve a public offering. II-1 2. Bridge Financing As of September 12, 1996, in connection with the recapitalization of the Company, the Company entered into a Securities Purchase Agreement with RC Funding, Inc. and Bank of America National Trust and Savings Association (the "Bridge Lenders"), pursuant to which, among other things, the Company issued and sold to the Bridge Lenders $100 million aggregate principal amount of its Senior Subordinated Increasing Rate Notes (the "Bridge Notes"). The Bridge Notes were not registered under the Securities Act of 1933 in reliance on the exemption provided by Section 4(2) thereof as an offer and sale of securities which does not involve a public offering. 3. 10-1/4% Senior Subordinated Notes On October 22 1996, the Company issued and sold $100.0 million aggregate principal amount of its 10-1/4% Senior Subordinated Notes due 2006 (the "Notes"). The Notes were not registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as an offer and sale of securities which does not involve a public offering. The Notes were initially sold to Donaldson, Lufkin & Jenrette Securities Corporation and BA Securities, Inc., as initial purchasers, and have been subsequently offered and sold in the United States only (a) to "Qualified Institutional Buyers" (as defined in Rule 144A under the Securities Act) and (b) to a limited number of other institutional "Accredited Investors" (as defined in Rule 501A(1), (2),(3) or (7) under the Securities Act) in reliance on Rule 144A under the Securities Act. The aggregate discounts, commissions and offering expenses for the issuance of the Notes were approximately $3.0 million. Item 16. Exhibits and Financial Statement Schedules (a) The exhibits listed in the following Exhibit Index are filed as part of the Registration Statement. Exhibit Number Description - - ----------------------------------------------------------------- 2.1* Stock Purchase and Redemption Agreement, dated September 12, 1996, by and among the Company, certain affiliates of Thomas H. Lee Company, Thomas H. Lee Equity Fund III, L.P., Thomas H. Lee Foreign Fund III, L.P., THL-CCI Limited Partnership, David A. Jones and the then-existing shareholders of the Company. 3.1* Restated Articles of Incorporation of the Company. 3.2* Restated By-Laws of the Company. 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* Registration Rights Agreement, dated as of October 17, 1996, by and among the Company, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and BA Securities, Inc. 4.3* Specimen of the Notes (included as an exhibit to Exhibit 4.1). 4.4* Credit Agreement, dated as of September 12, 1996, by and among the Company, the lenders party thereto, Bank of America National Trust and Savings Association ("BofA") and DLJ Capital Funding, Inc. (the "Credit Agreement"). 4.5* Amendment No. 1 to the Credit Agreement. 4.6* The Security Agreement, dated as of September 12, 1996, among the Company, ROV Holding, Inc. and BofA. 4.7* The Company Pledge Agreement among the Company and BofA, dated as of September 12, 1996. 5.1* Opinion of Whyte Hirschboeck Dudek S.C. 10.1* Purchase Agreement, dated October 17, 1996, by and among the Company, DLJ and BA Securities, Inc. 10.2* Management Agreement, dated as of September 12, 1996, by and between the Company and Thomas H. Lee Company. 10.3* Consulting Agreement, dated as of September 12, 1996, by and between the Company and Thomas F. Pyle, Jr. 10.4* Confidentiality, Non-Competition, No-Solicitation and No-Hire Agreement dated as of September 12, 1996 by and between the Company and Thomas F. Pyle. 10.5* Employment Agreement, dated as of September 12, 1996, by and between the Company and David A. Jones, including the Full Recourse Promissory Note, dated September 12, 1996 by David A. Jones in favor of the Company. II-2 Exhibit Number Description - - ----------------------------------------------------------------- 10.6* Severance Agreement by and between Company and Trygve Lonnebotn. 10.7* Severance Agreement by and between Company and Kent J. Hussey. 10.8* Severance Agreement by and between Company and Roger F. Warren. 10.9* Technology, License and Service Agreement between Battery Technologies (International) Limited and the Company, dated June 1, 1991, as amended April 19, 1993 and December 31, 1995. 10.10* Building Lease between the Company and SPG Partners, dated May 14, 1985, as amended June 24, 1986 and June 10, 1987. 12.1* Statement re. Computation of Ratios. 21.1* Subsidiaries of the Company. 23.1* Consent of Coopers & Lybrand L.L.P. 23.2* Consent of Whyte Hirschboeck Dudek S.C. (included in Exhibit 5.1). 24.1* Power of Attorney, included on page II-5. 25.1* Statement of Eligibility of Trustee. 27* Financial Data Schedules. 99.1* Form of Letter of Transmittal. 99.2* Form of Notice of Guaranteed Delivery. 99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.4* Form of Letter to Clients. - - ------------------ *Filed herewith. (b) Financial Statement Schedules Schedule II--Valuation and Qualifying Accounts Item 17. Undertakings The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (b) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment 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. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (d) For the purpose 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 the 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. (e) 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 II-3 Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are 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. (f) 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 Securities and Exchange 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. (g) To file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Madison, Wisconsin on December 13, 1996. RAYOVAC CORPORATION /s/ David A. Jones -------------------------------------------- David A. Jones President, Chief Executive Officer and Chairman of the Board POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David A. Jones, Kent J. Hussey and James A. Broderick and each of them, as such person's true and lawful attorney-in-fact and agent with full power of substitution and revocation for such person and in such person's name, place and stead, in any and all capacities, to execute any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on December 13, 1996.
Signature Title ----------------------------- ------------------------------------------------------- /s/ David A. Jones ---------------------------- President, Chief Executive Officer and Chairman of the David A. Jones Board (Principal Executive Officer) /s/ Kent J. Hussey Executive Vice President of Finance and Administration ---------------------------- and Chief Financial Officer (Principal Financial and Kent J. Hussey Accounting Officer) /s/ Roger F. Warren ---------------------------- Roger F. Warren Director /s/ Trygve Lonnebotn ---------------------------- Trygve Lonnebotn Director /s/ Scott A. Schoen ---------------------------- Scott A. Schoen Director /s/ Thomas R. Shepherd ---------------------------- Thomas R. Shepherd Director /s/ Warren C. Smith, Jr. ---------------------------- Warren C. Smith, Jr. Director
II-5 RAYOVAC CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS For the Transition Period Ended September 30, 1996 and the years ended June 30, 1994, 1995 and 1996 (in thousands)
Column A Column B Column C Column D Column E -------------------------------- --------------- --------------- --------------- ---------------- Additions Balance at Charged to Beginning Costs and Balance at Descriptions of Period Expenses Deductions End of Period -------------------------------- --------------- --------------- --------------- ---------------- Transition Period Ended September 30, 1996: Allowance for doubtful accounts $786 $147 $211 $722 ==== ==== ==== ==== June 30, 1996: Allowance for doubtful accounts $702 $545 $461 $786 ==== ==== ==== ==== June 30, 1995: Allowance for doubtful accounts $831 $714 $843 $702 ==== ==== ==== ==== June 30, 1994: Allowance for doubtful accounts $829 $404 $402 $831 ==== ==== ==== ====
S-1

                                                                     EXHIBIT 2.1


===============================================================================



                     STOCK PURCHASE AND REDEMPTION AGREEMENT


                                      among


                               RAYOVAC CORPORATION
                                   (Company),



                              CERTAIN AFFILIATES OF
                             THOMAS H. LEE COMPANY,
                                  (Purchasers)


                                       and



                              ALL THE SHAREHOLDERS
                                   OF COMPANY
                            (Redemption Shareholders)



                         Dated as of September 12, 1996




===============================================================================






                                TABLE OF CONTENTS


1.   PURCHASE, SALE AND REDEMPTION OF SHARES...............................  2
     1.1. Purchase and Sale of Investment Shares...........................  2
     1.2. Redemption by the Company........................................  2
     1.3. Closing..........................................................  3
     1.4. Determination of Purchase Price..................................  3

2.   REPRESENTATIONS AND WARRANTIES OF
     REDEMPTION SHAREHOLDERS...............................................  4
     2.1. Representations and Warranties by Redemption Shareholders........  4
     2.2. Representations and Warranties by the Company....................  6

3.   REPRESENTATIONS AND WARRANTIES OF PURCHASERS.......................... 23
     3.1. Organization and Good Standing................................... 23
     3.2. Power............................................................ 23
     3.3. Authorization.................................................... 23
     3.4. No Conflict...................................................... 23
     3.5. No Consent....................................................... 24
     3.6. Litigation....................................................... 24
     3.7. Brokers, Finders, etc............................................ 24
     3.8. Purchase for Investment.......................................... 24

4.   MUTUAL COVENANTS...................................................... 24
     4.1. Capitalization................................................... 24
     4.2. Transaction and Closing Fees..................................... 25
     4.3. RABBI Trusts..................................................... 25
     4.4. Records.......................................................... 25
     4.5. Further Actions.................................................. 25

5.   CLOSING............................................................... 26
     5.1. Deliveries by Redemption Shareholders............................ 26
     5.2. Deliveries by Purchasers......................................... 29
     5.3. Deliveries by Company............................................ 29



                                        i





6.   INDEMNIFICATION....................................................... 29
     6.1. By Redemption Shareholders....................................... 29
     6.2. By Purchasers.................................................... 30
     6.3. By Company....................................................... 30
     6.4. Indemnification of Third-Party Claims............................ 30
     6.5. Payment.......................................................... 32
     6.6. Limitations on Indemnification................................... 32
     6.7. Certain Tax Matters.............................................. 34
     6.8. Reporting Indemnity Payments..................................... 40

7.   MISCELLANEOUS......................................................... 41
     7.1. Expenses......................................................... 41
     7.2. Assignment; Successors........................................... 41
     7.3. Amendment and Modification....................................... 41
     7.4. Entire Agreement................................................. 41
     7.5. Severability..................................................... 41
     7.6. Notices.......................................................... 42
     7.7. No Third Party Beneficiaries..................................... 43
     7.8. Headings......................................................... 43
     7.9. Governing Law.................................................... 43
     7.10. Counterparts.................................................... 43
     7.11. Knowledge....................................................... 44
     7.12. Remedies........................................................ 44



                                       ii





                                    SCHEDULES

Schedule 2.1(d)        No Conflict (Redemption Shareholders)
Schedule 2.2(c)        Qualification
Schedule 2.2(d)        Subsidiaries
Schedule 2.2(e)        Outstanding Rights
Schedule 2.2(f)        No Conflict, etc. (Company)
Schedule 2.2(h)        Insurance
Schedule 2.2(i)        Litigation
Schedule 2.2(k)        Taxes
Schedule 2.2(m)        Absence of Certain Changes
Schedule 2.2(n)(i)     Owned Real Property
Schedule 2.2(n)(ii)    Leased Real Property
Schedule 2.2(n)(iii)   Liens
Schedule 2.2(o)        Material Contracts
Schedule 2.2(p)        Employee Benefit Plans
Schedule 2.2(q)        Intellectual Property
Schedule 2.2(r)        Labor Relations
Schedule 2.2(s)        Undisclosed Liabilities
Schedule 2.2(u)        Environmental Matters
Schedule 2.2(v)        Product Liability
Schedule 2.2(w)        Triggering Events
Schedule 2.2(aa)       DISC Agreements
Schedule 5.1(d)        Required Consents

                                    EXHIBITS

Exhibit A              Purchasers
Exhibit B              Redemption Shareholders
Exhibit C              Shareholder Appointment of Agent and Power of
                       Attorney
Exhibit D              Form of New Shareholders Agreement
Exhibit E              Form of Foley & Lardner Opinion
Exhibit F              Form of Confidentiality, Non-Competition, No-
                       Solicitation and No-Hire Agreement
Exhibit G              Form of Non-Competition Agreement
Exhibit H              Form of Skadden, Arps, Slate, Meagher & Flom
                       Opinion
Exhibit I              Purchaser Appointment of Agent and Power of
                       Attorney
Exhibit J              Form of Accountant's Letter
Exhibit K              Form of Intellectual Property Opinion
Exhibit L              Form of Consulting Agreement



                                       iii





                     STOCK PURCHASE AND REDEMPTION AGREEMENT


     Stock Purchase and Redemption Agreement (this "Agreement") dated as of
September 12, 1996, by and among Rayovac Corporation, a Wisconsin corporation
(the "Company"), certain affiliates of Thomas H. Lee Company listed on Exhibit A
(individually a "Purchaser" and together the "Purchasers") and the existing
shareholders of the Company, all of whom are listed on Exhibit B (individually a
"Redemption Shareholder" and together the "Redemption Shareholders").

                              W I T N E S S E T H :
                              ---------------------

     WHEREAS, the Company has 18,000,000 shares of capital stock, par value $.01
per share (the "Shares"), authorized for issuance (all of which are designated
common stock), 9,902,000 shares of which are issued and outstanding (the
"Outstanding Shares"); and

     WHEREAS, Redemption Shareholders own all of the Outstanding Shares; and

     WHEREAS, Purchasers wish to purchase certain Outstanding Shares, on the
terms and conditions and for the consideration described in this Agreement; and

     WHEREAS, Redemption Shareholders wish to have a portion of their
Outstanding Shares either redeemed by the Company or sold to certain Purchasers,
on the terms and conditions and for the consideration described in this
Agreement, such that the Redemption Shareholders would retain 20% of the common
equity interest in the Company after the transactions described in this
Agreement; and

     WHEREAS, Redemption Shareholders, other than the Thomas and Judith Pyle
Charitable Remainder Trust created September 10, 1996, have designated Thomas F.
Pyle, Jr. and Marvin G. Siegert (the "Redemption Shareholders' Agents") as their
agents and attorneys-in-fact with the authority to act on their behalf,
individually or collectively, in connection with the transactions contemplated
hereby, pursuant to Shareholder Appointment of Agents and Power of Attorneys, a
copy of which is attached hereto as Exhibit C (the "Powers of Attorney"); and






     WHEREAS, a Purchaser has designated Warren C. Smith, Jr. and Scott A.
Schoen (the "Purchaser's Agent") as its agent and attorney-in-fact with the
authority to act on its behalf, individually or collectively, in connection with
the transactions contemplated hereby, pursuant to Purchaser Appointment of Agent
and Power of Attorney, a copy of which is attached hereto as Exhibit I; and

     WHEREAS, immediately after the transactions contemplated by this Agreement,
the Company is amending its Restated Articles of Incorporation to effect, among
other things, a 5 for 1 stock split (the "Stock Split").

     NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived herefrom, the parties hereto agree as follows:

     1. PURCHASE, SALE AND REDEMPTION OF SHARES

          1.1. Purchase and Sale of Investment Shares. In reliance upon the
representations, warranties and covenants contained herein, at the Closing (as
hereinafter defined), the Redemption Shareholders will sell an aggregate of
9,089,581 Outstanding Shares ("Investment Shares") to Purchasers, and Purchasers
will purchase the Investment Shares from the Redemption Shareholders, for an
aggregate purchase price of Seventy-Two Million Dollars ($72,000,000) (the
"Investment Price"). The number of Investment Shares being purchased by each
Purchaser and who the Purchaser is buying the Investment Shares from is set
forth opposite such Purchaser's name on Exhibit A.

          1.2. Redemption by the Company. In reliance upon the representations,
warranties and covenants contained herein, the Company agrees to redeem from
Redemption Shareholders, and Redemption Shareholders agree to deliver and sell
5,807,904 Outstanding Shares ("Redemption Shares"), for the per share purchase
price described in Section 1.4 below (the "Purchase Price"), in an amount such
that together with the sale of Investment Shares by the Redemption Shareholders
to certain Purchasers, the Redemption Shareholders as a group will retain 20% of
the outstanding Shares. The number of Redemption Shares being redeemed by the
Company from each Redemption Shareholder and the number of Shares being sold to
the Purchasers (and which Purchasers such Shares are being sold to) is set forth
opposite such Redemption Shareholder's name on Exhibit B.



                                        2





          1.3. Closing. The closing (the "Closing") of the transactions 
described herein shall take place immediately upon execution hereof at the
office of Mayer, Brown & Platt, Chicago, Illinois, at 9:00 a.m., local time. For
all accounting, tax and other purposes, the Closing shall be effective as of the
close of business on the date hereof and is referred to herein as the "Closing
Date". At the Closing, the following will simultaneously occur:

          (a) The Redemption Shareholders will deliver to Purchasers the 
Investment Shares duly endorsed in blank or accompanied by a stock power or
other proper instrument of assignment duly executed in blank and having all
requisite stock transfer stamps attached.

          (b) Purchasers will deliver or cause to be delivered the Investment
Price to Redemption Shareholders' Agents through a wire transfer of immediately
available funds to the account or accounts designated by Redemption
Shareholders' Agents.

          (c) The Company will repay all of its outstanding long-term debt as of
the Closing Date, which outstanding debt is described in Schedule
2.2(o)(vi)(b)-(f) (the "Long-Term Debt").

          (d) Redemption Shareholders will deliver to Company the Redemption
Shares, duly endorsed in blank or accompanied by a stock power or other proper
instrument of assignment duly executed in blank and having all requisite stock
transfer stamps attached.

          (e) The Company will deliver its portion of the Purchase Price to
Redemption Shareholders' Agents through a wire transfer of immediately available
funds to the account or accounts designated by Redemption Shareholders' Agents.

          (f) The parties will deliver any other document or take any other
action set forth in Article 5.

          1.4. Determination of Purchase Price. The Purchase Price shall equal
$217,425,400. The per share Purchase Price is approximately $21.94.



                                        3





     2. REPRESENTATIONS AND WARRANTIES OF REDEMPTION SHAREHOLDERS

          2.1. Representations and Warranties by Redemption Shareholders.
Redemption Shareholders make the following representations and warranties to
Company and Purchasers:

          (a) Power. Each Redemption Shareholder has full power, legal right and
authority to enter into, execute and deliver this Agreement and the other
agreements, instruments and documents contemplated hereby (such other documents
sometimes referred to herein as "Ancillary Instruments"), to perform such
Redemption Shareholder's obligations hereunder and thereunder, and to carry out
the transactions contemplated hereby and thereby. Pursuant to the Powers of
Attorney, each of the Redemption Shareholders has designated Thomas F. Pyle, Jr.
and Marvin G. Siegert as their agents and attorneys-in-fact with the authority
to act on their behalf, individually or collectively, with respect to the
matters referred to herein. The Powers of Attorney are sufficient to authorize
the Redemption Shareholders' Agents to act on behalf of the Redemption
Shareholders with respect to the execution, delivery and performance of this
Agreement and the Ancillary Instruments and the consummation of the transactions
contemplated hereby and thereby.

          (b) Authorization, etc. The execution and delivery of this Agreement
and the Ancillary Instruments and the consummation of the transactions
contemplated herein and therein have been duly authorized by each Redemption
Shareholder. Upon execution by the parties hereto, this Agreement and the
Ancillary Instruments to which such Redemption Shareholder is a party will
constitute the legal, valid and binding obligations of such Redemption
Shareholder enforceable against him/her in accordance with their respective
terms, except to the extent enforceability may be limited by (i) the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting the rights and remedies of
creditors generally, (ii) general principles of equity, whether such
enforceability is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought, and
(iii) the unenforceability under certain circumstances under law or court
decisions of provisions providing for the indemnification of a party with
respect to a liability where such indemnification is contrary to public policy.



                                        4



          (c) Title to Stock, etc. Each Redemption Shareholder is the record and
beneficial owner of and has good, valid and marketable title to its Outstanding
Shares, free and clear of any lien, pledge, security interest, encumbrance,
title retention agreement, adverse claim, option or other encumbrance of any
nature whatsoever ("Lien"), and upon the delivery of and payment for the
Redemption Shares and Investment Shares being sold by Redemption Shareholders to
Purchasers at the Closing as provided for in this Agreement, each Redemption
Shareholder will transfer good, valid and marketable title thereto, free and
clear of any Lien (other than a Lien created by the Purchasers). Exhibit B sets
forth the names and record owners of all Outstanding Shares.

          (d) No Conflict. Except as set forth in Schedule 2.1(d), the execution
and delivery of this Agreement by each Redemption Shareholder and the
consummation of the transactions contemplated hereby do not and will not
conflict in any material respect with (i) any note, bond, mortgage, indenture,
license agreement, lease or other agreement, instrument or obligation to which
such Redemption Shareholder is a party or to which any of such Redemption
Shareholder's properties or assets may be bound or (ii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to such
Redemption Shareholder, except for conflicts, violations or defaults that would
not reasonably be expected to impair in any material respect the performance by
such Redemption Shareholder of such Redemption Shareholder's obligations
hereunder.

          (e) No Consent. No Consent (hereinafter defined) is required
to be obtained by the Redemption Shareholders in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for Consents which, if not obtained, would not in
the aggregate reasonably be expected to impair in any material respect the
Redemption Shareholders' performance of their obligations hereunder.



                                        5





          2.2. Representations and Warranties by the Company.

          The Schedules to this Section 2.2 are arranged in subsections
corresponding to the numbered and lettered subsections contained in this Section
2.2 and the disclosure in any subsection shall qualify only the corresponding
subsection in this Section 2.2. The Company makes the following representations
and warranties to Purchasers:

          (a) Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Wisconsin.

          (b) Corporate Power and Authorization.

               (i) Company has all requisite corporate power and authority to
          own, operate and lease its properties and to carry on its business as
          and where such is now being conducted. Company has the requisite
          corporate power and authority to enter into, execute and deliver this
          Agreement and each Ancillary Instrument to which it is a party, to
          perform its obligations hereunder and thereunder, and to carry out the
          transactions contemplated hereby and thereby.

               (ii) The execution and delivery of this Agreement and the
          Ancillary Instruments and the consummation of the transactions
          contemplated herein and therein have been duly authorized by the
          Company. Upon execution by the parties hereto, this Agreement and the
          Ancillary Instruments to which the Company is a party constitute the
          legal, valid and binding obligations of the Company, enforceable
          against it in accordance with their respective terms, except to the
          extent enforceability may be limited by (i) the effect of bankruptcy,
          insolvency, reorganization, moratorium or other similar laws now or
          hereafter in effect relating to or affecting the rights and remedies
          of creditors generally, (ii) general principles of equity, whether
          such enforceability is considered in a proceeding in equity or at law,
          and the discretion of the court before which any proceeding therefor
          may be brought, and (iii) the unenforceability under certain
          circumstances under law or court decisions of provisions providing for
          the indemnification of a party with respect to a liability where such
          indemnification is contrary to public policy.


                                        6






          (c) Qualification. Company is duly licensed or qualified to do
business as a foreign corporation, and is in good standing, in each jurisdiction
wherein the character of the properties owned or leased by it, or the nature of
its business, makes such licensing or qualification necessary. The states in
which Company is licensed or qualified to do business are listed in Schedule
2.2(c).

          (d) Subsidiaries. Schedule 2.2(d) sets forth the name, jurisdiction of
incorporation, capitalization, ownership and officers and directors of each
corporation in which the Company has a direct or indirect equity interest
("Subsidiaries"). Each Subsidiary is in good standing in its jurisdiction of
incorporation and is duly licensed or qualified to do business as a foreign
corporation, and is in good standing, in each jurisdiction wherein the character
of the properties owned or leased by it, or the nature of its business, makes
such licensing or qualification necessary. Except as listed in Schedule 2.2(d),
the Company does not own, directly or indirectly, any capital stock or other
equity securities of any corporation or have any direct or indirect equity or
other ownership interest in any entity or business. Except as listed on Schedule
2.2(d), all of the outstanding shares of capital stock of each Subsidiary are
owned directly by the Company or a Subsidiary. All outstanding shares of capital
stock of each Subsidiary are free and clear of any Liens and are validly issued,
fully paid, nonassessable and free of preemptive rights with no personal
liability attaching to the ownership thereof. There are no (a) securities
convertible into or exchangeable for the capital stock or other securities of
any Subsidiary, (b) options, warrants or other rights to purchase or subscribe
to capital stock or other securities of any Subsidiary or securities which are
convertible into or exchangeable for capital stock or other securities of any
Subsidiary or, (c) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance, sale or transfer of any
capital stock or other equity securities of any Subsidiary, any such convertible
or exchangeable securities or any such options, warrants or other rights. Each
Subsidiary (i) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, (ii) has full corporate
power and authority to carry on its business as it is now being conducted and to
own and lease the properties and assets it now owns and leases, and (iii) is in
good standing and is duly qualified or licensed to do business as a foreign
corporation in each of the jurisdictions listed opposite the name of such
Subsidiary in Schedule 2.2(d), which are the only jurisdictions in which such
Subsidiary is required to be so qualified or licensed. The term "Company" as
used hereinafter


                                        7





means the Company and its Subsidiaries, except where the context or specific
provision provide otherwise.

          (e) Capitalization of Company. The authorized capital stock of the
Company (not including Subsidiaries) consists of $18,000,000 shares of capital
stock, par value $.01 per share, all of which are designated common stock, of
which 9,902,000 shares are issued and outstanding and owned beneficially and of
record by Redemption Shareholders. The Outstanding Shares have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights with no personal liability attaching to the ownership thereof
except to the extent provided by Section 180.0622(2)(b) of the Wisconsin
Business Corporation Law. There are 100,000 Shares held in the Company's
treasury. Except as set forth in Schedule 2.2(e), there are no outstanding
options, warrants, conversion or other rights, and there are no agreements or
commitments of any kind (other than this Agreement) obligating Redemption
Shareholders, or the Company, as the case may be, contingently or otherwise, to
issue or sell any shares, options, warrants or conversion or other rights. The
Investment Shares have been duly authorized and reserved for issuance and, when
issued pursuant to the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable (except as provided by Section
180.0622(2)(b) of the Wisconsin Business Corporation Law).

          (f) No Conflict, etc. Except as set forth in Schedule 2.2(f), the
execution and delivery of this Agreement and the Ancillary Instruments to which
the Company is a party, the performance by the Company of its obligations
hereunder and thereunder, and the consummation of the transactions contemplated
hereby and thereby do not and will not conflict in any respect with, or result
in any violation of or default (or give rise to any right of termination,
cancellation or acceleration) under (i) any provision of the charter documents
or by-laws of the Company, (ii) any note, bond, mortgage, indenture, lease or
other agreement of the Company or (iii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company, except (in the
case of clauses (ii) and (iii)) for conflicts, violations and defaults that,
individually and in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. The term "Material Adverse Effect" shall mean any
event, occurrence, fact, condition, change or effect that is materially adverse
to the business, assets, liabilities, results of operations, or financial
condition of the Company and Subsidiaries, taken as a whole. No consent,
approval, authorization, order, filing, registration or


                                        8





qualification with or to any person including, but not limited to, any
governmental authority ("Consent") is required to be obtained by the Company in
connection with the execution and delivery of this Agreement and the Ancillary
Instruments to which the Company is a party, the performance by the Company of
its obligations hereunder and thereunder or the consummation of the transactions
contemplated hereby and thereby other than any Consent in respect of which the
failure to obtain such Consent, either individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect or materially
impair the ability of the Company to perform its obligations hereunder.

          (g) Financial Statements. Redemption Shareholders' Agents have
delivered to Purchasers complete and correct copies of the audited combined
consolidated financial statements of the Company for the years ended June 30,
1994, 1995 and 1996 (collectively, the "Financial Statements" and for the year
ended June 30, 1996, the "1996 Consolidated Financial Statements"), in each
case, audited by Coopers & Lybrand L.L.P., independent certified public
accountants, whose audit reports thereon are included therein consisting of
combined consolidated balance sheets as of such respective dates and the related
combined consolidated statements of income and retained earnings, and cash flows
for each of the fiscal years then ended. The Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
throughout the periods involved, and present fairly, in all material respects,
the consolidated financial position, consolidated results of operations and cash
flows of the Company, as at and for the periods indicated.

          (h) Insurance. Schedule 2.2(h) contains a complete and correct list
and summary description of all insurance policies maintained at present by or on
behalf of the Company. The Company has made available to Purchasers complete and
correct copies of all such policies together with all riders and amendments
thereto. Such policies are in full force and effect, and all premiums due
thereon have been paid. The Company has complied in all material respects with
the terms and provisions of such policies, and no notice of cancellation or
termination has been received with respect to any such policy. Such policies are
sufficient for compliance with all requirements of law and of all agreements to
which the Company is a party; are valid, outstanding and enforceable policies.
The Company has not been refused any insurance with respect to its assets or
operations, nor has its coverage been limited, by any insurance carrier to which


                                        9





it has applied for any such insurance or with which it has carried insurance
during the past two (2) years.

          (i) Litigation. Except as set forth in Schedule 2.2(i) or Schedule
2.2(u), there are no judicial or administrative actions, suits, proceedings,
claims, arbitrations or investigations pending or, to the Knowledge (hereinafter
defined) of the Company, threatened against the Company or any Redemption
Shareholder (i) which, either individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect, (ii) which question the validity
of this Agreement, or (iii) which seek to enjoin any action taken or to be taken
in connection herewith or the consummation of the transactions contemplated
hereby.


          (j) Compliance with Laws. Except as set forth in Section 2.2(u), (i)
to the Knowledge of the Company, it is not in violation of or in default under
any judgment, order, writ, injunction or decree of any court or administrative
agency or any statute, law, ordinance, rule or regulation, and (ii) the Company
has not received any written notice alleging any such violation or default.

          (k) Tax Matters.

               (i) The term "Tax" shall mean any federal, state, local or
          foreign income, alternative, minimum, accumulated earnings, personal
          holding company, franchise, capital stock, profits, windfall profits,
          gross receipts, sales, use, value added, transfer, registration,
          stamp, premium, excise, customs duties, severance, environmental
          (including taxes under section 59A of the Internal Revenue Code of
          1986, as amended ("Code")), real property, personal property, ad
          valorem, occupancy, license, occupation, employment, payroll, social
          security, disability, unemployment, workers' compensation,
          withholding, estimated or other similar tax, duty, fee, assessment or
          other governmental charge or deficiencies thereof (including all
          interest and penalties thereon and additions thereto). The term "Tax
          Return" shall mean any tax return, report, information, return,
          schedule or other document (including any related or supporting
          information) filed or required to be filed with respect to Taxes.



                                       10





               (ii) Except as set forth on Schedule 2.2(k):

               (A) (1) all Tax Returns relating to the Company and the business
          or assets thereof that were required to be filed on or before the
          Closing Date have been duly and timely filed, (2) the Company has paid
          or made adequate provision for all Taxes that are due or claimed to be
          due by any taxing authority and (3) the Company is not currently the
          beneficiary of any extension of time within which to file any Tax
          Return;

               (B) there has been no claim or issue (other than a claim or issue
          that has been finally settled) concerning any material liability for
          Taxes of the Company asserted, raised or threatened by any taxing
          authority;

               (C) the Company has not (1) waived any statute of limitations or
          (2) agreed to any extension of the period for assessment or
          collection;

               (D) there are no liens for Taxes upon any assets of the Company
          except for statutory liens for current Taxes not yet due;

               (E) the statutes of limitations for all Tax Returns of the
          Company have expired for all federal, state, local and foreign Tax
          purposes, or Tax Returns of the Company have been examined by the
          appropriate taxing authorities for all periods;

               (F) no power of attorney has been executed by the Company with
          respect to any matter relating to Taxes that is currently in force;

               (G) the Company is not a party to any agreement, contract, or
          other arrangement that would result, separately or in the aggregate,
          in the requirement to pay any "excess parachute payment" within the
          meaning of Section 280G of the Code; and

               (H) all Taxes that the Company is required by law to withhold or
          to collect for payment have been duly withheld and


                                       11





          collected, and have been paid or accrued, reserved against and
          entered on the books of the Company.

               (l) Brokers, Finders, etc. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried out without
the intervention of any person acting on behalf of Redemption Shareholders or
the Company in such manner as to give rise to any valid claim against
Purchasers, Redemption Shareholders or the Company for any brokerage or finder's
commission, fee or similar compensation, except for Merrill Lynch & Co.

               (m) Absence of Certain Changes. Except as set forth on Schedule
2.2(m) or as otherwise contemplated by this Agreement, since the 1996
Consolidated Financial Statements (i) there has been no change that has had or
would reasonably be expected to have a Material Adverse Effect, except for any
change resulting from general and publicly known economic, financial or market
conditions, (ii) there has been no physical damage, destruction or loss that,
after taking into account any insurance recoveries payable in respect thereof,
has had or would reasonably be expected to have, a Material Adverse Effect,
(iii) there has been no sale, assignment or transfer of any material assets of
the Company except in the ordinary course of business, (iv) except as required
by GAAP, the Company has not changed any of its accounting principles or the
methods by which such principles are applied for tax or financial reporting
purposes, and (v) the Company has not entered into any agreement to do any of
the things described in this Section 2.2(m).

