UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 333-17895
Rayovac Corporation
--------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 22-2423556
----------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 Rayovac Drive, Madison, Wisconsin 53711
-------------------------------------------
(Address of principal executive offices) (Zip Code)
(608) 275-3340
--------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the Registrant's common stock, $.01
par value per share, as of August 4, 1998, was 27,441,266.
1
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
RAYOVAC CORPORATION
Condensed Consolidated Balance Sheets
As of June 27, 1998 and September 30, 1997
(In thousands, except per share amounts)
-ASSETS-
June 27, 1998 September 30, 1997
------------- ------------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,624 $ 1,133
Receivables 76,547 79,669
Inventories 63,357 58,551
Prepaid expenses and other 15,223 15,027
------------------------ ------------------------
Total current assets 156,751 154,380
Property, plant and equipment, net 68,595 65,511
Deferred charges and other 28,439 16,990
------------------------ ------------------------
Total assets $ 253,785 $ 236,881
======================== ========================
-LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)-
Current liabilities:
Current maturities of long-term debt $ 1,875 $ 23,880
Accounts payable 48,127 57,259
Accrued liabilities:
Wages and benefits and other 24,633 34,812
Recapitalization and other special charges 8,176 4,612
------------------------ ------------------------
Total current liabilities 82,811 120,563
Long-term debt, net of current maturities 140,244 183,441
Employee benefit obligations, net of current portion 8,111 11,291
Other 3,571 2,181
------------------------ ------------------------
Total liabilities 234,737 317,476
Shareholders' equity (deficit):
Common stock, $.01 par value, authorized 150,000 and 90,000 shares
respectively; issued 56,885 and 50,000 shares respectively;
outstanding 27,441 and 20,581 shares, respectively 569 500
Additional paid-in capital 105,097 15,974
Foreign currency translation adjustments 2,238 2,270
Notes receivable from officers/shareholders (986) (1,658)
Retained earnings 40,747 31,321
------------------------ ------------------------
147,665 48,407
Less stock held in trust for deferred compensation
plan, 24 and 160 shares, respectively (145) (962)
Less treasury stock, at cost, 29,444 and 29,419
shares, respectively (128,472) (128,040)
------------------------ ------------------------
Total shareholders' equity (deficit) 19,048 (80,595)
------------------------ ------------------------
Total liabilities and shareholders' equity (deficit) $253,785 $236,881
======================== ========================
See accompanying notes which are an integral part of these statements.
2
RAYOVAC CORPORATION
Condensed Consolidated Statements of Operations
For the three month and nine month periods ended June 27, 1998 and June 28, 1997
(Unaudited)
(In thousands, except per share amounts)
THREE MONTHS NINE MONTHS
------------ -----------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 111,054 $ 95,466 $ 357,130 $ 321,021
Cost of goods sold 57,830 52,217 185,730 178,359
------------- ----------- ----------- ------------
Gross profit 53,224 43,249 171,400 142,662
Selling 31,835 25,837 105,511 87,110
General and administrative 9,179 7,335 26,542 22,599
Research and development 1,537 1,351 4,571 4,781
Other special charges 985 223 5,002 4,940
------------- ----------- ----------- ------------
Total operating expenses 43,536 34,746 141,626 119,430
Income from operations 9,688 8,503 29,774 23,232
Other expense (income):
Interest expense 3,501 5,438 11,816 18,884
Other expense (income) 24 (107) (335) 207
------------- ----------- ----------- ------------
3,525 5,331 11,481 19,091
Income before income taxes and extraordinary item 6,163 3,172 18,293 4,141
Income tax expense 2,314 520 6,892 829
------------- ----------- ----------- ------------
Income before extraordinary item 3,849 2,652 11,401 3,312
Extraordinary item, loss on early extinguishment of debt,
net of income tax benefit of $1,263 -- -- 1,975 --
------------- ----------- ----------- ------------
Net income $ 3,849 $ 2,652 $ 9,426 $ 3,312
============= =========== =========== ============
Average shares outstanding 27,435 20,581 26,136 20,513
Basic earnings per share
Income before extraordinary item $ 0.14 $ 0.13 $ 0.44 $ 0.16
Extraordinary item -- -- (0.08) --
------------- ----------- ----------- ------------
Net income $ 0.14 $ 0.13 $ 0.36 $ 0.16
============= =========== =========== ============
Average shares and common stock equivalents outstanding 29,226 20,611 27,743 20,542
Diluted earnings per share
Income before extraordinary item $ 0.13 $ 0.13 $ 0.41 $ 0.16
Extraordinary item -- -- (0.07) --
------------- ----------- ----------- ------------
Net income $ 0.13 $ 0.13 $ 0.34 $ 0.16
============= =========== =========== ============
See accompanying notes which are an integral part of these statements.
3
RAYOVAC CORPORATION
Condensed Consolidated Statements
of Cash Flows For the nine month periods
ended June 27, 1998 and June 28, 1997
(Unaudited)
(In thousands)
1998 1997
Cash flows from operating activities:
Net income $ 9,426 $ 3,312
Non-cash adjustments to net income:
Amortization 2,331 3,171
Depreciation 8,513 8,678
Other non-cash adjustments (2,190) (885)
Net changes in other assets and liabilities,
net of effects from acquisitions (24,967) 18,350
--------- ---------
Net cash (used) provided by operating activities (6,887) 32,626
Cash flows from investing activities:
Purchases of property, plant and equipment (11,666) (5,074)
Proceeds from sale of property, plant and equipment 3,327 50
Payment for acquisitions (9,224) -
Other - (215)
--------- ---------
Net cash used by investing activities (17,563) (5,239)
Cash flows from financing activities:
Reduction of debt (139,644) (140,949)
Proceeds from debt financing 73,959 113,573
Proceeds from issuance of common stock 90,024 -
Other 625 486
--------- ---------
Net cash provided (used) by financing activities 24,964 (26,890)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents (23) 4
--------- ---------
Net increase in cash and cash equivalents 491 501
Cash and cash equivalents, beginning of period 1,133 4,255
--------- ---------
Cash and cash equivalents, end of period $ 1,624 $ 4,756
========= =========
See accompanying notes which are an integral part of these statements.
4
RAYOVAC CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands, except per share amounts)
1 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: These financial statements have been prepared by
Rayovac Corporation (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the
"SEC") and, in the opinion of the Company, include all adjustments (all
of which are normal and recurring in nature) necessary to present
fairly the financial position of the Company at June 27, 1998, results
of operations for the three and nine month periods ended June 27, 1998
and June 28, 1997, and cash flows for the nine month periods ended June
27, 1998 and June 28, 1997. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations.
These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto as
of September 30, 1997.
Derivative Financial Instruments: Derivative financial instruments are
used by the Company principally in the management of its interest rate,
foreign currency and raw material price exposures.
The Company uses interest rate swaps to manage its interest rate risk.
The net amounts to be paid or received under interest rate swap
agreements designated as hedges are accrued as interest rates change
and are recognized over the life of the swap agreements, as an
adjustment to interest expense from the underlying debt to which the
swap is designated. The related amounts payable to, or receivable from,
the counter-parties are included in accrued liabilities or accounts
receivable. The Company has entered into an interest rate swap
agreement which effectively fixes the interest rate on floating rate
debt at a rate of 6.16% for a notional principal amount of $62,500
through October 1999. The fair value of this contract at June 27, 1998
was ($425).
The Company has entered into an amortizing cross currency interest rate
swap agreement related to financing the acquisition of Brisco (as
defined herein). The agreement effectively fixes the interest and
foreign exchange on floating rate debt denominated in U.S. Dollars at a
rate of 5.34% denominated in German Marks. The unamortized notional
principal amount at June 27, 1998 is approximately $4,500. The fair
value at June 27, 1998 was $98.
The Company enters into forward foreign exchange contracts to mitigate
the risk from anticipated settlement in local currencies of
intercompany purchases and sales. These contracts generally require the
Company to exchange foreign currencies for U.S. dollars. The contracts
are marked to market and the related adjustment is recognized in other
expense (income). The related amounts payable to, or receivable from,
the counter-parties are included in accounts payable, or accounts
receivable. The Company has approximately $5,300 of such forward
exchange contracts at June 27, 1998. The fair value at June 27, 1998,
approximated the contract value.
The Company also enters into forward foreign exchange contracts to
hedge the risk from anticipated settlement in local currencies of trade
sales. These contracts generally require the Company to exchange
foreign currencies for Pounds Sterling. The related amounts receivable
from the trade customers are included in accounts receivable. The
Company has approximately $4,000 of such forward exchange contracts at
June 27, 1998. The fair value at June 27, 1998 was ($76).
The Company enters into forward foreign exchange contracts to hedge the
risk from settlement in local currencies of trade purchases. These
contracts generally require the Company to exchange foreign currencies
for U.S. Dollars or Pounds Sterling. The Company has entered into
foreign exchange contracts to hedge payment obligations denominated in
Japanese Yen under a commitment to purchase certain production
equipment from Matsushita. The Company has approximately $6,700 of such
forward exchange contracts outstanding at June 27, 1998. The fair value
at June 27, 1998 was ($666).
5
The Company is exposed to risk from fluctuating prices for zinc and
silver commodities used in the manufacturing process. The company
hedges some of this risk through the use of commodity swaps, calls and
puts. The swaps effectively fix the floating price on a specified
quantity of a commodity through a specified date. Buying calls allows
the Company to purchase a specified quantity of a commodity for a fixed
price through a specified date. Selling puts allows the buyer of the
put to sell a specified quantity of a commodity to the Company for a
fixed price through a specific date. The maturity of, and the
quantities covered by, the contracts highly correlate to the Company's
anticipated purchases of the commodities. The cost of the calls and the
premiums received from the puts are amortized over the life of the
contracts and are recorded in cost of goods sold, along with the
effects of the swap, put and call contracts.
At June 27, 1998, the Company had entered into a series of swaps for
zinc with a contract value of approximately $5,800 for the period June
1998 through September 1999. At June 27, 1998, the Company had
purchased a series of calls with a contract value of approximately
$2,400 and sold a series of puts with a contract value of approximately
$2,200 for portions of the period from June 1998 through March 1999,
designed to set a ceiling and floor price for zinc. While these
transactions have no carrying value, the fair value of these contracts
was approximately ($800) at June 27, 1998.
At June 27, 1998, the Company had entered into a series of swaps for
silver with a contract value of approximately $1,100 for the period
June 1998 through September 1998. While these transactions have no
carrying value, the fair value of these contracts at June 27, 1998
approximated the contract value.
2 INVENTORIES
Inventories consist of the following:
June 27, 1998 September 30, 1997
-------------- ------------------
Raw material $22,241 $23,291
Work-in-process 17,803 15,286
Finished goods 23,314 19,974
------- -------
$63,357 $58,551
======= =======
3 EARNINGS PER SHARE DISCLOSURE
Earnings per share is calculated based upon the following:
Three Months Ended June 27, 1998 Three Months Ended June 28, 1997
---------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Income before
extraordinary $3,849 $2,652
item
Basic EPS
Income available to common
shareholders $3,849 27,435 $0.14 $2,652 20,581 $0.13
------ ----- ------ -----
Effect of Dilutive
Securities
Stock Options 1,791 30
------ ------
Diluted EPS
Income available to common
shareholders plus assumed
conversion $3,849 29,226 $0.13 $2,652 20,611 $0.13
====== ====== ===== ====== ====== =====
6
Nine Months Ended June 27, 1998 Nine Months Ended June 28, 1997
---------------------------------------- ----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Income before extraordinary
item $11,401 $3,312
Basic EPS
Income available to common
shareholders 11,401 26,136 $0.44 3,312 20,513 $0.16
------- ----- ------ -----
Effect of Dilutive
Securities
Stock Options 1,607 29
------ ------
Diluted EPS
Income available to common
shareholders plus assumed
conversion $11,401 27,743 $0.41 $3,312 20,542 $0.16
======= ====== ===== ====== ====== =====
4 COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements to purchase certain equipment
and to pay annual royalties. In a December 1991 agreement, the Company
committed to pay annual royalties of $1.5 million for the first five
years, beginning in 1993, plus $0.5 million for each year thereafter,
as long as the related equipment patents are enforceable (2012). In a
March 1994 agreement, the Company committed to pay $0.5 million in 1994
and annual royalties of $0.5 million for five years beginning in 1995.
In a March 1998 agreement which supersedes the previous agreements, the
Company committed to pay $2.0 million in 1998 and 1999, $3.0 million in
2000 through 2002 and $0.5 million in each year thereafter, as long as
the related equipment patents are enforceable (2022). Additionally, the
Company has committed to purchase tooling of $0.6 million related to
this equipment.
