Spectrum Brands, Inc.

View:

Filed Pursuant to Rule 424(b)4
Registration No. 333-35181

PROSPECTUS

6,700,000 Shares

[Rayovac Logo]

Common Stock
-----------
All of the 6,700,000 shares of Common Stock offered hereby are being sold
by Rayovac Corporation ("Rayovac" or the "Company"). Of the 6,700,000 shares of
Common Stock offered hereby, 5,360,000 shares are being offered for sale
initially in the United States and Canada by the U.S. Underwriters and
1,340,000 shares are being offered for sale initially in a concurrent offering
outside the United States and Canada by the International Managers. The initial
public offering price and the aggregate underwriting discount per share are
identical for both Offerings. See "Underwriting."

Prior to the Offerings, there has been no public market for the Common
Stock. For a discussion relating to factors considered in determining the
initial public offering price, see "Underwriting."

The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "ROV," subject to official notice of issuance.

See "Risk Factors" beginning on page 10 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.

-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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

Price to Underwriting Proceeds to
Public Discount (1) Company (2)

Per Share ...... $ 14.00 $ .98 $ 13.02
Total (3) ...... $93,800,000 $6,566,000 $87,234,000

- -----------------------------------------------------
(1) The Company and the Over-Allotment Selling Shareholders have agreed to
indemnify the several Underwriters against certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,200,000.
(3) The Over-Allotment Selling Shareholders have granted the U.S. Underwriters
and the International Managers options to purchase up to an additional
804,000 shares and 201,000 shares of Common Stock, respectively, in each
case exercisable within 30 days after the date hereof, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Over-Allotment
Selling Shareholders will be $107,870,000, $7,550,900 and $13,085,100,
respectively. See "Underwriting."

-----------
The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York on or about November 26, 1997.
-----------
Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
-----------
The date of this Prospectus is November 20, 1997.

[Inside Front Cover]

[RAYOVAC Logo](R)

[Picture of Five Rayovac [Picture of Michael Jordan
Maximum Alkaline Battery holding a Rayovac Maximum
Packs on Gray Background] Alkaline Battery Pack]

[Picture of Six Rayovac [Picture of Rayovac [Picture of Arnold Palmer
Rechargeable Battery Battery Store Display Advertisement for Rayovac
Products on Gray Background] on Gray Background] Hearing Aid Batteries]

----------------
RAYOVAC(R), RENEWAL(R), LOUD'N CLEAR(R), POWER STATION(R),
PROLINE(R), WORKHORSE(R), ROUGHNECK(R) and SMART PACK(R) are
registered trademarks of the Company. MAXIMUM(TM), LIFEX(TM) and SMART(TM)
STRIP are trademarks of the Company. All other trademarks or tradenames
referred to in this Prospectus are the property of their respective owners.

----------------
Certain persons participating in the Offerings may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Such transactions may include stabilizing, the purchase of Common Stock to
cover syndicate short positions and the imposition of penalty bids. For a
description of these activities, see "Underwriting."

PROSPECTUS SUMMARY

The following summary information is qualified in its entirety by
reference to the more detailed information and financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment options have not been exercised. Upon consummation of the
Recapitalization (as defined herein) on September 12, 1996, the Company changed
its fiscal year end from June 30 to September 30. For clarity of presentation
and comparison, references to fiscal 1995 and fiscal 1996 are to the Company's
fiscal years ended June 30, 1995 and June 30, 1996, respectively, references to
the "Transition Period ended September 30, 1996" and the "Transition Period"
are to the period from July 1, 1996 to September 30, 1996 and references to
fiscal 1997 are to the Company's fiscal year ended September 30, 1997.

The Company

The Company is the leading value brand and the third largest domestic
manufacturer of general batteries (including alkaline, heavy duty and
rechargeable alkaline), and is the leading worldwide manufacturer of hearing
aid batteries. The Company is also the leading domestic manufacturer of
rechargeable household batteries, heavy duty batteries and certain other
specialty batteries, including lantern batteries and lithium batteries for
personal computer clocks and memory backup. In addition, the Company is a
leading marketer of battery-powered lighting products. Originally introduced in
1921, the Rayovac brand is a well recognized name in the battery industry. The
Company attributes the longevity and strength of its brand name to its
high-quality products and to the success of its marketing and merchandising
initiatives.