               (n) Title to Properties, etc. Schedule 2.2(n)(i) contains a
complete and correct list of all real property currently owned by the Company,
and Schedule 2.2(n)(ii) sets forth a complete and correct list of any lease
pursuant to which the Company currently leases real property (collectively, the
"Real Property"). The Company has:

               (i) good, valid and marketable title to all of its respective
          owned real property listed on Schedule 2.2(n)(i);

               (ii) valid leasehold interests in all real properties listed on
          Schedule 2.2(n)(ii); and



                                       12





               (iii) legal and beneficial ownership of its personal properties,
          including, without limitation, all those reflected in the combined
          consolidated balance sheet of the Company contained in the 1996
          Consolidated Financial Statement ("Balance Sheet") or acquired after
          such date (except for inventories and other assets sold or otherwise
          disposed of in the ordinary course of business since the 1996
          Consolidated Financial Statements),

in each case free and clear of all Liens (and, in the case of Real Property, not
subject to any rights of way, building use restrictions, reservations or
encumbrances of any nature) other than (u) with respect to leasehold interests,
all matters and encumbrances affecting landlord's fee interest in the real
properties, which to the Knowledge of the Company are not in violation of the
applicable lease; (v) Liens shown on the Balance Sheet as securing specified
liabilities or obligations, and Liens incurred in connection with the purchase
of property and/or assets, if such purchase was effected after the date of the
Balance Sheet, in either case with respect to which no default exists; (w) Liens
for taxes and assessments not yet due and payable or which are being contested
in good faith and by appropriate proceedings; (x) Liens that are set forth in
Schedule 2.2(n)(iii); (y) Liens and imperfections in title which individually or
in the aggregate do not materially detract from the value, or impair in any
significant manner the use, of the property subject thereto or the operations of
the Company; and (z) statutory Liens incurred in the ordinary course of
business, none of which is substantial in amount and which individually or in
the aggregate do not materially detract from the value, or impair in any
significant manner the use, of the property subject thereto or the operations of
the Company. All leases with respect to the leasehold interests listed on
Schedule 2.2(n)(ii) are valid, binding and enforceable in accordance with their
terms, and are in full force and effect; there are no existing defaults by the
Company thereunder; no event of default has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default thereunder by the Company, except such defaults as
would not reasonably be expected, either individually or in the aggregate, to
have a Material Adverse Effect on the business of the Company.



                                       13





               (o) Material Contracts. Schedule 2.2(o) contains a list of:

               (i) all contracts and agreements with current officers, other
          employees, consultants, agents, contractors, advisors, sales
          representatives, distributors, or dealers of the Company other than
          (x) contracts which by their terms are cancelable by the Company with
          notice of not more than 60 days and (y) contracts which provide for
          payments based solely on products sold and require no minimum
          payments;

               (ii) all collective bargaining agreements with any labor union
          currently representing employees of the Company;

               (iii) all mortgages, indentures, pledges or security agreements,
          notes, loan agreements or guarantees of the obligations of third
          parties binding upon the Company or similar documents relating to
          borrowed money (including without limitation interest rate or currency
          swaps, hedges or straddles or similar transactions) to which the
          Company is a party or by which any of its assets are bound, restricted
          or encumbered in excess of $100,000;

               (iv) joint venture and limited partnership agreements of the
          Company;

               (v) distribution and marketing agreements of the Company
          involving in excess of $500,000 worth of product per year;

               (vi) license or other agreements of the Company providing in
          whole or in part for the use of any patents, trademarks, trade names,
          service marks, copyrights, inventions, trade secrets or other
          proprietary know-how or other intellectual property, whether the
          Company is the licensor or the licensee thereunder, and all
          settlements, consents or forbearance to sue agreements relating
          thereto; and

               (vii) any contract or agreement entered into involving an
          estimated total future payment or payments to or from the Company in
          excess of $500,000.


                                       14






          The contracts set forth on Schedule 2.2(o) are collectively
referred to as the "Material Contracts." The Company has made available to Buyer
true and correct copies of all Material Contracts. To the Knowledge of the
Company, neither the Company nor any other person is in default under any
Material Contract, except for such defaults as would not reasonably be expected,
either individually or in the aggregate, to have a Material Adverse Effect on
the business of the Company.

          (p) Compliance with ERISA.

               (i) Schedule 2.2(p)(i) contains a complete list of each pension,
          retirement, profit-sharing, deferred compensation, bonus or other
          incentive, medical, health, life insurance, disability or other
          welfare or severance plan, agreement or arrangement sponsored or
          contributed to by the Company or by any trade or business, whether or
          not incorporated (an "ERISA Affiliate"), that together with the
          Company would be deemed a "single employer" within the meaning of
          section 4001 of the Employee Retirement Income Security Act of 1974,
          as amended ("ERISA"), for the benefit of any employee or terminated
          employee of the Company or any ERISA Affiliate (individually a "Plan"
          and collectively, the "Plans"). All Plans comply with the applicable
          requirements of law, including but not limited to ERISA and the Code,
          except for failures to comply that, either individually or in the
          aggregate, would not reasonably be expected to have a Material Adverse
          Effect. No Plan which is subject to Part 3 of Subtitle B of Title I of
          ERISA has incurred any "accumulated funding deficiency," whether or
          not waived, within the meaning of section 302 of ERISA or section 412
          of the Code and all contributions required to be made with respect
          thereto on or prior to the Closing Date have been timely made. Neither
          the Company nor any ERISA Affiliate has incurred any material
          liability pursuant to Title IV of ERISA with respect to any Plan and
          no condition exists that presents a material risk to the Company or
          any ERISA Affiliate of incurring liability under such Title. Neither
          the Company nor any ERISA Affiliate, nor any Plan, trust created
          thereunder or trustee or administrator thereof has engaged in a
          transaction in connection with which the Company or any ERISA
          Affiliate, any Plan, any such trust, or any trustee or administrator
          thereof, or any party dealing with any


                                       15





          Plan or any such trust could be subject to either a material civil
          penalty assessed pursuant to section 409 or 502(i) or ERISA or a
          material tax imposed pursuant to section 4975 or 4976 of the Code.

               (ii) Except as provided on Schedule 2.2(p)(ii), no plan is a
          "multiemployer pension plan," as defined in section 3(37) of ERISA,
          nor is any Plan a plan described in section 4063(a) of ERISA. With
          respect to any ERISA Plan that is a "multiemployer pension plan," as
          such term is defined in section 3(37) of ERISA, covering employees of
          the Company or any ERISA Affiliate, (i) neither the Company nor any
          ERISA Affiliate has, since September 26, 1980, made or suffered a
          "complete withdrawal" or a "partial withdrawal," as such terms are
          respectively defined in sections 4203 and 4205 of ERISA, (ii) no event
          has occurred that presents a material risk of a partial withdrawal,
          (iii) neither the Company nor any ERISA Affiliate has any contingent
          liability under section 4204 of ERISA, and (iv) the aggregate
          withdrawal liability of the Company and the ERISA Affiliates, computed
          as if a complete withdrawal by the Company and the ERISA Affiliates
          had occurred under each such Plan on the date hereof, would not exceed
          $25,000. Each Plan intended to be "qualified" within the meaning of
          section 401(a) of the Code is so qualified and the trusts maintained
          thereunder are exempt from taxation under section 501(a) of the Code.
          No amounts payable under the Plans or under any employment, severance
          or other agreements or arrangements maintained by the Company will
          fail to be deductible for federal income tax purposes by virtue of
          section 280G of the Code.

               (iii) Except as provided on Schedule 2.2(p)(iii), no plan
          provides benefits, including without limitation death or medical
          benefits (whether or not insured), with respect to current or former
          employees of the Company or any ERISA Affiliate beyond their
          retirement or other termination of service (other than (i) coverage
          mandated by applicable law or (ii) death benefits or retirement
          benefits under any "employee pension plan," as that term is defined in
          section 3(2) of ERISA). To the Knowledge of the Company, there are no
          pending, threatened or anticipated claims by or on behalf of any Plan,
          by any employee or beneficiary covered under any such


                                       16





          Plan, or otherwise involving any such Plan (other than routine claims
          for benefits).

               (iv) Schedule 2.2(p)(iv) sets forth the life insurance policies
          to be transferred to the Rabbi Trust (defined in Section 4.3) and
          remaining premiums to be paid under such policies by the Company.

               (q) Intellectual Property.

               (i) Schedule 2.2(q)(i) sets forth a list of all (A) registered
          and applied for trademarks, trade names, service marks and (B)
          registered and applied for copyrights, including registrations and
          applications to register or renew the registration of any of the
          foregoing, (C) patents and patent applications, and (D) inventions,
          trademarks, trade names, and service marks, trade secrets, copyrights
          (whether registered or unregistered), know-how and any other
          intellectual property ("Intellectual Property") owned by the Company
          and used in or material to the conduct of the Company's business as
          currently conducted (collectively, the "Owned Intellectual Property").
          Owned Intellectual Property shall include, but Schedule 2.2(q) need
          not disclose, inventions, trade secrets and know-how and nonmaterial
          unregistered copyrights.

               (ii) Except as set forth on Schedule 2.2(q)(ii), (A) the Company
          is the sole and exclusive and record and beneficial owner of the Owned
          Intellectual Property, free and clear of all Liens, subject only to
          such third party rights as are set forth in the Material Contracts
          listed in Schedule 2.2(o), and, to the Knowledge of the Company, the
          Company's use of the Owned Intellectual Property does not infringe on
          the rights of any third party; (B) there is no claim or demand of any
          person or entity pertaining to, or any proceeding which is pending or,
          to the Knowledge of the Company, threatened that challenges the rights
          of the Company with respect to any Owned Intellectual Property, other
          than infringements, claims, demands, or defaults that, either
          individually or in the aggregate, would not reasonably be expected to
          have a Material Adverse Effect; (C) there are no royalties, honoraria,
          fees or other payments payable by the Company to any person by reason
          of ownership, use, licensure or sale


                                       17





          of any product embodying any Owned Intellectual Property or the
          conduct of the business as currently conducted except as set forth in
          the Material Contracts listed in Schedule 2.2(o); (D) the Company has
          not entered into and is not otherwise bound by any consent,
          forbearance to sue or settlement agreement which limits the Company's
          rights to use, sell or license any Owned Intellectual Property, except
          as set forth in the Material Contracts listed in schedule 2.2(o); (E)
          the patents, registrations and applications set forth on Schedule
          2.2(q) are not subject to any pending or, to the Knowledge of the
          Company, threatened opposition, cancellation or similar proceeding
          before any court or registration authority; (F) to the Knowledge of
          the Company, no person has infringed, misappropriated or misused any
          of the Owned Intellectual Property and the Company has not asserted
          any claim of infringement, misappropriation or misuse against any
          person within the past three (3) years which remains unresolved; and
          (G) to the Knowledge of the Company, all issued patents and
          registrations set forth on Schedule 2.2(q) are valid and enforceable.

               (iii) Schedule 2.2(q)(iii) sets forth a list of all written
          licenses (x) material to the conduct of the Company's business as
          presently conducted, (y) pursuant to which the use by any person or
          entity of Owned Intellectual Property is permitted by the Company, or
          (z) pursuant to which the use by the Company of Intellectual Property
          is permitted by any person. All such licenses are in full force and
          effect. To the Knowledge of Company, the Company is not in default
          under any such license.

               (r) Labor Relations and Employment. Except to the extent set
forth in Schedule 2.2(r), (i) there is no labor strike, dispute, slowdown,
stoppage or lockout pending or, to the Knowledge of the Company, threatened
against or affecting the Company; (ii) to the Knowledge of the Company, no union
claims to represent the employees of the Company; (iii) the Company is not a
party to or bound by any collective bargaining or similar agreement with any
labor organization, or work rules or practices agreed to with any labor
organization or employee association applicable to employees of the Company;
(iv) none of the employees of the Company is represented by any labor
organization and to the Knowledge of the Company, there is not any current union
organizing activities


                                       18





among the employees of the Company nor does any question concerning
representation exist concerning such employees; (v) there is no unfair labor
practice charge or complaint against the Company or, to the Knowledge of the
Company, threatened before the National Labor Relations Board or any similar
state or foreign agency; (vi) there is no grievance arising out of any
collective bargaining agreement or other grievance procedure which, if adversely
determined, would have a Material Adverse Effect; (vii) no charges with respect
to or relating to the Company are pending before the Equal Employment
Opportunity Commission or any other agency responsible for the prevention of
unlawful employment practices which, if adversely determined, would have a
Material Adverse Effect; (viii) the Company has not received written notice of
the intent of any federal, state, local or foreign agency responsible for the
enforcement of labor or employment laws to conduct an investigation of the
Company nor is such an investigation in progress; (ix) there are no complaints,
lawsuits or other proceedings pending or, to the Knowledge of the Company,
threatened in any forum by or on behalf of any present or former employee of the
Company which, if adversely determined or resolved would individually or in the
aggregate, would have a Material Adverse Effect; and (x) no employee of the
Company has suffered an "employment loss" (as defined in the Worker Adjustment
and Restraining Notification Act) during the ninety (90) days prior to the date
hereof.

          (s) Absence of Undisclosed Liabilities. Except (i) as disclosed
in Schedule 2.2(s), (ii) as and to the extent disclosed or reserved against in
the 1996 Consolidated Financial Statements, or (iii) liabilities incurred after
the date of the 1996 Consolidated Financial Statements in the ordinary course of
the Company's business consistent with past practice the Company does not have
any liabilities or obligations of any nature which, individually or in the
aggregate, have had and would not reasonably be expected to have a Material
Adverse Effect.

          (t) Assets of the Company. The Company owns, or otherwise has
legally enforceable rights to use, all of the properties and assets material to
the conduct of the business of the Company as it is currently conducted.

          (u) Environmental Matters.

               (i) Except as set forth in Schedule 2.2(u), to the Knowledge of
          the Company, (A) the Company is in substantial compliance with all
          provisions of all statutes, laws, rules, regulations,


                                       19





          ordinances, codes or orders of any recognized governmental authority
          that are applicable to the business of the Company or the Real
          Property owned or leased by the Company relating to pollution or the
          protection of human health or the environment, or to any generation,
          processing, storage, holding, abatement, existence, release,
          threatened release or transportation of any Hazardous Substances
          (hereinafter defined), as in effect on the date hereof ("Environmental
          Laws"), except for such violations and defaults that, either
          individually or in the aggregate, would not reasonably be expected to
          have a Material Adverse Effect (B) there are no circumstances that may
          prevent or interfere with such continued compliance in the future and
          (C) the Company has not received any written notice or other
          communication that alleges that the Company is not in such compliance,
          except for allegations that have been finally resolved without any
          material obligation on the part of the Company;

               (ii) Schedule 2.2(u) sets forth all material Consents necessary
          for the conduct of the business of the Company as currently conducted
          pursuant to Environmental Laws (the "Environmental Permits"). The
          Company has duly obtained all such Environmental Permits, and all such
          Environmental Permits are in full force and effect. To the Knowledge
          of the Company, the Company is in substantial compliance with all
          Environmental Permits held by it, except for such failures to so
          possess or comply that, individually or in the aggregate, would not
          reasonably be expected to have a Material Adverse Effect;

               (iii) Except as set forth on Schedule 2.2(u), to the Knowledge of
          Company, the Company has not received any written notification
          pursuant to any Environmental Law that the Company, any operations of
          the business of the Company, or its Real Property, is or may be the
          subject of any proceeding, investigation, claim, lawsuit or order by
          any governmental authority or other Person as to whether (x) any
          remedial action is or may be needed to respond to a release or (y) the
          Company is or may be a "potentially responsible party" pursuant to any
          Environmental Law;

               (iv) Except as set forth on Schedule 2.2(u), to the Knowledge of
          the Company, the Company has not entered into any


                                       20





          written agreement with, or been issued any order by, any governmental
          authority by which the Company has assumed responsibility, either
          directly or as a guarantor or surety, for the remediation of any
          condition arising from or relating to a release or threatened release
          on or with respect to its Real Property or any other location; and

               (v) Except as set forth on Schedule 2.2(u), to the Knowledge of
          the Company there is not now and has not been at any time in the past
          a release in connection with the conduct of the business of the
          Company of Hazardous Substances (x) for which the Company may be
          responsible and (y) which would reasonably be expected to have a
          Material Adverse Effect. The term "Hazardous Substances" shall mean
          any substance that requires investigation, removal or remediation
          under any Environmental Law, or is defined, listed or identified as a
          "hazardous waste" or "hazardous substance" or otherwise regulated
          thereunder.

          (v) Product Liability. Except as set forth in Schedule 2.2(v), there
is no action, suit, inquiry, proceeding or investigation by or before any court
or governmental or other regulatory or administrative agency or commission
pending or, to the Knowledge of the Company, threatened against or involving the
Company relating to any product alleged to have been manufactured or sold by the
Company and alleged to have been defective or improperly designed or
manufactured.

          (w) No Triggering Events. Except under the agreements set forth on
Schedule 2.2(o)(i)(a) and (c) and any split dollar insurance agreements listed
on Schedule 2.2(w) with the Company's executives, the execution and delivery by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby will not constitute a triggering event
(including a "first trigger") under any employment, bonus, deferred
compensation, incentive compensation, stock purchase, stock option, stock
appreciation right, restricted stock, performance unit, severance or termination
pay, hospitalization or other medical, life or other insurance, supplemental
unemployment benefit, flexible benefit, profit-sharing, pension, employee stock
ownership or retirement plan, program, fund, trust, agreement or arrangement
sponsored, maintained, contributed to, required to be contributed to or entered
into by the Company (or any trade or business, whether or not incorporated, that
together with the Company


                                       21





would be deemed a "single employer" within the meaning of section 4001(b)(1) of
ERISA, and the rules and regulations promulgated thereunder) that will, or upon
the occurrence of subsequent events would, accelerate the time of payment or
vesting or increase the amount of compensation or benefits due to any director,
officer, employee or former employee (or any dependent of a former employee) of
the Company.

          (x) Relationship with ROV Ltd. The agreements listed on Schedule
2.2(o)(ix)(g)-(j) are the only agreements between the Company and ROV Ltd., true
and complete copies of which have been delivered to Purchasers.

          (y) Consolidated Net Worth. The Consolidated Net Worth as of June 30,
1996 and as of the Closing Date is a minimum of $59,000,000. The term
Consolidated Net Worth shall mean the consolidated net worth of the Company and
its Subsidiaries on a GAAP basis and consistent with the Company's past
practices, adding back, to the extent charged to income and not capitalized on
or prior to the date hereof, the following amounts: (i) $2,253,980 representing
any debt prepayment penalties for retiring the long-term debt (ii) $3,750,000
representing the fees and expenses for the purchase of bridge securities and not
syndicating the senior bank debt; and (iii) $170,000 representing ordinary
losses of the Company between June 30 and August 30, 1996 due to annual plant
closing.

          (z) Plant and Equipment. The plants, structures and equipment of the
Company are structurally sound with no known defects and are in good operating
condition and repair (except for ordinary wear and tear, and except for assets
which do not materially impair the business of the Company) and are adequate for
the uses to which they are being put; and none of such plants, structures or
equipment are in need of maintenance or repairs except for ordinary, routine
maintenance and repairs. To the Knowledge of the Company, the Company has not
received notification that it is in violation of any applicable building, zoning
or similar ordinance or regulation in respect of its plants or structures or
their operations and no such violation exists.

          (aa) Relationship with Rayovac International Corp. The agreements
listed on Schedule 2.2(aa) are the only agreements between the Company and
Rayovac International Corp., copies of which have been delivered to Purchasers.



                                       22





         3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS

          Purchasers represent and warrant to the Redemption Shareholders and
Company as of the date hereof as follows:

          3.1. Organization and Good Standing. Such Purchaser purporting to be a
partnership is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization.

          3.2. Power. Each Purchaser has full power, legal right and authority
to enter into, execute and deliver this Agreement and the Ancillary Instruments,
to perform such Purchaser's obligations hereunder and thereunder, and to carry
out the transactions contemplated hereby and thereby.

          3.3. Authorization. The execution and delivery of this Agreement and
the Ancillary Instruments and the consummation of the transactions contemplated
herein and therein have been duly authorized by each Purchaser. Upon execution
by the parties hereto, this Agreement and the Ancillary Instruments will
constitute the legal, valid and binding obligation of each Purchaser,
enforceable against each Purchaser in accordance with its terms, except to the
extent enforceability may be limited by (a) the effect of bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting the rights and remedies of creditors generally,
(b) general principles of equity, whether such enforceability is considered in a
proceeding in equity or at law, and the discretion of the court before which any
proceeding thereof or may be brought, and (c) the unenforceability under certain
circumstances under law or court decisions of provisions providing for the
indemnification of a party with respect to a liability where such
indemnification is contrary to public policy.

          3.4. No Conflict. The execution and delivery of this Agreement by each
Purchaser and the consummation of the transactions contemplated hereby do not
and will not conflict in any respect with or result in any violation of or
default under (a) any note, bond, mortgage, indenture, license agreement, lease
or other agreement, instrument or obligation to which Purchaser is a party or
(c) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to such Purchaser, except in the case of clauses (b) and (c) for
conflicts, violations or defaults that would not materially impair Purchaser's
ability to perform his/her/its obligations hereunder.


                                       23






          3.5. No Consent. No Consent is required to be obtained by any
Purchaser in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby except for Consents which,
if not obtained, would not impair any Purchaser's ability to perform his/her/its
obligations hereunder.

          3.6. Litigation. There are no judicial or administrative actions,
suits, proceedings or investigations pending, or to the knowledge of such
Purchaser, threatened (a) which question the validity of this Agreement or (b)
which prevent such Purchaser from consummating the transactions contemplated
hereby.

          3.7. Brokers, Finders, etc. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried out without
the intervention of any person acting on behalf of Purchasers in such manner as
to give rise to any valid claim against Purchasers, Redemption Shareholders or
the Company for any brokerage or finder's commission, fee or similar
compensation.

          3.8. Purchase for Investment. The Investments Shares purchased by
Purchasers pursuant to this Agreement are being acquired for investment only and
not with a view to any public distribution thereof in violation of any of the
requirements of the Securities Act of 1933, as amended, and the rules and
regulations of the Securities and Exchange Commission thereunder.

          4. MUTUAL COVENANTS. Each of the Company, Purchasers and Redemption
Shareholders covenants and agrees as follows:

          4.1. Capitalization. After giving effect to the transactions
contemplated by this Agreement and the Stock Split, the authorized capital stock
of the Company shall consist of 27,000,000 shares of Common Stock, par value
$.01 per share, 20,510,480 shares of which shall be issued and outstanding.
Exhibits A and B describe the record and beneficial owners of such shares. The
parties acknowledge the cancellation prior to Closing by Richard Thornley and
Arthur Homa of options to purchase 10,000 and 8,000 Shares, respectively, in
consideration for the payment of a bonus to Mr. Thornley and the Company's
agreement to grant an option for 40,000 shares of Common Stock to Mr. Homa (such
number adjusted to reflect the Stock Split).



                                       24





          4.2. Transaction and Closing Fees. The Company shall pay all
transaction fees, including those set forth in Section 1.4. It shall also pay to
the Thomas H. Lee Company ("THL") and its affiliates, pursuant to a Management
Agreement between the Company and THL, a closing fee not to exceed $3.25 Million
Dollars.

          4.3. RABBI Trusts. The Company has established a rabbi trust ("Rabbi
Trust") pursuant to that certain Rayovac Corporation Irrevocable Trust Under
Supplemental Retirement and Survivor Income Plan, dated September 12, 1996, as
an unfunded plan maintained for the purpose of providing benefits to the
participants in the Rayovac Corporation Supplemental Retirement and Survivor
Income Plan (the "SRSIP"). Pursuant to the Rabbi Trust, the Company shall
contribute to the Rabbi Trust the life insurance policies listed on Schedule
2.2(p)(iv) hereto ("Policies"). The Company shall, thereafter, pay the remaining
premiums with respect to the Policies, also set forth on Schedule 2.2(p)(iv)
hereto as they come due. The Company shall make no further contributions to the
Rabbi Trust.

          4.4. Records. After the Closing, upon reasonable written notice,
Purchasers and Company shall furnish or cause to be furnished to Redemption
Shareholders' Agents and their representatives, employees, counsel and
accountants access to, during normal business hours, such assistance and
information, including all original agreements, documents, books, records and
files relating to the business of the Company in the possession of Purchasers or
Company, as the case may be (collectively, "Records"), as is reasonably
necessary for financial reporting and accounting matters, the preparation and
filing of any tax returns, reports or forms or the defense of any tax claim or
assessment controlled by the Company or Redemption Shareholders; provided,
however, that such access does not unreasonably disrupt the normal operations of
Purchasers or the Company and provided further that Redemption Shareholders'
Agents shall have entered into a reasonable confidentiality agreement with the
Company concerning the Records made available to them.

          4.5. Further Actions. Each of the parties agrees to use all reasonable
efforts to take or cause to be taken all actions, and to do or cause to be done
all other things, necessary, proper or advisable to consummate and make
effective the transactions contemplated hereby including, without limitation,
obtaining all Consents from third parties required to be obtained by such party
for the consummation of the transactions contemplated hereby, other than, in the
case


                                                        25





of Purchasers, any Consents, the failure of which to be obtained, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect or materially impair the ability of Purchasers to
perform their obligations hereunder.

          5. CLOSING

          5.1. Deliveries by Redemption Shareholders. Redemption Shareholders
are herewith delivering to Purchasers or the Company or otherwise causing the
Company to take the actions indicated below.

          (a) Investment Shares. The issuance by the Company or delivery by
Redemption Shareholders (and subsequent issuance by the Company) of certificates
representing the Investment Shares to Purchasers as provided in Section 1.1
hereto.

          (b) Redemption Shares. All of the certificates for the Redemption
Shares as provided in Section 1.2 hereto.

          (c) Resignation of Directors. The resignations of all directors and
officers of the Company whose resignations have been requested by Purchasers not
less than five (5) days prior to the Closing Date.

          (d) Consents. Originally executed instruments evidencing the consents
required by Purchasers to consummate the transactions contemplated hereby and
listed on Schedule 5.1(d).

          (e) Repayment of Indebtedness. All indebtedness and other amounts
outstanding as of the Closing Date of the Company listed in Schedule
2.2(o)(vi)(b)-(f) or required to be so listed shall have been paid in full.

          (f) Old Shareholders Agreement. Copies of instruments terminating each
Amended and Restated Shareholders Agreement between the Company, Pyle and each
Redemption Shareholder.

          (g) New Shareholders Agreement. The Shareholders' Agreement by and
between the Company, the Purchasers and each Redemption Shareholder who will be
a shareholder of the Company immediately after the Closing, dated as of the
Closing Date, in substantially the form of Exhibit D attached hereto.


                                       26




          (h) Opinions. The opinion of Foley & Lardner, dated the Closing Date
and addressed to Purchasers, in substantially the form of Exhibit E attached
hereto, along with the opinion of James A. Broderick, General Counsel of the
Company, and addressed to Purchasers, in substantially the form of Exhibit K,
relating to intellectual property matters.

          (i) Recapitalization Accounting. A letter of Coopers & Lybrand L.L.P.,
the Company's independent auditors, dated the Closing Date and addressed to
Purchasers, stating that the transactions contemplated by this Agreement will
qualify for recapitalization accounting.

          (j) Options. Appropriate instruments evidencing no outstanding
options, warrants or other rights to purchase or subscribe to capital stock or
other securities of the Company or securities which are convertible or
exchangeable for capital stock or other securities of the Company.

          (k) Resolutions. Copies of the resolutions of the Company's Board
of Directors, authorizing and approving the execution of, delivery and
performance under this Agreement and Ancillary Instruments, the issuance of
Investment Shares, redemption of Redemption Shares and the consummation of the
transactions contemplated hereby and thereby, certified as true and correct by
its Secretary or any Assistant Secretary.

          (l) Articles; Good Standing Certificate. A certificate from the State
of Wisconsin certifying the valid organization and existence of the Company and
Articles of Incorporation of Company certified by an appropriate government
official as of a recent date.

          (m) By-Laws. Company's Bylaws, certified by the Secretary or any
Assistant Secretary of Company as of the date hereof.

          (n) Consulting and Non-Competition Agreement. An executed Consulting
Agreement in the form of Exhibit L and Confidentiality, Non-Competition,
No-Solicitation, and No-Hire Agreement, each by and between Company and Thomas
F. Pyle, Jr., dated the Closing Date, in substantially the form of Exhibit F
attached hereto and a Confidentiality, Non-Competition, No-Hire and
No-Solicitation Agreement by and between the Company and Judith Pyle, dated the
Closing Date in substantially the form of Exhibit F attached hereto.



                                       27





          (o) Non-Competition Agreements. Executed Non-Competition Agreements by
and between the Company and Marvin Siegert and Glynn Rossa, dated the Closing
Date, in substantially the form of Exhibit G, attached hereto.

          (p) Certain Assets. Originally executed instruments evidencing the
Company's sale, distribution or assignment of (i) that certain Aircraft Lease
dated May 30, 1996 between Fleet National Bank and the Company; (ii) that
certain sublease for airport facilities and land between Big Sky Partners and
the Company dated March 19, 1993; (iii) membership at La Quinta Country Club;
(iv) the Company's rights to the luxury box at Camp Randall Stadium, floor seats
at the Kohl Center, and Chicago Bulls season tickets; (v) condominium in the
Dominican Republic; and (vi) the office furniture of Thomas and Judith Pyle, to
certain executives of the Company or entities controlled by the Pyle Group.

          (q) FIRPTA Certificate. Each Redemption Shareholder shall have
delivered to Purchasers a certificate, as contemplated under and meeting the
requirements of Section 1.1445-2(b)(2)(i) of the Treasury Regulations, to the
effect that such Redemption Shareholder is not a "foreign person" within the
meaning of the Code and applicable Treasury Regulations.

          (r) Accountant's Letter. An accountant's letter of Coopers & Lybrand
L.L.P., dated within five days of the Closing Date and addressed to Purchasers,
in substantially the form of Exhibit J hereto.

          (s) Releases. Such documents, instruments or writings in the form
satisfactory to Purchasers' counsel evidencing the release of the Company from
any indemnity or other obligations with respect to any assets transferred
pursuant to Section 5.1(p).

          (t) Officer's Certificates. An officer's certificate of the Chief
Financial Officer of the Company certifying that the estimated Closing Date
balance sheet of the Company, attached thereto, is true and correct in all
material respects (such balance sheet indicating that the Company's Consolidated
Net Worth is an amount in excess of $59,000,000) as well as an officer's
certificate of the Chief Financial Officer of the Company with respect to the
solvency of the Company.



                                       28





          5.2. Deliveries by Purchasers. Purchasers are hereby delivering to
Redemption Shareholders or the Company the following:

          (a) Investment Price. The Investment Price by wire transfer to the
Company and Shareholders' Agent.

          (b) Opinion. The opinion of Skadden, Arps, Slate, Meagher & Flom,
dated the Closing Date and addressed to Redemption Shareholders, in
substantially the form of Exhibit H attached hereto.

          (c) New Shareholders Agreement. The executed Shareholders' Agreement
between the Company, Redemption Shareholders who will be a shareholder of the
Company immediately after the Closing and each Purchaser, dated the Closing
Date, in substantially the form of Exhibit D attached hereto.

          5.3. Deliveries by Company. The Company is hereby delivering to
Redemption Shareholders or Purchasers the following:

          (a) Investment Shares. To the Purchasers, stock certificates (in such
denominations as described on Exhibit A) representing the Investment Shares. All
stock certificates representing the Investment Shares delivered to Purchasers
shall reflect the Stock Split and shall bear an appropriate legend as set forth
in the Shareholders Agreement. In addition, the Company shall deliver to all
Redemption Shareholders who will remain shareholders of the Company after the
date hereof, new stock certificates which shall reflect the Stock Split and
shall bear an appropriate legend as set forth in the Shareholders Agreement.

          (b) Purchase Price. The Purchase Price by wire transfer to the
Redemption Shareholders' Agent in accordance with Section 1.2 hereof.


     6. INDEMNIFICATION

          6.1. By Redemption Shareholders. Subject to the terms and conditions
of this Article 6, each Redemption Shareholder severally but not jointly hereby
agrees to indemnify, defend and hold harmless each Purchaser and the Company
from and against all Claims asserted against, resulting to, imposed upon, or
incurred by each Purchaser or the Company, directly or indirectly, by reason of,
arising out of or resulting from (a) the inaccuracy or breach of any
representation or warranty (including the Schedules to this Agreement) of any


                                       29





Redemption Shareholder or Company contained in or made pursuant to this
Agreement or (b) the breach of any covenant or other agreement of any Redemption
Shareholder contained in this Agreement. Regardless of the foregoing, however,
breaches of representations and warranties contained in Section 2.1 hereof shall
be subject only to several indemnification by the respective Redemption
Shareholders who shall have made and breached such representations and
warranties. As used in this Article 6, the term "Claim" shall include (i) all
debts, liabilities and obligations; (ii) all losses, damages (including, without
limitation, consequential damages), judgments, awards, settlements, costs and
expenses (including, without limitation, interest (including prejudgment
interest in any litigated matter), penalties, court costs and attorneys fees and
expenses); and (iii) all demands, claims, suits, actions, costs of
investigation, causes of action, proceedings and assessments, whether or not
ultimately determined to be valid. In this Article 6, for purposes of
determining the existence of the inaccuracy or breach of any representation or
warranty of any Redemption Shareholder or the Company, any requirement in any
representation or warranty that an event or fact be material, meet a certain
minimum dollar threshold or have a Material Adverse Effect in order for such
event or fact to constitute breach of a representation or warranty shall be
disregarded.

          6.2. By Purchasers. Subject to the terms and conditions of this
Article 6, Purchasers, severally hereby agree to indemnify, defend and hold
harmless each Redemption Shareholder from and against all Claims asserted
against, resulting to, imposed upon or incurred by any such person, directly or
indirectly, by reason of or resulting from (a) the inaccuracy or breach of any
representation or warranty of any Purchaser contained in or made pursuant to
this Agreement or (b) the breach of any covenant or other agreement of any
Purchaser contained in this Agreement.

          6.3. By Company. Subject to the terms and conditions of this Article
6, Company hereby agrees to indemnify, defend and hold harmless each Redemption
Shareholder from and against all Claims asserted against, resulting to, imposed
upon or incurred by any such person, directly or indirectly, by reason of or
resulting from the breach of any post-closing covenant or other agreement of the
Company contained in this Agreement.