The Company has provided for the estimated costs associated with
environmental remediation activities at some of its current and former
manufacturing sites. In addition, the Company, together with other
parties, has been designated a potentially responsible party of various
third-party sites on the United States EPA National Priorities List
(Superfund). The Company provides for the estimated costs of
investigation and remediation of these sites when such losses are
probable and the amounts can be reasonably estimated. The actual cost
incurred may vary from these estimates due to the inherent
uncertainties involved. The Company believes that any additional
liability in excess of the amounts provided of $1.5 million, which may
result from resolution of these matters, will not have a material
adverse effect on the financial condition, liquidity, or cash flows of
the Company.
5 OTHER
During the 1998 Fiscal First Quarter, the Company recorded a pre-tax
credit of $1.2 million related to the buyout of deferred compensation
agreements with certain former employees.
In the 1998 Fiscal Second Quarter the Company recorded special charges
and credits as follows: (i) $3.9 million related to (a) the closing by
September 1998 of the Company's Newton Aycliffe, United Kingdom,
packaging facility, (b) the phasing out of direct distribution by June
1998 in the United Kingdom, and (c) the closing before the end of
fiscal 1998 of one of the Company's German sales offices, which amount
includes $1.8 million of employee termination benefits for 73
employees, $1.0 million of lease cancellation costs, and $1.0 million
of equipment and intangible asset write-offs, (ii) $2.0 million related
to the closing by April 1999 of the Company's Appleton, Wisconsin,
manufacturing facility, which amount includes $1.6 million of employee
termination benefits for 141 employees, $0.2 million of asset
write-offs and $0.2 million of other costs, (iii) $1.7 million related
to the exit by January 1999 of certain manufacturing operations at the
Company's Madison, Wisconsin, facility, which amount includes $0.3
million of employee termination benefits for 34 employees, $1.3 million
of asset write-offs, and $0.1 million of other costs, and (iv) a $2.4
million gain on the sale of the Company's previously closed Kinston,
North Carolina, facility.
7
1998 Restructuring Summary
Termination Other
Benefits Costs Total
----------- ----- -----
Expense accrued $3.7 $3.8 $7.5
---- ---- ----
Balance 3/28/98 $3.7 $3.8 $7.5
==== ==== ====
Change in estimate -- -- --
Expensed as incurred -- 0.2 0.2
Expenditures (0.7) (1.4) (2.1)
---- ---- ----
Balance 6/27/98 3.0 2.6 5.6*
==== ==== ====
*The Company anticipates the amounts will be paid by the end of
fiscal 1999.
During the year ended September 30, 1997, the Company recorded special
charges as follows: (i) $2.5 million of charges related to the exit by
early fiscal 1998 of certain manufacturing and distribution operations
at the Company's Kinston, North Carolina facility, which amount
includes $1.1 million of employee termination benefits for 137
employees, (ii) $1.4 million of employee termination benefits for 71
employees related to organizational restructuring in Europe and the
exit of certain manufacturing operations in the Company's Newton
Aycliffe, United Kingdom facility which the Company expects to complete
in fiscal 1998, (iii) $2.0 million of charges for employee termination
benefits for 77 employees related to organizational restructuring in
the United States which the Company expects to complete in fiscal 1998.
The number of employees anticipated to be terminated was approximately
equal to the actual numbers referenced above. The charges were
partially offset by a $2.9 million gain related to the curtailment of
the Company's defined benefit pension plan covering all domestic
non-union employees. A summary of the restructuring activities follows.
1997 Restructuring Summary
Termination Other
Benefits Costs Total
----------- ----- -----
Expenses accrued $4.0 $0.6 $4.6
Change in estimate 0.5 0.6 1.1
Expensed as incurred -- 0.2 0.2
Expenditures (3.3) (0.7) (4.0)
---- ---- ----
Balance 9/30/97 $1.2 $0.7 $1.9
==== ==== ====
Change in estimate -- -- --
Expensed as incurred -- -- --
Expenditures (0.7) -- (0.7)
---- ---- ----
Balance 12/27/97 $0.5 $0.7 $1.2
==== ==== ====
Change in estimate (0.1) (0.4) (0.5)
Expensed as incurred -- -- --
Expenditures (0.2) (0.2) (0.4)
---- ---- ----
Balance 3/28/98 $0.2 $0.1 $0.3
==== ==== ====
8
Change in estimate -- -- --
Expensed as incurred -- -- --
Expenditures -- (0.1) (0.1)
---- ---- ----
Balance 6/27/98 $0.2 -- $0.2
==== ==== ====
In the 1998 Fiscal First Quarter, the Company acquired Brisco GmbH in
Germany and Brisco B.V. in Holland (collectively "Brisco"), a
distributor of hearing aid batteries for $4.9 million. Brisco recorded
calendar 1997 sales of $4.5 million.
In the 1998 Fiscal Second Quarter, the Company acquired Direct Power
Plus of New York ("DPP"), a full line marketer of rechargeable
batteries and accessories for cellular phones and video camcorders for
$4.7 million. DPP recorded sales of $2.2 million and $4.4 million in
the 1998 Fiscal Second Quarter and Third Quarter respectively.
In the 1998 Fiscal Third Quarter, the Company acquired the battery
distribution portion of Best Labs, St. Petersburg, Florida, a
distributor of hearing aid batteries and a manufacturer of hearing
instruments for $2.1 million. The acquired portion of Best Labs had net
sales of approximately $2.6 million in calendar 1997. Also in the
quarter, the Thomas H. Lee Group and its affiliates sold approximately
5.3 million shares and certain Rayovac officers and employees sold
approximately 1.1 million shares in a secondary offering of common
stock. The Company did not receive any proceeds from the sale of the
shares but incurred expenses for the offering of approximately $0.8
million.
6 SUBSEQUENT EVENTS
On June 29, 1998, the Company amended their March 13, 1998 Stock
Purchase Agreement (the "DPP Agreement") for Direct Power Plus, Inc.
("DPP"), a full line marketer of rechargeable batteries and accessories
for cellular phones and video camcorders. This amendment resulted in a
payment of $1.4 million on June 30, 1998 to a former shareholder of DPP
in return for the cancellation of future incentive payments under the
DPP Agreement.
7 GUARANTOR SUBSIDIARY
The following condensed consolidating financial data illustrates the
composition of the consolidated financial statements. Investments in
subsidiaries are accounted for by the Company and the Guarantor
Subsidiary using the equity method for purposes of the consolidating
presentation. Earnings of subsidiaries are therefore reflected in the
Company's and Guarantor Subsidiary's investment accounts and earnings.
The principal elimination entries eliminate investments in subsidiaries
and inter-company balances and transactions. Separate financial
statements of the Guarantor Subsidiary are not presented because
management has determined that such financial statements would not be
material to investors.
9
RAYOVAC CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
As of June 27, 1998
(In thousands)
-ASSETS-
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
---------- ----------- ------------ ------------ ------------
Current assets:
Cash and cash equivalents $ 863 $ 45 $ 716 $ -- $ 1,624
Receivables 67,475 843 15,463 (7,234) 76,547
Inventories 52,046 -- 11,315 (4) 63,357
Prepaid expenses and other 13,776 342 1,105 -- 15,223
---------- ----------- ------------ ------------ ------------
Total current assets 134,160 1,230 28,599 (7,238) 156,751
Property, plant and equipment, net 63,596 -- 4,999 -- 68,595
Deferred charges and other 28,204 -- 4,863 (4,628) 28,439
Investment in subsidiaries 15,582 13,977 -- (29,559) --
---------- ----------- ------------ ------------ ------------
Total assets $ 241,542 $ 15,207 $ 38,461 $ (41,425) $ 253,785
========== =========== ============ ============ ============
-LIABILITIES AND SHAREHOLDERS' EQUITY-
Current liabilities:
Current maturities of long-term debt $ 690 $ -- $ 2,132 $ (947) $ 1,875
Accounts payable 43,116 -- 10,949 (5,938) 48,127
Accrued liabilities:
Wages and benefits and other 20,089 (605) 5,143 6 24,633
Recapitalization and other special charges 5,558 -- 2,618 -- 8,176
---------- ----------- ------------ ------------ ------------
Total current liabilities 69,453 (605) 20,842 (6,879) 82,811
Long-term debt, net of current maturities 140,106 -- 3,454 (3,316) 140,244
Employee benefit obligations, net of current portion 8,111 -- -- -- 8,111
Other 3,153 230 188 -- 3,571
---------- ----------- ------------ ------------ ------------
Total liabilities 220,823 (375) 24,484 (10,195) 234,737
Shareholders' equity:
Common stock 569 -- 12,072 (12,072) 569
Additional paid-in capital 105,097 3,525 750 (4,275) 105,097
Foreign currency translation adjustment 2,238 2,238 2,238 (4,476) 2,238
Notes receivable from officers/shareholders (986) -- - -- (986)
Retained earnings 42,418 9,819 (1,083) (10,407) 40,747
---------- ----------- ------------ ------------ ------------
149,336 15,582 13,977 (31,230) 147,665
Less stock held in trust for deferred compensation (145) -- -- -- (145)
Less treasury stock (128,472) -- -- -- (128,472)
---------- ----------- ------------ ------------ ------------
Total shareholders' equity 20,719 15,582 13,977 (31,230) 19,048
---------- ----------- ------------ ------------ ------------
Total liabilities and shareholders' equity $ 241,542 $ 15,207 $ 38,461 $ (41,425) $ 253,785
========== =========== ============ ============ ============
10
RAYOVAC CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Operations
For the three month period ended June 27, 1998
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
----------- ----------- ------------- ------------- -----------
Net sales $97,832 $ -- $19,171 $(5,949) $111,054
Cost of goods sold 52,491 -- 11,293 (5,954) 57,830
----------- ----------- ------------- ------------- -----------
Gross profit 45,341 -- 7,878 5 53,224
Selling 28,081 -- 3,754 -- 31,835
General and administrative 7,017 (264) 2,444 (18) 9,179
Research and development 1,537 -- -- -- 1,537
Other special charges 800 -- 185 -- 985
----------- ----------- ------------- ------------- -----------
Total operating expenses 37,435 (264) 6,383 (18) 43,536
Income from operations 7,906 264 1,495 23 9,688
Other expense:
Interest expense 3,358 -- 143 -- 3,501
Equity in profit of subsidiary (852) (77) -- 929 -
Other expense, net (152) 7 169 -- 24
----------- ----------- ------------- ------------- -----------
Income before income taxes
and extraordinary item 5,552 334 1,183 (906) 6,163
Income taxes 1,726 (518) 1,106 -- 2,314
----------- ----------- ------------- ------------- -----------
Income before
extraordinary item 3,826 852 77 (906) 3,849
Extraordinary item -- -- -- -- --
Net income $ 3,826 $852 $ 77 $ (906) $ 3,849
=========== =========== ============= ============= ===========
11
RAYOVAC CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Operations
For the nine month period ended June 27, 1998
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
----------- ------------ ------------ ------------ ------------
Net sales $ 314,258 $ -- $ 63,207 $ (20,335) $ 357,130
Cost of goods sold 166,937 -- 39,142 (20,349) 185,730
----------- ------------ ------------ ------------ ------------
Gross profit 147,321 -- 24,065 14 171,400
Selling 91,789 -- 13,722 -- 105,511
General and administrative 20,615 (740) 6,721 (54) 26,542
Research and development 4,571 -- -- -- 4,571
Other special charges 855 -- 4,147 -- 5,002
----------- ------------ ------------ ------------ ------------
Total operating expenses 117,830 (740) 24,590 (54) 141,626
Income (loss) from operations 29,491 740 (525) 68 29,774
Other expense (income):
Interest expense 11,433 -- 383 -- 11,816
Equity in profit of subsidiary 497 1,610 -- (2,107) --
Other expense (income) (496) 3 158 -- (335)
----------- ------------ ------------ ------------ ------------
11,434 1,613 541 (2,107) 11,481
Income (loss) before income taxes
and extraordinary item 18,057 (873) (1,066) 2,175 18,293
Income taxes 6,724 (376) 544 -- 6,892
----------- ------------ ------------ ------------ ------------
Income (loss) before
extraordinary item 11,333 (497) (1,610) 2,175 11,401
Extraordinary item 1,975 -- -- -- 1,975
----------- ------------ ------------ ------------ ------------
Net income (loss) $ 9,358 $ (497) $ (1,610) $ 2,175 $ 9,426
=========== ============ ============ ============ ============
12
RAYOVAC CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
For the nine month period ended June 27, 1998
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
---------- ---------- ------------ ------------ ------------
Net cash provided (used) by operating activities $ (14,049) $ (1) $ 2,900 $ 4,263 $ (6,887)
Cash flows from investing activities:
Purchases of property, plant and equipment (10,697) -- (969) -- (11,666)
Proceeds from sale of property, plant, and equip. 3,327 -- -- -- 3,327
Payment for acquisitions (4,371) -- (4,853) -- (9,224)
Net cash used by investing activities (11,741) -- (5,822) -- (17,563)
Cash flows from financing activities:
Reduction of debt (135,659) -- (3,985) -- (139,644)
Proceeds from debt financing 71,030 -- 7,192 (4,263) 73,959
Proceeds from issuance of common stock 90,024 -- -- -- 90,024
Other 625 -- -- -- 625
---------- --------- ------------ ------------ ------------
Net cash provided by financing activities 26,020 -- 3,207 (4,263) 24,964
Effect of exchange rate changes on cash and cash
equivalents -- -- (23) -- (23)
---------- --------- ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 230 (1) 262 -- 491
Cash and cash equivalents, beginning of period 633 46 454 -- 1,133
---------- --------- ------------ ------------ ------------
Cash and cash equivalents, end of period $ 863 $ 45 $ 716 $ -- $ 1,624
========== ========= ============ ============ ============
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Fiscal Quarter and Nine Months Ended June 27, 1998 Compared to
Fiscal Quarter and Nine Months Ended June 28, 1997.