The Company has established its position as the leading value brand in the
U.S. general alkaline battery market by focusing on the mass merchandiser
channel. The Company achieved this position by (i) offering batteries with
quality and performance substantially equivalent to batteries offered by its
principal competitors at a lower price, (ii) emphasizing innovative in-store
merchandising programs, and (iii) offering retailers attractive margins. The
Company has established its position as the leader in various specialty battery
niche markets through (i) continual technological advances, (ii) creative
distribution and marketing, and (iii) strong relationships with industry
professionals and manufacturers. The Company sells and distributes its products
in several channels, including mass merchandisers, food and convenience stores,
drug and specialty retailers, hardware/home centers, department stores, hearing
aid professionals, industrial and government/OEM. The Company markets all of
its branded products under the Rayovac[RegTM] name and selected products under
sub-brand names such as MAXIMUM[TM], Renewal[RegTM], Loud'n Clear[RegTM],
ProLine[RegTM], Lifex[TM], Power Station[RegTM], Workhorse[RegTM], and
Roughneck[RegTM].

Business Strategy
In September 1996, pursuant to the Recapitalization, affiliates of the
Thomas H. Lee Company acquired beneficial ownership of approximately 80% of the
outstanding Common Stock of Rayovac. David A. Jones was hired as Chief
Executive Officer of the Company to implement a new business strategy focused
on (i) reinvigorating the Rayovac brand name by raising consumer brand
awareness through, among other things, focused marketing and advertising, (ii)
growing Rayovac's market share by expanding distribution into new channels,
increasing sales to under-penetrated channels and customers, launching new
products, and selectively pursuing acquisitions and alliances, (iii) reducing
costs by rationalizing manufacturing and distribution, better utilizing
existing plant capacity, outsourcing products where appropriate, reducing
working capital, and downsizing corporate overhead, and (iv) improving employee
productivity by reorganizing workflow to support the business units,
implementing modern information systems, increasing training and education, and
implementing a pay-for-performance culture.

To implement its new strategy, the Company has undergone a significant
transformation since the Recapitalization.

Strengthened Senior Management Team. In addition to Mr. Jones, three
experienced senior managers were recruited to fill key positions: Kent J.
Hussey, Executive Vice President of Finance and Administration and Chief
Financial Officer; Merrell M. Tomlin, Senior Vice President of Sales; and
Stephen P. Shanesy, Senior Vice President of Marketing and General Manager of
General Batteries. The new senior managers have over 70 years of collective
experience in the consumer products industry. In addition, the current
management team includes several key members who served the Company prior to
the Recapitalization, providing continuity and retaining significant

battery industry expertise. After giving effect to the Offerings, the eight
executive officers of the Company will beneficially own 12.5% of the
outstanding Common Stock on a fully diluted basis.

Reorganized Sales, Marketing and Administration by Distribution
Channel. Rayovac has realigned its marketing department, sales organization,
supply chain and support functions along major distribution channels, including
mass merchandisers, food and convenience stores, drug and specialty retailers,
hardware/home centers, department stores, hearing aid professionals, industrial
and government/OEM. The Company believes that sales to under-penetrated
channels should increase as the dedicated teams focus on implementing channel
specific marketing strategies, sales promotions and customer service
initiatives.

Launched New Sales and Marketing Programs. Rayovac has developed and is in
the process of implementing broad new marketing initiatives designed to
reinvigorate the Rayovac brand name. Major steps completed to date include: (i)
the selection of Young & Rubicam as the Company's new advertising agency and
the development of its first major national advertising campaign for general
battery products, (ii) the launch of a new and improved alkaline product line
under the MAXIMUM sub-brand, (iii) the redesign of all product graphics and
packaging to convey a high quality image and emphasize the Rayovac brand name,
(iv) the extension of the Company's existing contract with Michael Jordan to
include his representation for all Rayovac products, (v) the restructuring of
the Company's sales representative network, and (vi) the implementation of a 4%
price increase for alkaline general battery products in May 1997.

Outsourced Certain Non-Manufacturing Operations. Since the
Recapitalization, the Company has outsourced a number of non-manufacturing
operations, including mainframe computer operations, graphic design and
production, packaging design and payroll processing. As a result, the Company
has reduced costs and increased profitability, while improving services and
operations.

Rationalized Manufacturing and Other Costs. In March 1997, the Company
transferred the manufacture of round cell batteries from its Newton Aycliffe,
United Kingdom facility to its Wisconsin manufacturing plants. In August 1997,
it closed its Kinston, North Carolina facility and transferred production to
its Wonewoc, Wisconsin lighting products plant and to Far Eastern suppliers.
The Company also implemented a significant organizational restructuring in the
United States and United Kingdom and undertook additional measures to
rationalize the Company's manufacturing, distribution and other overhead costs.
Additionally, the Company eliminated costs associated with the use of a
corporate aircraft. The Company estimates these initiatives should result in
aggregate annual savings of $8.6 million. The Company believes that its current
manufacturing capacity remains sufficient to meet its anticipated production
requirements.