          6.4. Indemnification of Third-Party Claims. The obligations and
liabilities of any party to indemnify any other under this Article 6 with
respect to


                                       30





Claims relating to third parties shall be subject to the following terms and
conditions:

               (a) Notice and Defense. The party or parties to be indemnified
          (whether one or more, the "Indemnified Party") will give the party or
          parties from whom indemnification is sought (whether one or more, the
          "Indemnifying Party") prompt written notice of any such Claim
          providing reasonable specificity of the nature of the Claim, the
          parties involved and the facts giving rise to Claim, and the
          Indemnifying Party will undertake the defense thereof by
          representatives chosen by it and reasonably acceptable to the
          Indemnified Party. The Indemnified Party shall have the right to
          employ one counsel of its choice to represent such Indemnified Party
          if it reasonably believes a conflict of interest between such
          Indemnified Party and such Indemnifying Party exists in respect of a
          Claim or if the amount of such Claim, after taking into account other
          Claims, may exceed the maximum amount set forth in Section 6.5(c) and
          in that event the reasonable fees and expenses of such separate
          counsel shall be paid by such Indemnifying Party for representation
          with respect to such Claim. In any event, the Indemnified Party shall
          have the right to participate at its own expense in the defense of
          such Claim. In all matters concerning the Redemption Shareholders, the
          Redemption Shareholders' Agent shall give and receive notice and
          otherwise act in all respects on their behalf. Failure to give such
          notice shall not affect the Indemnifying Party's duty or obligations
          under this Article 6, except to the extent the Indemnifying Party is
          prejudiced thereby. So long as the Indemnifying Party is defending any
          such Claim actively and in good faith, the Indemnified Party shall not
          settle such Claim. The Indemnifying Party may not settle a Claim
          without the written consent of the Indemnified Party unless such
          settlement provides solely for money damages or other money payments
          for which such Indemnified Party is entitled to indemnification
          hereunder and includes as an unconditional term thereof the giving by
          the claimant or plaintiff to such Indemnified Party of a release from
          all liability in respect of such Claim. The Indemnified Party shall
          make available to the Indemnifying Party or its representatives all
          records and other materials reasonably required by them and in the
          possession or under the control of the Indemnified Party, for the use
          of the Indemnifying Party and its representatives in


                                       31



          defending any such Claim and shall in other respects give reasonable
          cooperation in such defense. The Indemnifying Party shall make
          available to the Indemnified Party or its representatives, all records
          and other materials reasonably required by them and in the possession
          or under the control of the Indemnifying Party, for the use of the
          Indemnified Party and its representatives in defending any such Claim
          and shall in other respects give reasonable cooperation in such
          defense.

               (b) Failure to Defend. If the Indemnifying Party, within a
          reasonable time after notice of any such Claim, fails to defend such
          Claim actively and in good faith, the Indemnified Party will (upon
          further notice) have the right to undertake the defense, compromise or
          settlement of such Claim or consent to the entry of a judgment with
          respect to such Claim, on behalf of and for the account and risk of
          the Indemnifying Party, and the Indemnifying Party shall thereafter
          have no right to challenge the Indemnified Party's defense,
          compromise, settlement or consent to judgment therein.

          6.5. Payment. The Indemnifying Party shall pay the Indemnified Party
any amount due under this Article 6. Upon judgment, determination, settlement or
compromise of any third party Claim, the Indemnifying Party shall pay promptly
on behalf of the Indemnified Party, and/or to the Indemnified Party in
reimbursement of any amount theretofore required to be paid by it, the amount so
determined by judgment, determination, settlement or compromise and all other
Claims of the Indemnified Party with respect thereto, unless in the case of a
judgment an appeal is made from the judgment. If the Indemnifying Party desires
to appeal from an adverse judgment, then the Indemnifying Party shall post and
pay the cost of the security or bond to stay execution of the judgment pending
appeal. Upon the payment in full by the Indemnifying Party of such amounts, the
Indemnifying Party shall succeed to the rights of such Indemnified Party for
such Claim, to the extent not waived in settlement, against the third party who
made such third party Claim.

          6.6. Limitations on Indemnification.

               (a) Time Limitation. No notice of a Claim for breach of a
          representation or warranty shall be made under this Article 6 after
          the lapse of the earlier of (i) the completion of the audit covering


                                       32





          fiscal 1997, or (ii) September 30, 1997. Regardless of the foregoing,
          however, or any other provision of this Agreement:

                    (i) There shall be no time limitation on claims on actions
               brought for breach of any representation or warranty made by
               Redemption Shareholders pursuant to Section 2.1(c) and 2.2(e).

                    (ii) Except as provided below, any claim or action brought
               for breach of any representation or warranty made by Shareholders
               in Section 2.2(k) may be brought at any time until the underlying
               tax obligation is barred by the applicable period of limitation
               under applicable law.

               (b) Amount Limitation. Except with respect to claims for breaches
          of representations or warranties contained in Section 2.2(y), an
          Indemnified Party shall only be entitled to indemnification under this
          Article 6 for inaccuracy or breach of a representation or warranty if
          the amount for a particular inaccuracy or breach of a representation
          or warranty exceeds Fifty Thousand Dollars ($50,000), and then only if
          and to the extent that the aggregate amount of the Indemnifying
          Party's indemnification obligations to the Indemnified Party pursuant
          to this Article 6 is in excess of Five Hundred Thousand Dollars
          ($500,000).

               (c) Maximum Liability. Shareholders' collective indemnification
          obligations to the Purchasers pursuant to this Article 6 (other than
          pursuant to Section 2.1(c)) shall not exceed in the aggregate Twenty
          Million Dollars ($20,000,000).

               (d) Tax and Benefits. The indemnification obligation of an
          Indemnifying Party shall be reduced by any insurance recovery received
          by the Indemnified Party for the Claim and by a tax benefit the
          satisfaction of the Claim provides the Indemnified Party at the
          maximum applicable rate whether or not the Indemnified Party is in a
          tax paying position.



                                       33





               (e) Several Liability. Subject to the limitations in Section
          6.6(c), the liability of an Indemnifying Party with respect to any
          individual Claim shall in no event exceed an amount equal to the
          product of the amount of such Claim and the percentage set forth
          opposite such Purchaser's name on Exhibit A under the heading
          "Percentage of Investment" or opposite such Redemption Shareholder's
          name on Exhibit B under the heading "Pre-Sale Ownership; %age of
          Total."

               6.7. Certain Tax Matters.

                    (a) Indemnification.

                         (i) Subject to Section 6.6(c), each Redemption
                    Shareholder severally hereby agrees to indemnify, defend and
                    hold the Company, each Purchaser and its affiliates harmless
                    from and against any and all Taxes with respect to the
                    Company that are imposed upon such Indemnified Party, to the
                    extent the aggregate amount of such Taxes exceeds $1.025
                    million, with respect to (1) any taxable period ending on or
                    before June 30, 1996 (such Taxes are hereinafter referred to
                    as "Pre-Closing Taxes" and such periods as "Pre-Closing
                    Periods") and (2) one half of the aggregate amount of any
                    real property transfer or gains, sales, use, transfer,
                    value-added, stock transfer and stamp Taxes, any transfer,
                    recording, registration and other fees, and any similar
                    Taxes that are required to be paid in connection with the
                    transactions contemplated herein (collectively, "Transfer
                    Taxes"), in each case, together with all reasonable legal
                    fees, costs and expenses incurred by the Company, Purchasers
                    or their affiliates, as the case may be, in connection
                    therewith.

                         (ii) Purchasers severally hereby agree to indemnify,
                    defend and hold each Redemption Shareholder harmless from
                    and against any and all Taxes (other than Transfer Taxes)
                    with respect to the Company that are imposed upon such
                    Redemption Shareholder with respect to (1) any taxable
                    period beginning after June 30, 1996, and (2) one half of
                    the aggregate amount of any Transfer Taxes, in each case,


                                       34





                    together with all reasonable legal fees, costs and expenses
                    incurred by each Redemption Shareholder and its affiliates
                    in connection therewith.

                         (iii) The indemnity provided for in this Section 6.6
                    shall be independent of any other indemnity provision in the
                    Agreement and, anything in the Agreement to the contrary
                    notwithstanding, shall survive until the expiration of the
                    applicable statutes of limitation for the Taxes referred to
                    herein (giving effect to any extensions or waivers thereto).

                    (b) Control of Contests.

                         (i) If a notice of deficiency, proposed adjustment,
                    adjustment, assessment, audit, examination, suit, dispute or
                    other claim (a "Tax Claim") shall be delivered, sent,
                    commenced, or initiated to or against Company or Purchasers
                    or any of their affiliates by any taxing authority (whether
                    foreign or domestic) with respect to Taxes for which Company
                    or Purchasers or their affiliates are entitled to
                    indemnification under this Section 6.6, Purchasers shall
                    promptly notify Redemption Shareholders' Agents in writing
                    of the Tax Claim. If a Tax Claim shall be delivered, sent,
                    commenced or initiated to or against any of the Redemption
                    Shareholders by any taxing authority (whether foreign or
                    domestic) with respect to Taxes for which one party to this
                    Agreement is entitled to indemnification under this Section
                    6.6, such Redemption Shareholders shall promptly notify
                    Purchasers in writing of such Tax Claim.

                         (ii) If Redemption Shareholders' Agents notify
                    Purchasers in writing within 20 days of receiving notice of
                    a Tax Claim involving solely Pre-Closing Taxes (the "Control
                    Notice"), Redemption Shareholders' Agents shall be entitled
                    to control, at their sole cost and expense, the defense of
                    any such Tax Claim, provided, however, that (1) Redemption
                    Shareholders' Agents shall keep Purchasers informed about,
                    and shall allow them to participate in (but not control), at
                    their sole expense, the defense of any such


                                       35





                    Tax Claim; (2) Redemption Shareholders' Agents shall
                    not pay, discharge, settle, compromise, litigate or
                    otherwise dispose (collectively, "dispose") of any such Tax
                    Claim without obtaining the prior written consent of
                    Purchasers, which shall not be unreasonably withheld or
                    delayed; and (3) if Purchasers disagree with any proposed
                    disposition of any such Tax Claim, Purchasers shall have the
                    right, at their sole expense, to litigate such Tax Claim;
                    provided, however, that Purchasers shall not settle such Tax
                    Claim without the prior written consent of Redemption
                    Shareholders' Agents, which shall not be unreasonably
                    withheld or delayed; provided, further, that (A) Redemption
                    Shareholders' indemnification obligation with respect to
                    such Tax Claim shall be no greater than such obligation
                    would have been had such Tax Claim been disposed of in the
                    manner originally contemplated by Redemption Shareholders'
                    Agents and (B) Purchasers severally shall indemnify, defend
                    and hold harmless Redemption Shareholders from and against
                    any liability for Taxes with respect to the Company that are
                    imposed upon such Indemnified Party in excess of the
                    liability for Taxes, if any, that otherwise would have
                    resulted had such Tax Claim been disposed of in the manner
                    originally contemplated by Redemption Shareholders' Agents.

                         (iii) If Redemption Shareholders' Agents do not provide
                    Purchasers with the Control Notice within the 20-day period
                    prescribed in subparagraph (b)(ii) above, Purchasers shall
                    control the defense of any Tax Claim involving solely
                    Pre-Closing Taxes and (1) shall consult with Redemption
                    Shareholders' Agents and keep Redemption Shareholders'
                    Agents informed of all material developments and events
                    relating to such Tax Claim and (2) shall not dispose of such
                    Tax Claim without the written consent of Redemption
                    Shareholders' Agents, which shall not be unreasonably
                    withheld or delayed.

                         (iv) If the Company, Purchasers or Redemption
                    Shareholders receive notice of a Tax Claim involving an
                    adjustment of any item in both a Pre-Closing Period and any


                                       36





                    taxable period beginning after June 30, 1996, Purchasers
                    shall be entitled to control the defense of any such Tax
                    Claim, provided however, that (1) Purchasers shall keep
                    Redemption Shareholders' Agents informed about, and shall
                    allow them to participate in (but not control) at their sole
                    expense, the defense of any such Tax Claim; (2) Purchasers
                    shall not dispose of any such Tax Claim without obtaining
                    the prior written consent of the Redemption Shareholders'
                    Agents, which consent shall not be unreasonably withheld or
                    delayed; and (3) if Redemption Shareholders' Agents disagree
                    with any proposed disposition of any such Tax Claim,
                    Redemption Shareholders' Agents shall have the right, at
                    their sole expense, to litigate such Tax Claim provided,
                    however, that Redemption Shareholders' Agents shall not
                    settle such Tax Claim without the prior written consent of
                    Purchasers, which consent shall not be unreasonably withheld
                    or delayed; provided, further, that (A) Purchaser's
                    indemnification obligation with respect to such Tax Claim
                    shall be no greater than such obligation would have been had
                    such Tax Claim been disposed of in the manner originally
                    contemplated by Purchasers and (B) each Redemption
                    Shareholder severally shall indemnify, defend and hold
                    harmless the Company, each Purchaser and its affiliates from
                    and against any liability for Taxes with respect to the
                    Company that are imposed upon such Indemnified Party in
                    excess of the liability for Taxes, if any, that otherwise
                    would have resulted had such Tax Claim been disposed of in
                    the manner originally contemplated by Purchasers.

                         (v) Purchasers, in their sole discretion, shall be
                    entitled to control the defense and disposition of all other
                    Tax Claims.

                         (vi) Indemnifying Party shall pay to the Indemnified
                    Party all indemnity amounts in respect of any Tax Claim
                    within ten (10) business days after such Tax Claim is
                    disposed of or a Final Determination has been made with
                    respect thereto. "Final Determination" shall mean (1) the


                                       37





                    entry of a decision of a court of competent jurisdiction at
                    such time as an appeal may no longer be taken from such
                    decision or (2) the execution of a closing agreement or its
                    equivalent between the particular taxpayer and the
                    particular relevant taxing authority.

                    (c) Preparation and Filing of Tax Returns; Payment of Taxes.

                         (i) On or prior to the Closing Date, (1) Redemption
                    Shareholders' Agents shall prepare or cause to be prepared
                    and file or cause to be filed on a timely basis and in a
                    manner consistent with past practice all Tax Returns of the
                    Company for all Pre-Closing Periods, which Tax Returns are
                    due (giving effect to any extensions thereto) on or before
                    the Closing Date (excluding state and federal income Tax
                    Returns for the taxable year ended June 30, 1996) and (2)
                    Redemption Shareholders' Agents or the Company shall be
                    responsible for and shall timely pay all Taxes shown to be
                    due thereon prior to the Closing Date.

                         (ii) After the Closing Date, Purchasers shall prepare
                    or cause to be prepared and shall file or cause to be filed
                    on a timely basis all other Tax Returns with respect to the
                    Company and shall pay or cause to be paid the Taxes shown
                    due thereon; provided, however, that Purchasers shall allow
                    Redemption Shareholders' Agents to review any Tax Return for
                    a Pre-Closing Period and shall not file any such Tax Return
                    without first obtaining the prior written consent of
                    Redemption Shareholders' Agents, which consent shall not be
                    unreasonably withheld or delayed, provided, however, that if
                    Redemption Shareholders' Agents do not consent to the filing
                    of any such Tax Return, Purchasers shall be entitled to file
                    such Tax Return, and any disputed items relating to such Tax
                    Return shall be subject to the dispute resolution procedures
                    set forth in subparagraph (f).

                         (iii) The party responsible for filing any Tax Return
                    with respect to Transfer Taxes shall prepare or cause to be


                                       38





                    prepared and shall file or cause to be filed on a timely
                    basis such Tax Return and shall pay or cause to be paid the
                    Transfer Taxes shown due thereon. The filing party shall
                    provide the other party with a schedule calculating in
                    reasonable detail such other party's indemnification
                    obligation pursuant to subsection (a) hereof, which amounts
                    shall be paid to the filing party within five days of
                    receiving such schedule.

                    (d) Termination of Tax Sharing Agreements. Redemption
               Shareholders hereby agree and covenant that any obligation under
               any tax sharing agreement or arrangement of the Company shall be
               terminated on or before the Closing Date, and no payments
               pursuant to any such tax sharing agreement or arrangement shall
               be made after such termination.

                    (e) Mutual Cooperation. Each of Purchasers and Redemption
               Shareholders' Agents shall provide the other, and, after the
               Closing Date, Purchasers shall cause the Company to provide
               Redemption Shareholders' Agents, with such assistance as may
               reasonably be requested by either of them in connection with the
               preparation of any Tax Return, any audit or other examination by
               any taxing authority, any judicial or administrative proceedings
               relating to liability for Taxes, or any Tax Claim, and each will
               retain and provide the other with any records or information that
               may be relevant to such Tax Return, audit or examination,
               proceedings or determination. Such assistance shall include
               making employees available on a mutually convenient basis to
               provide additional information and explanation of any material
               provided hereunder and shall include providing copies of any
               relevant Tax Returns and supporting work schedules.

                    (f) Dispute Resolution. If Purchasers and Redemption
               Shareholders' Agents cannot agree as to the amount of any party's
               indemnification obligation under subsection (a) hereof or the
               interpretation of any provision of this Section 6.6, Purchasers
               and Redemption Shareholders' Agents shall choose an independent,
               "Big Six" accounting firm, acceptable to each of them (the
               "Selected Accounting Firm"), and the decision of the Selected
               Accounting Firm


                                       39





               as to the amount of such party's indemnification obligation, if
               any, or the interpretation of any such provision shall be
               conclusive and binding. Any indemnification payment required
               under subsection (a) hereof by one party to the other shall be
               made within ten (10) days of the agreement by the parties or the
               decision by the Selected Accounting Firm, as the case may be,
               with interest at the applicable Base Rate as announced from time
               to time by Bank of America National Trust and Savings Association
               (the "Base Rate") from the date on which the disputed amount was
               required to be paid to the relevant taxing authority to the date
               of payment. The foregoing shall not limit or relieve each
               Redemption Shareholder's obligation to indemnify the Company,
               each Purchaser and its affiliates pursuant to subsection (a)
               hereof with respect to any Tax Claim.

                    (h) Miscellaneous.

                         (i) Any payment required by this Section 6.6 which is
                    not made on or before the date provided shall bear interest
                    after such date at the Base Rate plus three (3) percent.

                         (ii) Any and all costs and expenses of the Selected
                    Accounting Firm shall be borne by Purchasers and Redemption
                    Shareholders in proportion to the amount of each party's
                    liability for the amount in dispute pursuant to subsection
                    (a) hereof.

          6.8. Reporting Indemnity Payments. Any payment made by the Redemption
Shareholders to the Purchasers pursuant to this Section 6 shall be treated as if
it reduced each of the Investment Price and the Purchase Price by the amount of
the payment, and any payment made by the Purchasers to the Redemption
Shareholders pursuant to this Section 6 shall be treated as if it increased each
of the Purchase Price and the Investment Price by the amount of the payment.
Each of Purchasers and Redemption Shareholders agree to report all such payments
for all foreign, federal, state and local income tax purposes in a manner
consistent with the treatment described above and to notify each other promptly
in the event that any taxing authority proposes to disallow such treatment.



                                       40





          7. MISCELLANEOUS

          7.1. Expenses. Except as otherwise provided in this Agreement, the
Company and Redemption Shareholders on the one hand, and Purchasers on the other
hand, will each bear its own expenses, costs and fees (including attorneys' and
auditors' fees) in connection with the transactions contemplated hereby,
including the preparation and execution of this Agreement.

          7.2. Assignment; Successors. This Agreement shall not be assigned by
any party without the prior written consent of the other party, and any
purported assignment or other transfer without such consent shall be void and
unenforceable, except by operation of law. In the case of such consent, this
Agreement shall inure to the benefit of, and be binding on and enforceable
against, the successors and assigns of the respective parties hereto.

          7.3. Amendment and Modification. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated orally, other than by an
agreement in writing signed by the parties hereto (in the case of the Redemption
Shareholders, by one of the Redemption Shareholders' Agents acting in such).

          7.4. Entire Agreement. This Agreement, including the Schedules and
Exhibits to this Agreement (which are hereby incorporated by reference and made
a part of this Agreement) sets forth the entire agreement and understanding of
the parties hereto with respect to the subject matter hereof, supersedes all
other prior agreements, understandings, representations and warranties, oral or
written, between the parties in respect of the subject matter hereof (including
without limitation the letter of intent dated July 26, 1996), except that this
Agreement does not supersede the Confidentiality Agreement, the terms and
conditions of which are the parties expressly reaffirm.

          7.5. Severability. If any provision of this Agreement is inoperative
or unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever. The
invalidity of any one or more phrases, sentences, clauses, Sections or
subsections of this Agreement shall not affect the remaining portions of this
Agreement.


                                       41




          7.6. Notices. Any notice or other communication required or permitted
to be given hereunder or for the purposes hereof to any party shall be in
writing and shall be sufficiently given if (a) delivered personally, (b) mailed
certified or registered mail, postage prepaid, (c) transmitted by facsimile with
"answer-back" confirmation (and confirmed by mail) or (d) sent by next-day or
overnight mail or delivery to:

         (a)      Redemption Shareholders:       Pyle Group
                                                 3500 Corben Court
                                                 Madison, Wisconsin  53704

                              Attention:         Thomas F. Pyle, Jr.
                              Telephone:         (608) 241-5814
                              Facsimile:         (608) 241-2696

                              With a copy to:    Foley & Lardner
                                                 777 East Wisconsin Avenue
                                                 Milwaukee, WI 53202-5367

                              Attention:         Benjamin F. Garmer, III
                              Telephone:         (414) 297-5675
                              Facsimile:         (414) 297-4900

         (b)      Purchasers:                    Thomas H. Lee Company
                                                 75 State Street,
                                                 26th Floor
                                                 Boston, MA  02109

                              Attention:         Warren C. Smith, Jr.
                              Telephone:         (617) 227-1050
                              Facsimile:         (617) 227-3514



                                       42





                              With a copy to:     Skadden, Arps, Slate,
                                                  Meagher & Flom
                                                  One Beacon Street
                                                  Boston, MA  02108

                              Attention:          Louis A. Goodman
                                                  Kent A. Coit
                              Telephone:          (617) 573-4800
                              Facsimile:          (617) 573-4822

or at such other address or to such other person's attention as the party to
whom such notice is to be given shall have last notified to the party giving the
same in the manner provided in this Section. Any notice so delivered to the
party to whom it is addressed shall be deemed to have been given and received
(i) if by personal delivery, on the day of such delivery, (ii) if by certified
or registered mail, on the seventh day after mailing thereof, (iii) if by
facsimile, the day on which such facsimile was sent or (iv) if by next-day or
overnight mail delivery, on the day delivered, provided that if any such day is
not a business day then the notice shall be deemed to have been given and
received on the business day next following such day.

          7.7. No Third Party Beneficiaries. Nothing in this Agreement shall
confer any rights upon any person or entity which is not a party or a successor
or permitted assignee of a party to this Agreement.

          7.8. Headings. The section headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provision of this Agreement.

          7.9. Governing Law. This Agreement shall be governed by, construed and
performed in accordance with the internal laws of the State of Wisconsin
applicable to agreements made and to be performed entirely within such state,
without regard to the conflicts of law principles of such state.

          7.10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.



                                       43





          7.11. Knowledge. With respect to any matter herein, the term
"Knowledge" shall mean the actual knowledge after due inquiry of any of Thomas
F. Pyle, Jr., Marvin G. Siegert, Glynn M. Rossa, Roger F. Warren, Trygve
Lonnebotn, Robert W. Zimmermann, Timothy Anderson and Kenneth V. Biller.

          7.12. Remedies. Each party shall be entitled to obtain specific
performance of the obligations of another party hereunder and immediate
injunctive relief, and in the event any action or proceeding is brought in
equity to enforce this Agreement, no party will urge as a defense, that there is
an adequate remedy of law. Such remedies shall be cumulative and not exclusive
and shall be in addition to any other remedies which any party may have under
this Agreement or otherwise.

          IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.

                                    RAYOVAC CORPORATION


                                    By: /s/ Thomas F. Pyle, Jr.
                                        ------------------------------------
                                        Thomas F. Pyle, Jr.
                                        Chairman of the Board, President and
                                        Chief Executive Officer



                                    REDEMPTION SHAREHOLDERS:


                                    /s/ Thomas F. Pyle, Jr.
                                    -------------------------------------------
                                    Thomas F. Pyle, Jr., as agent and attorney-
                                    in-fact under Shareholder Appointment of
                                    Agents and Power of Attorneys dated
                                    March 1, 1996 executed by each of the
                                    Redemption Shareholders, and not in his
                                    individual capacity




                                       44






                                         THE THOMAS AND JUDITH PYLE
                                         CHARITABLE REMAINDER TRUST
                                         CREATED SEPTEMBER 10, 1996


                                         /s/ Thomas F. Pyle, Jr.
                                         --------------------------------
                                         Thomas F. Pyle, Jr., Trustee


                                         /s/ Judith D. Pyle
                                         --------------------------------
                                         Judith D. Pyle, Trustee


                                         /s/ Glynn M. Rossa
                                         --------------------------------
                                         Glynn M. Rossa, Trustee


                                         /s/ Benjamin F. Garmer, III
                                         --------------------------------
                                         Benjamin F. Garmer, III, Trustee


                                         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:  /s/ W.C. Smith, Jr.
                                         ----------------------------
                                              Name: Warren C. Smith, Jr.
                                              Title:    Trustee




                                       45





                                 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:  /s/ W.C. Smith, Jr.
                                      --------------------------------
                                      Name: Warren C. Smith, Jr.
                                      Title:    Trustee



     
                                 /s/ David A. Jones
                                 --------------------------------
                                 David A. Jones

                                 THL-CCI LIMITED PARTNERSHIP


                                 /s/ Warren C. Smith, Jr.
                                 Warren C. Smith, Jr., as agent and attorney-
                                 in-fact under Purchaser Appointment of
                                 Agent and Power of Attorney dated
                                 September 3, 1996 executed by THL-CCI
                                 Limited Partnership, and not in his
                                 individual capacity


                                       46





                                    EXHIBIT A


==============================================================================
                                    Number of Investment Shares Being Purchased
- - ------------------------------------------------------------------------------
                                                 Percentage of    Adjusted For 
             Name of Purchaser       At Closing   Investment       Stock Split*
- - -------------------------------------------------------------------------------
Thomas H. Lee Equity Fund III, L.P.  2,772,827       84.46%         13,864,135
- - -------------------------------------------------------------------------------
Thomas H. Lee Foreign Fund III, L.P.   171,790        5.24%            858,950
- - -------------------------------------------------------------------------------
THL-CCI Limited Partnership            291,481        8.90%          1,457,405
- - -------------------------------------------------------------------------------
David A. Jones                          45,579        1.39%            227,895
- - -------------------------------------------------------------------------------
Total                                3,281,677         100%         16,408,385
===============================================================================


- - -------------------

* A 5 for 1 stock split shall occur immediately after the Closing.


                                                        47




                                                 Exhibit B


====================================================================================================================== Pre-Sale Sold in Transaction Post- Adjusted For Ownership Closing Stock Split - - ---------------------------------------------------------------------------------------------------------------------- Shareholders Shares % of Total # Shares Purchaser of Shares # Shares # Shares - - ---------------------------------------------------------------------------------------------------------------------- x5 - - ---------------------------------------------------------------------------------------------------------------------- Roger F. Warren 175,000 1.77% 61,053 Fund 113,947 569,735 - - ---------------------------------------------------------------------------------------------------------------------- Marvin G. Siegert 175,000 1.77% 133,979 Fund 41,021 205,105 - - ---------------------------------------------------------------------------------------------------------------------- Trygve Lonnebotn 100,000 1.01% 17,958 Fund 82,042 410,210 - - ---------------------------------------------------------------------------------------------------------------------- James A. Broderick 50,000 0.50% 8,979 Fund 41,021 205,105 - - ---------------------------------------------------------------------------------------------------------------------- Gary E. Wilson 50,000 0.50% 27,211 Fund 22,789 113,945 - - ---------------------------------------------------------------------------------------------------------------------- Virgil L. Broering 50,000 0.50% 50,000 Fund 0 0 - - ---------------------------------------------------------------------------------------------------------------------- Robert W. Zimmermann 25,000 0.25% 15,884 Fund 9,116 45,580 - - ---------------------------------------------------------------------------------------------------------------------- Kenneth V. Biller 25,000 0.25% 6,768 Fund 18,232 91,160 - - ---------------------------------------------------------------------------------------------------------------------- Glynn M. Rossa 100,000 1.01% 100,000 Fund 0 0 - - ---------------------------------------------------------------------------------------------------------------------- Dale R. Tetzlaff 25,000 0.25% 4,490 Fund 20,510 102,550 - - ---------------------------------------------------------------------------------------------------------------------- Russell E. Lefevre 40,000 0.40% 5,816 Fund 34,184 170,920 - - ---------------------------------------------------------------------------------------------------------------------- Raymond L. Balfour 25,000 0.25% 0 Fund 25,000 125,000 - - ---------------------------------------------------------------------------------------------------------------------- Arthur Homa 10,000** 0.02% 2,000 Fund 8,000 40,000 - - ---------------------------------------------------------------------------------------------------------------------- Thomas Pyle 7,071,845 71.42% 6,667,288 Company 5,807,904 404,557 2,022,785 Fund 813,805 Jones 45,579 --------- 6,667,288 - - ---------------------------------------------------------------------------------------------------------------------- Benjamin F. Garmer, III 165,000 1.67% 165,000 Fund 0 0 - - ---------------------------------------------------------------------------------------------------------------------- Pyle Charitable Trust 1,823,155 18.40% 1,823,155 Fund 0 0 - - ---------------------------------------------------------------------------------------------------------------------- 9,910,000 100.00% 9,089,581 820,419 4,102,095 ======================================================================================================================
Fund = Thomas H. Lee Equity Fund III, L.P., Thomas H. Lee Foreign Fund III, L.P. and THL-CCI Limited Partnership Company = Rayovac Corporation Jones = David A. Jones - - -------------------------------- * A 5 for 1 stock split shall occur immediately after the Closing. ** Includes 2,000 shares and 8,000 shares of underlying options (pre-split). 48


                                                                     EXHIBIT 3.1

                       RESTATED ARTICLES OF INCORPORATION
                                       OF
                               RAYOVAC CORPORATION
                       ----------------------------------

     The following Restated Articles of Incorporation ("Restated Articles") of
Rayovac Corporation, a Wisconsin corporation (the "Corporation"), were duly
adopted in accordance with and pursuant to Section 180.1003 of the Wisconsin
Business Corporation Law, Chapter 180 of the Wisconsin Statutes ("Chapter 180")
and amend, supersede and restate the Corporation's existing Restated Articles of
Incorporation and any amendments thereto.

                                    ARTICLE I
                                    ---------

               The name of the Corporation is RAYOVAC CORPORATION.

                                   ARTICLE II
                                   ----------

         The period of existence of the Corporation shall be perpetual.

                                   ARTICLE III
                                   -----------

     The purpose or purposes for which the Corporation is organized is to carry
on and engage in any lawful activity within the purposes for which corporations
may be organized under Chapter 180.

                                   ARTICLE IV
                                   ----------

     The aggregate number of shares of capital stock which the Corporation shall
have the authority to issue is twenty-seven million (27,000,000), consisting of
one class only and designated "Common Stock", with a par value of one cent
($.01) per share. Each stock certificate representing issued and outstanding
shares of Class A Common Stock (including those owned by the Corporation and
held in the treasury thereof) shall be deemed for all corporate purposes to
evidence the ownership of an equal number of shares of Common Stock and the
holders of such certificates shall not be required to physically surrender such
certificates in exchange for certificates with a designation of Common Stock.

     Effective at the time of filing in the Office of Financial Institutions of
the State of Wisconsin of this Restated Articles of Incorporation (the
"Effective Time"), each share of Common Stock, $.01 par value per share, of the
Corporation issued and outstanding immediately prior to the Effective Time
shall, automatically and without need for any further action on the part of any
shareholder, be converted into five (5) shares of validly issued and fully paid
Common Stock, $.01 par value per share (the "Stock Split"). No script or
fractional shares will be issued as a result of the Stock Split. In lieu
thereof, fractional shares shall be converted into the right to receive a cash
amount obtained by multiplying $21.94 by the fractional share, if any, due each
shareholder as a result of this Stock Split.






                                    ARTICLE V
                                    ---------

     (a) Preemptive Rights. The holder of any issued and outstanding shares of
Common Stock shall, as such holder, have the right to purchase up to a pro rata
portion of New Securities (as defined in paragraph (b) below) which the
Corporation, from time to time, proposes to sell or issue following the date
hereof. A shareholder's pro rata portion shall be the product of (i) a fraction,
the numerator of which is the number of outstanding shares of Common Stock which
such shareholder then owns and the denominator of which is the total number of
shares of Common Stock then actually outstanding on a fully diluted basis after
giving effect to the exercise of all options, warrants and the like and the
conversion of all securities convertible into or exchangeable for Common Stock,
multiplied by (ii) the number of New Securities the Corporation proposes to sell
or issue.