Net Sales. Net sales for the three months ended June 27, 1998 (the
"1998 Fiscal Quarter") increased $15.6 million, or 16.3%, to $111.1 million from
$95.5 million in the three months ended June 28, 1997 (the "1997 Fiscal
Quarter"). The increase was driven by increased sales of alkaline, alkaline
rechargeable, hearing aid and specialty batteries somewhat offset by the
continued decline in the domestic heavy duty battery market.
Alkaline sales in the 1998 Fiscal Quarter increased 19.1%, or $7.8 million, to
$48.7 million from $40.9 million in the same period a year ago. This growth was
driven by strong promotional programs, new customers, and expanded distribution
with existing customers which resulted in increased market share. Alkaline
rechargeable sales in the 1998 Fiscal Quarter increased 45.7% to $6.7 million
due primarily to increased distribution of rechargeables with a major retailer
of rechargeables. Hearing aid battery sales increased 18.9% in the 1998 Fiscal
Quarter due primarily to market growth, increased distribution and the
acquisitions of Brisco and Best Labs.
Within specialty batteries, the acquisition of Direct Power Plus ("DPP") in the
prior quarter resulted in approximately $4.4 million of increased sales in the
1998 Fiscal Quarter over the comparable prior year period.
Heavy duty sales decreased $2.0 million for the 1998 Fiscal Quarter to $7.7
million from $9.3 million in the 1997 Fiscal Quarter. The Company believes that
retailers continue to de-emphasize the heavy duty category, reducing or
eliminating distribution. To date, the Company has been able to replace most of
the lost distribution with its alkaline product.
For the nine months ended June 27, 1998 (the "1998 nine months"), net sales were
$357.1 million, up $36.1 million, or 11.2%, from $321.0 million for the
comparable prior year period. The increased sales were due primarily to
alkaline, hearing aid, and specialty batteries somewhat offset by declines in
heavy duty batteries.
Alkaline sales for the 1998 nine months increased 23.6%, or $32.9 million, to
$172.3 million from $139.4 million in the comparable period of the prior year.
Strong promotions, new customers, and increased distribution in existing
customers were the primary drivers of the increased alkaline sales.
Hearing aid sales through June 1998, increased 12.4% compared to the same period
in the prior year due primarily to the impact of the Brisco and Best Labs
acquisitions and strong growth in the market.
Specialty battery sales for the nine months ended June 1998 increased $9.6
million to $11.7 million. The DPP acquisition accounted for $6.5 million of the
increase while the new photo and keyless entry product lines accounted for $2.7
million.
14
Gross Profit. Gross Profit for the 1998 Fiscal Quarter increased $10.0
million, or 23.1%, to $53.2 million from $43.2 million in the 1997 Fiscal
Quarter due primarily to sales volume increases and the shift in sales to higher
margin alkaline batteries away from lower margin heavy duty batteries. Gross
profit margins increased to 47.9% in the 1998 Fiscal Quarter from 45.2%,
primarily as a result of the improving product mix (more alkaline) and continued
alkaline manufacturing cost improvements.
For the nine months ended June 1998, gross profit increased $28.8 million, or
20.2%, to $171.4 million from $142.6 million for the comparable prior year
period. As a percentage of sales, gross profit increased to 48.0% from 44.4% for
the comparable prior year period. These increases reflect the 1997 price
increase on alkaline, improved sales mix (more alkaline), and continuing
alkaline manufacturing cost improvements.
Selling Expense. Selling expense for the 1998 Fiscal Quarter increased
$6.0 million, or 23.3%, to $31.8 million from $25.8 million in the comparable
prior year quarter. As a percent of sales, selling expense increased to 28.6% in
the 1998 quarter from 27.0% in the 1997 Fiscal Quarter. The increase in dollars
and as a percent of sales is due primarily to increased advertising and
promotional spending to generate increased sales. Expenses related to gaining
new distribution have also increased compared to the prior year.
For the nine months ended June 1998, selling expense increased $18.4 million, or
21.1%, to $105.5 million from $87.1 million. As a percent of sales, selling
expense increased to 29.5% from 27.1% due primarily to continued increased
advertising and promotional expense.
General and Administrative Expense. General and administrative expense
increased $1.9 million, or 26.0%, to $9.2 million in the 1998 Fiscal Quarter
from $7.3 million in the prior year period primarily as a result of increased
costs associated with information systems improvements. In addition, the 1997
Fiscal Quarter included a $0.5 million gain on the disposal of excess
manufacturing equipment.
For the nine months ended June 1998, general and administrative expense
increased $3.9 million, or 17.3%, to $26.5 million from $22.6 million for the
comparable prior year period. This increase is primarily due to information
system improvements, increased expenses associated with being a publicly held
company, acquisitions, and the gain on equipment disposal mentioned above.
Research and Development Expense. Research and development expense was
$1.5 million for the 1998 Fiscal Quarter, up $0.1 million from the 1997 Fiscal
Quarter. For the nine months ended June 1998, research and development expense
decreased $0.2 million, or 4.2%, to $4.6 million from $4.8 million for the
comparable prior year period primarily due to battery tester development expense
in the prior year that was discontinued.
Other Special Charges. The Company recorded $1.0 million of special
charges during the 1998 Fiscal Quarter which includes $0.8 million related to
the expenses incurred by the Company in connection with a secondary offering of
the Company's stock and $0.2 million of costs related to previously announced
restructuring activities. In the 1997 Fiscal Quarter, the Company recorded
charges of $0.2 million related to the closing of its North Carolina facility.
15
Through the first nine months of Fiscal 1998, the Company recorded $5.0 million
of special charges. In addition to the $1.0 million recorded this quarter, $7.6
million was recorded for the restructuring of domestic and international
operations announced in March 1998 offset by a $2.4 million gain on the sale of
the Company's previously closed North Carolina facility and income of $1.2
million in connection with the buy-out of deferred compensation agreements with
certain former employees. For the nine months ended June 1997, the Company
recorded charges of $4.9 million for organizational restructuring in the U.S.,
the discontinuation of certain manufacturing operations in the U.K., and the
closing of the North Carolina facility.
Income From Operations. Income from operations increased $1.2 million,
or 14.1%, to $9.7 million in the 1998 Fiscal Quarter from $8.5 million in the
1997 Fiscal Quarter. Increased income generated by sales and gross profit
improvements was somewhat offset by the increased operating expenses necessary
to generate the increased sales. Income from operations before special charges
increased $2.0 million, or 23.0%, to $11.7 million for the 1998 Fiscal Quarter
from $9.7 million in the 1997 Fiscal Quarter.
For the nine months ended June 1998, income from operations increased $6.6
million, or 28.4%, to $29.8 million from $23.2 million for the comparable prior
year period. This increase is due primarily to increased sales and gross profit
margins offset by increased selling and general and administrative expense. As a
percent of sales income from operations increased to 8.3% from 7.2% for the nine
months driven by improved gross profit margins.
Interest Expense. Interest expense decreased $1.9 million, or 35.2%, to
$3.5 million for the 1998 Fiscal Quarter from $5.4 million for the 1997 Fiscal
Quarter. The decrease is primarily a result of decreased indebtedness due to the
Company's initial public offering ("IPO") completed in November 1997.
For the nine months ended June 1998, interest expense decreased $7.1 million, or
37.6%, to $11.8 million from $18.9 million for the comparable prior year period.
In addition to the effects of the IPO, the decrease was also impacted by the
inclusion in 1997 of a $2.0 million write-off of unamortized debt issuance
costs.
Other Expense (Income). Interest income was offset by foreign exchange
loss for the 1998 Fiscal Quarter. In the 1997 Fiscal Quarter interest income and
foreign exchange gain equaled $0.1 million.
For the nine months ended June 1998, interest income was $0.3 million, up $0.1
million from the prior year. Foreign exchange losses of $0.4 million in the
prior year nine month period were not repeated in the current year nine month
period.
16
Income Tax Expense. The Company's effective tax rate for the 1998
Fiscal Quarter was 37.5% compared to 16.4% for the 1997 Fiscal Quarter. The 1998
rate includes the non-deductibility of $0.8 million of secondary offering
expenses offset by a favorable true-up of the tax provision related to the
Company's September 1997 tax return. The 1997 rate includes favorable impacts
due to the true-up of the tax provision related to the Company's June 1996 tax
return and certain tax benefits related to a U.K. excess equipment sale.
For the nine months ended June 1998 the Company's effective tax rate was 37.7%
compared to 20.0% for the comparable prior year period. The prior year period
effective rate includes favorable impacts of the 1996 tax return and the U.K.
equipment sale as discussed above. The impact is slightly less than for the
quarter because it is spread over nine versus three months earnings.
Extraordinary Item. For the nine months ended June 1998, the Company
recorded extraordinary expense of $2.0 million, net of income tax, for the
premium payment on the redemption of a portion of the Company's Senior
Subordinated Notes.
Net Income. Net income for the 1998 Fiscal Quarter was $3.9 million, a
$1.2 million, or 44.4%, improvement from $2.7 million for the 1997 Fiscal
Quarter due primarily to increased income from operations and decreased interest
expense as discussed above.
For the nine months ended June 1998 net income increased $6.1 million, or
184.8%, to $9.4 million from $3.3 million in the comparable prior year period
even after the $2.0 million extraordinary item discussed above. This reflects
the impact of top line sales growth, improved product mix of sales and
improvement in margins.
Liquidity and Capital Resources
For the nine months ended June 1998, operating activities used $6.9
million of cash compared to generating $32.6 million for the nine months ending
June 1997. During the nine months of fiscal 1998, cash flow from operating
activities before working capital requirements generated $18.1 million compared
to $14.3 million in the comparable prior year period. Working capital used $25.0
million of cash in the 1998 period primarily due to lower current liabilities
and increased inventories. During the 1997 period working capital generated
$18.3 million primarily from decreased inventories. Costs associated with
announced restructuring activities have been and are expected to be funded with
cash provided from operating activities.
Capital expenditures for the nine months ended June 1998 were $11.7
million, an increase of $6.6 million from $5.1 million for the comparable prior
year period. This increase reflects continued spending on the implementation of
new computer systems and the down payment on a new alkaline production line. The
Company currently expects capital spending for fiscal 1998 to be approximately
$18.0 million due to alkaline capacity expansion, building expansion at the
Company's Portage, Wisconsin, facility related to the restructuring of button
cell manufacturing, and the continued implementation of the new SAP computer
system.
17
The SAP system is also expected to substantially address the Company's
Year 2000 issue. The Company has an internal project team identifying,
correcting, and testing the remaining systems for Year 2000 compliance. The
Company expects to incur internal staff costs as well as consulting and other
expenses. Management currently estimates completion of Year 2000 compliance in
mid-1999 at an estimated cost of $1.0 million in addition to the SAP system
implementation. The Company believes that the Year 2000 issue will not pose
significant operational problems for the Company's computer systems after
modifications to existing software and the conversion to new software. However,
there can be no assurance that unforeseen difficulties will not arise for any of
the Company, its customers or vendors and that related costs will not thereby be
incurred.
During the nine months ended June 1998 the Company's Board of Directors
granted approximately 438,000 stock options to various members of management
under the 1996 Stock Option Plan and the 1997 Rayovac Incentive Plan. All grants
have been at market price on the effective date of grant which ranged from
$15.875 to $22.88 per share.
On March 30, 1998, the Company acquired the battery distribution
portion of Best Labs, St. Petersburg, Florida, for $2.1 million of which $1.7
million was cash and $0.4 million was a trade receivable owed by Best Labs to
the Company which was offset.
The Company also acquired DPP and Brisco during the nine months of
fiscal 1998 for $4.7 million and $4.9 million respectively of which $7.6 million
is cash already paid and $0.5 million will be paid after a specified time for
resolution of related claims. The Company also sold its previously closed North
Carolina facility for approximately $3.3 million during the 1998 nine month
period.