     (b) Definition of New Securities. "New Securities" shall mean any Common
Stock of the Corporation, whether now authorized or not, any rights, options or
warrants to purchase Common Stock and any indebtedness or preferred stock of the
Corporation which is convertible into Common Stock (or which is convertible into
a security which is, in turn, convertible into Common Stock); provided that the
term "New Securities" does not include (i) indebtedness of the Corporation; (ii)
Common Stock issued as a stock dividend to all holders of Common Stock pro rata
or upon any subdivision or combination of shares of Common Stock; (iii) the
issuance and sale of securities of the Corporation pursuant to a public offering
or merger, consolidation or similar share exchange; (iv) any director, officer,
employee or consultant stock options approved by the Board of Directors of the
Corporation; (v) the issuance of any Common Stock upon the exercise or
conversion of any rights, options or warrants to purchase Common Stock; (vi) the
issuance and sale of up to an aggregate of 227,791 shares of Common Stock (as
equitably adjusted for stock dividends, stock splits, reverse stock splits and
other similar reclassifications) on or prior to September 12, 1997 to newly
hired officers (but not the chief executive officer) or employees of the
Corporation for a per share price no less than $4.39; provided that such
officers or employees shall execute a counterpart of the Shareholders Agreement,
entered into as of the 12th day of September, 1996 (the "Shareholders
Agreement"), by and among the Corporation and the signatories thereto, as
Management Shareholders (as defined in the Shareholders Agreement); or (vii) the
issuance of any equity security issued to non-affiliates of the Corporation as
part of a bona fide debt offering of investment units comprised of such equity
security and a debt security of the Corporation or the issuance of Common Stock
upon the conversion of such equity security pursuant to its terms.

     (c) Notice from the Corporation. In the event the Corporation proposes to
issue New Securities, the Corporation shall give each shareholder who has a
preemptive right under these Restated Articles of Incorporation written notice
of such proposal, describing the type of New Securities and the price and the
terms upon which the Corporation proposes to issue the same. For a period of
five (5) days following the delivery of such notice by the Corporation, the
Corporation shall be deemed to have irrevocably offered to sell to each
shareholder its pro rata share of such New Securities for the price and upon the
terms specified in the notice. Each shareholder may exercise its preemptive
rights hereunder by giving written notice to the Corporation and stating therein
the quantity of New Securities to be purchased.



                                       -2-





     (d) Sale by the Corporation. In the event any shareholder who has a
preemptive right under these Restated Articles of Incorporation fails to
exercise in full its preemptive right within said five (5) day period, the
Corporation shall have one (1) year thereafter to sell the New Securities with
respect to which the preemptive right was not exercised, at a price and upon
terms no more favorable to the purchasers thereof than specified in the
Corporation's notice given pursuant to these Restated Articles of Incorporation.

     (e) Closing. The closing for any such issuance shall take place as proposed
by the Corporation with respect to the shares to be issued, at which closing the
Corporation shall deliver certificates for the shares in the respective names of
the purchasing shareholders against receipt of payment therefor.

                                   ARTICLE VI
                                   ----------

     The number of directors constituting the Board of Directors of the
Corporation shall be such number (one or more) as is fixed from time to time by
the Bylaws of the Corporation.

                                   ARTICLE VII
                                   -----------

     The address of the registered office of the Corporation is 601 Rayovac
Drive, P.O. Box 4960, Madison, Wisconsin 53711-0960, in Dane County and the name
of the Corporation's registered agent at such address is David A. Jones.

                                  ARTICLE VIII
                                  ------------

     These Restated Articles of Incorporation may be amended pursuant to the
Bylaws of the Corporation and in the manner authorized by law at the time of
amendment. Any action required or permitted by this Restated Articles of
Incorporation or Bylaws or any provision of law to be taken at a meeting of the
shareholders, may be taken without a meeting if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those shareholders who have not consented in writing in
accordance with Section 180.0704 of the Wisconsin Business Corporation Law.

                                   ARTICLE IX
                                   ----------

     If any of the Corporation's shareholders enter into one or more agreements
with the Corporation that impose limitations on the transfer of shares of the
Corporation's Common Stock or that otherwise provide for the purchase and sale
of outstanding shares upon the happening of certain events and contingencies,
each such agreement shall be binding on the parties to the agreement in all
respects, and any attempted transfer of shares in violation of the agreement's
terms and provisions shall be void and ineffective in all respects. If any such
agreement so provides, all persons who subsequently acquire shares shall be
bound by the agreement's terms and provisions as if they were signatories to the
agreement.


                                       -3-





                                   *  *  *  *

     The undersigned officers of Rayovac Corporation, a Wisconsin corporation,
with its registered office in Dane County, Wisconsin, CERTIFY:

     1. The foregoing Restated Articles of Incorporation were adopted by the
shareholders of the Corporation as of the 10th day of September, 1996 by the
following vote:


    Number of
     Shares        Number of      Number of        Number of         Number of
     Common         SHARES       affirmative      affirmative        negative
      Stock        entitled         votes            votes             votes
   Outstanding      to vote       REQUIRED           CAST              CAST

    9,902,000      9,902,000      9,902,000        9,902,000           None



     2. The Restated Articles of Incorporation shall be effective upon filing
with the Office of Financial Institutions of the State of Wisconsin.

     Executed in duplicate and corporate seal affixed this 10th day of
September, 1996.


                             /s/ Thomas F. Pyle
                             ------------------------------
                             Thomas F. Pyle, Jr., President

[CORPORATE SEAL]

                             /s/ James A. Broderick
                             -------------------------------
                             James A. Broderick, Secretary


     This document should be recorded in the office of the Register of Deeds of
Dane County.


     This document was drafted by, and should be returned to, Benjamin F.
Garmer, III, of the law firm of Foley & Lardner, 777 East Wisconsin Avenue,
Milwaukee, Wisconsin.


                                       -4-

                                                                     EXHIBIT 3.2
                                RESTATED BY-LAWS
                                       OF
                               RAYOVAC CORPORATION
                            (a Wisconsin corporation)

                                 -INTRODUCTION-
                               VARIABLE REFERENCES


     0.01. Date of annual shareholders' meeting (see Section 2.01): To be
determined annually by the Chairman of the Board or by a majority vote of the
Board of Directors, the Board's vote controlling, on a date following the
completion of the audited financial statements for the preceding fiscal year and
not later than the last day of the current fiscal year.

*    0.02. Required notice of shareholders' meeting (see Section 2.04): not less
     than two (2) days.

*    0.03. Authorized number of directors (see Section 3.01): Eight (8).


*    0.04. Required notice of directors' meetings (see Section 3.05):

     (a)  not less than 48 hours if by mail, and

*    (b) not less than 24 hours if by telegram or personal delivery.

*    0.05. Authorized number of Vice Presidents (see Section 4.01): Fifteen
     (15).

*



*    These spaces are reserved for official notation of future amendments to
     these sections.







                                    ARTICLE I
                                    OFFICERS

          1.01. Principal and Business Offices. The corporation may have such
principal an other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.

          1.02. Registered Office. The registered office of the corporation
required by the Wisconsin Business Corporation Law to be maintained in the State
of Wisconsin may be, but need not be, identical with the principal office in the
State of Wisconsin, and the address of the registered office may be changed from
time to time by the Board of Directors or by the registered agent. The business
office of the registered agent of the corporation shall be identical to such
registered office.


                                   ARTICLE II
                                  SHAREHOLDERS

          2.01. Annual Meeting. The annual meeting of the shareholders shall be
held at the date and hour in each year set forth in Section 0.01, or at such
other time and date within thirty days before or after said date as may be fixed
by or under the authority of the Board of Directors, for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday in the
State of Wisconsin, such meeting shall be held on the next succeeding business
day. If the election of directors shall not be held on the day designated
herein, or fixed as herein provided, for any annual meeting of the shareholders,
or at any adjournment thereof, the Board of Directors shall cause the election
to be held at a special meeting of the shareholders as soon thereafter as
conveniently may be.

          2.02. Special Meeting. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or the Articles of
Incorporation, may be called by the Chairman of the Board or the Board of
Directors or by the person designated in the written request of the holders of
not less than one-tenth of all shares of the corporation entitled to vote at the
meeting.

          2.03. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Wisconsin, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the


                                       -2-





State of Wisconsin, as the place for the holding of such meeting. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal business office of the corporation in the State
of Wisconsin or such other suitable place in the county of such principal office
as may be designated by the person calling such meeting, but any meeting may be
adjourned to reconvene at any place designated by the holders of a majority of
the votes represented thereat.

          2.04. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than the number of
days set forth in Section 0.02 (unless a longer period is required by law or the
Articles of Incorporation) nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, or the Secretary, or other officer or persons calling the meeting, to
each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock record
books of the corporation, with postage thereon prepaid.

          2.05. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, fifty days. If the stock transfer books shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer books,
the Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
days and, in case of a meeting of shareholders, not less than ten days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the close of business on the date on which notice of the
meeting is mailed or on the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall be applied to any adjourn-


                                       -3-





ment thereof except where the determination has been made through the closing of
the stock transfer books and the stated period of closing has expired.

          2.06. Voting Records. The officer or agent having charge of the stock
transfer books for shares of the corporation shall, before each meeting of
shareholders, make a complete record of the shareholders entitled to vote at
such meeting, or any adjournment thereof, arranged in alphabetical order, and
indicating the address of each shareholder, the number of shares of each class
of capital stock of the corporation entitled to vote registered in the name of
such shareholder and the total number of votes to which each shareholder is
entitled. Such record shall be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purposes of the meeting. The original stock
transfer books shall be prima facie evidence as to who are the shareholders
entitled to examine such record or transfer books or to vote at any meeting of
shareholders. Failure to comply with the requirements of this section shall not
affect the validity of any action taken at such meeting.

          2.07. Quorum. Except as otherwise provided in the Articles of
Incorporation, a quorum shall exist at a meeting of shareholders if shares of
the corporation holding a majority of the votes entitled to be cast at such
meeting are represented in person or by proxy at such meeting of shareholders,
but in no event shall a quorum consist of less than one-third of the shares
entitled to vote at the meeting. If a quorum is present, the affirmative vote of
the holders of a majority of the votes represented at the meeting in person or
by proxy voting together as a single class shall be the act of the shareholders,
unless the vote of a greater number or voting by classes is required by law or
the Articles of Incorporation. Though less than a quorum is represented at a
meeting, a majority of the votes so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified.

          2.08. Conduct of Meeting. The Chairman of the Board, and in his
absence, the Vice Chairman of the Board, and in their absence, any person chosen
by the shareholders present shall call the meeting of the shareholders to order
and shall act as chairman of the meeting, and the Secretary of the corporation
shall act as secretary of all meetings of the shareholders, but, in the absence
of the Secretary, the presiding officer may appoint any other person to act as
secretary of the meeting.

          2.09. Proxies. At all meetings of shareholders, a shareholder entitled
to vote may vote in person or by proxy


                                       -4-





appointed in writing by the shareholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the Secretary of the corporation before or
at the time of the meeting. Unless otherwise provided in the proxy, a proxy may
be revoked at any time before it is voted, either by written notice filed with
the Secretary or the acting secretary of the meeting or by oral notice given by
the shareholder to the presiding officer during the meeting. The presence of a
shareholder who has filed his proxy shall not of itself constitute a revocation.
No proxy shall be valid after eleven months from the date of its execution,
unless otherwise provided in the proxy. The Board of Directors shall have the
power and authority to make rules establishing presumptions as to the validity
and sufficiency of proxies.

          2.10. Voting of Shares. Each outstanding share shall be entitled to
one vote upon each matter submitted to a vote at a meeting of shareholders,
except to the extent that voting rights of the shares of any class or classes
are enlarged, limited or denied by the Articles of Incorporation.

          2.11. Voting of Shares by Certain Holders.

          (a) Other Corporations. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the president of such
corporation or any other officer appointed by such president. A proxy executed
by any principal officer of such other corporation or assistant thereto shall be
conclusive evidence of the signer's authority to act, in the absence of express
notice to this corporation, given in writing to the Secretary of this
corporation, of the designation of some other person by the board of directors
or the bylaws of such other corporation.

          (b) Legal Representatives and Fiduciaries. Shares held by any
administrator, executor, guardian, conservator, trustee in bankruptcy, receiver,
or assignee for creditors may be voted by him, either in person or by proxy,
without a transfer of such shares into his name provided that there is filed
with the Secretary before or at the time of meeting proper evidence of his
incumbency and the number of shares held. Shares standing in the name of a
fiduciary may be voted by him, either in person or by proxy. A proxy executed by
a fiduciary, shall be conclusive evidence of the signer's authority to act, in
the absence of express notice to this corporation, given in writing to the
Secretary of this corporation, that such manner of voting is expressly
prohibited or otherwise directed by the document creating the fiduciary
relationship.



                                       -5-





          (c) Pledgees. A shareholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.

          (d) Treasury Stock and Subsidiaries. Neither treasury shares, nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of directors of such other corporation is held by this
corporation, shall be voted at any meeting or counted in determining the total
number of votes represented at such a meeting, but shares of its own issue held
by this corporation in a fiduciary capacity, or held by such other corporation
in a fiduciary capacity, may be voted and shall be counted in determining the
total number of votes represented at such a meeting.

          (e) Minors. Shares held by a minor may be voted by such minor in
person or by proxy and no such vote shall be subject to disaffirmance or
avoidance, unless prior to such vote the Secretary of the corporation has
received written notice or has actual knowledge that such shareholder is a
minor.

          (f) Incompetents and Spendthrifts. Shares held by an incompetent or
spendthrift may be voted by such incompetent or spendthrift in person or by
proxy and no such vote shall be subject to disaffirmance or avoidance, unless
prior to such vote the Secretary of the corporation has actual knowledge that
such shareholder has been adjudicated an incompetent or spendthrift or actual
knowledge of filing of judicial proceedings for appointment of a guardian.

          (g) Joint Tenants. Shares registered in the names of two or more
individuals who are named in the registration as joint tenants may be voted in
person or by proxy signed by any one or more of such individuals if either (i)
no other such individual or his legal representative is present and claims the
right to participate in the voting of such shares or prior to the vote files
with the Secretary of the corporation a contrary written voting authorization or
direction or written denial of authority of the individual present or signing
the proxy proposed to be voted or (ii) all such other individuals are deceased
and the Secretary of the corporation has no actual knowledge that the survivor
has been adjudicated not to be the successor to the interests of those deceased.

          2.12. Waiver of Notice by Shareholders. Whenever any notice whatsoever
is required to be given to any shareholder of the corporation under the Articles
of Incorporation or Bylaws or any provision of law, a waiver thereof in writing,
signed at any time, whether before or after the time of the meeting, by the
shareholder entitled to such notice, shall be deemed equivalent


                                       -6-





to the giving of such notice; provided that such waiver in respect to any matter
of which notice is required under any provision of the Wisconsin Business
Corporation Law, shall contain the same information as would have been required
to be included in such notice, except the time and place of meeting.

          2.13. Unanimous Consent Without Meeting. Any action required or
permitted by the Articles of Incorporation or Bylaws or any provision of law to
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.


                                   ARTICLE III
                               BOARD OF DIRECTORS

          3.01. General Powers and Number. The business and affairs of the
corporation shall be managed by its Board of Directors. The number of directors
of the corporation shall be as provided in Section 0.03.

          3.02. Tenure and Qualifications. Each director shall hold office until
the next annual meeting of the shareholders and until his successor shall have
been elected, or until his prior death, resignation or removal. A director may
be removed from office by affirmative vote of a majority of the votes entitled
to be cast for the election of such director, taken at a meeting of shareholders
called for that purpose. A director may resign at any time by filing his written
resignation with the Secretary of the corporation. Directors need not be
residents of the State of Wisconsin or shareholders of the corporation. A
director, other than the Chairman of the Board or Vice Chairman of the Board,
who is an officer of the corporation and who shall retire or otherwise terminate
employment as such officer shall automatically be retired as a director of the
corporation and thereafter shall not be eligible for re-election as a director.

          3.03. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately after the annual
meeting of shareholders, and each adjourned session thereof. The place of such
regular meeting shall be the same as the place of the meeting of shareholders
which precedes it, or such other suitable place as may be announced at such
meeting of shareholders. The Board of Directors may provide, by resolution, the
time and place, either within or without the State of Wisconsin, for the holding
of additional regular meetings without other notice than such resolution.



                                       -7-





          3.04. Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, Vice Chairman of
the Board or any two directors. The Chairman of the Board or Vice Chairman of
the Board calling any special meeting of the Board of Directors may fix any
place, either within or without the State of Wisconsin, as the place for holding
any special meeting of the Board of Directors called by them, and if no other
place is fixed the place of the meeting shall be the principal business office
of the corporation in the State of Wisconsin.

          3.05. Notice; Waiver. Notice of each meeting of the Board of Directors
(unless otherwise provided in or pursuant to Section 3.03) shall be given by
written notice delivered personally or mailed or given by telegram to each
director at his business address or at such other address as such director shall
have designated in writing filed with the Secretary, in each case not less than
that number of hours prior thereto as set forth in Section 0.04. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Whenever any notice whatsoever is required to be given to any
director of the corporation under the Articles of Incorporation or Bylaws or any
provision of law, a waiver thereof in writing, signed at any time, whether
before or after the time of meeting, by the director entitled to such notice,
shall be deemed equivalent to the giving of such notice. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting and objects thereat to the transaction
of any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.

          3.06. Quorum. Except as otherwise provided by law or by the Articles
of Incorporation or these Bylaws, a majority of the directors shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors,
but a majority of the directors present (though less than such quorum) may
adjourn the meeting from time to time without further notice.

          3.07. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by law or by the
Articles of Incorporation or these Bylaws.

          3.08. Conduct of Meetings. The Chairman of the Board, and in his
absence, the Vice Chairman of the Board, and in their absence, any director
chosen by the directors present, shall call


                                       -8-





meetings of the Board of Directors to order and shall act as chairman of the
meeting. The Secretary of the corporation shall act as secretary of all meetings
of the Board of Directors but in the absence of the Secretary, the presiding
officer may appoint any Assistant Secretary or any director or other persons
present to act as secretary of the meeting.

          3.09. Vacancies. Except as otherwise provided in the Articles of
Incorporation, any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of directors, may be filled until
the next succeeding annual election by the affirmative vote of a majority of the
directors then in office, though less than a quorum of the Board of Directors;
provided, that in case of a vacancy created by the removal of a director by vote
of the shareholders, the shareholders shall have the right to fill such vacancy
at the same meeting or any adjournment thereof in accordance with the Articles
of Incorporation.

          3.10. Compensation. The Board of Directors, by affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
directors for services to the corporation as directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or delegate authority to an
appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the corporation.

          3.11. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors or a committee thereof of which
he is a member at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.

          3.12. Committees. The Board of Directors by resolution adopted by
the affirmative vote of a majority of the number of directors as provided in
Section 0.03 may designate one or more committees, each committee to consist of
three or more directors elected by the Board of Directors, which, to the extent
provided in said resolution as initially adopted, and as thereaf-


                                       -9-





ter supplemented or amended by further resolution adopted by a like vote, shall
have and may exercise, when the Board of Directors is not in session, the powers
of the Board of Directors in the management of the business and affairs of the
corporation, except action in respect to dividends to shareholders, election of
the principal officers or the filling of vacancies in the Board of Directors or
committees created pursuant to this section. The Board of Directors may elect
one or more of its members as alternate members of any such committee who may
take the place of any absent member or members at any meeting of such committee,
upon request by the Chairman of the Board or upon request by the chairman of
such meeting. Each such committee shall fix its own rules governing the conduct
of its activities and shall make such reports to the Board of Directors of its
activities as the Board of Directors may request.

          3.13. Unanimous Consent Without Meeting. Any action required or
permitted by the Articles of Incorporation or Bylaws or any provision of law to
be taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors then in office.


                                   ARTICLE IV
                                    OFFICERS

          4.01. Number. The principal officers of the corporation shall be a
Chairman of the Board, a Vice Chairman of the Board, a President, the number of
Vice Presidents as provided in Section 0.05, a Secretary, and a Treasurer, each
of whom shall be elected by the Board of Directors. The Board of Directors may
from time to time elect or appoint such other officers and assistant officers as
may be deemed necessary. Any number of offices may be held by the same person.

          4.02. Election and Term of Office. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall be duly elected or
until his prior death, resignation or removal. Any officer may resign at any
time upon written notice to the corporation. Failure to elect officers shall not
dissolve or otherwise affect the corporation.

          4.03. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interest of the corporation and its
shareholders will be served thereby, but such removal shall be without prejudice
to the contract


                                      -10-





rights, if any, of the person so removed. Election or appointment shall not of
itself create contract rights.

          4.04. Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term.

          4.05. Chairman of the Board. The Chairman of the Board shall be
elected or appointed by, and from the membership of the Board of Directors. He
shall, when present, preside at all meetings of the shareholders and of the
Board of Directors. He shall perform such other duties and functions as shall be
assigned to him from time to time by the Board of Directors or in these Bylaws.
Except where by law the signature of the President of the corporation is
required, the Chairman of the Board shall possess the same power and authority
to sign, execute and acknowledge, on behalf of the corporation, all deeds,
mortgages, bonds, stock certificates, contracts, leases, reports and all other
documents or instruments necessary or proper to be executed in the course of the
corporation's regular business, or which shall be authorized by resolution of
the Board of Directors; and except as otherwise provided by law or by the Board
of Directors, he may authorize the President or any Vice President or other
officer or agent of the corporation to sign, execute and acknowledge such
documents or instruments in his place and stead. During the absence or
disability of the President, or while that office is vacant, the Chairman of the
Board shall exercise all of the powers and discharge all of the duties of the
President.

          4.06. Vice Chairman of the Board. During the absence or disability of
the Chairman of the Board, the Vice Chairman of the Board shall exercise all of
the functions of the Chairman of the Board. The Vice Chairman of the Board shall
perform all duties incident to the office of the Vice Chairman of the Board and
such other duties as shall from time to time be assigned to him by the Board of
Directors, the Chairman of the Board or as prescribed by these Bylaws.

          4.07. President. The President shall be the chief executive officer
and chief operations officer of the corporation and, subject to the control of
the Board of Directors, shall in general determine the direction and goals of
the organization and supervise and control all of the business, operations and
affairs of the corporation. He shall have authority, subject to such rules as
may be prescribed by the Board of Directors, to appoint such agents and
employees of the corporation as he may deem necessary, to prescribe their
powers, duties and compensation, and to delegate authority to them. Such agents
and employees shall hold office at the discretion of the President. He shall
have authority, co-equal with the Chairman of the Board, to sign, execute and
acknowledge, on behalf of the corporation, all deeds,


                                      -11-





mortgages, bonds, stock certificates, contracts, leases, reports and all other
documents or instruments necessary or proper to be executed in the course of the
corporation's regular business, or which shall be authorized by resolution of
the Board of Directors; and, except as otherwise provided by law or by the Board
of Directors, he may authorize any Vice President or any other officer or agent
of the corporation to sign, execute and acknowledge such documents or
instruments in his place and stead. In general, he shall perform all duties
incident to the office of chief executive officer, chief operating officer and
President and such other duties as may be prescribed by the Board of Directors
from time to time.

          4.08. Vice Presidents. In the absence of the Chairman of the Board,
the Vice Chairman of the Board and the President or in the event of their
deaths, inability or refusal to act, or in the event for any reason it shall be
impracticable for the Chairman of the Board, Vice Chairman of the Board or
President to act personally, the Vice President (or in the event there be more
than one Vice President, the Vice Presidents in the order designated by the
Board of Directors, or in the absence of any designation, then in the order of
their election) shall perform the duties of the Chairman of the Board, Vice
Chairman of the Board and/or President (as the case may be), and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Chairman of the Board, the Vice Chairman of the Board or President (as the case
may be). Any Vice President may sign, with the Secretary or Assistant Secretary,
certificates for shares of the corporation; and shall perform such other duties
and have such authority as from time to time may be delegated or assigned to him
by the Chairman of the Board, Vice Chairman of the Board, President or Board of
Directors. The execution of any instrument of the corporation by any Vice
President shall be conclusive evidence, as to third parties, of his authority to
act in the stead of the Chairman of the Board, the Vice Chairman of the Board
and/or President.

          4.09. Secretary. The Secretary shall:

          (a) keep the minutes of the meetings of the shareholders and the
Board of Directors in one or more books provided for that purpose;

          (b) attest instruments to be filed with the Secretary of State;

          (c) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law;

          (d) be custodian of the corporate records;



                                      -12-





          (e) keep or arrange for the keeping of a register of the post office
address of each shareholder which shall be furnished to the Secretary by such
shareholders;

          (f) sign with the Chairman of the Board, the Vice Chairman of the
Board or the President, certificates for shares of the corporation, the issuance
of which shall have been authorized by resolution of the Board of Directors;

          (g) have general charge of the stock transfer books of the
corporation; and

          (h) in general perform all duties incident to the office of the
Secretary and have such other duties and exercise such authority as from time to
time may be delegated or assigned to him by the Chairman of the Board, Vice
Chairman of the Board or by the President or by the Board of Directors.

          4.10. Treasurer. The Treasurer shall:

          (a) have charge and custody of and be responsible for all funds and
securities of the corporation;

          (b) receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such banks, trust companies or other depositories as shall
be selected in accordance with the provisions of Section 5.04; and

          (c) in general perform all of the duties and exercise such other
authority as from time to time may be delegated or assigned to him by the
Chairman of the Board, the Vice Chairman of the Board or the President or by the
Board of Directors. If required by the Board of Directors, the Treasurer shall
give a bond for the faithful discharge of his duties in such sum and with such
surety or sureties as the Board of Directors shall determine.

          4.11. Assistant Secretaries and Assistant Treasurers. There shall be
such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize. The Assistant Secretaries may sign
with the Chairman of the Board or the President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if required
by the Board of Directors, give bonds for the faithful discharge of their duties
in such sums and with such sureties as the Board of Directors shall determine.
The Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties and have such authority as shall from time to time be delegated or
assigned to them by the Secretary or the Treasurer, respectively, or by the
Chairman of the Board, the


                                      -13-





Vice Chairman of the Board, the President or by the Board of Directors.

          4.12. Other Assistants and Acting Officers. The Board of Directors
shall have the power to appoint any person to act as assistant to any officer,
or as agent for the corporation in his stead, or to perform the duties of such
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or acting officer or other agent so appointed by
the Board of Directors shall have the power to perform all the duties of the
office to which he is so appointed to be an assistant, or as to which he is so
appointed to act, except as such power may be otherwise defined or restricted by
the Board of Directors.

          4.13. Salaries. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors or by a duly authorized committee
thereof, and no other officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.


                                    ARTICLE V
                            CONTRACTS, LOANS, CHECKS
                      AND DEPOSITS; SPECIAL CORPORATE ACTS

          5.01. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the Chairman of the Board or the President or one of the Vice Presidents and
by the Secretary, an Assistant Secretary, the Treasurer or an Assistant
Treasurer; and when so executed no other party to such instrument or any third
party shall be required to make any inquiry into the authority of the signing
officer or officers.

          5.02. Loans. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.

          5.03. Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be


                                      -14-





determined by or under the authority of a resolution of the Board of Directors.

          5.04. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as may be selected by or under the
authority of a resolution of the Board of Directors.

          5.05. Voting of Securities Owned by this Corporation. Subject always
to the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the Chairman of the Board of this corporation if he be present,
or in his absence by the Vice Chairman of the Board of this corporation who may
be present, and (b) whenever, in the judgment of the Chairman of the Board, or
in his absence, the Vice Chairman, it is desirable for this corporation to
execute a proxy or written consent in respect to any shares or other securities
issued by any other corporation and owned by this corporation, such proxy or
consent shall be executed in the name of this corporation by the Chairman of the
Board or the Vice Chairman of the Board of this corporation, without necessity
of any authorization by the Board of Directors, countersignature or attestation
by another officer. Any person or persons designated in the manner above stated
as the proxy or proxies of this corporation shall have full right, power and
authority to vote the shares or other securities issued by such other
corporation and owned by this corporation the same as such shares or other
securities might be voted by this corporation.


                                   ARTICLE VI
                   CERTIFICATES FOR SHARES AND THEIR TRANSFER

          6.01. Certificates for Shares. Certificates representing shares of the
corporation shall be in such form, consistent with law, as shall be determined
by the Board of Directors. Such certificates shall be signed by the Chairman of
the Board or Vice Chairman of the Board and by the Secretary or an Assistant
Secretary. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except as provided
in Section 6.06.



                                      -15-





          6.02. Facsimile Signatures and Seal. The signature of the Chairman of
the Board or Vice Chairman of the Board and the Secretary or Assistant Secretary
upon a certificate may be facsimiles if the certificate is manually signed on
behalf of a transfer agent, or a registrar, other than the corporation itself or
an employee of the corporation. The corporation shall have a corporate seal.

          6.03. Signature by Former Officers. In case any officer, who has
signed or whose facsimile signature has been placed upon any certificate for
shares, shall have ceased to be such officer before such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer at the date of its issue.

          6.04. Transfer of Shares. Prior to due presentment of a certificate
for shares for registration of transfer, the corporation may treat the
registered owner of such shares as the person exclusively entitled to vote, to
receive notifications and otherwise to have and exercise all the rights and
powers of an owner. Where a certificate for shares is presented to the
corporation with a request to register for transfer, the corporation shall not
be liable to the owner or any other person suffering loss as a result of such
registration of transfer if (a) there were on or with the certificate the
necessary endorsements, and (b) the corporation had no duty to inquire into
adverse claims or has discharged any such duty. The corporation may require
reasonable assurance that said endorsements are genuine and effective and in
compliance with such other regulations as may be prescribed by or under the
authority of the Board of Directors.

          6.05. Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.

          6.06. Lost, Destroyed or Stolen Certificates. Where the owner claims
that his certificate for shares has been lost, destroyed or wrongfully taken, a
new certificate shall be issued in place thereof if the owner (a) so requests
before the corporation has notice that such shares have been acquired by a
bona fide purchaser, and (b) files with the corporation a sufficient indemnity
bond, and (c) satisfies such other reasonable requirements as may be
prescribed by or under the authority of the Board of Directors.

          6.07. Consideration for Shares. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors, provided that any shares having a par value shall not be issued
for a consideration less than the par value thereof. The consideration to be


                                      -16-





paid for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
corporation. When payment of the consideration for which shares are to be issued
shall have been received by the corporation, such shares shall be deemed to be
fully paid and nonassessable by the corporation. No certificate shall be issued
for any share until such share is fully paid.

          6.08. Stock Regulations. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with the statutes of the State of Wisconsin as it may deem expedient concerning
the issue, transfer and registration of certificates representing shares of the
corporation.


                                   ARTICLE VII
                                   AMENDMENTS

          7.01. By Shareholders. Except as otherwise provided in the Articles of
Incorporation, these Bylaws may be altered, amended or repealed and new Bylaws
may be adopted by the shareholders by affirmative vote of not less than a
majority of the votes represented in person or by proxy entitled to be cast
therefor at any annual or special meeting of the shareholders at which a quorum
is in attendance.

          7.02. By Directors. Except as otherwise provided in the Articles of
Incorporation, these Bylaws may also be altered, amended or repealed and new
Bylaws may be adopted by the Board of Directors by affirmative vote of a
majority of the number of directors present at any meeting at which a quorum is
in attendance; but no Bylaw adopted by the shareholders shall be amended or
repealed by the Board of Directors if the Bylaw so adopted so provides.

          7.03. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
Bylaws then in effect but is taken or authorized by affirmative vote of not less
than the number of shares or the number of directors required to amend the
Bylaws so that the Bylaws would be consistent with such action, shall be given
the same effect as though the Bylaws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.


                                  ARTICLE VIII
                                 INDEMNIFICATION

          8.01. Certain Definitions. All capitalized terms used in this Article
VIII and not otherwise hereinafter defined in


                                      -17-





this Section 8.01 shall have the meaning set forth in Section 180.042 of the
Statute. The following capitalized terms (including any plural forms thereof)
used in this Article VIII shall be defined as follows:

          (a) "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise
that directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Corporation.

          (b) "Authority" shall mean the entity selected by the Director or
Officer to determine his or her right to indemnification pursuant to Section
8.04.

          (c) "Board" shall mean the entire then elected and serving board of
directors of the Corporation, including all members thereof who are Parties to
the subject Proceeding or any related Proceeding.

          (d) "Breach of Duty" shall mean the Director or Officer breached or
failed to perform his or her duties to the Corporation and his or her breach of
or failure to perform those duties is determined, in accordance with Section
8.04, to constitute misconduct under Section 180.044(2)(a) 1, 2, 3 or 4 of the
Statute.

          (e) "Corporation" as used herein and as defined in the Statute and
incorporated by reference into the definitions of certain other capitalized
terms used herein, shall mean this Corporation, including, without limitation,
any successor corporation or entity to this Corporation by way of merger,
consolidation or acquisition of all or substantially all of the capital stock or
assets of this Corporation.

          (f) "Director or Officer" shall have the meaning set forth in the
Statute; provided, that, for purposes of this Article VIII, it shall be
conclusively presumed that any Director or Officer serving as a director,
officer, partner, trustee, member of any governing or decision-making committee,
employee or agent of an Affiliate shall be so serving at the request of the
Corporation.

          (g) "Disinterested Quorum" shall mean a quorum of the Board who are
not Parties to the subject Proceeding or any related Proceeding.

          (h) "Party" shall have the meaning set forth in the Statute; provided,
that, for purposes of this Article VIII, the term "Party" shall also include any
Director or Officer who is or was a witness in a Proceeding at a time when he or
she has not otherwise been formally named a Party thereto.