The Company believes that cash flow from operating activities and
periodic borrowings under its existing credit facilities will be adequate to
meet the Company's short-term and long-term liquidity requirements prior to
maturity of those credit facilities, although no assurance can be given in that
regard. The Company's current credit facilities include a revolving credit
facility of $90.0 million of which $68.8 million was outstanding at June 27,
1998, with approximately $3.2 million utilized for outstanding letters of credit
and an acquisition facility of $70.0 million of which $5.9 million was
outstanding at June 27, 1998.
Impact of Recently Issued Accounting Standards
In March 1998 the Emerging Issues Task Force ("EITF") reached a consensus on
Issue 97-14, "Accounting for Deferred Compensation Arrangements Where Amounts
Earned Are Held in a Rabbi Trust and Invested". The Company has such a trust
which held approximately 160,000 shares of the Company's common stock which
holdings may be diversified among other investment options. During the third
fiscal quarter of 1998 the trust sold approximately 136,000 shares of the
Company's stock as part of the secondary offering. The proceeds have been
diversified among other investment options within the trust. Currently the
Company has recorded a deferred compensation liability equal to the historical
cost of all shares, approximately $1.0 million, all of which relate to awards
made prior to the EITF March consensus. The EITF is expected to discuss
transition treatment for deferred compensation awards prior to March at a future
meeting. It is therefore uncertain what treatment may be required. The Company
may be required to mark the deferred
18
compensation liability to market by recording compensation expense. The Company
estimates this could result in a charge to earnings, net of tax, of
approximately $1.4 million.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit Description
3.1* Amended and Restated Articles of Incorporation of the Company.
3.2* Amended and 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** Specimen of the Notes (included as an exhibit to Exhibit 4.1).
4.3++ Amended and Restated Credit Agreement, dated as of December 30, 1997, among the
Company, the lenders party thereto and Bank of
America National Trust and Savings Association
("BofA"), as Administrative Agent.
4.4** The Security Agreement dated as of September 12, 1996 by and among the Company,
ROV Holding, Inc. and BofA.
4.5** The Company Pledge Agreement dated as of September 12, 1996 by and between the
Company and BofA.
4.6*** Shareholders Agreement dated as of September 12, 1996 by and among the Company and
the shareholders of the Company referred to therein.
4.7*** Amendment to Rayovac Shareholders Agreement dated August 1, 1997 by and among the
Company and the shareholders of the Company referred to therein.
4.8+ Specimen certificate representing the Common Stock.
10.1** Management Agreement, dated as of September 12, 1996, by and between the Company
and Thomas H. Lee Company.
10.2** Confidentiality, Non-Competition and No-Hire Agreement dated as of September 12,
1996 by and between the Company and Thomas F. Pyle.
10.3** Employment Agreement, dated as of September 12, 1996, by and
19
between the Company and David A. Jones, including the Full Recourse Promissory Note,
dated September 12, 1996 by David A. Jones in favor of the Company.
10.4** Severance Agreement by and between the Company and Trygve Lonnebotn.
10.5** Severance Agreement by and between the Company and Kent J. Hussey.
10.6** Severance Agreement by and between the Company and Roger F. Warren.
10.7*** Severance Agreement by and between the Company and Stephen P. Shanesy.
10.8*** Severance Agreement by and between the Company and Merrell M. Tomlin.
10.9** Technology, License and Service Agreement between Battery Technologies
(International) Limited and the Company, dated
June 1, 1991, as amended April 19, 1993 and
December 31, 1995.
10.10** Building Lease between the Company and SPG Partners, dated May 14, 1985, as
amended June 24, 1986 and June 10, 1987.
10.11*** Rayovac Corporation 1996 Stock Option Plan.
10.12*** Rayovac Corporation 1997 Stock Option Plan.
10.13+ 1997 Rayovac Incentive Plan.
10.14+ Rayovac Profit Sharing and Savings Plan.
10.15 +++ Technical Collaboration, Sale and Supply Agreement dated as of March 5, 1998 by
and among the Company, Matsushita Battery Industrial Co., Ltd. and Matsushita
Electric Industrial Co., Ltd.
10.16 Amended and Restated Employment Agreement, dated as of April 27, 1998, by and
between the Company and David A. Jones.
10.17 Employment Agreement, dated as of April 27, 1998, by and between the Company and
Kent J. Hussey.
10.18 Severance Agreement by and between the Company and Randall J. Steward.
27 Financial Data Schedule.
- ------------------
* Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997 filed with the Commission
on December 23, 1997.
** Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-17895) filed with the Commission.
20
*** Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 29, 1997 filed with the
Commission on August 13, 1997.
+ Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-35181) filed with the Commission.
++ Incorporated by reference to the Company's Registration Statement on
Form S-3 (Registration No. 333-49281) filed with the Commission.
+++ Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 28, 1998 filed with the
Commission on May 5, 1998.
(b) Reports on Form 8-K. The Company filed a report on Form 8-K on June
15, 1998 discussing the potential effect on the Company of the Emerging Issues
Task Force's consensus on Issue 97-14, "Accounting for Deferred Compensation
Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested."
21
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: August 4, 1998
RAYOVAC CORPORATION
By: /s/ Randall J. Steward
--------------------------------
Randall J. Steward
Senior Vice President of Finance
and Chief Financial Officer
By: /s/ James A. Broderick
--------------------------------
James A. Broderick
Vice President,
General Counsel and Secretary
22
Exhibit 10.16
-------------
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into as of the
27th day of April, 1998, by and between Rayovac Corporation, a Wisconsin
corporation (the "Company"), and David A. Jones (the "Executive").
WHEREAS, the Executive and the Company are parties to an Employment
Agreement dated September 12, 1996 with respect to the employment of the
Executive by the Company (the "1996 Agreement");
WHEREAS, the Executive and the Company wish to modify the terms of the
Executive's employment by the Company; and
WHEREAS, the Company desires the benefit of the experience, supervision and
services of the Executive and desires to employ the Executive upon the terms and
conditions set forth herein; and
WHEREAS, the Executive is willing and able to accept such employment on
such terms and conditions.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive
hereby agree as follows:
1. Employment Duties and Acceptance. The Company hereby employs the Executive,
and the Executive agrees to serve and accept employment, as the Chairman of
the Board of Directors and Chief Executive Officer of the Company,
reporting directly to the Board of Directors of the Company (the "Board").
In connection therewith, as Chairman of the Board and Chief Executive
Officer, the Executive shall oversee and direct the operations of the
Company and perform such other duties consistent with the responsibilities
of Chairman of the Board and Chief Executive Officer, all subject to the
direction and control of
the Board. During the Term (as defined below), the Executive shall devote
substantial time to such employment which will be his primary business
activity.
2. Term of Employment. Subject to Section 4 hereof, the Executive's employment
and appointment hereunder shall be for a term commencing on the date hereof
and expiring on April 30, 2001 (the "Term").
3. Compensation. In consideration of the performance by the Executive of his
duties hereunder, the Company shall pay or provide to the Executive the
following compensation which the Executive agrees to accept in full
satisfaction for his services, it being understood that necessary
withholding taxes, FICA contributions and the like shall be deducted from
such compensation:
(a) Base Salary. The Executive shall receive a base salary equal to Five
Hundred Thousand Dollars ($500,000) per annum during the Term ("Base
Salary"), which Base Salary shall be paid in equal monthly
installments each year, to be paid monthly in arrears. The Board will
review from time to time the Base Salary payable to the Executive
hereunder and may, in its discretion, increase the Executive's Base
Salary. Any such increased Base Salary shall be and become the "Base
Salary" for purposes of this Agreement.
(b) Bonus. The Executive shall receive a bonus for each fiscal year ending
during the Term, payable annually in arrears, which shall be based, as
set forth on Schedule A hereto, on the Company achieving certain
annual performance goals established by the Board from time to time
(the "Bonus"). The Board may, in its discretion, increase the annual
Bonus. Any such increased annual Bonus shall be and become the "Bonus"
for such fiscal year for purposes of this Agreement.
(c) Additional Salary. In addition to the compensation described above,
(i) so long as the promissory note (the "Note") of the Execu-
2
tive attached hereto as Exhibit A is not due and payable in full, the
Executive shall receive additional compensation at an initial rate of
Thirty-five Thousand Dollars ($35,000) per annum during the Term,
payable (A) at the time the Bonus is payable hereunder, (B) if no
Bonus is payable hereunder, at the time the Board determines that no
Bonus is payable hereunder or (C) if payment of principal of and
interest on the Note is accelerated, at the time of the Executive's
payment in full of the Note; provided, however, that to the extent the
Note is prepaid, the rate set forth above shall be decreased by the
amount by which interest on the Note has been reduced as a result of
such prepayment and (ii) the Executive shall also receive an
additional $18,500 per annum during the Term, payable at the time the
first monthly installment of Base Salary is payable hereunder and on
each anniversary thereafter (all such payments set forth in clauses
(i) and (ii) above are referred to herein as the "Additional Salary").
(d) Insurance Coverages and Pension Plans. The Executive shall be entitled
to such insurance, pension and all other benefits as are generally
made available by the Company to its executive officers from time to
time.
(e) Stock Options. All stock options previously granted to the Executive
shall remain in full force and effect in accordance with their terms.
If the Company implements a new stock option program in the future,
the Executive may participate to the extent authorized by the Board.
(f) Vacation. The Executive shall be entitled to four (4) weeks vacation
each year.
(g) Housing and other Expenses. The Executive shall be entitled to
reimbursement of all reasonable and documented expenses actually
incurred or paid by the Executive in the performance of the
Executive's duties under this Agreement, upon presentation of expense
state-
3
ments, vouchers or other supporting information in accordance with
Company policy. In addition, the Company will reimburse the Executive
for expenses associated with reasonable travel to and from Atlanta and
will pay or reimburse the Executive for the reasonable expenses
associated with providing the Executive with the use of a suitable
home purchased by the Company in the Madison area, other than
utilities and maintenance. All expense reimbursements and other
perquisites of the Executive are reviewable periodically by the
Compensation Committee of the Board, if there be one, or the Board.
(h) Automobile. The Company shall provide the Executive with the use of a
leased automobile suitable for a chief executive officer of a company
similar to the Company.
(i) D&O Insurance. The Executive shall be entitled to indemnification from
the Company to the maximum extent provided by law, but not for any
action, suit, arbitration or other proceeding (or portion thereof)
initiated by the Executive, unless authorized or ratified by the
Board. Such indemnification shall be covered by the terms of the
Company's policy of insurance for directors and officers in effect
from time to time (the "D&O Insurance"). Copies of the Company's
charter, by-laws and D&O Insurance will be made available to the
Executive upon request.
(j) Legal Fees. The Company shall pay the Executive's actual and
reasonable legal fees incurred in connection with the preparation of
this Agreement.
(k) Retention Bonus; House Sale.
----------------------------
(i) If the Executive remains in the employment of the Company through
April 30, 2001, then on April 30, 2001, the Company shall pay the
Executive an additional amount equal to the sum of that year's
annual Base Salary and the
4
Bonus previously paid or required to be paid pursuant to this
Agreement for the last full fiscal year immediately prior to
April 30, 2001.
(ii) If the Company does not terminate the Executive's employment
hereunder pursuant to Section 4(a) and the Executive does not
terminate his employment hereunder pursuant to Section 4(d)
(other than following a Sale as described in the second sentence
of Section 4(d)), then on the earlier of April 30, 2001 or the
date on which the Executive's employment is terminated, at the
request of the Executive or his estate, the Company shall sell to
the Executive or his estate fee simple title to the home
purchased by the Company for the use of the Executive, free and
clear of all liens and encumbrances arising after the date of the
Company's acquisition of the home and not created by the
Executive other than liens or encumbrances that do not materially
affect the use or value thereof; the purchase price shall be
equal to the home's depreciated value on the Company's books as
of April 30, 2001.
4. Termination.
------------
(a) Termination by the Company with Cause. The Company shall have the
right at any time to terminate the Executive's employment hereunder
without prior notice upon the occurrence of any of the following (any
such termination being referred to as a termination for "Cause"):
(i) the commission by the Executive of any deliberate and
premeditated act taken by the Executive in bad faith against the
interests of the Company;
(ii) the Executive has been convicted of, or pleads nolo contendere
with respect to, any felony, or of any lesser crime or
5
offense having as its predicate element fraud, dishonesty or
misappropriation of the property of the Company;
(iii) the habitual drug addiction or intoxication of the Executive
which negatively impacts his job performance or the Executive's
failure of a Company-required drug test;
(iv) the willful failure or refusal of the Executive to perform his
duties as set forth herein or the willful failure or refusal to
follow the direction of the Board, provided such failure or
refusal continues after thirty (30) days of the receipt of notice
in writing from the Board of such failure or refusal, which
notice refers to this Section 4(a) and indicates the Company's
intention to terminate the Executive's employment hereunder if
such failure or refusal is not remedied within such thirty (30)
day period; or
(v) the Executive breaches any of the terms of this Agreement or any
other agreement between the Executive and the Company which
breach is not cured within thirty (30) days subsequent to notice
from the Company to the Executive of such breach, which notice
refers to this Section 4(a) and indicates the Company's intention
to terminate the Executive's employment hereunder if such breach
is not cured within such thirty (30) day period.
If the definition of termination for "Cause" set forth above conflicts
with such definition in the Executive's time-based or
performance-based Stock Option Agreement to purchase 455,786 shares of
Common Stock at an exercise price of $4.39 per share (collectively the
"Stock Option Agreements"), or any agreements referred to therein, the
definition set forth herein shall control.
6
(b) Termination by Company for Death or Disability. The Company shall have
the right at any time to terminate the Executive's employment
hereunder without prior notice upon the Executive's inability to
perform his duties hereunder by reason of any mental, physical or
other disability for a period of at least six (6) consecutive months
(for purposes hereof, "disability" has the same meaning as in the
Company's disability policy). The Company's obligations hereunder
shall, subject to the provisions of Section 5(b), also terminate upon
the death of the Executive.
(c) Termination by Company without Cause. The Company shall have the right
at any time to terminate the Executive's employment for any other
reason without Cause upon sixty (60) days prior written notice to the
Executive.
(d) Voluntary Termination by Executive. The Executive shall be entitled to
terminate his employment and appointment hereunder upon sixty (60)
days prior written notice to the Company, or upon thirty (30) days
prior written notice after a Sale (as such term is defined in the
Stock Option Agreements). Any such termination shall be treated as a
termination by the Company for "Cause" under Section 5, unless notice
of such termination was given within thirty (30) days after a Sale (as
such term is defined in the Stock Option Agreements), in which case
such termination shall be treated in accordance with Section 5(d)
hereof.
(e) Constructive Termination by the Executive. The Executive shall be
entitled to terminate his employment and appointment hereunder,
without prior notice, upon the occurrence of a Constructive
Termination. Any such termination shall be treated as a termination by
the Company without Cause. For this purpose, a "Constructive
Termination" shall mean:
(i) a reduction in Base Salary or Additional Salary (other than as
permitted hereby);
7
(ii) a reduction in annual Bonus opportunity;
(iii) a change in location of office of more than seventy-five (75)
miles from Madison, Wisconsin;
(iv) unless with the express written consent of the Executive, (a) the
assignment to the Executive of any duties inconsistent in any
substantial respect with the Executive's position, authority or
responsibilities as contemplated by Section 1 of this Agreement
or (b) any other substantial change in such position, including
titles, authority or responsibilities from those contemplated by
Section 1 of the Agreement; or
(v) any material reduction in any of the benefits described in
Section 3(f), (g), (h) or (i) hereof.
For purposes of the Stock Option Agreements, Constructive Termination
shall be treated as a termination of employment by the Company without
"Cause."
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Constructive Termination shall be communicated by
Notice of Termination to the other party hereto given in accordance
with Section 8. For purposes of this Agreement, a "Notice of
Termination" means a written notice given prior to the termination
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if
the termination date is other than the date of receipt of such notice,
specifies the termination date of this Agreement (which date shall be
not more than fifteen (15) days after the giving of such notice). The
failure by any party to set forth in the Notice of Termination any
fact or circumstance which contributes to a
8
showing of Cause or Constructive Termination shall not waive any right
of such party hereunder or preclude such party from asserting such
fact or circumstance in enforcing its rights hereunder.
5. Effect of Termination of Employment.
------------------------------------
(a) With Cause. If the Executive's employment is terminated with Cause,
the Executive's salary and other benefits specified in Section 3 shall
cease at the time of such termination, and the Executive shall not be
entitled to any compensation specified in Section 3 which was not
required to be paid prior to such termination; provided, however, that
the Executive shall be entitled to continue to participate in the
Company's medical benefit plans to the extent required by law.
(b) Death or Disability. If the Executive's employment is terminated by
the death or disability of the Executive (pursuant to Section 4(b)),
the Executive's compensation provided in Section 3 shall be paid to
the Executive or, in the event of the death of the Executive, the
Executive's estate, as follows:
(i) the Executive's Base Salary specified in Section 3(a) shall
continue to be paid in monthly installments until the first to
occur of (i) twelve (12) months following such termination or
(ii) such time as the Executive or the Executive's estate
breaches the provisions of Sections 6 or 7 of this Agreement;
(ii) a pro rata portion (based on days worked and percentage of
achievement of annual performance goals) of the annual Bonus
payable to the Executive, if any, specified in Section 3(b) shall
be paid, unless the Board determines to pay a greater amount in
its sole discretion;
(iii) the Executive's Additional Salary (or, for any partial year, the
pro rata por-
9
tion thereof) specified in Section 3(c) shall continue to be paid
until the first to occur of (i) the remaining period of the Term
or (ii) such time as the Executive or the Executive's estate
breaches the provisions of Sections 6 or 7 of this Agreement;
(iv) If the Executive's employment is terminated as a result of
disability, the Executive's additional benefits specified in
Section 3(d) shall continue to be available to the Executive
until the first to occur of (i) the remaining period of the Term
(or twelve (12) months following such termination, if greater) or
(ii) such time as the Executive breaches the provisions of
Sections 6 or 7 of this Agreement; and
(v) the Executive's accrued vacation (determined in accordance with
Company policy) at the time of termination shall be paid as soon
as reasonably practicable.
(c) Without Cause. If the Executive's employment is terminated by the
Company without Cause (pursuant to Section 4(c) or 4(e)), the
Executive's compensation provided in Section 3 shall be paid as
follows:
(i) the Executive's Base Salary specified in Section 3(a) shall
continue to be paid in monthly installments until the first to
occur of (i) the remaining period of the Term (or twelve (12)
months following such termination, if greater) or (ii) such time
as the Executive breaches the provisions of Sections 6 or 7 of
this Agreement;
(ii) the Executive's annual Bonus shall continue to be paid in
accordance with this Section 5(c) at the times set forth in
Section 3(b) until the first to occur of (i) the remaining period
of the Term or (ii) such time as the Executive breaches
10
the provisions of Sections 6 or 7 of this Agreement. The annual
Bonus payable pursuant to this Section 5(c) shall equal the
amount of the annual Bonus (if any) previously paid or required
to be paid pursuant to this Agreement (or the 1996 Agreement) for
the full fiscal year immediately prior to the Executive's
termination of employment;
(iii) the Executive's Additional Salary (or, for any partial year, the
pro rata portion thereof) specified in Section 3(c) shall
continue to be paid until the first to occur of (i) the remaining
period of the Term (or twelve (12) months following such
termination, if longer) or (ii) such time as the Executive
breaches the provisions of Sections 6 or 7 of this Agreement; and
(iv) the Executive's additional benefits specified in Section 3(d)
shall continue to be available to the Executive until the first
to occur of (i) twelve (12) months following such termination or
(ii) such time as the Executive breaches the provisions of
Sections 6 or 7 of this Agreement.
(d) Following Sale. If the Executive elects to terminate his employment
within thirty (30) days following a Sale in accordance with Section
4(d), such termination by the Executive shall be treated as a
termination by the Company without Cause, and the Executive shall be
entitled to the compensation provided in Section 5(c), except that in
no event shall Executive receive less than twelve (12) months Base
Salary and annual Bonus following the expiration of the Post-Term
Period (as defined below). Notwithstanding the foregoing, the Company
may require that the Executive continue to remain in the employ of the
Company for up to a maximum of thirty (30) days following the Sale
(the "Post-Term Period"). The Company shall place the maximum cash
payments payable
11
pursuant to Section 5(c) in escrow with a commercial bank or trust
company mutually acceptable to the Company and the Executive as soon
as practicable following the Sale. For the Post-Term Period, the
Company shall make the cash payments that would otherwise be required
pursuant to Section 3 (all such cash payments to be deducted from the
amount placed in escrow). At the expiration of the Post-Term Period,
the Executive shall receive all cash amounts due the Executive from
the remaining amount held in escrow ratably monthly over the
Non-Competition Period (as defined below), with the balance (if any)
returned to the Company. If the Company does not require that the
Executive remain in the employ of the Company, the Company shall pay
the Executive all cash amounts payable pursuant to Section 5(c)
ratably monthly over the Non-Competition Period (all such cash
payments to be deducted from the amount placed in escrow) with the
balance (if any) returned to the Company.
The Executive shall not be required to mitigate the amount of any payment
provided for herein by seeking other employment or otherwise, and if the
Executive does obtain other employment, all amounts payable by the Company under
this Agreement shall remain fully due and payable.
6. Agreement Not to Compete.
-------------------------
(a) The Executive agrees that during the Non-Competition Period (as
defined below), he will not, directly or indirectly, in any capacity,
either separately, jointly or in association with others, as an
officer, director, consultant, agent, employee, owner, principal,
partner or stockholder of any business, or in any other capacity,
engage or have a financial interest in any business which is involved
in the design, manufacturing, marketing or sale of batteries or
battery operated lighting devices (excepting only the ownership of not
more than 5% of the outstanding securities of any class listed on an
exchange or the Nasdaq Stock Market). The "Non-Competition Period" is
(a) the
12
longer of the Executive's employment hereunder or time period which he
serves as a director of the Company plus (b) a period of one (1) year
thereafter.
(b) Without limiting the generality of clause (a) above, the Executive
further agrees that during the Non-Competition Period, he will not,
directly or indirectly, in any capacity, either separately, jointly or
in association with others, solicit or otherwise contact any of the
Company's customers or prospects, as shown by the Company's records,
that were customers or prospects of the Company at any time during the
Non-Competition Period if such solicitation or contact is for the
general purpose of selling products that satisfy the same general
needs as any products that the Company had available for sale to its
customers or prospects during the Non-Competition Period.
(c) The Executive agrees that during the Non-Competition Period, he shall
not, other than in connection with employment for the Company, solicit
the employment or services of any employee of Company who is or was an
employee of Company at any time during the Non-Competition Period.
During the Non-Competition Period, the Executive shall not hire any
employee of Company for any other business.
(d) If a court determines that the foregoing restrictions are too broad or
otherwise unreasonable under applicable law, including with respect to
time or space, the court is hereby requested and authorized by the
parties hereto to revise the foregoing restrictions to include the
maximum restrictions allowed under the applicable law.
(e) For purposes of this Section 6 and Section 7, the "Company" refers to
the Company and any incorporated or unincorporated affiliates of the
Company.
13
7. Secret Processes and Confidential Information.
----------------------------------------------
(a) The Executive agrees to hold in strict confidence and, except as the
Company may authorize or direct, not disclose to any person or use
(except in the performance of his services hereunder) any confidential
information or materials received by the Executive from the Company
and any confidential information or materials of other parties
received by the Executive in connection with the performance of his
duties hereunder. For purposes of this Section 7(a), confidential
information or materials shall include existing and potential customer
information, existing and potential supplier information, product
information, design and construction information, pricing and
profitability information, financial information, sales and marketing
strategies and techniques and business ideas or practices. The
restriction on the Executive's use or disclosure of the confidential
information or materials shall remain in force until such information
is of general knowledge in the industry through no fault of the
Executive or any agent of the Executive. The Executive also agrees to
return to the Company promptly upon its request any Company
information or materials in the Executive's possession or under the
Executive's control.
(b) The Executive will promptly disclose to the Company and to no other
person, firm or entity all inventions, discoveries, improvements,
trade secrets, formulas, techniques, processes, know-how and similar
matters, whether or not patentable and whether or not reduced to
practice, which are conceived or learned by the Executive during the
period of the Executive's employment with the Company, either alone or
with others, which relate to or result from the actual or anticipated
business or research of the Company or which result, to any extent,
from the Executive's use of the Company's premises or property
(collectively called the "Inventions"). The Executive acknowledges and
agrees that all the Inventions shall be the
14
sole property of the Company, and the Executive hereby assigns to the
Company all of the Executive's rights and interests in and to all of
the Inventions, it being acknowledged and agreed by the Executive that
all the Inventions are works made for hire. The Company shall be the
sole owner of all domestic and foreign rights and interests in the
Inventions. The Executive agrees to assist the Company at the
Company's expense to obtain and from time to time enforce patents and
copyrights on the Inventions.
(c) Upon the request of, and, in any event, upon termination of the
Executive's employment with the Company, the Executive shall promptly
deliver to the Company all documents, data, records, notes, drawings,
manuals and all other tangible information in whatever form which
pertains to the Company, and the Executive will not retain any such
information or any reproduction or excerpt thereof.