                                      -18-






          (i) "Proceeding" shall have the meaning set forth in the Statute;
provided, that, for purposes of this Article VIII, the term "Proceeding" shall
also include all Proceedings (i) brought under (in whole or in part) the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, their respective state counterparts, and/or any rule or regulation
promulgated under any of the foregoing; (ii) brought before an Authority or
otherwise to enforce rights hereunder; (iii) any appeal from a Proceeding; and
(iv) any Proceeding in which the Director or Officer is a plaintiff or
petitioner because he or she is a Director or Officer; provided, however, that
such Proceeding is authorized by a majority vote of a Disinterested Quorum.

          (j) "Statute" shall mean Section 180.042 through 180.059, inclusive,
of the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin
Statutes, as the same shall then be in effect, including any amendments thereto,
but, in the case of any such amendment, only to the extent such amendment
permits or requires the Corporation to provide broader indemnification rights
than the Statute permitted or required the Corporation to provide prior to such
amendment.

          8.02. Mandatory Indemnification. To the fullest extent permitted or
required by the Statute, the Corporation shall indemnify a Director of Officer
against all Liabilities incurred by or on behalf of such Director or Officer in
connection with a Proceeding in which the Director or Officer is a Party because
he or she is a Director or Officer.

          8.03. Procedural Requirements.

          (a) A Director or Officer who seeks indemnification under Section 8.02
shall make a written request therefor to the Corporation. Subject to Section
8.03(b), within sixty days of the Corporation's receipt of such request, the
Corporation shall pay or reimburse the Director or Officer for the entire amount
of Liabilities incurred by the Director or Officer in connection with the
subject Proceeding (net of any Expenses previously advanced pursuant to Section
8.05).

          (b) No indemnification shall be required to be paid by the Corporation
pursuant to Section 8.02 if, within such sixty-day period, (i) a Disinterested
Quorum, by a majority vote thereof, determines that the Director or Officer
requesting indemnification engaged in misconduct constituting a Breach of Duty
or (ii) a Disinterested Quorum cannot be obtained.

          (c) In either case of nonpayment pursuant to Section 8.03(b), the
Board shall immediately authorize by resolution that an Authority, as provided
in Section 8.04, determine whether the


                                      -19-





Director's or Officer's conduct constituted a Breach of Duty and therefore,
whether indemnification should be denied hereunder.

          (d) (i) If the Board does not authorize an Authority to determine the
Director's or Officer's right to indemnification hereunder within such sixty-day
period and/or (ii) if indemnification of the requested amount of Liabilities is
paid by the Corporation, then it shall be conclusively presumed for all purposes
that a Disinterested Quorum has determined that the Director or Officer did not
engage in misconduct constituting a Breach of Duty and, in the case of
subsection (i) above (but not subsection (ii)), indemnification by the
Corporation of the requested amount of Liabilities shall be paid to the Director
or Officer immediately.

          8.04. Determination of Indemnification.

          (a) If the Board authorizes an Authority to determine a Director's or
Officer's right to indemnification pursuant to Section 8.03, then the Director
or Officer requesting indemnification shall have the absolute discretionary
authority to select one of the following as such Authority:

          (i) An independent legal counsel; provided, that such counsel shall be
     mutually selected by such Director or Officer and by a majority vote of a
     Disinterested Quorum or, if a Disinte rested Quorum cannot be obtained,
     then by a majority vote of the Board;

          (ii) A panel of three arbitrators selected from the panels of
     arbitrators of the American Arbitration Association in Madison, Wisconsin;
     provided that (A) one arbitrator shall be selected by such Director or
     Officer, the second arbitrator shall be selected by a majority vote of a
     Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then
     by a majority vote of the Board, and the third arbitrator shall be selected
     by the two previously selected arbitrators, and (B) in all other respects,
     such panel shall be governed by the American Arbitration Association's then
     existing Commercial Arbitration Rules; or

          (iii) A court pursuant to and in accordance with Section 180.051 of
     the Statute.

          (b) In any such determination by the selected Authority there shall
exist a rebuttable presumption that the Director's or Officer's conduct did not
constitute a Breach of Duty and that indemnification against the requested
amount of Liabilities is required. The burden of rebutting such a presumption by
clear and convincing evidence shall be on the Corporation or such other party
asserting that such indemnification should not be allowed.


                                      -20-






          (c) The Authority shall make its determination within sixty days of
being selected and shall submit a written opinion of its conclusion
simultaneously to both the Corporation and the Director or Officer.

          (d) If the Authority determines that indemnification is required
hereunder, the Corporation shall pay the entire requested amount of Liabilities
(net of any Expenses previously advanced pursuant to Section 8.05), including
interest thereon at a reasonable rate, as determined by the Authority, within
ten days of receipt of the Authority's opinion; provided, that if it is
determined by the Authority that a Director or Officer is entitled to
indemnification as to some claims, issues or matters, but not as to other
claims, issues or matters, involved in the subject Proceeding, the Corporation
shall be required to pay (as set forth above) only the amount of such requested
Liabilities as the Authority shall deem appropriate in light of all of the
circumstances of such Proceeding.

          (e) The determination by the Authority that indemnification is
required hereunder shall be binding upon the Corporation regardless of any prior
determination that the Director or Officer engaged in a Breach of Duty.

          (f) All Expenses incurred in the determination process under this
Section 8.04 by either the Corporation or the Director or Officer, including,
without limitation, all Expenses of the selected Authority, shall be paid by the
Corporation.

          8.05. Mandatory Allowance of Expenses.

          (a) The Corporation shall pay or reimburse, within ten days after the
receipt of the Director's or Officer's written request therefor, the reasonable
Expenses of the Director or Officer as such Expenses are incurred; provided, the
following conditions are satisfied:

          (i) The Director or Officer furnishes to the Corporation an executed
     written certificate affirming his or her good faith belief that he or she
     has not engaged in misconduct which constitutes a Breach of Duty; and

          (ii) The Director or Officer furnishes to the Corporation an unsecured
     executed written agreement to repay any advances made under this Section
     8.05 if it is ultimately determined by an Authority that he or she is not
     entitled to be indemnified by the Corporation for such Expenses pursuant to
     Section 8.04.

          (b) If the Director or Officer must repay any previously advanced
Expenses pursuant to this Section 8.05, such


                                      -21-





Director or Officer shall not be required to pay interest on such amounts.

          8.06. Indemnification and Allowance of Expenses of Certain Others.

          (a) The Corporation shall indemnify a director or officer of an
Affiliate (who is not otherwise serving as a Director or Officer) against all
Liabilities, and shall advance the reasonable Expenses, incurred by such
director or officer in a Proceeding to the same extent hereunder as if such
director or officer incurred such Liabilities because he or she was a Director
or Officer, if such director or officer is a Party thereto because he or she is
or was a director or officer of the Affiliate.

          (b) The Board may, in its sole and absolute discretion as it deems
appropriate, pursuant to a majority vote thereof, indemnify against Liabilities
incurred by, and/or provide for the allowance of reasonable Expenses of, an
employee or authorized agent of the Corporation acting within the scope of his
or her duties as such and who is not otherwise a Director or Officer.

          8.07. Insurance. The Corporation may purchase and maintain insurance
on behalf of a Director or Officer or any individual who is or was an employee
or authorized agent of the Corporation against any Liability asserted against or
incurred by such individual in his or her capacity as such or arising from his
or her status as such, regardless of whether the Corporation is required or
permitted to indemnify against any such Liability under this Article VIII.

          8.08. Notice to the Corporation. A Director or Officer shall promptly
notify the Corporation in writing when he or she has actual knowledge of a
Proceeding which may result in a claim of indemnification against Liabilities or
allowance of Expenses hereunder, but the failure to do so shall not relieve the
Corporation of any liability to the Director or Officer hereunder unless the
Corporation shall have been irreparably prejudiced by such failure (as
determined by an Authority selected pursuant to Section 8.04(a)).

          8.09. Severability. If any provision of this Article VIII shall be
deemed invalid or inoperative, or if a court of competent jurisdiction
determines that any of the provisions of this Article VIII contravene public
policy, this Article VIII shall be construed so that the remaining provisions
shall not be affected, but shall remain in full force and effect, and any such
provisions which are invalid or inoperative or which contravene public policy
shall be deemed, without further action or deed by or on behalf of the
Corporation, to be modified, amended and/or


                                      -22-





limited, but only to the extent necessary to render the same
valid and enforceable.

          8.10. Nonexclusivity of Article VIII. The rights of a Director or
Officer (or any other person) granted under this Article VIII shall not be
deemed exclusive of any other rights to indemnification against Liabilities or
advancement of Expenses which the Director or Officer (or such other person) may
be entitled to under any written agreement, Board resolution, vote of
shareholders of the Corporation or otherwise, including, without limitation,
under the Statute. Nothing contained in this Article VIII shall be deemed to
limit the Corporation's obligations to indemnify against Liabilities or advance
Expenses to a Director or Officer under the Statute.

          8.11. Contractual Nature of Article VIII; Repeal or Limitation of
Rights. This Article VIII shall be deemed to be a contract between the
Corporation and each Director and Officer and any repeal or other limitation of
this Article VIII or any repeal or limitation of the Statute or any other
applicable law shall not limit any rights of indemnification against Liabilities
or allowance of Expenses then existing or arising out of events, acts or
omissions occurring prior to such repeal or limitation, including, without
limitation, the right to indemnification against Liabilities or allowance of
Expenses for Proceedings commenced after such repeal or limitation to enforce
this Article VIII with regard to acts, omissions or events arising prior to such
repeal or limitation.




                                      -23-





          Pursuant to an Action by Written Consent of the Board of Directors
(the "Board") of Rayovac Corporation (the "Company") dated as of September 12,
1996, the Board adopted the following resolutions which amended the Restated
Bylaws of the Company:

          RESOLVED, that pursuant to Section 7.02 of the ByLaws, Section 2.13 of
the By-Laws be, and it hereby is, amended and restated as follows: "Any action
required or permitted by the Articles of Incorporation or Bylaws or any
provision of law to be taken at a meeting of the shareholders, may be taken
without a meeting if a consent or consents in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
shareholders who have not consented in writing in accordance with Section
180.0704 of the Wisconsin Business Corporation Law"; and further

          RESOLVED, that pursuant to Section 7.02 of the ByLaws, Section 8.02 of
the By-Laws be, and it hereby is, amended and restated as follows: "To the
fullest extent permitted or required by the Statute, but not for any action,
suit, arbitration or other proceeding (or portion thereof) initiated by a
Director or Officer, the Corporation shall indemnify such Director or Officer
against all Liabilities incurred by or on behalf of such Director or Officer in
connection with a Proceeding in which the Director or Officer is a Party because
he or she is a Director or Officer."

                                      -24-




                                                                     EXHIBIT 4.1
================================================================================







                               RAYOVAC CORPORATION

                                     Issuer

                                ROV HOLDING, INC.

                                    Guarantor





                   10 1/4% SENIOR SUBORDINATED NOTES DUE 2006





                                -----------------

                                    INDENTURE

                          Dated as of October 22, 1996
                                -----------------





                                -----------------

                               Marine Midland Bank
                                -----------------

                                     Trustee






===============================================================================







                             CROSS-REFERENCE TABLE*
Trust Indenture
  Act Section                                                Indenture Section

310  (a)(1)................................................            7.10
     (a)(2)...............................................             7.10
     (a)(3) ..............................................             N.A.
     (a)(4)...............................................             N.A.
     (a)(5)...............................................             7.10
     (b) .................................................             7.10
     (c) .................................................             N.A.
311  (a) ..................................................            7.11
     (b) .................................................             7.11
     (c) .................................................             N.A.
312  (a)...................................................            2.05
     (b)..................................................            11.03
     (c) .................................................            11.03
313  (a) ..................................................            7.06
     (b)(1) ..............................................            10.03
     (b)(2) ..............................................             7.07
     (c) .................................................       7.06;11.02
     (d)..................................................             7.06
314  (a) ..................................................      4.03;11.02
     (b) .................................................            10.02
     (c)(1) ..............................................            11.04
     (c)(2) ..............................................            11.04
     (c)(3) ..............................................             N.A.
     (d)..................................................  10.03, 10.04, 10.05
     (e)  ................................................           11.05
     (f)..................................................             N.A.
315  (a)...................................................            7.01
     (b)..................................................       7.05,11.02
     (c)  ................................................             7.01
     (d)..................................................             7.01
     (e)..................................................             6.11
316  (a)(last sentence) ...................................            2.09
     (a)(1)(A)............................................             6.05
     (a)(1)(B) ...........................................             6.04
     (a)(2) ..............................................             N.A.
     (b) .................................................             6.07
     (c) .................................................             2.12
317  (a)(1) ...............................................            6.08
     (a)(2)...............................................             6.09
     (b) .................................................             2.04
318  (a)...................................................           11.01
     (b)..................................................             N.A.
     (c)..................................................            11.01
N.A. means not applicable.

*This Cross-Reference Table is not part of the Indenture.







                               TABLE OF CONTENTS

                                                                            Page

                                   ARTICLE 1
                         DEFINITIONS AND INCORPORATION
                                  BY REFERENCE
Section 1.01. Definitions.................................................  1
Section 1.02. Other Definitions........................................... 15
Section 1.03. Incorporation by Reference of Trust Indenture Act........... 16
Section 1.04. Rules of Construction....................................... 16
Section 1.05. Business Day Certificate.................................... 17

                                   ARTICLE 2
                                   THE NOTES
Section 2.01. Form and Dating............................................. 17
Section 2.02. Execution and Authentication................................ 17
Section 2.03. Registrar and Paying Agent.................................. 18
Section 2.04. Paying Agent to Hold Money in Trust......................... 18
Section 2.05. Holder Lists................................................ 19
Section 2.06. Transfer and Exchange....................................... 19
Section 2.07. Replacement Notes........................................... 24
Section 2.08. Outstanding Notes........................................... 25
Section 2.09. Treasury Notes.............................................. 25
Section 2.10. Temporary Notes............................................. 25
Section 2.11. Cancellation................................................ 25
Section 2.12. Defaulted Interest.......................................... 26

                                   ARTICLE 3
                           REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.......................................... 26
Section 3.02. Selection of Notes to Be Redeemed........................... 26
Section 3.03. Notice of Redemption........................................ 27
Section 3.04. Effect of Notice of Redemption.............................. 27
Section 3.05. Deposit of Redemption Price................................. 27
Section 3.06. Notes Redeemed in Part...................................... 28
Section 3.07. Optional Redemption......................................... 28
Section 3.08. Mandatory Redemption........................................ 29
Section 3.09. Offer to Purchase by Application of Excess Proceeds......... 29

                                   ARTICLE 4
                                   COVENANTS
Section 4.01. Payment of Notes............................................ 31
Section 4.02. Maintenance of Office or Agency............................. 31
Section 4.03. Reports..................................................... 31
Section 4.04. Compliance Certificate...................................... 32
Section 4.05. Taxes....................................................... 33
Section 4.06. Stay, Extension and Usury Laws.............................. 33
Section 4.07. Restricted Payments......................................... 33
Section 4.08. Dividend and Other Payment Restrictions Affecting
              Restricted Subsidiaries..................................... 35

                                       i




Section 4.09. Incurrence of Indebtedness and Issuance of Preferred
              Stock....................................................... 36
Section 4.10. Asset Sales................................................. 37
Section 4.11. Transactions with Affiliates................................ 39
Section 4.12. Liens....................................................... 39
Section 4.13. Corporate Existence......................................... 40
Section 4.14. Offer to Repurchase Upon Change of Control.................. 40
Section 4.15. No Senior Subordinated Debt................................. 41
Section 4.16. Limitations on Guarantees of Company Indebtedness
              by Restricted Subsidiaries.................................. 41
Section 4.17. Additional Guarantees....................................... 41

                                   ARTICLE 5
                                   SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets................... 42
Section 5.02. Successor Corporation Substituted.......................... 43

                                   ARTICLE 6
                             DEFAULTS AND REMEDIES
Section 6.01. Events of Default.......................................... 44
Section 6.02. Acceleration............................................... 45
Section 6.03. Other Remedies............................................. 46
Section 6.04. Waiver of Past Defaults.................................... 46
Section 6.05. Control by Majority........................................ 47
Section 6.06. Limitation on Suits........................................ 47
Section 6.07. Rights of Holders of Notes to Receive Payment.............. 47
Section 6.08. Collection Suit by Trustee................................. 48
Section 6.09. Trustee May File Proofs of Claim........................... 48
Section 6.10. Priorities................................................. 48
Section 6.11. Undertaking for Costs...................................... 49
Section 6.12. Restoration of Rights and Remedies......................... 49

                                   ARTICLE 7
                                    TRUSTEE
Section 7.01. Duties of Trustee.......................................... 49
Section 7.02. Rights of Trustee.......................................... 50
Section 7.03. Individual Rights of Trustee............................... 51
Section 7.04. Trustee's Disclaimer....................................... 51
Section 7.05. Notice of Defaults......................................... 52
Section 7.06. Reports by Trustee to Holders of the Notes................. 52
Section 7.07. Compensation and Indemnity................................. 52
Section 7.08. Replacement of Trustee..................................... 53
Section 7.09. Successor Trustee by Merger, etc........................... 54
Section 7.10. Eligibility; Disqualification.............................. 54
Section 7.11. Preferential Collection of Claims Against Company.......... 54

                                   ARTICLE 8
                    LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
              Defeasance................................................. 54
Section 8.02. Legal Defeasance and Discharge............................. 54

                                       ii







Section 8.03. Covenant Defeasance........................................ 55
Section 8.04. Conditions to Legal or Covenant Defeasance................. 55
Section 8.05. Deposited Money and Government Securities to be
              Held in Trust; Other Miscellaneous Provisions.............. 57
Section 8.06. Repayment to Company....................................... 57
Section 8.07. Reinstatement.............................................. 57

                                   ARTICLE 9
                        AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes........................ 58
Section 9.02. With Consent of Holders of Notes........................... 58
Section 9.03. Compliance with Trust Indenture Act........................ 60
Section 9.04. Revocation and Effect of Consents.......................... 60
Section 9.05. Notation on or Exchange of Notes........................... 60
Section 9.06. Trustee to Sign Amendments, etc............................ 60

                                   ARTICLE 10
                                   GUARANTEES
Section 10.01. Guarantee................................................. 61
Section 10.02. Subordination............................................. 62
Section 10.03. Dissolution, Liquidation or Reorganization................ 62
Section 10.04. Default on Senior Debt of the Guarantor................... 63
Section 10.05. Acceleration of Notes..................................... 64
Section 10.06. Subrogation............................................... 64
Section 10.07. Obligations Unconditional................................. 65
Section 10.08. Relative Rights........................................... 65
Section 10.09. Event of Default Preserved................................ 65
Section 10.10. Trustee Duties............................................ 65
Section 10.11. Notice by a Guarantor..................................... 66
Section 10.12. Subordination May Not Be Impaired by Guarantor............ 66
Section 10.13. Reliance Upon Order....................................... 66
Section 10.14. Rights of Trustee and Paying Agent........................ 66
Section 10.15. Authorization to Effect Subordination..................... 66
Section 10.16. Amendments................................................ 67
Section 10.17. Limitation of Guarantor's Liability....................... 67

                                   ARTICLE 11
                                 SUBORDINATION
Section 11.01. Agreement to Subordinate.................................. 67
Section 11.02. No Payment on Notes Under Certain Circumstances........... 68
Section 11.03. Dissolution, Liquidation or Reorganization................ 68
Section 11.04. Subrogation............................................... 70
Section 11.05. Obligations Unconditional................................. 70
Section 11.06. Relative Rights........................................... 70
Section 11.07. Event of Default Preserved................................ 70
Section 11.08. Trustee Duties............................................ 70
Section 11.09. Notice by Company......................................... 71
Section 11.10. Subordination May Not Be Impaired by Company.............. 71
Section 11.11. Reliance Upon Order....................................... 71
Section 11.12. Rights of Trustee and Paying Agent........................ 71
Section 11.13. Authorization to Effect Subordination..................... 71

                                      iii





ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.............................. 72
Section 12.02. Notices................................................... 72
Section 12.03. Communication by Holders of Notes with Other
Holders of Notes......................................................... 73
Section 12.04. Certificate and Opinion as to Conditions Precedent........ 73
Section 12.05. Statements Required in Certificate or Opinion............. 74
Section 12.06. Rules by Trustee and Agents............................... 74
Section 12.07. No Personal Liability of Directors, Officers,
               Employees and Stockholders................................ 74
Section 12.08. Governing Law............................................. 74
Section 12.09. No Adverse Interpretation of Other Agreements............. 74
Section 12.10. Successors................................................ 75
Section 12.11. Severability.............................................. 75
Section 12.12. Counterpart Originals..................................... 75
Section 12.13. Table of Contents, Headings, etc.......................... 75
Section 12.14. Further Instruments and Acts.............................. 75


                                    EXHIBITS

Exhibit A FORM OF NOTE
Exhibit A-1 FORM OF NOTATION ON NOTE RELATING TO GUARANTEE
Exhibit B CERTIFICATE OF TRANSFEROR

iv



          INDENTURE dated as of October 22, 1996 among Rayovac Corporation, a
Wisconsin corporation (the "Company"), ROV Holding, Inc., a Delaware corporation
(a "Guarantor") and Marine Midland Bank, as trustee (the "Trustee").

          The Company, ROV Holding, Inc. and the Trustee agree as follows for
the benefit of each other and for the equal and ratable benefit of the Holders
of the 10 1/4% Senior Subordinated Notes due 2006 (the "Notes"):


                                    ARTICLE 1
                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

SECTION 1.01. DEFINITIONS.

          "Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness encumbering any asset acquired by such specified Person.

          "Additional Guarantee" means any guarantee of the Company's
obligations under this Indenture and the Notes issued after the date of this
Indenture as described in Sections 4.16 and 4.17 hereof.

          "Additional Guarantor" means any Subsidiary of the Company that
guarantees the Company's obligations under this Indenture and the Notes issued
after the date of this Indenture as described in Sections 4.16 and 4.17 hereof.

          "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.

          "Agent" means any Registrar, Paying Agent or co-registrar.

          "Bank Agent" means Bank of America National Trust and Savings
Association, in its capacity as administrative agent for the lenders party to
the Credit Agreement, or any successor or successors thereto in such capacity.

          "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

          "Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.








          "Board Resolution" means a duly adopted resolution of the Board of
Directors in full force and effect at the time of determination and certified as
such by the Secretary or an Assistant Secretary of the Company.

          "Business Day" means any day other than a Legal Holiday.

          "Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.

          "Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person
(including, without limitation, membership interests in a limited liability
company).

          "Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or guaranteed by a
government that is a member of the Organization for Economic Cooperation and
Development ("OECD Country") or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America or such OECD
Country, as applicable, is pledged in support thereof) having maturities of not
more than three years from the date of acquisition of such security, (ii)
marketable direct obligations issued by any State of the United States of
America or any local government or other political subdivision thereof rated (at
the time of acquisition of such security) at least AA by Standard & Poor's
Ratings Service, a division of the McGraw-Hill Companies, Inc. ("S&P") or the
equivalent thereof by Moody's Investors Service, Inc. ("Moody's") having
maturities of not more than one year from the date of acquisition of such
security, (iii) U.S. dollar denominated time deposits, certificates of deposit
and bankers' acceptances of (a) any domestic commercial bank of recognized
standing having capital and surplus in excess of $250.0 million or (b) any bank
whose short-term commercial paper rating (at the time of acquisition of such
security) by S&P is at least A-1 or the equivalent thereof, in each case with
maturities of not more than six months from the date of acquisition of such
security, (iv) commercial paper and variable rate notes issued by, or guaranteed
by, any industrial or financial company with a short-term commercial paper
rating (at the time of acquisition of such security) of at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's,
or guaranteed by any industrial company with a long-term unsecured debt rating
(at the time of acquisition of such security) of at least AA or the equivalent
thereof by Moody's and in each case maturing within one year after the date of
acquisition of such security and (v) repurchase agreements with any lender under
the Credit Agreement or any primary dealer maturing within one year from the
date of acquisition that are fully collateralized by investment instruments that
would otherwise be Cash Equivalents; provided that the terms of such repurchase
agreements comply with the guidelines set forth in the Federal Financial
Institutions Examination Council Supervisory Policy-Repurchase Agreements of
Depository Institutions With Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985.

          "Change of Control" means the occurrence of any of the following: (i)
(a) any transaction (including a merger or consolidation) the result of which is
that any "person" or "group" (each within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Principals, becomes the


                                        2







"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than 50% of the total voting power of all Capital Stock
of the Company or a successor entity normally entitled to vote in the election
of directors, managers or trustees, as applicable, calculated on a fully diluted
basis, and (b) as a result of the consummation of such transaction, any "person"
or "group" (each as defined above) becomes the "beneficial owner" (as defined
above), directly or indirectly, of more of the voting stock of the Company than
is at the time "beneficially owned" (as defined above) by the Principals, or
(ii) the first day on which a majority of the members of the Board of Directors
are not Continuing Directors, or (iii) the sale, lease, transfer, conveyance or
other disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any "person" (as such term is
used in Section 13(d)(3) of the Exchange Act) other than the Principals or their
Related Parties. For purposes of this definition, any transfer of an Equity
Interest of an entity that was formed for the purpose of acquiring voting stock
of the Company shall be deemed to be a transfer of such percentage of such
voting stock as corresponds to the percentage of the equity of such entity that
has been so transferred.

          "Code" means the Internal Revenue Code of 1986, as amended.

          "Commission" means the Securities and Exchange Commission.

          "Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), (ii) provision for taxes
based on income or profits of such Person and its Restricted Subsidiaries for
such period, to the extent that such provision for taxes was included in
computing such Consolidated Net Income, (iii) consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and other charges incurred in respect of letters of
credit or bankers' acceptance financings and net payments (if any) pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period and
deferred finance charges) and other non-cash charges of such Person and its
Restricted Subsidiaries for such period (excluding non-cash charges to the
extent that such non-cash charges represent an accrual of or reserve for cash
charges to be incurred in any future period), to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income, including without limitation non-cash charges
recorded in the period ended September 30, 1996 for the write-offs or
write-downs of assets related to (a) the rationalization of manufacturing
operations located in the United Kingdom, and (b) adjustments of Renewal Power
Station inventory valuation, and (v) the following non-recurring expenses
related to the recapitalization of the Company consummated on September 13, 1996
(the "Recapitalization"): (a) up to $2.3 million of debt prepayment penalties
incurred in connection with the prepayment of the Company's Indebtedness
outstanding prior to the Recapitalization; (b) up to $2.2 million of advisory
fees paid to the financial advisor to the Company's shareholders who sold shares
in the Recapitalization; (c) legal and consulting fees incurred in connection
with the Recapitalization of up to $4.2 million; and (d) up to $7.1 million of
compensation expense paid to present and former officers of the Company with
respect to obligations to such present and former


                                        3






officers arising as a result of the Recapitalization, in each case to the extent
that such expenses were paid in cash during the period ended September 30, 1996
(or, in the case of up to $2.0 million of expenses incurred pursuant to clause
(d) above, during the period ended September 30, 1998), and deducted in
computing Consolidated Net Income for such period. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.

          "Consolidated Net Income" means, with respect to any period, the
aggregate of the Net Income of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Restricted Subsidiary
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
Company or any of its Wholly Owned Restricted Subsidiaries, (ii) the Net Income
of any Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary
shall only be included to the extent of the amount of dividends or distribution
paid to the Company or any of its Wholly Owned Restricted Subsidiaries;
provided, however, that notwithstanding the foregoing, if at least 80% of the
Equity Interests having ordinary voting power (without regard to the occurrence
of any contingency) for the election of directors or other governing body of a
Restricted Subsidiary is owned by the Company directly or indirectly through one
or more of its Wholly Owned Restricted Subsidiaries, all of the Net Income of
such Restricted Subsidiary shall be included, (iii) the Net Income of any
Restricted Subsidiary acquired directly or indirectly by the Company in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, (v) the Net Income of any Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that Net Income is not at the date
of determination permitted without any prior governmental approval (that has not
been obtained), directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders and
(vi) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or
not distributed to the Company or one of its Subsidiaries.

          "Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (a) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of this Indenture
in the book value of any asset owned by such Person or a consolidated Restricted
Subsidiary of such Person, and (b) all investments as of such date in
unconsolidated Restricted Subsidiaries and in Persons that are not Restricted
Subsidiaries (except, in each case, Permitted Investments), and (c) all
unamortized debt


                                        4








discount and expense and unamortized deferred charges as of such date, all of
the foregoing determined in accordance with GAAP.

          "Consulting Agreements" means (i) the Consulting Agreement dated
September 12, 1996 between the Company and Thomas H. Pyle and (ii) the
Confidentiality, Non-Competition, No Solicitation and No Hire Agreement between
the Company and Thomas H. Pyle, each as in effect on the date of this Indenture
and as amended from time to time in a manner no less favorable, taken as a
whole, to the Company.

          "Continuing Directors" means, as of any date of determination, any
member of the Board of Directors who (i) was a member of such Board of Directors
on the date of this Indenture or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.

          "Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.

          "Credit Agreement" means that certain Credit Agreement, dated as of
September 12, 1996, by and among the Company, the lenders party thereto, DLJ
Capital Funding, Inc., as documentation and joint syndication agent, and the
Bank Agent, as amended, supplemented or otherwise modified from time to time.
References to the Credit Agreement shall also include any credit agreement or
agreements entered into by the Company to replace, extend, renew, increase,
refund or refinance all or a portion of the Indebtedness under the Credit
Agreement; provided that the aggregate principal amount of Indebtedness
outstanding or available thereunder will not be increased except to the extent
permitted by Section 4.09 hereof.

          "Default" means any event or condition that is or with the passage of
time or the giving of notice or both would, unless cured or waived, be an Event
of Default.

          "Definitive Notes" means Notes that are in the form of the Notes
attached hereto as Exhibit A, that do not include the information called for by
footnotes 1 and 2 thereof.

          "Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.

          "Designated Senior Debt" means (i) so long as Senior Bank Debt is
outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior Debt
permitted under this Indenture the principal amount of which is $25.0 million or
more and which has been designated by the Company as "Designated Senior Debt".

          "Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable, mandatorily or at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date on which the Notes are
scheduled to mature.


                                        5









          "Employment Agreement" means the Employment Agreement dated September
12, 1996 between the Company and David A. Jones, as in effect on the date of
this Indenture and as amended from time to time in a manner no less favorable,
taken as a whole, to the Company.

          "Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended.

          "Exchange Offer" means the offer that may be made by the Company
pursuant to the Registration Rights Agreement to exchange Notes for New Notes.

          "Existing Indebtedness" means (i) Indebtedness of the Company and its
Subsidiaries (other than under the Credit Agreement) in existence on the date of
this Indenture, until such amounts are repaid, and (ii) Indebtedness incurred
after the date of this Indenture pursuant to the following agreements in
aggregate principal amount outstanding not to exceed $7.0 million (or the
equivalent thereof in any foreign currency), as each such agreement is in effect
as of the date of this Indenture and as the same may be amended on terms, taken
as a whole, that are no less favorable to the Company: (a) the Credit Agreement
between Rayovac Europe B.V. and ABN Amro Bank N.V.; (b) the Credit Agreement
between Rayovac (UK), Ltd. and NatWest Bank plc (England); and (c) the Credit
Agreement between Rayovac (UK), Ltd. and NationsBank, N.A.

          "Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.

          "Fixed Charges" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person for such period,
whether paid or accrued, to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of original issue discount,
non-cash interest payments and the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred in
respect of letters of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations, but excluding amortization of deferred
financing fees) and (ii) the consolidated interest expense of such Person and
its Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one of
its Subsidiaries (whether or not such Guarantee is called upon or Lien is
enforced) and (iv) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a person that is a Subsidiary) on any series of
preferred stock of such Person, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.



                                        6








          "Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Subsidiaries following the Calculation Date.

          "Foreign Subsidiary" means a Restricted Subsidiary not organized or
existing under the laws of the United States, any state or territory thereof, or
the District of Columbia.

          "GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.

          "Global Note" means a Note that contains the paragraph referred to in
footnote 1 and the additional schedule referred to in footnote 2 to the form of
the Note attached hereto as Exhibit A.

          "Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.

          "Guarantee" of a Person means any agreement by which such Person
assumes, guarantees, endorses, contingently agrees to purchase or provide funds
for the payment of, or otherwise becomes liable upon, the obligation of any
other Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person or otherwise assures any creditor of
such other Person against loss, including, without limitation, any comfort
letter, operating agreement or take-or-pay contract and shall include, without
limitation, the contingent liability of such Person in connection with any
application for a letter of credit or letter of guarantee.



                                        7








          "Guarantor" means, collectively, ROV Holding, Inc., a Delaware
corporation, and each Subsidiary of the Company that has executed a Guarantee in
accordance with Sections 4.16 and 4.17 hereof, and their successors and assigns.

          "Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.

          "Holder" means a Person in whose name a Note is registered.

          "Indebtedness" means, with respect to any Person, without duplication:
(i) all indebtedness of such Person for borrowed money; (ii) all obligations
issued, undertaken or assumed by such Person as the deferred purchase price of
property or services (other than trade payables entered into and accrued
expenses arising in the ordinary course of business on ordinary terms); (iii)
all non-contingent reimbursement or payment obligations with respect to surety
instruments; (iv) all obligations of such Person evidenced by notes, bonds,
debentures or similar instruments; (v) all indebtedness of such Person created
or arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property); (vi) all Capital Lease Obligations of such Person; (vii) all
indebtedness referred to in clauses (i) through (vi) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; (viii) all
Hedging Obligations of such Person; and (ix) all Guarantees of such Person in
respect of indebtedness or obligations of others of the kinds referred to in
clauses (i) through (viii) above.