8. Notices. All notices or other communications hereunder shall be in writing
and shall be deemed to have been duly given (a) when delivered personally,
(b) upon confirmation of receipt when such notice or other communication is
sent by facsimile or telex, (c) one day after delivery to an overnight
delivery courier, or (d) on the fifth day following the date of deposit in
the United States mail if sent first class, postage prepaid, by registered
or certified mail. The addresses for such notices shall be as follows:
(a) For notices and communications to the Company:
Rayovac Corporation
601 Rayovac Drive
Madison, WI 53711
Facsimile: (608) 278-6666
Attention: Board of Directors
15
with a copy to:
Thomas H. Lee Company
75 State Street
Boston, MA 02109
Facsimile: (617) 227-3514
Attention: Warren C. Smith, Jr.
and a copy to:
Skadden, Arps, Slate,
Meagher & Flom LLP
One Beacon Street,
Boston, MA 02108
Facsimile: (617) 573-4822
Attention: Louis A. Goodman, Esq.
(b) For notices and communications to the Executive:
David A. Jones
2910 Coles Way
Atlanta, GA 30350
Facsimile: (770) 671-0536
with a copy to:
Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, GA 30309
Facsimile: (404) 853-8806
Attention: Mark D. Kaufman, Esq.
Any party hereto may, by notice to the other, change its address for receipt of
notices hereunder.
9. General.
--------
9.1 Governing Law. This Agreement shall be construed under and governed by
the laws of the State of Wisconsin, without reference to its conflicts of law
principles.
9.2 Amendment; Waiver. This Agreement may be amended, modified, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument executed by all of the parties hereto
16
or, in the case of a waiver, by the party waiving compliance. The failure of any
party at any time or times to require performance of any provision hereof shall
in no manner affect the right at a later time to enforce the same. No waiver by
any party of the breach of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
9.3 Successors and Assigns. This Agreement shall be binding upon the
Executive, without regard to the duration of his employment by the Company or
reasons for the cessation of such employment, and inure to the benefit of his
administrators, executors, heirs and assigns, although the obligations of the
Executive are personal and may be performed only by him. This Agreement shall
also be binding upon and inure to the benefit of the Company and its
subsidiaries, successors and assigns, including any corporation with which or
into which the Company or its successors may be merged or which may succeed to
their assets or business.
9.4 Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original but which together shall constitute one and
the same instrument.
9.5 Attorneys' Fees. In the event that any action is brought to enforce any
of the provisions of this Agreement, or to obtain money damages for the breach
thereof, and such action results in the award of a judgment for money damages or
in the granting of any injunction in favor of one of the parties to this
Agreement, all expenses, including reasonable attorneys' fees, shall be paid by
the non-prevailing party.
9.6 Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation during his employment
hereunder in any benefit, bonus, incentive or other plan or program provided by
the Company or any of its affiliates and for which the Executive may qualify.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan or program of the Company or any affiliated company at
or subsequent to the
17
date of the Executive's termination of employment with the Company shall,
subject to the terms hereof or any other agreement entered into by the Company
and the Executive on or subsequent to the date hereof, be payable in accordance
with such plan or program.
9.7 Mitigation. In no event shall the Executive be obligated to seek other
employment by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement. In the event that the Executive shall
give a Notice of Termination for Constructive Termination and it shall
thereafter be determined that Constructive Termination did not take place, the
employment of the Executive shall, unless the Corporation and the Executive
shall otherwise mutually agree, be deemed to have terminated, at the date of
giving such purported Notice of Termination, and the Executive shall be entitled
to receive only those payments and benefits which he would have been entitled to
receive at such date had he terminated his employment voluntarily at such date
under Section 4(d) of this Agreement.
9.8 Equitable Relief. The Executive expressly agrees that breach of any
provision of Sections 6 or 7 of this Agreement would result in irreparable
injuries to the Company, that the remedy at law for any such breach will be
inadequate and that upon breach of such provisions, the Company, in addition to
all other available remedies, shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction without the necessity
of proving the actual damage to the Company.
9.9 Termination of 1996 Agreement. The 1996 Agreement is hereby terminated.
9.10 Entire Agreement. This Agreement and the exhibit and schedule hereto
constitute the entire understanding of the parties hereto with respect to the
subject matter hereof and supersede all prior negotiations, discussions,
writings and agreements between them.
18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RAYOVAC CORPORATION
By /s/ Kent J. Hussey
-------------------------------------
Kent J. Hussey
President and Chief
Operating Officer
EXECUTIVE:
/s/ David A. Jones
----------------------------------------
David A. Jones
19
SCHEDULE A
Executive Bonus Schedule
------------------------
===================================================================================
Bonus Available
Percentage of as Percentage
Plan Achieved of Annual Base Salary
-----------------------------------------------------------------------------------
137.5% 100%
130 90
122.5 80
115 70
107.5 60
100 50
90 25
80 0
===================================================================================
Any level of Company performance which falls between two
specific points set forth above under "Percentage of Plan Achieved" shall
entitle the Executive to receive a percentage of Base Salary determined on a
straight line basis between such two points. Such amount shall be calculated as
follows:
[(A-B) x .1] x (C-D) + D
Where:
A = The actual Percentage of Plan Achieved.
B = The Percentage of Plan Achieved set forth above which is less than
and closest to actual results.
C = The Bonus Available as Percentage of Base Salary set forth above
which is greater than and closest to the percentage that would apply
based on actual results.
D = The Bonus Available as Percentage of Base Salary set forth above
which is less than and closest to the percentage that would apply based
on actual results.
Exhibit 10.17
-------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into as of the 27th day of April, 1998, by and
between Rayovac Corporation, a Wisconsin corporation (the "Company"), and Kent
J. Hussey (the "Executive").
WHEREAS, the Company desires the benefit of the experience, supervision and
services of the Executive and desires to employ the Executive upon the terms and
conditions set forth herein; and
WHEREAS, the Executive is willing and able to accept such employment on
such terms and conditions.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive
hereby agree as follows:
1. Employment Duties and Acceptance. The Company hereby employs the Executive,
and the Executive agrees to serve and accept employment, as the President
and Chief Operating Officer of the Company, reporting directly to the Chief
Executive Officer of the Company (the "CEO"). In connection therewith, as
President and Chief Operating Officer, the Executive shall have general
supervision of the day-to-day affairs of the Company and the supervision
and direction of the actions of the other officers of the Company, subject
to the supervision of the CEO. During the Term (as defined below), the
Executive shall devote all of his working time to such employment and
appointment, shall devote his best efforts to advance the interests of the
Company and shall not engage in any other business activities, as an
employee, director, consultant or in any other capacity, whether or not he
receives any compensation therefor, without the prior written consent of
the Board. During the Term (as hereinafter defined) or any extension
thereof,
the Executive shall maintain his principal residence in the Madison,
Wisconsin area.
2. Term of Employment. Subject to Section 4 hereof, the Executive's employment
and appointment hereunder shall be for a term commencing on the date hereof
and expiring on April 30, 2001 (the "Term"). Upon expiration of the Term,
this Agreement shall automatically extend for successive periods of one (1)
year, unless the Executive or the Company shall give notice to the other at
least ninety (90) days prior to the end of the Term (or any annual
extension thereof) indicating that it does not intend to renew the
Agreement.
3. Compensation. In consideration of the performance by the Executive of his
duties hereunder, the Company shall pay or provide to the Executive the
following compensation which the Executive agrees to accept in full
satisfaction for his services, it being understood that necessary
withholding taxes, FICA contributions and the like shall be deducted from
such compensation:
(a) Base Salary. The Executive shall receive a base salary equal to Three
Hundred Twenty-Five Thousand Dollars ($325,000) per annum during the
Term ("Base Salary"), which Base Salary shall be paid in equal monthly
installments each year, to be paid monthly in arrears. The Board will
review from time to time the Base Salary payable to the Executive
hereunder and may, in its discretion, increase the Executive's Base
Salary. Any such increased Base Salary shall be and become the "Base
Salary" for purposes of this Agreement.
(b) Bonus. The Executive shall receive a bonus for each fiscal year ending
during the Term, payable annually in arrears, which shall be based, as
set forth on Schedule A hereto, on the Company achieving certain
annual performance goals established by the Board from time to time
(the "Bonus"). The Board may, in its discretion,
2
increase the annual Bonus. Any such increased annual Bonus shall be
and become the "Bonus" for such fiscal year for purposes of this
Agreement.
(c) Insurance Coverages and Pension Plans. The Executive shall be entitled
to such insurance, pension and all other benefits as are generally
made available by the Company to its executive officers from time to
time.
(d) Stock Options. All stock options previously granted to the Executive
shall remain in full force and effect in accordance with their terms.
In connection with the Executive's employment and appointment
hereunder, the Executive is being granted certain time-based and
performance-based options to purchase, in the aggregate, 72,106 shares
of Common Stock at an exercise price of $22.88 per share. If the
Company implements a new stock option program in the future, the
Executive may participate to the extent authorized by the Board.
(e) Vacation. The Executive shall be entitled to four (4) weeks vacation
each year.
(f) Other Expenses. The Executive shall be entitled to reimbursement of
all reasonable and documented expenses actually incurred or paid by
the Executive in the performance of the Executive's duties under this
Agreement, upon presentation of expense statements, vouchers or other
supporting information in accordance with Company policy. All expense
reimbursements and other perquisites of the Executive are reviewable
periodically by the Compensation Committee of the Board, if there be
one, or the Board.
(g) Automobile. The Company shall provide the Executive with the use of a
leased automobile suitable for a chief operating officer of a company
similar to the Company.
3
(h) D&O Insurance. The Executive shall be entitled to indemnification from
the Company to the maximum extent provided by law, but not for any
action, suit, arbitration or other proceeding (or portion thereof)
initiated by the Executive, unless authorized or ratified by the
Board. Such indemnification shall be covered by the terms of the
Company's policy of insurance for directors and officers in effect
from time to time (the "D&O Insurance"). Copies of the Company's
charter, by-laws and D&O Insurance will be made available to the
Executive upon request.
(i) Legal Fees. The Company shall pay the Executive's actual and
reasonable legal fees incurred in connection with the preparation of
this Agreement.
4. Termination.
------------
(a) Termination by the Company with Cause. The Company shall have the
right at any time to terminate the Executive's employment hereunder
without prior notice upon the occurrence of any of the following (any
such termination being referred to as a termination for "Cause"):
(i) the commission by the Executive of any deliberate and
premeditated act taken by the Executive in bad faith against the
interests of the Company;
(ii) the Executive has been convicted of, or pleads nolo contendere
with respect to, any felony, or of any lesser crime or offense
having as its predicate element fraud, dishonesty or
misappropriation of the property of the Company;
(iii) the habitual drug addiction or intoxication of the Executive
which negatively impacts his job performance or the
4
Executive's failure of a Company-required drug test;
(iv) the willful failure or refusal of the Executive to perform his
duties as set forth herein or the willful failure or refusal to
follow the direction of the CEO or the Board, provided such
failure or refusal continues after thirty (30) days of the
receipt of notice in writing from the CEO or the Board of such
failure or refusal, which notice refers to this Section 4(a) and
indicates the Company's intention to terminate the Executive's
employment hereunder if such failure or refusal is not remedied
within such thirty (30) day period; or
(v) the Executive breaches any of the terms of this Agreement or any
other agreement between the Executive and the Company which
breach is not cured within thirty (30) days subsequent to notice
from the Company to the Executive of such breach, which notice
refers to this Section 4(a) and indicates the Company's intention
to terminate the Executive's employment hereunder if such breach
is not cured within such thirty (30) day period.
If the definition of termination for "Cause" set forth above conflicts
with such definition in the Executive's time-based or performance-
based Stock Option Agreements to purchase 227,894 shares of Common
Stock at an exercise price of $4.39 per share (collectively, the
"Stock Option Agreements") or any agreements referred to therein, the
definition set forth herein shall control.
(b) Termination by Company for Death or Disability. The Company shall have
the right at any time to terminate the Executive's employment
hereunder without prior notice upon the Executive's in-
5
ability to perform his duties hereunder by reason of any mental,
physical or other disability for a period of at least six (6)
consecutive months (for purposes hereof, "disability" has the same
meaning as in the Company's disability policy). The Company's
obligations hereunder shall, subject to the provisions of Section
5(b), also terminate upon the death of the Executive.
(c) Termination by Company without Cause. The Company shall have the right
at any time to terminate the Executive's employment for any other
reason without Cause upon sixty (60) days prior written notice to the
Executive.
(d) Voluntary Termination by Executive. The Executive shall be entitled to
terminate his employment and appointment hereunder upon sixty (60)
days prior written notice to the Company. Any such termination shall
be treated as a termination by the Company for "Cause" under Section
5, unless notice of such termination was given within sixty (60) days
after a Sale (as such term is defined in the Stock Option Agreements),
in which case such termination shall be treated in accordance with
Section 5(d) hereof.
(e) Constructive Termination by the Executive. The Executive shall be
entitled to terminate his employment and appointment hereunder,
without prior notice, upon the occurrence of a Constructive
Termination. Any such termination shall be treated as a termination by
the Company without Cause. For this purpose, a "Constructive
Termination" shall mean:
(i) a reduction in Base Salary (other than as permitted hereby);
(ii) a reduction in annual Bonus opportunity;
6
(iii) a change in location of office of more than seventy-five (75)
miles from Madison, Wisconsin;
(iv) unless with the express written consent of the Executive, (a) the
assignment to the Executive of any duties inconsistent in any
substantial respect with the Executive's position, authority or
responsibilities as contemplated by Section 1 of this Agreement
or (b) any other substantial change in such position, including
titles, authority or responsibilities from those contemplated by
Section 1 of the Agreement; or
(v) any material reduction in any of the benefits described in
Section 3(e), (f), (g) or (h) hereof.
For purposes of the Stock Option Agreements, Constructive Termination
shall be treated as a termination of employment by the Company without
"Cause."
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Constructive Termination shall be communicated by
Notice of Termination to the other party hereto given in accordance
with Section 8. For purposes of this Agreement, a "Notice of
Termination" means a written notice given prior to the termination
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if
the termination date is other than the date of receipt of such notice,
specifies the termination date of this Agreement (which date shall be
not more than fifteen (15) days after the giving of such notice). The
failure by any party to set forth in the Notice of Termination
7
any fact or circumstance which contributes to a showing of Cause or
Constructive Termination shall not waive any right of such party
hereunder or preclude such party from asserting such fact or
circumstance in enforcing its rights hereunder.
5. Effect of Termination of Employment.
------------------------------------
(a) With Cause. If the Executive's employment is terminated with Cause,
the Executive's salary and other benefits specified in Section 3 shall
cease at the time of such termination, and the Executive shall not be
entitled to any compensation specified in Section 3 which was not
required to be paid prior to such termination; provided, however, that
the Executive shall be entitled to continue to participate in the
Company's medical benefit plans to the extent required by law.
(b) Death or Disability. If the Executive's employment is terminated by
the death or disability of the Executive (pursuant to Section 4(b)),
the Executive's compensation provided in Section 3 shall be paid to
the Executive or, in the event of the death of the Executive, the
Executive's estate, as follows:
(i) the Executive's Base Salary specified in Section 3(a) shall
continue to be paid in monthly installments until the first to
occur of (i) twelve (12) months following such termination or
(ii) such time as the Executive or the Executive's estate
breaches the provisions of Sections 6 or 7 of this Agreement;
(ii) a pro rata portion (based on days worked and percentage of
achievement of annual performance goals) of the annual Bonus
payable to the Executive, if any, specified in Section 3(b) shall
be paid, un-
8
less the Board determines to pay a greater amount in its sole
discretion;
(iii) If the Executive's employment is terminated as a result of
disability, the Executive's additional benefits specified in
Section 3(c) shall continue to be available to the Executive
until the first to occur of (i) the remaining period of the Term
(or twelve (12) months following such termination, if greater) or
(ii) such time as the Executive breaches the provisions of
Sections 6 or 7 of this Agreement; and
(iv) the Executive's accrued vacation (determined in accordance with
Company policy) at the time of termination shall be paid as soon
as reasonably practicable.
(c) Without Cause. If the Executive's employment is terminated by the
Company without Cause (pursuant to Section 4(c) or 4(e)), the
Executive's compensation provided in Section 3 shall be paid as
follows:
(i) the Executive's Base Salary specified in Section 3(a) shall
continue to be paid in monthly installments until the first to
occur of (i) the remaining period of the Term (or twelve (12)
months following such termination, if greater) or (ii) such time
as the Executive breaches the provisions of Sections 6 or 7 of
this Agreement;
(ii) the Executive's annual Bonus shall continue to be paid in
accordance with this Section 5(c) at the times set forth in
Section 3(b) until the first to occur of (i) the remaining period
of the Term or (ii) such time as the Executive breaches the
provisions of Sections 6 or 7 of this Agreement. The annual Bonus
pay-
9
able pursuant to this Section 5(c) shall equal the amount of
the annual Bonus (if any) previously paid or required to be paid
pursuant to this Agreement for the full fiscal year immediately
prior to the Executive's termination of employment. For purposes
of this calculation, if termination occurs any time during the
fiscal year ending September 30, 1998, the annual bonus shall be
$162,500; and
(iii) the Executive's additional benefits specified in Section 3(c)
shall continue to be available to the Executive until the first
to occur of (i) twelve (12) months following such termination or
(ii) such time as the Executive breaches the provisions of
Sections 6 or 7 of this Agreement.
(d) Following Sale. If the Executive elects to terminate his employment
within sixty (60) days following a Sale in accordance with Section
4(d), such termination by the Executive shall be treated as a
termination by the Company without Cause, and the Executive shall be
entitled to the compensation provided in Section 5(c), except that in
no event shall Executive receive less than twelve (12) months Base
Salary and annual Bonus following the expiration of the Post-Term
Period (as defined below). Notwithstanding the foregoing, the Company
may require that the Executive continue to remain in the employ of the
Company for up to a maximum of six (6) months following the Sale (the
"Post-Term Period"). The Company shall place the maximum cash payments
payable pursuant to Section 5(c) in escrow with a commercial bank or
trust company mutually acceptable to the Company and the Executive as
soon as practicable following the Sale. For the Post-Term Period, the
Company shall make the cash payments that would otherwise be required
pursuant
10
to Section 3 (all such cash payments to be deducted from the
amount placed in escrow). At the expiration of the Post-Term Period,
the Executive shall receive all cash amounts due the Executive from
the remaining amount held in escrow ratably monthly over the
Non-Competition Period (as defined below), with the balance (if any)
returned to the Company. If the Company does not require that the
Executive remain in the employ of the Company, the Company shall pay
the Executive all cash amounts payable pursuant to Section 5(c)
ratably monthly over the Non-Competition Period (all such cash
payments to be deducted from the amount placed in escrow) with the
balance (if any) returned to the Company.
Notwithstanding the foregoing, although the Executive shall not be required to
mitigate the amount of any payment provided for herein by seeking other
employment or otherwise, if the Executive does obtain other employment, the
amount of each dollar ($1.00) of compensation received from such other
employment source during the period that the Company is required to make
payments hereunder shall reduce by fifty cents ($.50) the amount otherwise
payable by the Company under Section 5(c)(i) and (ii).
6. Agreement Not to Compete.
-------------------------
(a) The Executive agrees that during the Non-Competition Period (as
defined below), he will not, directly or indirectly, in any capacity,
either separately, jointly or in association with others, as an
officer, director, consultant, agent, employee, owner, principal,
partner or stockholder of any business, or in any other capacity,
engage or have a financial interest in any business which is involved
in the design, manufacturing, marketing or sale of batteries or
battery operated lighting devices (excepting only the ownership of not
more than 5% of the outstanding securities of any class listed on an
exchange or the Nasdaq Stock Mar-
11
ket). The "Non-Competition Period" is (a) the longer of the
Executive's employment hereunder or time period which he serves as a
director of the Company plus (b) a period of one (1) year thereafter.
(b) Without limiting the generality of clause (a) above, the Executive
further agrees that during the Non-Competition Period, he will not,
directly or indirectly, in any capacity, either separately, jointly or
in association with others, solicit or otherwise contact any of the
Company's customers or prospects, as shown by the Company's records,
that were customers or prospects of the Company at any time during the
Non-Competition Period if such solicitation or contact is for the
general purpose of selling products that satisfy the same general
needs as any products that the Company had available for sale to its
customers or prospects during the Non-Competition Period.
(c) The Executive agrees that during the Non-Competition Period, he shall
not, other than in connection with employment for the Company, solicit
the employment or services of any employee of Company who is or was an
employee of Company at any time during the Non-Competition Period.
During the Non-Competition Period, the Executive shall not hire any
employee of Company for any other business.
(d) If a court determines that the foregoing restrictions are too broad or
otherwise unreasonable under applicable law, including with respect to
time or space, the court is hereby requested and authorized by the
parties hereto to revise the foregoing restrictions to include the
maximum restrictions allowed under the applicable law.
(e) For purposes of this Section 6 and Section 7, the "Company" refers to
the Company and any
12
incorporated or unincorporated affiliates of the Company.
7. Secret Processes and Confidential Information.
----------------------------------------------
(a) The Executive agrees to hold in strict confidence and, except as the
Company may authorize or direct, not disclose to any person or use
(except in the performance of his services hereunder) any confidential
information or materials received by the Executive from the Company
and any confidential information or materials of other parties
received by the Executive in connection with the performance of his
duties hereunder. For purposes of this Section 7(a), confidential
information or materials shall include existing and potential customer
information, existing and potential supplier information, product
information, design and construction information, pricing and
profitability information, financial information, sales and marketing
strategies and techniques and business ideas or practices. The
restriction on the Executive's use or disclosure of the confidential
information or materials shall remain in force until such information
is of general knowledge in the industry through no fault of the
Executive or any agent of the Executive. The Executive also agrees to
return to the Company promptly upon its request any Company
information or materials in the Executive's possession or under the
Executive's control.
(b) The Executive will promptly disclose to the Company and to no other
person, firm or entity all inventions, discoveries, improvements,
trade secrets, formulas, techniques, processes, know-how and similar
matters, whether or not patentable and whether or not reduced to
practice, which are conceived or learned by the Executive during the
period of the Executive's employment with the Company, either alone or
with others, which relate to or result from the
13
actual or anticipated business or research of the Company or which
result, to any extent, from the Executive's use of the Company's
premises or property (collectively called the "Inventions"). The
Executive acknowledges and agrees that all the Inventions shall be the
sole property of the Company, and the Executive hereby assigns to the
Company all of the Executive's rights and interests in and to all of
the Inventions, it being acknowledged and agreed by the Executive that
all the Inventions are works made for hire. The Company shall be the
sole owner of all domestic and foreign rights and interests in the
Inventions. The Executive agrees to assist the Company at the
Company's expense to obtain and from time to time enforce patents and
copyrights on the Inventions.
(c) Upon the request of, and, in any event, upon termination of the
Executive's employment with the Company, the Executive shall promptly
deliver to the Company all documents, data, records, notes, drawings,
manuals and all other tangible information in whatever form which
pertains to the Company, and the Executive will not retain any such
information or any reproduction or excerpt thereof.
8. Notices. All notices or other communications hereunder shall be in writing
and shall be deemed to have been duly given (a) when delivered personally,
(b) upon confirmation of receipt when such notice or other communication is
sent by facsimile or telex, (c) one day after delivery to an overnight
delivery courier, or (d) on the fifth day following the date of deposit in
the United States mail if sent first class, postage prepaid, by registered
or certified mail. The addresses for such notices shall be as follows:
14
(a) For notices and communications to the Company:
Rayovac Corporation
601 Rayovac Drive
Madison, WI 53711
Facsimile: (608) 278-6666
Attention: Board of Directors
with a copy to:
Thomas H. Lee Company
75 State Street
Boston, MA 02109
Facsimile: (617) 227-3514
Attention: Warren C. Smith, Jr.
and a copy to:
Skadden, Arps, Slate,
Meagher & Flom LLP
One Beacon Street,
Boston, MA 02108
Facsimile: (617) 573-4822
Attention: Louis A. Goodman, Esq.
(b) For notices and communications to the Executive:
Kent J. Hussey
7801 Noll Valley Road
Verona, WS 53593
Facsimile: (608) 798-0715
with a copy to:
Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, GA 30309
Facsimile: (404) 853-8806
Attention: Mark D. Kaufman, Esq.
Any party hereto may, by notice to the other, change its address for receipt of
notices hereunder.
15
9. General.
--------
9.1 Governing Law. This Agreement shall be construed under and governed by
the laws of the State of Wisconsin, without reference to its conflicts of law
principles.
9.2 Amendment; Waiver. This Agreement may be amended, modified, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument executed by all of the parties hereto or, in the case of a
waiver, by the party waiving compliance. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by any party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
9.3 Successors and Assigns. This Agreement shall be binding upon the
Executive, without regard to the duration of his employment by the Company or
reasons for the cessation of such employment, and inure to the benefit of his
administrators, executors, heirs and assigns, although the obligations of the
Executive are personal and may be performed only by him. This Agreement shall
also be binding upon and inure to the benefit of the Company and its
subsidiaries, successors and assigns, including any corporation with which or
into which the Company or its successors may be merged or which may succeed to
their assets or business.
9.4 Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original but which together shall constitute one and
the same instrument.
9.5 Attorneys' Fees. In the event that any action is brought to enforce any
of the provisions of this Agreement, or to obtain money damages for the breach
thereof, and such action results in the award of a judg-
16
ment for money damages or in the granting of any injunction in favor of one of
the parties to this Agreement, all expenses, including reasonable attorneys'
fees, shall be paid by the non-prevailing party.
9.6 Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation during his employment
hereunder in any benefit, bonus, incentive or other plan or program provided by
the Company or any of its affiliates and for which the Executive may qualify.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan or program of the Company or any affiliated company at
or subsequent to the date of the Executive's termination of employment with the
Company shall, subject to the terms hereof or any other agreement entered into
by the Company and the Executive on or subsequent to the date hereof, be payable
in accordance with such plan or program.