          "Indenture" means this Indenture, as amended or supplemented from time
to time.

          "Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees), advances or capital contributions
(excluding commission, travel and similar advances and loans and other
arrangements, in each case made to officers and employees in the ordinary course
of business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Restricted Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary not sold
or disposed of.

          "Joint Venture" means a corporation, partnership, limited liability
company, joint venture or other similar legal arrangement (whether created by
contract or conducted through a separate legal entity) which is not a Subsidiary
of the Company or any of its Restricted Subsidiaries and which is now or


                                        8








hereafter formed by the Company or any of its Restricted Subsidiaries with
another Person in order to conduct a common venture or enterprise with such
Person.

          "Legal Holiday" means a Saturday, a Sunday or a day on which
commercial banks in the City of New York, Chicago or San Francisco or at a place
of payment are authorized or required by law, regulation or executive order to
remain closed. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.

          "Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever, including, without limitation, any
conditional sale or other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the foregoing (other
than any option, call or similar right relating to treasury shares of the
Company to the extent that such option, call or similar right is granted (i)
under any employee stock option plan, employee stock ownership plan or similar
plan or arrangement of the Company or its Subsidiaries or (ii) in connection
with the issuance of Indebtedness permitted under Section 4.09 hereof).

          "Liquidated Damages" means the additional amounts (if any) payable by
the Company in the event of a Registration Default under, and as defined in, the
Registration Rights Agreement.

          "Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).

          "Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale,
which amount is equal to the excess, if any, of (i) the cash received by the
Company or such Restricted Subsidiary (including any cash payments received by
way of deferred payment pursuant to, or monetization of, a note or installment
receivable or otherwise, but only as and when received) in connection with such
disposition over (ii) the sum of (a) the amount of any Indebtedness which is
secured by such asset and which is required to be repaid in connection with the
disposition thereof, plus (b) the reasonable out-of-pocket expenses incurred by
the Company or such Restricted Subsidiary, as the case may be, in connection
with such disposition or in connection with the transfer of such amount from
such Restricted Subsidiary to the Company, plus (c) provisions for taxes,
including income taxes, reasonably estimated to be attributable to the
disposition of such asset or attributable to required prepayments or repayments
of Indebtedness with the proceeds thereof plus (d) if the Company does not first
receive a transfer of such amount from the relevant Restricted Subsidiary with
respect to the disposition of an asset by such Restricted Subsidiary and such
Restricted Subsidiary intends to make such transfer as soon as practicable, the
out-of-pocket expenses and taxes that the Company reasonably estimates will be
incurred by the Company or such Restricted


                                        9








Subsidiary in connection with such transfer at the time such transfer is
expected to be received by the Company (including, without limitation,
withholding taxes on the remittance of such amount).

          "Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.

          "Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

          "Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, any Assistant Secretary or any Vice-President of such
Person.

          "Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.

          "Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company (or
any Guarantor, if applicable), any Subsidiary of the Company or the Trustee.

          "Permitted Investments" means (i) any Investments in the Company or in
a Wholly Owned Restricted Subsidiary of the Company which, with respect to any
such Wholly Owned Restricted Subsidiary, has a fair market value which does not
exceed $1.0 million in the aggregate, or any Investments in a Wholly Owned
Restricted Subsidiary that (A) is a Guarantor, or (B) is not a Guarantor, but is
a Foreign Subsidiary and the aggregate fair market value of all Investments made
after the date of this Indenture in Foreign Subsidiaries does not exceed $3.0
million (or the equivalent thereof in one or more foreign currencies), (ii) any
Investments in Cash Equivalents; (iii) Investments by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (a) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company that is a Guarantor or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company that is a Guarantor; (iv) Investments in accounts and
notes receivable acquired in the ordinary course of business; (v) notes from
employees, officers, directors, and their transferees and Affiliates issued to
the Company representing payment of the exercise price of options to purchase
common stock of the Company; and (vi) other Investments made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with Section 4.10 hereof; (vii) Investments by the Company and
its Subsidiaries in Joint Ventures in the form of contributions of capital,
loans, advances or Guarantees; provided that, immediately before and after
giving effect to such Investment, (a) no Event


                                       10








of Default shall have occurred and be continuing, and (b) the aggregate fair
market value of all Investments pursuant to this clause (vii) shall not exceed
$2.0 million in the aggregate; (viii) Hedging Obligations permitted by the terms
of the Credit Agreement and this Indenture to be outstanding; and (ix) other
Investments in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value) not to exceed $5.0 million at any time outstanding. For
purposes of this definition, the aggregate fair market value of any Investment
shall be measured on the date such Investment is made without giving effect to
subsequent changes in value and shall be valued at the cash amount thereof, if
in cash, the fair market value thereof as determined by the Board of Directors,
if in property, and at the maximum amount thereof, if in Guarantees.

          "Permitted Liens" means

          (i) any Lien existing on property of the Company or any Subsidiary on
the date of this Indenture securing Indebtedness outstanding on such date;

          (ii) any Lien securing obligations under the Senior Bank Debt and any
Guarantee thereof, which obligations or Guarantee are permitted by the terms
hereof to be incurred and outstanding;

          (iii) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or which are being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP are being maintained;

          (iv) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or which are being contested in good faith and by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;

          (v) Liens (other than any Lien imposed by ERISA) consisting of pledges
or deposits required in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other social security
legislation;

          (vi) Liens on property of the Company or any Subsidiary securing (a)
the non-delinquent performance of bids, trade contracts (other than for borrowed
money), leases and statutory obligations, (b) surety bonds (excluding appeal
bonds and bonds posted in connection with court proceedings or judgments) and
(c) other non-delinquent obligations of a like nature, including pledges or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security
legislation, in each case, incurred in the ordinary course of business;

          (vii) Liens consisting of judgment or judicial attachment Liens and
Liens securing contingent obligations on appeal bonds and other bonds posted in
connection with court proceedings or judgments; provided that the enforcement of
such Liens is effectively stayed and all such Liens in the aggregate at any time
outstanding for the Company and its Subsidiaries do not exceed $3.0 million;

          (viii) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in


                                       11








any case materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the businesses of the Company and its
Subsidiaries, taken as a whole;

          (ix) purchase money security interests on any property acquired by the
Company or any Subsidiary in the ordinary course of business, securing
Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such property, provided that (a) any such Lien attaches to
such property concurrently with or within 90 days after the acquisition thereof,
(b) such Lien attaches solely to the property so acquired in such transaction,
(c) the principal amount of the Indebtedness secured thereby does not exceed
100% of the cost of such property and (d) the principal amount of the
Indebtedness secured by all such purchase money security interests shall not at
any time exceed $5.0 million;

          (x) Liens securing obligations in respect of Capital Lease Obligations
on assets subject to such leases, provided that such Capital Lease Obligations
are otherwise permitted hereunder;

          (xi) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (a) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated by
the Federal Reserve Board, and (b) such deposit account is not intended by the
Company or any Subsidiary to provide collateral to the depository institution;

          (xii) Liens in favor of the Company or any Wholly Owned Restricted
Subsidiary that is a Guarantor;

          (xiii) Liens on property of a Person existing at the time such Person
becomes a Restricted Subsidiary or such Person is merged into or consolidated
with the Company or any Restricted Subsidiary of the Company; provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company;

          (xiv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company; provided that such
Liens were in existence prior to the contemplation of such acquisition;

          (xv) extensions, renewals and replacements of Liens referred to in
clauses (i) through (xiv) above; provided that any such extension, renewal or
replacement Lien is limited to the property or assets covered by the Lien
extended, renewed or replaced and does not secure any Indebtedness in addition
to that secured immediately prior to such extension, renewal or replacement;

          (xvi) Liens securing Indebtedness permitted by clause (xiv) of the
second paragraph of Section 4.09 hereof; and

          (xvii) Liens securing other Indebtedness of the Company and its
Subsidiaries not expressly permitted by clauses (i) through (xvi) above;
provided that the aggregate amount of the Indebtedness secured by Liens
permitted pursuant to this clause (xvii) does not exceed $3.0 million in the
aggregate.



                                       12








          "Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.

          "Principals" means Thomas H. Lee Equity Fund III, L.P. and its
co-investors, Thomas H. Lee Foreign Fund III L.P. and Thomas H. Lee Company, and
any Affiliates of Thomas H. Lee Company.

          "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 17, 1996, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.

          "Related Party" with respect to any Principal means (i) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (ii) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (i).

          "Representative" means, for purposes of Articles 6, 10 and 11, the
Bank Agent or other agent or representative for any Senior Debt or Designated
Senior Debt or, with respect to any Guarantor, for any Senior Debt of such
Guarantor.

          "Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his or her knowledge of and familiarity with the particular subject.

          "Restricted Investment" means any Investment other than a Permitted
Investment.

          "Restricted Subsidiary" means with respect to any Person, any
Subsidiary of the referent Person that is not an Unrestricted Subsidiary.

          "Securities Act" means the Securities Act of 1933, as amended.

          "Senior Bank Debt" means all Obligations outstanding under or in
connection with the Credit Agreement as such agreement may be restated, further
amended, supplemented or otherwise modified or replaced from time to time
hereafter, together with any refunding or replacement of such Indebtedness, up
to an aggregate maximum principal amount outstanding or available at any time of
$170.0 million plus the aggregate principal amount of Indebtedness issued under
the Credit Agreement pursuant to clause (vi) of the second paragraph of Section
4.09 hereof, less all outstanding Obligations with respect to Existing
Indebtedness, less the aggregate principal amount of Indebtedness issued
pursuant to clause (xiv) (b) of the second paragraph of Section 4.09 hereof,
less, without duplication, the aggregate amount of all mandatory repayments of
principal (which may not be reborrowed) of and/or mandatory permanent reductions
of availability of Indebtedness under such Senior Bank Debt and any optional
prepayments on any term loans under the Credit Agreement that have been made
since the date of this Indenture (including, without limitation, the aggregate
amount of all such mandatory payments and reductions made pursuant to Section
4.10 hereof).


                                       13









          "Senior Debt" means (i) the Senior Bank Debt and (ii) any other
Indebtedness permitted to be incurred by the Company or any Guarantor, as the
case may be, under the terms of this Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a parity
with or subordinated in right of payment to the Notes; provided that the amount
of any Guarantee of Senior Bank Debt that constitutes Senior Debt with respect
to any Guarantor shall be determined without regard to any reduction in the
amount of any Guarantee of such Senior Bank Debt necessary to cause such
Guarantee not to be a fraudulent conveyance. Notwithstanding anything to the
contrary in the foregoing, Senior Debt shall not include (a) any liability for
federal, state, local or other taxes owed or owing by the Company, (b) any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (c)
any trade payables or (d) any Indebtedness that is incurred in violation of this
Indenture.

          "Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

          "Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof.

          "Subsidiary Guarantee" means, individually and collectively, the
guarantees given by ROV Holding, Inc. and any Additional Guarantor pursuant to
the terms of this Indenture.

          "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, provided that in the event the Trust Indenture Act of 1939 is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939, as so amended.

           "Transfer Restricted Securities" means securities that bear or are
required to bear the legend set forth in Section 2.06 hereof.

           "Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.

          "Unrestricted Subsidiary" means (i) Minera Vidaluz, S.A. de C.V., (ii)
Zoe Phos International, N.V., (iii) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt, (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary of the
Company than those that might be obtained at the time from Persons who are not
Affiliates of the Company, (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interest or (y) to maintain or
preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results, and (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries. Any


                                       14








such designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by Section
4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under Section 4.09 hereof, the Company
shall be in default of such Section). The Board of Directors of the Company may
at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.09 hereof, and
(ii) no Default or Event of Default would be in existence following such
designation.

          "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.

          "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
of the Company all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned by
the Company or by one or more Wholly Owned Restricted Subsidiaries of the
Company.

SECTION 1.02.   OTHER DEFINITIONS.
                                                             Defined in
                  Term                                         Section

           "Affiliate Transaction"......................        4.11
           "Asset Sale".................................        4.10
           "Asset Sale Offer"...........................        3.09
           "Benefitted Party"...........................       10.01
           "Change of Control Offer"....................        4.14
           "Change of Control Payment"..................        4.14
           "Change of Control Payment Date".............        4.14
           "Covenant Defeasance"........................        8.03
           "Custodian"..................................        6.01
           "Event of Default"...........................        6.01
           "Excess Proceeds"............................        4.10
           "Guarantor Significant Senior Debt"..........       10.04
           "incur"......................................        4.09
           "Legal Defeasance" ..........................        8.02
           "Offer Amount"...............................        3.09
           "Offer Period"...............................        3.09
           "Other Indebtedness".........................        4.16
           "Paying Agent"...............................        2.03


                                       15








           "Payment Blockage Notice".....................       10.04
           "Payment Default".............................        6.01
           "Purchase Date"...............................        3.09
           "Refinancing Indebtedness"....................        4.09
           "Registrar"...................................        2.03
           "Restricted Payments".........................        4.07
           "Significant Senior Debt".....................       11.02
           "Subordinated Obligations"....................       11.01


SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.

          Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.

          The following TIA terms used in this Indenture have the following
meanings:

          "indenture securities" means the Notes and the Subsidiary Guarantees;

          "indenture security Holder" means a Holder of a Note;

          "indenture to be qualified" means this Indenture;

          "indenture trustee" or "institutional trustee" means the Trustee;

          "obligor" on the Notes means the Company and any successor obligor
upon the Notes or any Guarantor.

          All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.

SECTION 1.04. RULES OF CONSTRUCTION.

          Unless the context otherwise requires:

          (1) a term has the meaning assigned to it;

          (2) an accounting term not otherwise defined has the meaning assigned
     to it in accordance with GAAP;

          (3) "or" is not exclusive;

          (4) words in the singular include the plural, and in the plural
     include the singular;

          (5) provisions apply to successive events and transactions; and



                                       16






          (6) references to sections of or rules under the Securities Act shall
     be deemed to include substitute, replacement of successor sections or rules
     adopted by the Commission from time to time.

SECTION 1.05. BUSINESS DAY CERTIFICATE.

          On the date of execution and delivery of this Indenture (with respect
to the remainder of calendar year 1996) and thereafter, within 15 days prior to
the end of each calendar year while this Indenture remains in effect (with
respect to the succeeding calendar years), the Company shall deliver to the
Trustee an Officers' Certificate specifying the days on which banking
institutions in the City of Chicago and the City of San Francisco are authorized
or obligated by law to close.


                                    ARTICLE 2
                                    THE NOTES

SECTION 2.01.   FORM AND DATING.

          The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Subsidiary Guarantees shall
be substantially in the form of Exhibit A-1, the terms of which are incorporated
in and made part of this Indenture. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Note shall be
dated the date of its authentication. The Notes shall be in denominations of
$1,000 and integral multiples thereof.

          The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company, ROV Holding
and the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby.

          Notes issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the text referred to in footnotes 1 and 2
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 2 thereto). Each Global Note shall represent such of the
outstanding Notes as shall be specified therein and each shall provide that it
shall represent the aggregate amount of outstanding Notes from time to time
endorsed thereon and that the aggregate amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required
by Section 2.06 hereof.

SECTION 2.02. EXECUTION AND AUTHENTICATION.

          Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and may
be in facsimile form.

          If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.



                                       17








          A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.

          The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Notes for original issue up to the aggregate principal
amount stated in paragraph 4 of the Notes. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.

          The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.

SECTION 2.03. REGISTRAR AND PAYING AGENT.

          The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.

          The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.

          The Company initially appoints the Trustee to act as the Registrar and
Paying Agent with respect to the Global Notes.

SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.

          The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company or any Guarantor in making
any such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any time
may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company or a
Guarantor, the Trustee shall serve as Paying Agent for the Notes.



                                       18








SECTION 2.05. HOLDER LISTS.

          The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company and/or the Guarantor shall furnish to the Trustee
at least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
Holders of Notes and the Company and the Guarantor shall otherwise comply with
TIA ss. 312(a).

SECTION 2.06. TRANSFER AND EXCHANGE.

          (a) Transfer and Exchange of Definitive Notes. When Definitive Notes
are presented by a Holder to the Registrar with a request:

          (x)  to register the transfer of the Definitive Notes; or

          (y)  to exchange such Definitive Notes for an equal principal amount
               of Definitive Notes of other authorized denominations,

the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange:

               (i)  shall be duly endorsed or accompanied by a written
                    instruction of transfer in form satisfactory to the
                    Registrar duly executed by such Holder or by his or her
                    attorney, duly authorized in writing; and

               (ii) in the case of a Definitive Note that is a Transfer
                    Restricted Security, such request shall be accompanied by
                    the following additional information and documents, as
                    applicable:

                    (A)  if such Transfer Restricted Security is being delivered
                         to the Registrar by a Holder for registration in the
                         name of such Holder, without transfer, a certification
                         to that effect from such Holder (in substantially the
                         form of Exhibit B hereto); or

                    (B)  if such Transfer Restricted Security is being
                         transferred to a "qualified institutional buyer" (as
                         defined in Rule 144A under the Securities Act) in
                         accordance with Rule 144A under the Securities Act or
                         pursuant to an exemption from registration in
                         accordance with Rule 144 or Rule 904 under the
                         Securities Act or pursuant to an effective registration
                         statement under the Securities Act, a certification to
                         that effect from such Holder (in substantially the form
                         of Exhibit B hereto); or

                    (C)  if such Transfer Restricted Security is being
                         transferred in reliance on another exemption from the
                         registration requirements of the Securities Act,


                                       19








                         a certification to that effect from such Holder (in
                         substantially the form of Exhibit B hereto) and an 
                         Opinion of Counsel from such Holder or the transferee 
                         reasonably acceptable to the Company and to the 
                         Registrar to the effect that such transfer is in 
                         compliance with the Securities Act.

          (b) Transfer of a Definitive Note for a Beneficial Interest in a
Global Note. A Definitive Note may not be exchanged for a beneficial interest in
a Global Note except upon satisfaction of the requirements set forth below. Upon
receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with:

          (i)  if such Definitive Note is a Transfer Restricted Security, a
               certification from the Holder thereof (in substantially the form
               of Exhibit B hereto) to the effect that such Definitive Note is
               being transferred by such Holder to a "qualified institutional
               buyer" (as defined in Rule 144A under the Securities Act) in
               accordance with Rule 144A under the Securities Act; and

          (ii) whether or not such Definitive Note is a Transfer Restricted
               Security, written instructions from the Holder thereof directing
               the Trustee to make, an endorsement on the Global Note to reflect
               an increase in the aggregate principal amount of the Notes
               represented by the Global Note,

in which case the Trustee shall cancel such Definitive Note in accordance with
Section 2.11 hereof and cause the aggregate principal amount of Notes
represented by the Global Note to be increased accordingly. If no Global Notes
are then outstanding, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the Trustee shall
authenticate a new Global Note in the appropriate principal amount.

           (c) Transfer and Exchange of Beneficial Interests in a Global Note.
The registration of transfer and exchange of beneficial interests in a Global
Note shall be effected through the Depositary, in accordance with this Indenture
and the procedures of the Depositary therefor, which shall include restrictions
on transfer comparable to those set forth herein to the extent required by the
Securities Act. The Trustee shall have no responsibility or liability for any
acts or omissions of the Depositary taken pursuant to this Section 2.06(c).

          (d) Transfer of a Global Note for a Definitive Note.

          (i)  The Holder of a Global Note may upon request exchange any such
               Global Note or portion thereof for a Definitive Note. Upon
               receipt by the Trustee of written instructions or such other form
               of instructions as is customary for the Depositary, from the
               Depositary or its nominee on behalf of any Person having a
               beneficial interest in a Global Note, and, in the case of a
               Transfer Restricted Security, the following additional
               information and documents (all of which may be submitted by
               facsimile):

               (A)  if such beneficial interest is being transferred to the
                    Person designated by the Depositary as being the beneficial
                    owner, a certification to that effect from such Person (in
                    substantially the form of Exhibit B hereto); or


                                       20









               (B)  if such beneficial interest is being transferred to a
                    "qualified institutional buyer" (as defined in Rule 144A
                    under the Securities Act) in accordance with Rule 144A under
                    the Securities Act or pursuant to an exemption from
                    registration in accordance with Rule 144 or Rule 904 under
                    the Securities Act or pursuant to an effective registration
                    statement under the Securities Act, a certification to that
                    effect from the transferor (in substantially the form of
                    Exhibit B hereto); or

               (C)  if such beneficial interest is being transferred in reliance
                    on another exemption from the registration requirements of
                    the Securities Act, a certification to that effect from the
                    transferor (in substantially the form of Exhibit B hereto)
                    and an Opinion of Counsel from the transferee or transferor
                    reasonably acceptable to the Company and to the Trustee to
                    the effect that such transfer is in compliance with the
                    Securities Act,

               in which case the Trustee shall cause the aggregate principal
               amount of Global Notes to be reduced accordingly and, following
               such reduction, the Company shall execute and the Trustee shall
               authenticate and deliver to the transferee a Definitive Note in
               the appropriate principal amount.

          (ii) Definitive Notes issued in exchange for a beneficial interest in
               a Global Note pursuant to this Section 2.06(d) shall be
               registered in such names and in such authorized denominations as
               the Depositary, pursuant to instructions from its direct or
               indirect participants or otherwise, shall instruct the Trustee.
               The Trustee shall deliver such Definitive Notes to the Persons in
               whose names such Notes are so registered.

          (e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.

          (f) Authentication of Definitive Notes in Absence of Depositary. If at
any time:

          (i)  the Depositary for the Notes notifies the Company that the
               Depositary is unwilling or unable to continue as Depositary for
               the Global Notes and a successor Depositary for the Global Notes
               is not appointed by the Company within 90 days after delivery of
               such notice; or

          (ii) the Company, at its sole discretion, notifies the Trustee in
               writing that it elects to cause the issuance of Definitive Notes
               under this Indenture,

then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.

          (g) Legend.


                                       21









          (i)  Except as permitted by the following paragraphs (ii) and (iii),
               each Note certificate evidencing Global Notes and Definitive
               Notes (and all Notes issued in exchange therefor or substitution
               thereof) shall bear legends in substantially the following form:

               "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
               ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5
               OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
               "SECURITIES ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE
               OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
               REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER
               OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
               MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE
               SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES
               FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD,
               PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO
               THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
               (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
               TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
               TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
               SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
               IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
               SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
               THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
               UPON AN OPINION OF COUNSEL), (2) TO THE COMPANY OR (3) PURSUANT
               TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
               ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF
               THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
               THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
               NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE
               RESTRICTIONS SET FORTH IN (1) ABOVE."

          (ii) Upon any sale or transfer of a Transfer Restricted Security
               (including any Transfer Restricted Security represented by a
               Global Note) pursuant to Rule 144 under the Securities Act or
               pursuant to an effective registration statement under the
               Securities Act:

               (A)  in the case of any Transfer Restricted Security that is a
                    Definitive Note, the Registrar shall permit the Holder
                    thereof to exchange such Transfer Restricted Security for a
                    Definitive Note that does not bear the legend set forth in
                    (i) above and rescind any restriction on the transfer of
                    such Transfer Restricted Security; and

               (B)  in the case of any Transfer Restricted Security represented
                    by a Global Note, such Transfer Restricted Security shall
                    not be required to bear the first legend set forth in (i)
                    above, but shall continue to be subject to the provisions of
                    Section 2.06(c) hereof; provided, however, that with respect
                    to any request for an exchange of a Transfer Restricted
                    Security that is represented by a Global Note for a
                    Definitive Note that does not bear the legend set forth in
                    (i) above, which request is made in reliance upon Rule 144,
                    the Holder thereof shall certify in


                                       22








               writing to the Registrar that such request is being made pursuant
               to Rule 144 (such certification to be substantially in the form
               of Exhibit B hereto).

         (iii) Notwithstanding the foregoing, upon consummation of the Exchange
               Offer, the Company shall issue and, upon receipt of an
               authentication order in accordance with Section 2.02 hereof, the
               Trustee shall authenticate New Notes in exchange for Notes
               accepted for exchange in the Exchange Offer, which New Notes
               shall not bear the legend set forth in (i) above, and the
               Registrar shall rescind any restriction on the transfer of such
               Notes.

          (h) General Provisions Relating to Transfers and Exchanges.

               (i)  To permit registrations of transfers and exchanges, the
                    Company shall execute and the Trustee shall authenticate
                    Definitive Notes and Global Notes at the Registrar's
                    request.

               (ii) No service charge shall be made to a Holder for any
                    registration of transfer or exchange, but the Company may
                    require payment of a sum sufficient to cover any transfer
                    tax or similar governmental charge payable in connection
                    therewith (other than any such transfer taxes or similar
                    governmental charge payable upon exchange or transfer
                    pursuant to Sections 3.07, 4.10, 4.14 and 9.05 hereto).

               (iii) The Registrar shall not be required to register the
                    transfer of or exchange any Note selected for redemption in
                    whole or in part, except the unredeemed portion of any Note
                    being redeemed in part.

               (iv) All Definitive Notes and Global Notes issued upon any
                    registration of transfer or exchange of Definitive Notes or
                    Global Notes shall be the valid obligations of the Company,
                    evidencing the same debt, and entitled to the same benefits
                    under this Indenture, as the Definitive Notes or Global
                    Notes surrendered upon such registration of transfer or
                    exchange.

               (v)  Neither the Company nor the Registrar shall be required:

                    (A)  to issue, to register the transfer of or to exchange
                         Notes during a period beginning at the opening of
                         business 15 days before the day of any selection of
                         Notes for redemption under Section 3.02 hereof and
                         ending at the close of business on the day of
                         selection; or

                    (B)  to register the transfer of or to exchange any Note so
                         selected for redemption in whole or in part, except the
                         unredeemed portion of any Note being redeemed in part;
                         or

                    (C)  to register the transfer of or to exchange a Note
                         between a record date and the next succeeding interest
                         payment date.



                                       23








               (vi) Prior to due presentment for the registration of a transfer
                    of any Note, the Trustee, any Agent and the Company may deem
                    and treat the Person in whose name any Note is registered as
                    the absolute owner of such Note for the purpose of receiving
                    payment of principal of, interest and Liquidated Damages, if
                    any, on such Note, and neither the Trustee, any Agent nor
                    the Company shall be affected by notice to the contrary.

               (vii)The Trustee shall authenticate Definitive Notes and Global
                    Notes in accordance with the provisions of Section 2.02
                    hereof.

SECTION 2.07. REPLACEMENT NOTES.

          If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses, including the fees and expenses of the Trustee in replacing a Note.

          Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.

SECTION 2.08. OUTSTANDING NOTES.

          The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.

          If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.

          If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.

          If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.

SECTION 2.09. TREASURY NOTES.

          In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes or any fraction
owned by the Company, any Guarantor or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control


                                       24








with the Company, shall be considered as though not outstanding, except that for
the purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Notes that a Responsible Officer of
the Trustee knows are so owned shall be so disregarded.

SECTION 2.10. TEMPORARY NOTES.

          Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes. Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.

SECTION 2.11. CANCELLATION.

          The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.

SECTION 2.12. DEFAULTED INTEREST.

          If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.


                                    ARTICLE 3
                            REDEMPTION AND PREPAYMENT

SECTION 3.01. NOTICES TO TRUSTEE.

          If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 40 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which


                                       25








the redemption shall occur, (ii) the redemption date, (iii) the principal amount
of Notes to be redeemed and (iv) the redemption price.

SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.

          If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate. In the event of partial redemption by lot, the
particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.

          The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.

SECTION 3.03. NOTICE OF REDEMPTION.

          Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.

          The notice shall identify the Notes to be redeemed and shall state:

          (a) the redemption date;

          (b) the redemption price;

          (c) if any Note is being redeemed in part, the portion of the
     principal amount of such Note to be redeemed and that, after the redemption
     date upon surrender of such Note, a new Note or Notes in principal amount
     equal to the unredeemed portion shall be issued upon cancellation of the
     original Note;

          (d) the name and address of the Paying Agent;

          (e) that Notes called for redemption must be surrendered to the Paying
     Agent to collect the redemption price;

          (f) that, unless the Company defaults in making such redemption
     payment, interest on Notes called for redemption ceases to accrue on and
     after the redemption date;



                                       26








          (g) the paragraph of the Notes and/or Section of this Indenture
     pursuant to which the Notes called for redemption are being redeemed; and

          (h) that no representation is made as to the correctness or accuracy
     of the CUSIP number, if any, listed in such notice or printed on the Notes.

          At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.

SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.

          Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.

SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.

          One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on the
redemption date. The Trustee or the Paying Agent shall promptly return to the
Company any money deposited with the Trustee or the Paying Agent by the Company
in excess of the amounts necessary to pay the redemption price of, accrued
interest and Liquidated Damages, if any, on all Notes to be redeemed.

          If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.

SECTION 3.06. NOTES REDEEMED IN PART.

          Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.

SECTION 3.07. OPTIONAL REDEMPTION.

          (a) Except as set forth in clause (b) of this Section 3.07, the
Company shall not have the option to redeem the Notes pursuant to this Section
3.07 prior to November 1, 2001. Thereafter, the Company shall have the option to
redeem the Notes, in whole or in part, at the redemption prices (expressed as


                                       27








percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on November 1 of the
years indicated below:


    Year                                                         Percentage

    2001....................................................      105.125%
    2002 ...................................................      103.417
    2003 ...................................................      101.708
    2004 and thereafter.....................................      100.000%

          (b) Notwithstanding the provisions of clause (a) of this Section 3.07,
at any time during the first 36 months after the date of this Indenture, the
Company may redeem up to 35% of the initial principal amount of the Notes
originally issued with the net proceeds of one or more public offerings of
equity securities of the Company, at a redemption price equal to 109.250% of the
principal amount of such Notes, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of redemption; provided that at least 65%
of the principal amount of the Notes originally issued remain outstanding
immediately after the occurrence of such redemption and that such redemption
occurs within 60 days of the date of the closing of such public offerings.

          (c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Sections 3.01 through 3.06 hereof.

SECTION 3.08. MANDATORY REDEMPTION.

          Except as set forth under Sections 4.10 and 4.14 hereof, the Company
shall not be required to make mandatory redemption payments with respect to the
Notes.

SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.

          In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below.

          The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.

          If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.


                                       28









          Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:

          (a) that the Asset Sale Offer is being made pursuant to this Section
     3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
     shall remain open;

          (b) the Offer Amount, the purchase price and the Purchase Date;

          (c) that any Note not tendered or accepted for payment shall continue
     to accrue interest;

          (d) that, unless the Company defaults in making such payment, any Note
     accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
     interest after the Purchase Date;

          (e) that Holders electing to have a Note purchased pursuant to an
     Asset Sale Offer may only elect to have all of such Note purchased and may
     not elect to have only a portion of such Note purchased;

          (f) that Holders electing to have a Note purchased pursuant to any
     Asset Sale Offer shall be required to surrender the Note, with the form
     entitled "Option of Holder to Elect Purchase" on the reverse of the Note
     completed, or transfer by book-entry transfer, to the Company, a
     Depositary, if appointed by the Company, or a Paying Agent at the address
     specified in the notice at least three days before the Purchase Date;

          (g) that Holders shall be entitled to withdraw their election if the
     Company, the Depositary or the Paying Agent, as the case may be, receives,
     not later than the expiration of the Offer Period, a telegram, facsimile
     transmission or letter setting forth the name of the Holder, the principal
     amount of the Note the Holder delivered for purchase and a statement that
     such Holder is withdrawing his or her election to have such Note purchased;

          (h) that, if the aggregate principal amount of Notes surrendered by
     Holders exceeds the Offer Amount, the Company shall select the Notes to be
     purchased on a pro rata basis (with such adjustments as may be deemed
     appropriate by the Company so that only Notes in denominations of $1,000,
     or integral multiples thereof, shall be purchased); and

          (i) that Holders whose Notes were purchased only in part shall be
     issued new Notes equal in principal amount to the unpurchased portion of
     the Notes surrendered (or transferred by book-entry transfer).

          On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than


                                       29








five days after the Purchase Date) mail or deliver to each tendering Holder an
amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Note, and the Trustee, upon written request from the Company shall authenticate
and mail or deliver such new Note to such Holder, in a principal amount equal to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date.

          Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made subject to Sections 3.05 and 3.06
hereof. The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes in connection with an Asset Sale Offer.


                                    ARTICLE 4
                                    COVENANTS

SECTION 4.01. PAYMENT OF NOTES.

          The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay all
Liquidated Damages, if any, in the same manner on the dates and in the amounts
set forth in the Registration Rights Agreement.

          The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.

SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.

          The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.

          The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time


                                       30








rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in the Borough of Manhattan, The City of New York for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.

          The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.

SECTION 4.03. REPORTS.

          (a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company and, if the
Company is required to file financial statements for any Guarantor, such
Guarantor shall furnish to the Trustee and to all Holders (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company and/or such Guarantor
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's and/or the
Guarantor's certified independent accountants and (ii) all financial information
that would be required to be filed with the Commission on Form 8-K if the
Company and/or such Guarantor were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission, the
Company shall file a copy of all such information with the Commission for public
availability (unless the Commission will not accept such a filing) and shall
promptly make such information available to all securities analysts and
prospective investors upon written request. The Company and any Guarantor shall
at all times comply with TIA ss. 314(a).

          (b) For so long as any Transfer Restricted Securities remain
outstanding, the Company and each Guarantor shall furnish to all Holders and
prospective purchasers of the Notes designated by the Holders of Transfer
Restricted Securities, promptly upon their request, the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

SECTION 4.04. COMPLIANCE CERTIFICATE.

          (a) The Company and each Guarantor shall deliver to the Trustee,
within 90 days after the end of each fiscal year of the Company, an Officers'
Certificate stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of, interest or Liquidated Damages, if any,
on the Notes is prohibited or if such event has occurred, a description of the
event and what action the Company is taking or proposes to take with respect
thereto.



                                       31








          (b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.

          (c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.

SECTION 4.05. TAXES.

          The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.

SECTION 4.06.   STAY, EXTENSION AND USURY LAWS.

          The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.

SECTION 4.07. RESTRICTED PAYMENTS.

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to any
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or such Restricted Subsidiary or
dividends or distributions payable to the Company or any Wholly Owned Restricted
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of the Company or any Restricted Subsidiary or
other Affiliate of the Company (other than any such Equity Interests owned by
the Company or any Wholly Owned Restricted Subsidiary of the Company that is a
Guarantor); (iii) purchase, redeem, defease or otherwise acquire or retire for
value prior to a scheduled mandatory sinking fund payment date or final maturity
date any Indebtedness that is pari passu with or subordinated to the Notes; or
(iv) make any Restricted Investment (all such payments and other actions


                                       32








set forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:

          (a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and

          (b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and

          (c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of this Indenture (including Restricted Payments permitted by the next
succeeding paragraph), is less than (w) 50% of the Consolidated Net Income of
the Company for the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the date of this Indenture to the
end of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, 100% of such
deficit), plus (x) 100% of the aggregate net cash proceeds received by the
Company from the issuance or sale after the date of this Indenture of Equity
Interests of the Company or of debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Restricted Subsidiary of the Company and
other than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (y) $2.0 million, plus (z) to the extent that any
Unrestricted Subsidiary is designated to be a Restricted Subsidiary, the fair
market value (as determined in good faith by the Board of Directors) of the
Company's Equity Interests in such Subsidiary at the time of such designation.

          The foregoing provisions will not prohibit: (i) the payment of any
dividend or other distribution within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the provisions of this Indenture; (ii) the redemption, repurchase, retirement or
other acquisition of any Equity Interests of the Company in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of other Equity Interests of the Company
(other than any Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (c)(x) of the preceding
paragraph; (iii) the defeasance, redemption or repurchase of pari passu or
subordinated Indebtedness with the net proceeds from an incurrence of
Refinancing Indebtedness or the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(x) of the preceding paragraph;
(iv) the purchase, redemption or other acquisition prior to the stated maturity
thereof of Indebtedness that is subordinated to the Notes in exchange for or out
of the net cash proceeds of a substantially concurrent issue and sale (other
than to the Company or any of its Restricted Subsidiaries) of new Indebtedness;
provided that (x) the principal amount of such new Indebtedness shall not exceed
the principal amount of Indebtedness so refinanced (plus the amount of such
reasonable expenses incurred in connection therewith), (y) such new Indebtedness
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced, and (z)
the new Indebtedness shall be subordinate in right of payment


                                       33








to the Notes; (v) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company held by any member of the
Company's (or any of its Restricted Subsidiaries') management pursuant to any
management equity subscription agreement or stock option agreement or in
connection with the termination of employment of any employees or management of
the Company or its Subsidiaries; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $2.0 million in the aggregate plus the aggregate cash proceeds received
by the Company after the date of this Indenture from any reissuance of Equity
Interests by the Company to members of management of the Company and its
Restricted Subsidiaries; (vi) Investments received by the Company and its
Restricted Subsidiaries as non-cash consideration from Asset Sales to the extent
permitted by Section 4.10 hereof; and (vii) the repurchase of Notes pursuant to
a Change of Control Offer or an Asset Sale Offer; and no Default or Event of
Default shall have occurred and be continuing immediately after any such
transaction.

          The Board of Directors may designate a Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash or
Government Securities) in the Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of this covenant.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.

          The amount of all Restricted Payments (other than cash or Government
Securities) shall be the fair market value (evidenced by a Board Resolution
delivered to the Trustee) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or such Subsidiary, as the case may
be, pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, which calculations may be based upon the Company's latest available
financial statements.

SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
              SUBSIDIARIES.

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (x) on its Capital Stock or
(y) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of this Indenture, (b) the Credit Agreement and all related
Senior Bank Debt documents as in effect as of the date of this Indenture, and
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Credit
Agreement as in effect on the date of this Indenture, (c) this Indenture, the
Subsidiary Guarantees and the Notes, (d) applicable law, (e) any instrument
governing


                                       34




Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that the Consolidated
Cash Flow of such Person is not taken into account in determining whether such
acquisition was permitted by the terms of this Indenture, (f) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations or Capital Lease Obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (h) permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, (i) customary
restrictions imposed on the transfer of copyrighted or patented materials and
customary provisions in agreements that restrict the assignees of such
agreements or any rights thereunder, or (j) restrictions with respect to a
Subsidiary of the Company imposed pursuant to a binding agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary.

SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and that the Company shall not issue any Disqualified Stock and shall not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness or issue
shares of Disqualified Stock if the Fixed Charge Coverage Ratio 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 is incurred or such Disqualified Stock is issued 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, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.

          The foregoing limitations shall not apply to: (i) the incurrence by
the Company of Senior Bank Debt; (ii) Guarantees of the Senior Bank Debt
permitted under or required by the Credit Agreement and Guarantees permitted
under or required by this Indenture; (iii) the incurrence by the Company and its
Restricted Subsidiaries of the Existing Indebtedness; (iv) the incurrence by the
Company of Indebtedness represented by the Notes and this Indenture, and the
incurrence by Restricted Subsidiaries of Guarantees required or permitted to be
incurred under this Indenture; (v) the incurrence by the Company or any of its
Restricted Subsidiaries of Capital Lease Obligations and/or additional
Indebtedness constituting purchase money obligations in an aggregate principal
amount not to exceed $5.0 million at any time outstanding; (vi) the incurrence
by the Company of additional Indebtedness for any corporate purposes in an
outstanding principal amount (or accreted value, as applicable) at no time
exceeding $25.0 million (which may, but need not be, borrowed under the Credit
Agreement); (vii) the incurrence by any Foreign Subsidiary of Indebtedness,
which when aggregated with the principal amount of Indebtedness of all Foreign
Subsidiaries then outstanding and incurred pursuant to this clause (vii), does
not exceed $5.0 million (or the equivalent thereof in any other currency) at any
one time outstanding; (viii) the incurrence


                                       35








by any Restricted Subsidiary of the Company of Acquired Debt in an aggregate
principal amount not to exceed $20.0 million for all Restricted Subsidiaries
(reduced by the amount of Acquired Debt repaid with the Net Proceeds of Asset
Sales of any Restricted Subsidiary subject to such Acquired Debt) that (a) has
not been incurred in connection with, or in contemplation of such Restricted
Subsidiary becoming a Restricted Subsidiary, or a merger of a Person subject to
such Acquired Debt with or into such Restricted Subsidiary, and (b) is without
recourse to the Company or any of its Restricted Subsidiaries or any of their
respective assets (other than the Restricted Subsidiary subject to such Acquired
Debt and its assets), and is not guaranteed by any such Person; provided that
(A) after giving pro forma effect to the incurrence thereof as if incurred by
the Company, the Company could incur at least $1.00 of Indebtedness under the
first paragraph of this Section 4.09, (B) any Refinancing Indebtedness with
respect thereto may not be incurred by any Person other than the Restricted
Subsidiary that is the obligor on such Acquired Indebtedness, and (C) such
Restricted Subsidiary becomes an Additional Guarantor upon incurrence of such
Acquired Debt in accordance with this Indenture; (ix) the incurrence by the
Company of Indebtedness in connection with the issuance of notes in payment of
the repurchase, redemption, acquisition or retirement of Equity Interests of the
Company or any Restricted Subsidiary of the Company to the extent permitted by
Section 4.07 hereof; (x) Hedging Obligations that are incurred for the purpose
of fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Credit Agreement or this
Indenture to be outstanding; (xi) Indebtedness arising out of letters of credit,
performance bonds, surety bonds, guarantees resulting from endorsements of
negotiable instruments and bankers' acceptances, incurred in the ordinary course
of business; (xii) all Obligations with respect to the foregoing; (xiii) the
incurrence by the Company and its Restricted Subsidiaries of Indebtedness issued
in exchange for, or the proceeds of which are used to repay, redeem, defease,
extend, refinance, renew, replace, or refund Indebtedness referred to in clauses
(ii) through (xii) above, and this clause (xiii) (the "Refinancing
Indebtedness"); provided that (a) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount of Indebtedness so extended,
refinanced, renewed, replaced, substituted or refunded (plus the amount of fees,
premiums, consent fees, prepayment penalties and expenses incurred in connection
therewith); (b) in the case of Refinancing Indebtedness for Indebtedness
permitted under clause (iii) or (viii) of this paragraph, the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of the Indebtedness being extended,
refinanced, renewed, replaced or refunded or shall mature after the scheduled
maturity date of the Notes; (c) to the extent such Refinancing Indebtedness
refinances Indebtedness subordinate to the Notes, such Refinancing Indebtedness
shall be subordinated in right of payment to the Notes on terms at least as
favorable to the holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced or
refunded; and (d) with respect to Refinancing Indebtedness incurred by a
Guarantor, such Refinancing Indebtedness shall rank no more senior, and shall be
at least as subordinated, in right of payment to the Guarantee of such Guarantor
as the Indebtedness being extended, refinanced, renewed, replaced or refunded;
(xiv) Indebtedness of the Company (a) not to exceed an aggregate principal
amount of $8.0 million outstanding at any time arising as a result of the
issuance of tax-exempt industrial development bonds or similar tax-exempt public
financing, and (b) additional Indebtedness arising out of the issuance of
additional tax-exempt public financing obligations, but only to the extent that
Indebtedness owing under the Credit Agreement is prepaid, concurrently with the
receipt of the net proceeds of such issuance, in an amount at least equal to the
amount of such proceeds, and term indebtedness or the availability of revolving
credit borrowings under the Credit Agreement is permanently reduced by the
amount of such net proceeds and (xv) the incurrence of Indebtedness between (a)
the Company and its Restricted Subsidiaries and (b) the Restricted Subsidiaries;
provided, that (x) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the Company
or a Wholly Owned


                                       36








Restricted Subsidiary and (y) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence
of such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be.

SECTION 4.10. ASSET SALES.

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, (i) sell, lease, convey or otherwise dispose of any assets
(including by way of a sale and leaseback) other than sales of inventory in the
ordinary course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company will be
governed by Section 4.14 hereof and/or Section 5.01 hereof and not by the
provisions of this Section 4.10), or (ii) issue or sell Equity Interests of any
of its Restricted Subsidiaries, in the case of either clause (i) or (ii) above,
whether in a single transaction or a series of related transactions, (a) that
have a fair market value in excess of $1.0 million, or (b) for net proceeds in
excess of $1.0 million (each of the foregoing, an "Asset Sale"), unless (x) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by an Officers' Certificate delivered to the Trustee, and for
Asset Sales having a fair market value or net proceeds in excess of $5.0
million, evidenced by a Board Resolution delivered to the Trustee) of the assets
sold or otherwise disposed of and (y) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided, however, that the amount of (A) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance sheet
or in the notes thereto) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any Guarantee) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Company or
such Restricted Subsidiary from further liability and (B) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) or Cash Equivalents,
shall be deemed to be cash for purposes of this provision; and provided,
further, that the 75% limitation referred to in this clause (y) shall not apply
to any Asset Sale in which the cash portion of the consideration received
therefrom, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax proceeds would have been had such Asset Sale
complied with the aforementioned 75% limitation. Notwithstanding the foregoing:
(i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary
or by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly
Owned Restricted Subsidiary, (ii) an issuance of Equity Interests (other than
Disqualified Stock) by a Wholly Owned Restricted Subsidiary to the Company or
another Wholly Owned Restricted Subsidiary, (iii) issuances of Equity Interests
by the Company pursuant to warrants outstanding on the date of this Indenture,
(iv) a Restricted Payment that is permitted by Section 4.07 hereof, (v) the
surrender or waiver of contract rights or the settlement, release or surrender
of contract, tort or other claims of any kind (other than assignment of such
rights or claims for value outside the ordinary course of business) or (vi) the
grant in the ordinary course of business of any non-exclusive license of
patents, trademarks, registration therefor and other similar intellectual
property, will not be deemed to be an Asset Sale. In addition, notwithstanding
the foregoing, the Company and any of its Restricted Subsidiaries may create or
assume Liens (or permit any foreclosure thereon) securing Indebtedness to the
extent that such Lien does not violate Section 4.12 hereof.

          Within 270 days after the receipt of any Net Proceeds from any Asset
Sale, the Company shall apply such Net Proceeds from such Asset Sale to
permanently reduce Senior Debt in accordance with the


                                       37








terms of the Credit Agreement, if applicable, or to the extent not required to
be applied thereunder, may, at its option, apply such Net Proceeds to repayment
of Indebtedness of a Restricted Subsidiary (in the case of Net Proceeds from an
Asset Sale effected by a Restricted Subsidiary) or to an investment in a
Restricted Subsidiary or in another business or capital expenditure or other
long-term/tangible assets, in each case, in the same or a similar line of
business as the Company or any of its Restricted Subsidiaries were engaged in on
the date of this Indenture or in businesses reasonably related thereto. Pending
the final application of any such Net Proceeds, the Company may temporarily
reduce Senior Debt or otherwise invest such Net Proceeds in any manner that is
not prohibited by this Indenture. Any Net Proceeds from an Asset Sale that are
not applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds". When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an Asset
Sale Offer to all Holders of Notes to purchase the maximum principal amount of
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 101% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase,
in accordance with the procedures set forth in Section 3.09 hereof. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.

SECTION 4.11. TRANSACTIONS WITH AFFILIATES.

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to or enter into any other
transaction with, or for the benefit of, an Affiliate of the Company (an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the Company
or such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a Board Resolution certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness to the
Company or such Restricted Subsidiary of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing; provided that (v) the Employment Agreement and any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice (other than past practice with respect to Thomas F. Pyle) of the
Company or such Restricted Subsidiary, (w) transactions between or among the
Company and/or its Restricted Subsidiaries, (x) investment banking and
management fees in an aggregate amount no greater than $360,000 per annum plus
reimbursement of expenses to be paid by the Company to Thomas H. Lee Company,
(y) payments to Thomas F. Pyle pursuant to the Consulting Agreements (whether or
not Thomas F. Pyle would be considered an Affiliate), and (z) transactions
permitted by Section 4.07 hereof, in each case, shall not be deemed Affiliate
Transactions; further provided, however, that (A) the provisions of clause (ii)
shall not apply to sales of inventory by the Company or any Restricted
Subsidiary to any Affiliate in the ordinary course of business and (B) the
provisions of clause (ii)(b) shall not apply to loans or advances to the Company


                                       38








or any Restricted Subsidiary from, or equity investments in the Company or any
Restricted Subsidiary by, any Affiliate to the extent permitted by Section 4.09
hereof.

SECTION 4.12. LIENS.

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any of their property, assets or revenue now owned or
hereafter acquired by them, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens; provided,
however, that in addition to creating Permitted Liens on its properties or
assets, the Company may create any Lien upon any of its properties or assets if
the Notes are secured on an equal and ratable basis with the obligations so
secured until such time as such obligation is no longer secured by a Lien.

SECTION 4.13. CORPORATE EXISTENCE.

          Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Restricted Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Restricted Subsidiary and (ii) the rights (charter and statutory), licenses
and franchises of the Company and its Restricted Subsidiaries; provided,
however, that the Company shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any of
its Restricted Subsidiaries, if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Restricted Subsidiaries, taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders of the Notes.

SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.

          Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 in principal amount or an integral multiple thereof) of such Holder's
Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase (the "Change of Control Payment"). Within 30 calendar days
following any Change of Control, the Company will mail a notice to each Holder
stating: (i) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Notes tendered will be accepted for payment; (ii) the
purchase price and the purchase date, which will be no earlier than 30 calendar
days nor later than 60 calendar days from the date such notice is mailed (the
"Change of Control Payment Date"); (iii) that any Note not tendered will
continue to accrue interest; (iv) that, unless the Company defaults in the
payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest after the
Change of Control Payment Date; (v) that Holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date; (vi) that Holders will be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the second Business Day preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter setting forth the name


                                       39








of the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing such Holder's election to have such
Notes purchased; and (vii) that Holders whose Notes are being purchased only in
part will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof. The Company shall
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes in
connection with a Change of Control.

          On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of the Notes or portions thereof required to be
purchased by the Company. The Paying Agent will promptly mail to each Holder of
Notes so accepted the Change of Control Payment for such Notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. Prior to complying
with the provisions of this Section 4.14, but in any event within 90 calendar
days following a Change of Control, the Company shall either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this Section 4.14. The Company shall publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.

SECTION 4.15. NO SENIOR SUBORDINATED DEBT.

          Notwithstanding the provisions of Section 4.09 hereof (i) the Company
shall not incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinated or junior in right of payment to any
Senior Debt of the Company and senior in any respect in right of payment to the
Notes, and (ii) the Company will not permit any Guarantor to incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinated or junior in right of payment to its Senior Debt and senior in any
respect in right of payment to its Guarantee.

SECTION 4.16. LIMITATIONS ON GUARANTEES OF COMPANY INDEBTEDNESS BY RESTRICTED 
              SUBSIDIARIES.

          In the event that any Restricted Subsidiary, directly or indirectly,
guarantees any Indebtedness of the Company other than the Notes (the "Other
Indebtedness") the Company shall cause such Restricted Subsidiary to deliver to
the Trustee a supplemental indenture pursuant to which such Restricted
Subsidiary shall concurrently guarantee the Company's Obligations under this
Indenture and the Notes to the same extent that such Restricted Subsidiary
guaranteed the Company's Obligations under the Other Indebtedness (including
waiver of subrogation, if any), provided that if such Other Indebtedness is
Senior Debt, the Additional Guarantee shall be subordinated in right of payment
to the guarantee of such Other Indebtedness, as provided by the provisions of
Article 11 hereof, and such Additional Guarantee shall be on the same terms and
subject to the same conditions as the initial Guarantee given by ROV Holding,
Inc. hereunder. Each Additional Guarantee shall by its terms provide that the
Additional Guarantor making such Additional Guarantee will be automatically and
unconditionally released and discharged from


                                       40








its obligations under such Additional Guarantee upon the release or discharge of
the guarantee of the Other Indebtedness that resulted in the creation of such
Additional Guarantee, except a discharge or release by, or as a result of, any
payment under the guarantee of such Other Indebtedness by such Additional
Guarantor.

SECTION 4.17.   ADDITIONAL GUARANTEES.

          If (i) if the Company or any of its Restricted Subsidiaries shall,
after the date of this Indenture, transfer or cause to be transferred, including
by way of any Investment, in one or a series of transactions (whether or not
related), any assets, businesses, divisions, real property or equipment having
an aggregate fair market value (as determined in good faith by the Board of
Directors) in excess of $1.0 million to any Restricted Subsidiary that is not a
Guarantor, (ii) the Company or any of its Restricted Subsidiaries shall acquire
another Restricted Subsidiary having total assets with a fair market value (as
determined in good faith by the Board of Directors) in excess of $1.0 million,
or (iii) any Restricted Subsidiary shall incur Acquired Debt, then the Company
shall, at the time of such transfer, acquisition or incurrence, (i) cause such
transferee, acquired Restricted Subsidiary or Restricted Subsidiary incurring
Acquired Debt (if not then a Guarantor) to execute a Guarantee of the
Obligations of the Company hereunder in the form set forth herein and (ii)
deliver to the Trustee an Opinion of Counsel, in form reasonably satisfactory to
the Trustee, that such Guarantee is a valid, binding and enforceable obligation
of such transferee, acquired Restricted Subsidiary or Restricted Subsidiary
incurring Acquired Debt, subject to customary exceptions for bankruptcy and
equitable principles. Notwithstanding the foregoing, the Company or any of its
Restricted Subsidiaries may make a Restricted Investment in any Wholly Owned
Restricted Subsidiary of the Company without compliance with this Section 4.17
provided that such Restricted Investment is permitted by Section 4.07 hereof.

          No Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person), another Person (other than the
Company) whether or not affiliated with such Guarantor unless: (i) subject to
the provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under its Guarantee, the Notes
and this Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) such Guarantor, or any Person
formed by or surviving any such consolidation or merger, (a) would have
Consolidated Net Worth (immediately after giving effect to such transaction),
equal to or greater than the Consolidated Net Worth of such Guarantor
immediately preceding the transaction and (b) would be permitted by virtue of
the Company's pro forma Fixed Charge Coverage Ratio to incur, immediately after
giving effect to such transaction, at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.09 hereof.

          In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the Person acquiring the property (in the event of a sale or other disposition
of all of the assets of such Guarantor) shall be released and relieved of any
obligations under its Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions
hereof. In the event the Board of Directors designates a Guarantor to be an
Unrestricted Subsidiary, such Guarantor will be


                                       41








released and relieved of any obligation under its Guarantee, provided that such
designation is conducted in accordance with the applicable provisions hereof
including, but not limited to, Section 4.07.


                                    ARTICLE 5
                                   SUCCESSORS

SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.

          The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving Person), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless (i) the
Company is the surviving corporation or the entity or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Notes and this Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) the
Company or the Person formed by or surviving any such consolidation or merger
(if other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (a) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(b) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.09 hereof; provided, however, that this provision
shall not prohibit any merger or consolidation among the Company and one or more
of its Wholly Owned Restricted Subsidiaries that is a Guarantor.

          In connection with any consolidation or merger, or any sale,
assignment, transfer, lease, conveyance, or other disposition of all or
substantially all of the assets of the Company in accordance with this Section
5.01, the Company shall deliver, or cause to be delivered, to the Trustee, in
form reasonably satisfactory to the Trustee, an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance, or other disposition and any
supplemental indenture in respect thereto comply with this Article 5 and that
all conditions precedent herein provided for relating to such transaction have
been complied with.

SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.

          Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer


                                       42








instead to the successor corporation and not to the Company), and may exercise
every right and power of the Company under this Indenture with the same effect
as if such successor Person had been named as the Company herein; provided,
however, that the predecessor Company shall not be relieved from the obligation
to pay the principal of, interest and Liquidated Damages, if any, on the Notes
except in the case of a sale of all of the Company's assets that meets the
requirements of Section 5.01 hereof.


                                    ARTICLE 6
                              DEFAULTS AND REMEDIES

SECTION 6.01. EVENTS OF DEFAULT.

          An "Event of Default" occurs if:

          (1) the Company defaults in the payment of interest or Liquidated
     Damages, if any, on any Note when the same becomes due and payable and the
     Default continues for a period of 30 days, whether or not such payment is
     prohibited by the provisions of Article 11 hereof;

          (2) the Company defaults in the payment of the principal of or
     premium, if any, on any Note when the same becomes due and payable at
     maturity, upon redemption or otherwise, whether or not such payment is
     prohibited by the provisions of Article 11 hereof;

          (3) the Company or any Guarantor, as the case may be, fails to observe
     or perform any other covenant, condition or agreement on its part to be
     observed or performed pursuant to Articles 4 or 5 hereof; provided that, in
     the case of Sections 4.02, 4.03, 4.04, 4.05, 4.12 and 4.13, such failure
     shall have continued for 60 days after receipt of written notice from the
     Trustee or any Holder;

          (4) a default occurs under any mortgage, indenture or instrument under
     which there may be issued or by which there may be secured or evidenced any
     Indebtedness for money borrowed by the Company or any of its Restricted
     Subsidiaries (or the payment of which is guaranteed by a Guarantee of the
     Company or any of its Restricted Subsidiaries), whether such Indebtedness
     or Guarantee now exists or shall be created hereafter, if (a) such default
     results in the acceleration of such Indebtedness prior to its express
     maturity or shall constitute a default in the payment of such Indebtedness
     at final maturity of such Indebtedness, and (b) the principal amount of any
     such Indebtedness that has been accelerated or not paid at maturity, when
     added to the aggregate principal amount of all other Indebtedness that has
     been accelerated or not paid at maturity, exceeds $5.0 million;

          (5) a final judgment or final judgments for the payment of money are
     entered by a court or courts of competent jurisdiction against the Company
     or any of its Restricted Subsidiaries and such judgment or judgments remain
     undischarged for a period (during which execution shall not be effectively
     stayed) of 60 days, provided that the aggregate of all such undischarged
     judgments (to the extent not covered by insurance) exceeds $5.0 million;

          (6) the Company or any of its Restricted Subsidiaries pursuant to or
     within the meaning of any Bankruptcy Law:

               (a) commences a voluntary case,


                                       43







               (b) consents to the entry of an order for relief against it in an
          involuntary case,

               (c) consents to the appointment of a Custodian of it or for all
          or substantially all of its property,

               (d) makes a general assignment for the benefit of its creditors,
          or

               (e) generally is not paying its debts as they become due; or

          (7) a court of competent jurisdiction enters an order or decree under
     any Bankruptcy Law that:

               (a) is for relief against the Company or any Restricted
          Subsidiary in an involuntary case,

               (b) appoints a Custodian of the Company or any Restricted
          Subsidiary or for all or substantially all of the property of the
          Company or any Restricted Subsidiary, or

               (c) orders the liquidation of the Company or any Restricted
          Subsidiary,

     and the order or decree remains unstayed and in effect for 60 consecutive
     days; and

          (8) except as permitted by this Indenture, any Subsidiary Guarantee
     issued by a Guarantor shall be held in any judicial proceeding to be
     unenforceable or invalid or shall cease for any reason to be in full force
     and effect or any Guarantor, or any Person acting by or on behalf of any
     Guarantor, shall deny or disaffirm its obligations under its Subsidiary
     Guarantee.

          The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.

          In the case of any Event of Default pursuant to the provisions of this
Section 6.01 occurring by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding payment
of the premium that the Company would have had to pay if the Company then had
elected to redeem the Notes pursuant to Section 3.08 hereof, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon acceleration of the Notes, anything in this Indenture or
in the Notes to the contrary notwithstanding. If an Event of Default occurs
prior to the November 1, 2001 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of the Notes prior to November 1, 2001
pursuant to Section 3.07 hereof, then the premium payable for purposes of this
paragraph for each of the years beginning on November 1 of the years set forth
below shall be as set forth in the following table expressed as a percentage of
the amount that would otherwise be due but for the provisions of this sentence,
plus accrued interest, if any, to the date of payment:

            Year                                      Percentage

    1996.........................................      110.250%
    1997 ........................................      109.225%
    1998 ........................................      108.200%
    1999 ........................................      107.175%


                                       44








     2000 ........................................      106.150%


SECTION 6.02. ACCELERATION.

          If an Event of Default (other than an Event of Default specified in
clauses (6) and (7) of Section 6.01 relating to the Company, any Significant
Subsidiary of the Company or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary of the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the then outstanding Notes by written notice to the
Company, the Trustee and the Bank Agent may declare the unpaid principal of,
accrued interest and Liquidated Damages, if any, on all the Notes to be due and
payable. Upon such declaration the principal, interest and Liquidated Damages,
if any, shall be due and payable immediately (together with the premium referred
to in Section 6.01, if applicable); provided, however, that so long as any
Designated Senior Debt is outstanding, such declaration shall not become
effective until the earlier of (i) the day which is five Business Days after the
receipt by the Representative with regard to any Designated Senior Debt of such
written notice of acceleration or (ii) the date of acceleration of any
Designated Senior Debt. If an Event of Default specified in clause (6) or (7) of
Section 6.01 relating to the Company, any Significant Subsidiary of the Company
or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary of the Company occurs, such an amount shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. In the event of a declaration of
acceleration of the Notes because an Event of Default has occurred and is
continuing as a result of the acceleration of any Indebtedness described in
clause (4) of Section 6.01 hereof, the declaration of acceleration of the Notes
shall be automatically annulled if the holders of any Indebtedness described in
clause (4) have rescinded the declaration of acceleration in respect of such
Indebtedness within 30 days of the date of such declaration and if (a) the
annulment of the acceleration of the Notes would not conflict with any judgment
or decree of a court of competent jurisdiction, and (b) all existing Events of
Default, except nonpayment of principal or interest on the Notes that became due
solely because of the acceleration of the Notes, have been cured or waived and
all amounts due to the Trustee under Section 7.07 have been paid.

SECTION 6.03. OTHER REMEDIES.

          If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.

          The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding, and any recovery
or judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of Notes. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.



                                       45








SECTION 6.04. WAIVER OF PAST DEFAULTS.

          Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and Liquidated Damages, if any, or interest
on, the Notes (including in connection with an offer to purchase) (provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.

SECTION 6.05. CONTROL BY MAJORITY.

          Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, (i) the Trustee may refuse to follow any direction
that conflicts with law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Notes or that may involve
the Trustee in personal liability, and (ii) the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction. Notwithstanding any provision to the contrary in this Indenture, the
Trustee shall not be obligated to take any action with respect to the provisions
of the last paragraph of Section 6.01 unless directed to do so pursuant to this
Section 6.06.

SECTION 6.06. LIMITATION ON SUITS.

           A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:

          (a) the Holder of a Note gives to the Trustee written notice of a
     continuing Event of Default;

          (b) the Holders of at least 25% in principal amount of the then
     outstanding Notes make a written request to the Trustee to pursue the
     remedy;

          (c) such Holder of a Note or Holders of Notes offer and, if requested,
     provide to the Trustee indemnity satisfactory to the Trustee against any
     loss, liability or expense;

          (d) the Trustee does not comply with the request within 60 days after
     receipt of the request and the offer and, if requested, the provision of
     indemnity; and

          (e) during such 60-day period the Holders of a majority in principal
     amount of the then outstanding Notes do not give the Trustee a direction
     inconsistent with the request.

A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.



                                       46








SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.

          Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.

SECTION 6.08. COLLECTION SUIT BY TRUSTEE.

          If an Event of Default specified in Section 6.01 occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company or any Guarantor for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.

SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.

          The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.

SECTION 6.10. PRIORITIES.

          If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(premium, if any) or interest, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:



                                       47








          First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;

          Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any, and
interest, respectively; and

          Third: to the Company or to such party as a court of competent
jurisdiction shall direct.

          The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.

SECTION 6.11. UNDERTAKING FOR COSTS.

          In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.06 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.

SECTION 6.12. RESTORATION OF RIGHTS AND REMEDIES.

          If the Trustee or any Holder of Notes has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.


                                    ARTICLE 7
                                     TRUSTEE

SECTION 7.01. DUTIES OF TRUSTEE.

          (a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.

          (b) Except during the continuance of an Event of Default:



                                       48








          (i) the duties of the Trustee shall be determined solely by the
     express provisions of this Indenture and the Trustee need perform only
     those duties that are specifically set forth in this Indenture and no
     others, and no implied covenants or obligations shall be read into this
     Indenture against the Trustee; and

          (ii) in the absence of bad faith on its part, the Trustee may
     conclusively rely, as to the truth of the statements and the correctness of
     the opinions expressed therein, upon certificates or opinions furnished to
     the Trustee and conforming to the requirements of this Indenture. However,
     the Trustee shall examine the certificates and opinions to determine
     whether or not they conform to the requirements of this Indenture.

          (c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

          (i) this paragraph does not limit the effect of paragraph (b) of this
     Section;

          (ii) the Trustee shall not be liable for any error of judgment made in
     good faith by a Responsible Officer, unless it is proved that the Trustee
     was negligent in ascertaining the pertinent facts; and

          (iii) the Trustee shall not be liable with respect to any action it
     takes or omits to take in good faith in accordance with a direction
     received by it pursuant to Section 6.06 hereof.

          (d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.

          (e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

          (f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.

          (g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protections to the Trustee shall be
subject to the provisions of this Article 7 and to the provisions of the TIA.

SECTION 7.02. RIGHTS OF TRUSTEE.

          (a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.

          (b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take


                                       49








in good faith in reliance on such Officers' Certificate or Opinion of Counsel.
The Trustee may consult with counsel and the written advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and protection
from liability in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.

          (c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.

          (d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.

          (e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any Guarantor shall be
sufficient if signed by an Officer of the Company or such Guarantor.

          (f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to the provisions of this Indenture, including,
without limitation, the provisions of Section 6.06 hereof, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that might be incurred by it in compliance with
such request or direction.

          (g) The Trustee shall not be charged with knowledge of any Default or
Event of Default under Sections 6.01(3), 6.01(4), 6.01(5), 6.01(6), 6.01(7),
6.01(8) or 6.01(9) hereof and the Trustee shall not be charged with knowledge of
the existence of any Liquidated Damages unless either (i) a Responsible Officer
shall have actual knowledge thereof, or (ii) the Trustee shall have received
notice thereof in accordance with Section 12.02 hereof from the Company or any
Holder of Notes.

          (h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or document, but the Trustee, in its discretion may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company or the Guarantor, personally or by agent or attorney.

SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.

          The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Guarantor or any Affiliate of the Company or any Guarantor with the same rights
it would have if it were not Trustee. However, in the event that the Trustee
acquires any conflicting interest within the meaning of Section 3.10(b) of the
TIA it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.



                                       50








SECTION 7.04. TRUSTEE'S DISCLAIMER.

          The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.

SECTION 7.05.   NOTICE OF DEFAULTS.