9.7 Mitigation. In no event shall the Executive be obligated to seek other
employment by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement. In the event that the Executive shall
give a Notice of Termination for Constructive Termination and it shall
thereafter be determined that Constructive Termination did not take place, the
employment of the Executive shall, unless the Corporation and the Executive
shall otherwise mutually agree, be deemed to have terminated, at the date of
giving such purported Notice of Termination, and the Executive shall be entitled
to receive only those payments and benefits which he would have been entitled to
receive at such date had he terminated his employment voluntarily at such date
under Section 4(d) of this Agreement.
9.8 Equitable Relief. The Executive expressly agrees that breach of any
provision of Sections 6 or 7 of this Agreement would result in irreparable
injuries to the Company, that the remedy at law for any such breach will be
inadequate and that upon breach of such provisions, the Company, in addition to
all other available remedies, shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction
17
without the necessity of proving the actual damage to the Company.
9.9 Entire Agreement. This Agreement and the schedule hereto constitute the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersede all prior negotiations, discussions, writings and
agreements between them.
18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RAYOVAC CORPORATION
By /s/ David A. Jones
--------------------------------------------
David A. Jones
Chief Executive Officer
EXECUTIVE:
/s/ Kent J. Hussey
-----------------------------------------------
Kent J. Hussey
19
SCHEDULE A
Executive Bonus Schedule
------------------------
===================================================================================
Bonus Available
Percentage of as Percentage
Plan Achieved of Annual Base Salary
-----------------------------------------------------------------------------------
137.5% 100%
130 90
122.5 80
115 70
107.5 60
100 50
90 25
80 0
===================================================================================
Any level of Company performance which falls between two specific points
set forth above under "Percentage of Plan Achieved" shall entitle the Executive
to receive a percentage of Base Salary determined on a straight line basis
between such two points. Such amount shall be calculated as follows:
[(A-B) x .1] x (C-D) + D
Where:
A = The actual Percentage of Plan Achieved.
B = The Percentage of Plan Achieved set forth above which is less than
and closest to actual results.
C = The Bonus Available as Percentage of Base Salary set forth above
which is greater than and closest to the percentage that would apply
based on actual results.
D = The Bonus Available as Percentage of Base Salary set forth above
which is less than and closest to the percentage that would apply based
on actual results.
Exhibit 10.18
-------------
SEVERANCE AGREEMENT
This Agreement, dated as of 19 March 1998, is made by and between Rayovac
Corporation (the "Company"), a Wisconsin corporation with its principal business
address at 601 Rayovac Drive, Madison, Wisconsin 53711, and Randall J. Steward,
an individual residing at 3024 Woodland Trail, Middleton, Wisconsin 53562 (the
"Executive").
BACKGROUND
The Company considers it essential to the best interests of its shareholders to
foster the continued employment of key managers.
UNDERTAKINGS
Now therefore, the parties agree:
1. Term of Agreement. The term of this Agreement (the "Term") shall
commence on 19 March 1998 and shall continue in effect through 18 March
1999; and shall continue thereafter for additional one year Terms
unless, not later than 30 days prior to the end of the preceding Term,
the Company or the Executive shall give notice not to extend the Term.
2. Severance Payments.
2.1 If the Executive's employment is terminated during the Term
(a) by the Company without Cause (as defined below) or (b) by
reason of death or Disability (as defined below), then the
Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in Section 2.2 (the
"Severance Payments").
2.2 (a) The Company shall pay to the Executive as
severance, an amount in cash equal to the sum of (i)
the Executive's 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 the Executive
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 the termination occurs, such cash amount to be
paid to the Executive ratably monthly in arrears over
the Non-Competition Period (as defined below).
-2-
(b) For the 12-month period immediately following such
termination, the Company shall arrange to provide the
Executive and his dependents insurance benefits
substantially similar to those provided to the
Executive and his dependents immediately prior to the
date of termination, at no greater cost to the
Executive than the cost to the Executive immediately
prior to such date. Benefits otherwise receivable by
the Executive pursuant to this Section 2.2(b) shall
cease immediately upon the discovery by the Company
of the Executive's breach of the covenants contained
in Sections 5 or 6 hereof. In addition, benefits
otherwise receivable by the Executive pursuant to
this Section 2.2(b) shall be reduced to the extent
benefits of the same type are received by or made
available to the Executive during the 12-month period
following the Executive's termination of employment
(and any such benefits received by or made available
to the Executive shall be reported to the Company by
the Executive); provided, however, that the Company
shall reimburse the Executive for the excess, if any,
of the cost of such benefits to the Executive over
such cost immediately prior to the date of
termination.
2.3 Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state, or local
law and any additional withholding to which the Executive has
agreed.
2.4 If the Executive's employment with the Company terminates
during the Term, the Executive shall not be required to seek
other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to
this Section 2.
3. Termination Procedures. During the Term, any purported termination of
the Executive's employment (other than by reason of death) shall be
communicated by written notice of termination from one party to the
other in accordance with Section 8 hereof. The notice of termination
shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
4. No Rights to Employment. This Agreement shall not be construed as
creating an express or implied contract of employment, and except as
otherwise agreed in writing between the Executive and the Company and
authorized by the Board of Directors of the Company, the Executive
shall not have any right to be retained in the employ of the Company.
-3-
5. Executive's Covenant Not to Compete.
5.1 During the Non-Competition Period, the Executive will not,
directly or indirectly, in any capacity, either separately,
jointly, or in association with others, as an officer,
director, consultant, agent, employee, owner, principal,
partner, or stockholder of any business, or in any other
capacity, engage or have a financial interest in any business
which is involved in the design, manufacturing, marketing, or
sale of batteries or battery operated lighting devices
(excepting only the ownership of not more than 5% of the
outstanding securities of an class listed on an exchange or
the Nasdaq Stock Market). For purposes of this Agreement, the
"Non-Competition Period" means the period beginning on the
date hereof and continuing until the date which is the
one-year anniversary of the later to occur of (a) the end of
the Term and (b) the date of termination.
5.2 Without limiting the generality of Section 5.1 above, during
the Non-Competition Period the Executive will not, directly or
indirectly, in any capacity, either separately, jointly, or in
association with others, solicit or otherwise contact any of
the Company's customers or prospects that were customers or
prospects of the Company at any time during the
Non-Competition Period if such solicitation or contact is for
the general purpose of selling products that satisfy the same
general needs as any products that the Company had available
for sale to its customers or prospects during the
Non-Competition Period.
5.3 During the Non-Competition Period, the Executive shall not,
other than in connection with employment for the Company,
solicit the employment or services of any employee of the
Company who is or was an employee of the Company at any time
during the Non-Competition Period. During the Non-Competition
Period, the Executive shall not hire any employee of Company
for any other business.
5.4 If a court determines that the foregoing restrictions are too
broad or otherwise unreasonable under applicable law,
including with respect to time or space, the court is hereby
requested and authorized by the parties to revise the
foregoing restrictions to include the maximum restrictions
allowed under the applicable law.
-4-
5.5 For purposes of this Section 5 and Section 6, the "Company"
refers to the Company and any incorporated or unincorporated
affiliates of the Company.
6. Secret Processes and Confidential Information.
6.1 The Executive will hold in strict confidence and, except as
the Company may authorize or direct, not disclose to any
person or use (except in the performance of his services
hereunder) any confidential information or materials received
by the Executive from the Company or any confidential
information or materials of other parties received by the
Executive in connection with the performance of his duties
hereunder. For purposes of this Section 6.1, confidential
information or materials shall include existing and potential
customer information, existing and potential supplier
information, product information, design and construction
information, pricing and profitability information, financial
information, sales and marketing strategies and techniques,
and business ideas or practices. The restriction on the
Executive's use or disclosure of the confidential information
or materials shall remain in force until such information is
of general knowledge in the industry through no fault of the
Executive or any agent of the Executive. The Executive also
will return to the Company promptly upon its request any
Company information or materials in the Executive's possession
or under the Executive's control.
6.2 The Executive will promptly disclose to the Company and to no
other person, firm or entity all inventions, discoveries,
improvements, trade secrets, formulas, techniques, processes,
know-how and similar matters, whether or not patentable and
whether or not reduced to practice, which are conceived or
learned by the Executive during the period of the Executive's
employment with the Company, either alone or with others,
which relate to or result from the actual or anticipated
business or research of the Company or which result, to any
extent, from the Executive's use of the Company's premises or
property (collectively called the "Inventions"). The Executive
acknowledges and agrees that all Inventions shall be the sole
property of the Company, and the Executive hereby assigns to
the Company all of the Executive's rights and interests in and
to all of the Inventions, it being acknowledged and agreed by
the Executive that all the Inventions are works made for hire.
The Company shall be the sole owner of all domestic and
foreign rights and interests in the Inventions. The Executive
will assist the Company at the Company's expense to obtain and
from time to time enforce patents and copyrights on the
Inventions.
-5-
6.3 Upon the request of, and, in any event, upon termination of
the Executive's employment with the Company, the Executive
shall promptly deliver to the Company all documents, data,
records, notes, drawings, manuals, and all other tangible
information in whatever form which pertains to the Company,
and the Executive will not retain any such information or any
reproduction or excerpt thereof.
7. Successors; Binding Agreement
7.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company
to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to the Severance
Payments, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination. For
purposes of this Agreement, "Company" shall mean Rayovac
Corporation, a Wisconsin corporation, and shall include any
successor to its business or assets which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
7.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate
upon the death of the Executive) if the Executive had
continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or
administrators of the Executive's estate.
8. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given (a) when delivered personally,
(b) upon confirmation of receipt when such notice or other
communication is sent by facsimile or telex, (c) one day after delivery
to an overnight delivery courier, or (d) on the fifth day following the
date of deposit in the United States mail if sent first class, postage
prepaid, by registered or certified mail.
-6-
9. Survival. The obligations of the Company and the Executive under this
Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without
limitation, those under Sections 2, 5 and 6 hereof) shall survive such
expiration.
10. Amendment; Waiver. This Agreement may be amended, modified, superseded,
or canceled, and the terms hereof may be waived, only by a written
instrument executed by all of the parties hereto or, in the case of a
waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall
in no manner affect the right at a later time to enforce the same. No
waiver by any party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any
other term or covenant contained in this Agreement.
11. Equitable Relief. Breach of any provision of Sections 5 or 6 of this
Agreement would result in irreparable injuries to the Company, the
remedy at law for any such breach will be inadequate, and upon breach
of such provisions, the Company, in addition to all other available
remedies, shall be entitled as a matter of right to injunctive relief
in any court of competent jurisdiction without the necessity of proving
the actual damage to the Company.
12. Entire Agreement. This Agreement constitutes the entire understanding
of the parties hereto with respect to the subject matter hereof and
supersedes all prior negotiations, discussions, writings, and
agreements between them.
13. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and
effect.
14. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed to be an original but both of which together
will constitute one and the same instrument.
15. Definitions. For purposes of this Agreement, the following terms shall
have the meanings indicated below:
-7-
(a) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the commission by the Executive of
any fraud, embezzlement or other material act of dishonesty
with respect to the Company or any of its affiliates
(including the unauthorized disclosure of confidential or
proprietary information of the Company or any of its
affiliates or subsidiaries); (ii) Executive's conviction of,
or plea of guilty or nolo contendere to, a felony or other
crime involving moral turpitude; (iii) Executive's willful
misconduct; (iv) willful failure or refusal by Executive to
perform his duties and responsibilities to the Company or any
of its affiliates which failure or refusal to perform is not
remedied within 30 days after receipt of a written notice from
the Company detailing such failure or refusal to perform; or
(v) Executive's breach of any of the terms of this Agreement
or any other agreement between Executive and the Company which
breach is not cured within 30 days subsequent to notice from
the Company to Executive of such breach.
(b) "Disability" shall be deemed the reason for the termination by
the Company of the Executive's employment, if, as a result of
the Executive's inability to perform his duties by reason of
any mental, physical or other disability for a period of at
least 6 consecutive months (for purposes hereof, "disability"
has the same meaning as in the Company's disability policy),
the Company shall have given the Executive a notice of
termination for Disability, and, within 30 days after such
notice of termination is given, the Executive shall not have
returned to the full-time performance of the Executive's
duties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RAYOVAC CORPORATION EXECUTIVE
By: /s/ Kent J. Hussey /s/ Randall J. Steward
------------------------- --------------------------
Kent J. Hussey Randall J. Steward
President
5
3-MOS
DEC-31-1998
MAR-29-1998
JUN-27-1998
1,624
2,810
77,774
1,227
63,357
156,751
153,405
84,810
253,785
80,936
142,119
0
0
569
18,479
253,785
111,054
111,054
0
57,830
43,423
137
3,501
6,163
2,314
3,849
0
0
0
3,849
0.14
0.13