           If a Default or Event of Default occurs and is continuing and if it
is known to a Responsible Officer, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.

SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.

          Within 60 days after each December 31 beginning with the December 31
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA ss. 313(c).

          A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA ss. 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.

SECTION 7.07. COMPENSATION AND INDEMNITY.

          The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.

          The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company or any
Guarantor (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company or any Guarantor or any Holder or any other
Person) or liability in connection with the exercise


                                       51








or performance of any of its powers or duties hereunder, except to the extent
any such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.

          The obligations of the Company under this Section 7.07 shall survive
the resignation or removal of the Trustee and the satisfaction and discharge of
this Indenture.

          To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the resignation or removal
of the Trustee and the satisfaction and discharge of this Indenture.

          When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(7) or (8) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.

          The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.

SECTION 7.08. REPLACEMENT OF TRUSTEE.

          A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.

          The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:

          (a) the Trustee fails to comply with Section 7.10 hereof;

          (b) the Trustee is adjudged a bankrupt or an insolvent or an order for
     relief is entered with respect to the Trustee under any Bankruptcy Law;

          (c) a Custodian or public officer takes charge of the Trustee or its
     property; or

          (d) the Trustee becomes incapable of acting.

          If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.



                                       52








          If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.

          If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.

          A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.

SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.

          If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.

SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.

          There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50 million
as set forth in its most recent published annual report of condition.

          This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).

SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

           The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.




                                       53








                                    ARTICLE 8
                    LEGAL DEFEASANCE AND COVENANT DEFEASANCE

SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.

          The Company may, at the option of its Board of Directors evidenced by
a Board Resolution, at any time, elect to have either Section 8.02 or 8.03
hereof be applied to all outstanding Notes upon compliance with the conditions
set forth below in this Article 8.

SECTION 8.02.   LEGAL DEFEASANCE AND DISCHARGE.

          Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest on such Notes when such payments
are due, (b) the Company's obligations with respect to such Notes under Article
2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Company's obligations in connection therewith
and (d) this Article 8. Subject to compliance with this Article 8, the Company
may exercise its option under this Section 8.02 notwithstanding the prior
exercise of its option under Section 8.03 hereof.

SECTION 8.03. COVENANT DEFEASANCE.

          Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.15, 4.16 and 4.17 hereof with respect to the outstanding
Notes on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.01 hereof, but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby. In


                                       54








addition, upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03 hereof, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, Sections 6.01(4) through 6.01(6)
hereof shall not constitute Events of Default.

SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.

          The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:

          In order to exercise either Legal Defeasance or Covenant Defeasance:

               (a) the Company must irrevocably deposit with the Trustee, in
          trust, for the benefit of the Holders, cash in United States dollars,
          non-callable Government Securities, or a combination thereof, in such
          amounts as will be sufficient, in the opinion of a nationally
          recognized firm of independent public accountants, to pay the
          principal of, premium and Liquidated Damages, if any, and interest on
          the outstanding Notes on the stated date for payment thereof or on the
          applicable redemption date, as the case may be;

               (b) in the case of an election under Section 8.02 hereof, the
          Company shall have delivered to the Trustee an Opinion of Counsel in
          the United States reasonably acceptable to the Trustee confirming that
          (A) the Company has received from, or there has been published by, the
          Internal Revenue Service a ruling or (B) since the date of this
          Indenture, there has been a change in the applicable federal income
          tax law, in either case to the effect that, and based thereon such
          Opinion of Counsel shall confirm that, the Holders of the outstanding
          Notes will not recognize income, gain or loss for federal income tax
          purposes as a result of such Legal Defeasance and will be subject to
          federal income tax on the same amounts, in the same manner and at the
          same times as would have been the case if such Legal Defeasance had
          not occurred;

               (c) in the case of an election under Section 8.03 hereof, the
          Company shall have delivered to the Trustee an Opinion of Counsel in
          the United States reasonably acceptable to the Trustee confirming that
          the Holders of the outstanding Notes will not recognize income, gain
          or loss for federal income tax purposes as a result of such Covenant
          Defeasance and will be subject to federal income tax on the same
          amounts, in the same manner and at the same times as would have been
          the case if such Covenant Defeasance had not occurred;

               (d) no Default or Event of Default shall have occurred and be
          continuing on the date of such deposit (other than a Default or Event
          of Default resulting from the incurrence of Indebtedness all or a
          portion of the proceeds of which will be used to defease the Notes
          pursuant to this Article 8 concurrently with such incurrence) or
          insofar as Sections 6.01(6) or 6.01(7) hereof is concerned, at any
          time in the period ending on the 123rd day after the date of deposit;

               (e) such Legal Defeasance or Covenant Defeasance shall not result
          in a breach or violation of, or constitute a default under, any
          material agreement or instrument (other than this Indenture) to which
          the Company or any of its Restricted Subsidiaries is a party or by
          which the Company or any of its Restricted Subsidiaries is bound;



                                       55








               (f) the Company shall have delivered to the Trustee an Opinion of
          Counsel to the effect that on the 123rd day following the deposit, the
          trust funds will not be subject to the effect of any applicable
          bankruptcy, insolvency, reorganization or similar laws affecting
          creditors' rights generally;

               (g) the Company shall have delivered to the Trustee an Officers'
          Certificate stating that the deposit was not made by the Company with
          the intent of preferring the Holders over any other creditors of the
          Company or with the intent of defeating, hindering, delaying or
          defrauding any other creditors of the Company; and

               (h) the Company shall have delivered to the Trustee an Officers'
          Certificate and an Opinion of Counsel, each stating that all
          conditions precedent provided for or relating to the Legal Defeasance
          or the Covenant Defeasance have been complied with.

SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; 
              OTHER MISCELLANEOUS PROVISIONS.

          Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.

          The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.

          Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.

SECTION 8.06. REPAYMENT TO COMPANY.

          Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such


                                       56








trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will be repaid to the Company.

SECTION 8.07. REINSTATEMENT.

           If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.


                                    ARTICLE 9
                        AMENDMENT, SUPPLEMENT AND WAIVER

SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.

          Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture or the Notes
without the consent of any Holder of a Note:

          (a) to cure any ambiguity, defect or inconsistency;

          (b) to provide for uncertificated Notes in addition to or in place of
     certificated Notes;

          (c) to provide for the assumption of the Company's obligations to the
     Holders of Notes in the case of a merger or consolidation pursuant to
     Article 5 hereof;

          (d) to make any change that would provide any additional rights or
     benefits to the Holders of the Notes or that does not adversely affect the
     legal rights hereunder of any Holder of Notes; or

          (e) to comply with requirements of the Commission in order to effect
     or maintain the qualification of this Indenture under the TIA.

          Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental indenture, and
upon receipt by the Trustee of the documents described in Section 7.02 hereof,
the Trustee shall join with the Company in the execution of any amended or
supplemental indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall


                                       57








not be obligated to enter into such amended or supplemental indenture that
affects its own rights, duties or immunities under this Indenture or otherwise.

SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.

          Except as provided below in this Section 9.02, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture and the Notes
may be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes),
and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of
Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, interest or Liquidated Damages, if any, on the
Notes, except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of this Indenture or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for the Notes).

          Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
the documents described in Section 7.02 hereof, the Trustee shall join with the
Company in the execution of such amended or supplemental indenture unless such
amended or supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such amended or
supplemental indenture.

          It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.

          After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the consent of
each Holder affected, an amendment or waiver may not (with respect to any Notes
held by a non-consenting Holder):

          (a) reduce the principal amount of Notes whose Holders must consent to
     an amendment, supplement or waiver;

          (b) reduce the principal of or change the fixed maturity of any Note
     or alter or waive any of the provisions with respect to the redemption of
     the Notes in a manner adverse to the Holders;

          (c) reduce the rate of or change the time for payment of interest,
     including default interest, on any Note;


                                       58









          (d) waive a Default or Event of Default in the payment of principal of
     or premium, if any, or interest on the Notes (except a rescission of
     acceleration of the Notes by the Holders of at least a majority in
     aggregate principal amount of the then outstanding Notes and a waiver of
     the payment default that resulted from such acceleration);

          (e) make any Note payable in money other than that stated in the
     Notes;

          (f) make any change in the provisions of this Indenture relating to
     waivers of past Defaults or the rights of Holders of Notes to receive
     payments of principal of or interest on the Notes;

          (g) waive a redemption payment with respect to any Note (other than a
     payment required by Section 4.10 or Section 4.14);

          (h) except pursuant to Sections 4.16 or 4.17, release any Guarantor
     from its obligations under its Guarantee, or change any Guarantee in any
     manner that would adversely affect the Holders; or

          (i) make any change in Section 6.04 or 6.07 hereof or in the foregoing
     amendment and waiver provisions.

SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.

          Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental indenture that complies with the TIA as
then in effect.

SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.

          Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.

SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.

          The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.

           Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.



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SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.

          The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01) shall be
fully protected in relying upon, in addition to the documents required by
Section 12.04, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.


                                   ARTICLE 10
                                   GUARANTEES

SECTION 10.01. GUARANTEE.

          Each Guarantor and each Restricted Subsidiary of the Company which in
accordance with Section 4.16 or 4.17 hereof is required to guarantee the
obligations of the Company under the Notes, upon execution of a counterpart of
this Indenture, hereby jointly and severally unconditionally guarantees to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity or enforceability
of this Indenture, the Notes or the obligations of the Company under this
Indenture or the Notes, that: (i) the principal of, premium (if any) and
interest and Liquidated Damages, if any, on the Notes will be paid in full when
due, whether at the maturity or interest payment date, by acceleration, call for
redemption or otherwise, and interest on the overdue principal of, interest or
Liquidated Damages, if any, on the Notes and all other obligations of the
Company to the Holders or the Trustee under this Indenture or the Notes will be
promptly paid in full or performed, all in accordance with the terms of this
Indenture and the Notes; and (ii) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, they will be paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at maturity, by acceleration or otherwise. Failing payment when due of
any amount so guaranteed for whatever reason, each Guarantor will be obligated
to pay the same whether or not such failure to pay has become an Event of
Default which could cause acceleration pursuant to Section 6.02 hereof. Each
Guarantor agrees that this is a guarantee of payment not a guarantee of
collection.

          Each Guarantor hereby agrees that its obligations with regard to this
Subsidiary Guarantee shall be joint and several, unconditional, irrespective of
the validity or enforceability of the Notes or the obligations of the Company
under this Indenture, the absence of any action to enforce the same, the
recovery of any judgment against the Company or any other obligor with respect
to this Indenture, the Notes or the obligations of the Company under this
Indenture or the Notes, any action to enforce the same or any other
circumstances (other than complete performance) which might otherwise constitute
a legal or equitable discharge or defense of a Guarantor. Each Guarantor
further, to the extent permitted by law, waives and relinquishes all claims,
rights and remedies accorded by applicable law to guarantors and agrees not to
assert or take advantage of any such claims, rights or remedies, including but
not limited to: (a) any right to require the Trustee, the Holders or the Company
(each, a "Benefitted Party") to proceed against the Company or any other Person
or to proceed against or exhaust any security held by a Benefitted Party at any
time or to pursue any other remedy in any Benefitted Party's power before


                                       60








proceeding against such Guarantor; (b) the defense of the statute of limitations
in any action hereunder or in any action for the collection of any Indebtedness
or the performance of any obligation hereby guaranteed; (c) any defense that may
arise by reason of the incapacity, lack of authority, death or disability of any
other Person or the failure of a Benefitted Party to file or enforce a claim
against the estate (in administration, bankruptcy or any other proceeding) of
any other Person; (d) demand, protest and notice of any kind including but not
limited to notice of the existence, creation or incurring of any new or
additional Indebtedness or obligation or of any action or non-action on the part
of such Guarantor, the Company, any Benefitted Party, any creditor of such
Guarantor, the Company or on the part of any other Person whomsoever in
connection with any Indebtedness or obligations hereby guaranteed; (e) any
defense based upon an election of remedies by a Benefitted Party, including but
not limited to an election to proceed against such Guarantor for reimbursement;
(f) any defense based upon any statute or rule of law which provides that the
obligation of a surety must be neither larger in amount nor in other respects
more burdensome than that of the principal; (g) any defense arising because of a
Benefitted Party's election, in any proceeding instituted under Bankruptcy Law,
of the application of 11 U.S.C. Section 1111(b)(2); or (h) any defense based on
any borrowing or grant of a security interest under 11 U.S.C. Section 364. Each
Guarantor hereby covenants that its Subsidiary Guarantee will not be discharged
except by complete performance of the obligations contained in its Subsidiary
Guarantee and this Indenture.

          If any Holder or the Trustee is required by any court or otherwise to
return to either the Company or any Guarantor, or any Custodian acting in
relation to either the Company or such Guarantor, any amount paid by the Company
or such Guarantor to the Trustee or such Holder, the applicable Subsidiary
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor agrees that it will not be entitled to any
right of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.

          Each Guarantor further agrees that, as between such Guarantor, on the
one hand, and the Holders and the Trustee, on the other hand, (i) the maturity
of the Obligations guaranteed hereby may be accelerated as provided in Section
6.02 hereof for the purposes of this Subsidiary Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration as to the
Company or any other obligor on the Notes of the Obligations guaranteed hereby,
and (ii) in the event of any declaration of acceleration of those Obligations as
provided in Section 6.02 hereof, those Obligations (whether or not due and
payable) will forthwith become due and payable by such Guarantor for the purpose
of this Subsidiary Guarantee.

          To evidence its Subsidiary Guarantee, each Guarantor hereby agrees
that a notation of such Guarantee substantially in the form of Exhibit A-1
hereto shall be endorsed by an officer of such Guarantor on each Note
authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of such Guarantor by its President or one of its Vice
Presidents and attested to by an Officer.

SECTION 10.02.  SUBORDINATION.

          Each Guarantor, the Trustee, and each Holder by accepting a Note
agrees, that the Indebtedness evidenced by the Subsidiary Guarantee is
subordinated in right of payment, to the extent and in the manner provided in
this Article 10, to the prior payment in full of all Obligations with respect to
Senior Debt of such Guarantor (whether outstanding on the date hereof or
hereafter created, incurred, assumed


                                       61








or guaranteed), and that the subordination is for the benefit of the holders of
Senior Debt of such Guarantor.

SECTION 10.03. DISSOLUTION, LIQUIDATION OR REORGANIZATION.

          Upon any distribution of assets of any Guarantor upon any dissolution,
winding up, liquidation or reorganization of such Guarantor (whether in
bankruptcy, insolvency, receivership or similar proceeding related to the
Guarantor or its property or upon an assignment for the benefit of creditors or
otherwise):

          (a) the holders of all Senior Debt of such Guarantor will first be
     entitled to receive payment in full in cash or U.S. dollar denominated Cash
     Equivalents of the principal of and interest due on Senior Debt of such
     Guarantor and other amounts due in connection with Senior Debt of such
     Guarantor (including interest accruing subsequent to certain bankruptcy
     events and certain winding up events described in clauses (6) and (7) of
     Section 6.01 hereof at the rate provided for in the documents governing
     such Senior Debt, whether or not such interest is an allowed claim
     enforceable against the debtor in a bankruptcy case under Title 11 of the
     United States Code) before the Holders are entitled to receive any payment
     or distribution from such Guarantor with respect to such Guarantor's
     Subsidiary Guarantee;

          (b) any payment or distribution of assets of such Guarantor of any
     kind or character, whether in cash, property or securities, to which the
     Holders or the Trustee would be entitled except for the provisions of this
     Article 10 will be paid by the liquidating trustee or agent or other Person
     making such a payment or distribution directly to the holders of Senior
     Debt of such Guarantor or their Representatives to the extent necessary to
     make payment in full in cash or U.S. dollar denominated Cash Equivalents of
     all Senior Debt of such Guarantor remaining unpaid, after giving effect to
     any concurrent payment or distribution to the holders of such Senior Debt;
     and

          (c) if, notwithstanding the foregoing, any payment or distribution of
     assets of such Guarantor of any kind or character, whether in cash,
     property or securities, is received by the Trustee or the Holders on
     account of the Subsidiary Guarantee before all Senior Debt of such
     Guarantor is paid in full in cash or U.S. dollar denominated Cash
     Equivalents, such payment or distribution will be received and held in
     trust for and will be paid over forthwith to the holders of the Senior Debt
     of such Guarantor remaining unpaid or their Representatives for application
     to the payment of such Senior Debt until all such Senior Debt has been paid
     in full in cash or U.S. dollar denominated Cash Equivalents, after giving
     effect to any concurrent payment or distribution to the holders of such
     Senior Debt (except that Holders may receive payments made from the trust
     described in Section 8.04 hereof).

          Each Guarantor will give prompt written notice to the Holders and to
     the Trustee of any dissolution, winding up, liquidation or reorganization
     of such Guarantor or any assignment for the benefit of its creditors and of
     any event of default in respect of Senior Debt of such Guarantor.

           For purposes of this Article 10, the words "cash, property or
securities" shall not be deemed to include (i) shares of Capital Stock of a
Guarantor as reorganized or readjusted (excluding Capital Stock redeemable at
the option of the holder thereof prior to the final maturity date or any
mandatory pre-payment date with respect to any Designated Senior Debt of such
Guarantor or Guarantor Significant


                                       62








Senior Debt (as defined below), (ii) Capital Stock convertible into or
exchangeable for Indebtedness which is subordinated, to at least the same extent
as the Subsidiary Guarantee, to the payment of all Senior Debt of such Guarantor
then outstanding, (iii) securities of the Guarantor or any other corporation
provided for by a plan of reorganization or readjustment which are subordinated,
to at least the same extent as the Subsidiary Guarantee, to the payment of all
Senior Debt of such Guarantor then outstanding, or (iv) any payment or
distribution of securities of such Guarantor or any other corporation authorized
by an order or decree giving effect, and stating in such order or decree that
effect has been given, to subordination of the Subsidiary Guarantee to Senior
Debt of such Guarantor and made by a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy, insolvency or similar
law.

SECTION 10.04. DEFAULT ON SENIOR DEBT OF THE GUARANTOR.

          (a) No payment will be made on account of the Subsidiary Guarantees,
or to acquire any of the Notes for cash, property or securities or on account of
the redemption provisions of the Notes upon the maturity of any (i) Senior Bank
Debt or other Designated Senior Debt guaranteed by a Guarantor or (ii) any
Senior Debt permitted by clause (xiv) of the second paragraph of Section 4.09
hereof guaranteed by a Guarantor and any other Senior Debt of a Guarantor issued
in a single transaction or a series of related transactions having an aggregate
principal amount outstanding of $5.0 million or more ("Guarantor Significant
Senior Debt"), by lapse of time, acceleration or otherwise, unless and until all
such Designated Senior Debt or Guarantor Significant Senior Debt, as the case
may be (including interest accruing subsequent to certain bankruptcy events and
certain winding up events at the rate provided for in documents governing such
Senior Debt, whether or not such interest is an allowed claim enforceable
against the debtor in a bankruptcy case under Title 11 of the United States
Code), shall first be paid in full in cash or U.S. dollar denominated Cash
Equivalents.

          (b) No Guarantor may make any payment or distribution upon or in
respect of its Subsidiary Guarantee, including, without limitation, by way of
set-off or otherwise, or redeem (or make a deposit in redemption of), defease or
acquire any of the Notes, for cash, property or securities if (i) a default in
the payment of any Obligation under any Significant Senior Debt that is
guaranteed by such Guarantor or any Designated Senior Debt or in the payment of
any Obligation of such Guarantor with respect to (a) any Guarantee of Designated
Senior Debt or (b) Guarantor Significant Senior Debt occurs and is continuing or
(ii) any other default (or any event that, after notice or passage of time would
become an event of default) occurs and is continuing with respect to any
Designated Senior Debt and, in the case of clause (ii), the Trustee receives
notice of such default (a "Payment Blockage Notice") from the holders (or the
agent or Representative of such holders) of any Designated Senior Debt. Payment
on the Notes or any Subsidiary Guarantee may and shall be resumed (i) in the
case of a payment default, upon the date on which such default is cured or
waived and (ii) in case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the maturity of
any such Designated Senior Debt or Guarantor Significant Senior Debt has been
accelerated. No new period of payment blockage pursuant to a Payment Blockage
Notice may be commenced unless and until (i) 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.



                                       63








          (c) If any payment or distribution of assets of a Guarantor is
received by any Holder in respect of the Subsidiary Guarantees at a time when
that payment or distribution should not have been made because of paragraph (a)
or (b), such payment or distribution will be received and held in trust for and
will be paid over forthwith to the holders of Senior Debt of such Guarantor
which is due and payable and remains unpaid (pro rata as to each of such holders
on the basis of the respective amounts of Senior Debt of such Guarantor which is
due and payable held by them) until all such Senior Debt of such Guarantor has
been paid in full in cash or U.S. dollar denominated Cash Equivalents, after
giving effect to any concurrent payment or distribution to the holders of such
Senior Debt (except that Holders may receive payments made from the trust
described in Section 8.04 hereof).

SECTION 10.05. ACCELERATION OF NOTES.

          If payment of the Notes is accelerated because of an Event of Default,
each Guarantor shall promptly notify the Representative of the holders of Senior
Debt of such Guarantor of the acceleration.

SECTION 10.06. SUBROGATION.

          With respect to any Guarantor, following the payment in full of all
Senior Debt of such Guarantor, the Holders will be subrogated to the rights of
the holders of Senior Debt of such Guarantor to receive payments or
distributions of assets of such Guarantor applicable to the Senior Debt of such
Guarantor until all amounts owing on the Notes have been paid in full, and for
the purpose of such subrogation no such payments or distributions to the holders
of Senior Debt of such Guarantor by or on behalf of the Guarantor or by or on
behalf of the Holders by virtue of this Article 10 which otherwise would have
been made to the Holders will, as between the Guarantor and Holders, be deemed
to be payment by the Guarantor to or on account of the Senior Debt of such
Guarantor, it being understood that the provisions of this Article 10 are
intended solely for the purpose of defining the relative rights of the Holders,
on the one hand, and the holders of Senior Debt of any Guarantor, on the other
hand.

SECTION 10.07. OBLIGATIONS UNCONDITIONAL.

          Nothing contained in this Article 10 or elsewhere in this Indenture or
the Notes is intended to or will impair, as between any Guarantor and the
Holders, the obligations of the Guarantor, which are absolute and unconditional,
to pay principal of, interest and Liquidated Damages, if any, on the Notes in
accordance with the terms of the Subsidiary Guarantee as and when such
Obligations become due and payable, or is intended to or will affect the
relative rights of the Holders and creditors of the Guarantor other than the
holders of the Senior Debt of such Guarantor, nor will anything herein or
therein prevent any Holder from exercising all remedies otherwise permitted by
applicable law upon default of the Notes, subject to the rights, if any, under
this Article 10 of the holders of Senior Debt of such Guarantor in respect of
cash, property or securities of the Guarantor received upon the exercise of any
such remedy.

SECTION 10.08. RELATIVE RIGHTS.

          No right of any present or future holders of any Senior Debt of any
Guarantor to enforce subordination as provided in this Article 10 will at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Guarantor or by any act or failure to act by any such holders, or by
any noncompliance by the Guarantor with the terms of the Notes, regardless of
any knowledge thereof which any such holders may have or otherwise be charged
with. The holders of Senior Debt of any


                                       64








Guarantor may extend, renew, modify or amend the terms of the Senior Debt or any
security therefor and release, sell or exchange such security and otherwise deal
freely with the Guarantor, all without affecting the liabilities and obligations
of the parties to the document or the Holders. No amendment to these provisions
will be effective against the holders of the Senior Debt of any Guarantor who
have not consented thereto in writing.

SECTION 10.09. EVENT OF DEFAULT PRESERVED.

          The failure to make a payment on account of any Subsidiary Guarantee
by reason of any provision of this Article 10 will not be construed as
preventing the occurrence of an Event of Default.

SECTION 10.10. TRUSTEE DUTIES.

          With respect to the holders of Senior Debt of any Guarantor, the
Trustee undertakes to perform only such obligations on the part of the Trustee
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt of such Guarantor shall
be read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of Senior Debt of such Guarantor, and
shall not be liable to any such holders if the Trustee shall pay over or
distribute to or on behalf of Holders or the Company or any other Person money
or assets to which any holders of Senior Debt of such Guarantor shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.

SECTION 10.11. NOTICE BY A GUARANTOR.

          Each Guarantor shall promptly notify the Trustee and the Paying Agent
of any facts known to such Guarantor that would cause a payment of any
Obligations with respect to the Notes or its Subsidiary Guarantee to violate
this Article 10, but failure to give such notice shall not affect the
subordination of its Subsidiary Guarantee or of the Notes to the Senior Debt of
such Guarantor as provided in this Article 10.

SECTION 10.12. SUBORDINATION MAY NOT BE IMPAIRED BY GUARANTOR.

          No right of any holder of Senior Debt of any Guarantor to enforce the
subordination of the Indebtedness evidenced by a Subsidiary Guarantee shall be
impaired by any act or failure to act by the Guarantor or any Holder or by the
failure of the Guarantor or any Holder to comply with this Indenture.

SECTION 10.13. RELIANCE UPON ORDER.

          Upon any payment or distribution of assets of a Guarantor referred to
in this Article 10, the Trustee and the Holders shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction or upon any
certificate of the liquidating trustee or agent or other Person making any
distribution to the Trustee or to the Holders for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Debt of such Guarantor and other Indebtedness of the Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 10; provided
that the foregoing shall only apply if such court has been apprised of the
subordination provisions of this Article 10.


                                       65









SECTION 10.14. RIGHTS OF TRUSTEE AND PAYING AGENT.

          Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article 10. Nothing in this Article 10
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.07 hereof.

          The Trustee in its individual or any other capacity may hold Senior
Debt of a Guarantor with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights.

SECTION 10.15. AUTHORIZATION TO EFFECT SUBORDINATION.

          Each Holder of a Note by the Holder's acceptance thereof authorizes
and directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding relative to any
Guarantor referred to in Section 6.09 hereof at least 30 days before the
expiration of the time to file such claim, the Representatives of Senior Debt of
such Guarantor are hereby authorized to file an appropriate claim for and on
behalf of the Holders of the Notes.

SECTION 10.16. AMENDMENTS.

          With respect to any Guarantor, the provisions of Section 10.02 through
10.16 hereof shall not be amended or modified without the written consent of the
holders of all Senior Debt of such Guarantor.

SECTION 10.17. LIMITATION OF GUARANTOR'S LIABILITY.

          Each Guarantor and by its acceptance hereof, each beneficiary hereof,
hereby confirm that it is its intention that the Subsidiary Guarantee of such
Guarantor not constitute a fraudulent transfer or conveyance for purposes of the
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state law to the extent applicable to any
Guarantee. To effectuate the foregoing intention, each such person hereby
irrevocably agrees that the obligation of such Guarantor under its Subsidiary
Guarantee under this Article 10 shall be limited to the maximum amount as will,
after giving effect to such maximum amount and all other (contingent or
otherwise) liabilities of such Guarantor that are relevant under such laws, and
after giving effect to any collections from, rights to receive contribution from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under this Article 10, result in the
obligations of such Guarantor in respect of such maximum amount not constituting
a fraudulent conveyance. Each beneficiary under the Subsidiary Guarantees, by
accepting the benefits hereof, confirms its intention that, in the event of a
bankruptcy, reorganization or other similar proceeding of the Company or any
Guarantor in which concurrent claims are made upon such Guarantor hereunder, to
the extent such claims will not be fully satisfied, each such claimant with a
valid claim against the Company shall be entitled to a ratable share of all
payments by such Guarantor in respect of such concurrent claims.


                                       66








                                   ARTICLE 11
                                  SUBORDINATION

SECTION 11.01. AGREEMENT TO SUBORDINATE.

          The Company, for itself and its successors, and each Holder, by its
acceptance of the Notes, agrees that the payment of all Obligations with respect
to the Notes and this Indenture, including principal, premium, if any, and
interest (including post-petition interest, as provided below) on, and
Liquidated Damages, if any, with respect to, the Notes and any claim for
rescission or damages in respect thereof under any applicable law (the
"Subordinated Obligations") by the Company is subordinated, to the extent and in
the manner provided in this Article 11, to the prior payment of Senior Debt.

          This Article 11 will constitute a continuing offer to all persons who,
in reliance upon its provisions, become holders of, or continue to hold, Senior
Debt, and such provisions are made for the benefit of the holders of Senior
Debt, and such holders are made obligees under this Article 11 and they and/or
each of them may enforce its provisions.

SECTION 11.02. NO PAYMENT ON NOTES UNDER CERTAIN CIRCUMSTANCES.

          (a) No payment will be made on account of the Subordinated
Obligations, or to acquire any of the Notes for cash, property or securities or
on account of the redemption provisions of the Notes upon the maturity of any
(i) Designated Senior Debt or (ii) any Senior Debt permitted by clause (xiv) of
the second paragraph of Section 4.09 of this Indenture and any other outstanding
Senior Debt issued in a single transaction or a series of related transactions
having an aggregate principal amount outstanding of $5.0 million or more
("Significant Senior Debt"), by lapse of time, acceleration or otherwise, unless
and until all such Designated Senior Debt or Significant Senior Debt, as the
case may be (including interest accruing subsequent to certain bankruptcy events
and certain winding up events at the rate provided for in documents governing
such Senior Debt, whether or not such interest is an allowed claim enforceable
against the debtor in a bankruptcy case under Title 11 of the United States
Code), shall first be paid in full in cash or U.S. dollar denominated Cash
Equivalents.

          (b) The Company may not make any payment or distribution upon or in
respect of the Subordinated Obligations, including, without limitation, by way
of set-off or otherwise, or redeem (or make a deposit in redemption of), defease
or acquire any of the Notes, for cash, property or securities if (i) a default
in the payment of any Obligation of the Company with respect to (a) any
Designated Senior Debt or (b) any Significant Senior Debt, occurs and is
continuing or (ii) any other default (or any event that, after notice or passage
of time would become an event of default) occurs and is continuing with respect
to any Designated Senior Debt and, in the case of clause (ii), the Trustee
receives a Payment Blockage Notice from the holders (or the agent or
Representative of such holders) of any Designated Senior Debt. Payment on the
Notes may and shall be resumed (i) in the case of a payment default, upon the
date on which such default is cured or waived and (ii) in case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any such Designated Senior Debt or
Significant Senior Debt has been accelerated. No new period of payment blockage
pursuant to a Payment Blockage Notice may be commenced unless and until (i) 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of


                                       67








principal, premium, if any, and interest on the Notes that have come due have
been paid in full in cash. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall be,
or be made, the basis for a subsequent Payment Blockage Notice.

          (c) If any payment or distribution of assets of the Company is
received by any Holder in respect of the Subordinated Obligations at a time when
that payment or distribution should not have been made because of paragraph (a)
or (b), such payment or distribution will be received and held in trust for and
will be paid over forthwith to the holders of Senior Debt which is due and
payable and remains unpaid (pro rata as to each of such holders on the basis of
the respective amounts of Senior Debt which is due and payable held by them)
until all such Senior Debt has been paid in full in cash or U.S. dollar
denominated Cash Equivalents, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt (except that Holders may receive
payments made from the trust described in Section 8.04 hereof).

SECTION 11.03. DISSOLUTION, LIQUIDATION OR REORGANIZATION.

          Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency, receivership or similar proceeding related to the Company or its
property or upon an assignment for the benefit of creditors or otherwise):

          (a) the holders of all Senior Debt will first be entitled to receive
     payment in full in cash or U.S. dollar denominated Cash Equivalents of the
     principal of and interest due on Senior Debt and other amounts due in
     connection with Senior Debt (including interest accruing subsequent to
     certain bankruptcy events and certain winding up events described in
     clauses (6) and (7) of Section 6.01 hereof at the rate provided for in the
     documents governing such Senior Debt, whether or not such interest is an
     allowed claim enforceable against the debtor in a bankruptcy case under
     Title 11 of the United States Code) before the Holders are entitled to
     receive any payment on account of the principal of, premium, if any, or
     interest or Liquidated Damages, if any, on the Notes;

          (b) any payment or distribution of assets of the Company of any kind
     or character, whether in cash, property or securities, to which the Holders
     or the Trustee would be entitled except for the provisions of this Article
     11 will be paid by the liquidating trustee or agent or other person making
     such a payment or distribution directly to the holders of Senior Debt or
     their Representatives to the extent necessary to make payment in full in
     cash or U.S. dollar denominated Cash Equivalents of all Senior Debt
     remaining unpaid, after giving effect to any concurrent payment or
     distribution to the holders of such Senior Debt; and

          (c) if, notwithstanding the foregoing, any payment or distribution of
     assets of the Company of any kind or character, whether in cash, property
     or securities, is received by the Trustee or the Holders on account of the
     Subordinated Obligations before all Senior Debt is paid in full in cash or
     U.S. dollar denominated Cash Equivalents, such payment or distribution will
     be received and held in trust for and will be paid over forthwith to the
     holders of the Senior Debt remaining unpaid or their Representatives for
     application to the payment of such Senior Debt until all such Senior Debt
     has been paid in full in cash or U.S. dollar denominated Cash Equivalents,
     after giving effect to any concurrent payment or distribution to the
     holders of such Senior Debt (except that Holders may receive payments made
     from the trust described in Section 8.04 hereof).



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          The Company will give prompt written notice to the Holders of any
     dissolution, winding up, liquidation or reorganization of it or any
     assignment for the benefit of its creditors and of any event of default in
     respect of Senior Debt.

          For purposes of this Article 11, the words "cash, p