Reorganized Information Systems. The Company has completed an initial
reorganization of its information systems function by (i) hiring an experienced
Chief Information Officer, (ii) outsourcing mainframe computer operations,
(iii) completing an enterprise software system analysis, and (iv) retaining
Electronic Data Systems to modernize and upgrade its data processing and
telecommunications infrastructure. The Company has purchased from SAP and begun
implementing an enterprise-wide, integrated information system to upgrade and
modernize its business operations, the majority of which is expected to be
substantially completed by late 1998. When fully implemented, this system is
expected to reduce cycle times, lower manufacturing and administrative costs,
improve both asset and employee productivity and address the Year 2000 issue.

Growth Strategy
Rayovac believes it has significant growth opportunities in its businesses
and has developed corporate and market segment strategies aimed at increasing
sales, profits and market share. Key elements of the Company's growth strategy
are as follows:

Reinvigorate the Rayovac Brand Name. The brand, originally introduced in
1921, has wide recognition in all markets where the Company competes, but has
lower awareness than the more highly advertised Duracell and Energizer brands.
The Company is committed to reinvigorating the Rayovac brand name after many
years of underdevelopment. The Company has initiated an integrated advertising
campaign using significantly higher levels of TV and print media. The campaign
is designed to increase awareness of the Rayovac brand and to heighten
customers' perceptions of the quality, performance and value of Rayovac
products. The Company intends to continue building its brand name to increase
sales of all its products. In 1997, the Company launched a reformulated

alkaline battery, Rayovac MAXIMUM, supported by new graphics, new packaging, a
new advertising campaign, and aggressive introductory retail promotions. This
focused marketing approach is specifically designed to raise consumer awareness
and increase retail sales.

Leverage Value Brand Position. Rayovac believes it has a unique position
in the general battery market as the value brand in an industry in which the
leading three brands (Duracell, Energizer and Rayovac) account for
approximately 90% of sales. The Company's strategy is to provide products of
quality and performance equal to its major competitors in the general battery
market at a lower price, appealing to a large segment of the population
desiring a value brand. To demonstrate its value positioning, Rayovac offers
comparable battery packages at a lower price or, in some cases, more batteries
for the same price.

Expand Retail Distribution. Historically the Company had focused its sales
and marketing efforts on the mass merchandiser channel which accounted for 41%
of industry sales growth in the domestic alkaline battery market over the past
five years. As a result, the Company has achieved a 19% share of domestic
alkaline battery unit sales through mass merchandisers. However, this narrow
focus contributed to much lower market share in all other retail channels which
represent a market of $1.7 billion or 70% of the general battery market. The
Company believes its value brand positioned products and innovative
merchandising programs make it an attractive supplier to these channels. The
Company has reorganized its marketing, sales, and sales representative
organizations by channel in order to grow market share by (i) gaining new
customers, (ii) penetrating existing customers with a larger assortment of
products, (iii) introducing new products, and (iv) utilizing more aggressive
and channel specific promotional programs.

Further Capitalize on Worldwide Leadership in Hearing Aid Batteries. The
Company seeks to increase its 50% worldwide market share in the hearing aid
battery segment, as it has done consistently for the past 10 years, by
leveraging its leading technology and its dedicated and focused sales and
marketing organizations. Rayovac is the only hearing aid battery manufacturer
to advertise its products and plans to continue to utilize Arnold Palmer as its
spokesperson in its print media campaign. Rayovac has also recently introduced
large multi-packs of hearing aid batteries which have rapidly gained consumer
favor.

Reposition the Renewal Rechargeable Alkaline Battery. The Company's
Renewal rechargeable battery is the only rechargeable alkaline battery in the
U.S. market, commanding a 66% market share of the rechargeable household
battery market through mass merchandisers, food and drug stores for the 52
weeks ended July 5, 1997. Since the Recapitalization, management has lowered
the price of Renewal rechargers by 33% to encourage consumers to purchase the
system and shifted Renewal's marketing message from its environmental benefits
to its money-saving benefits. Renewal batteries present a value proposition to
consumers because Renewal batteries can be recharged over 25 times, providing
10 times the energy of disposable alkaline batteries at only twice the retail
price. In addition, alkaline rechargeables are superior to nickel cadmium
rechargeables (the primary competing technology) because they provide more
energy between charges, are sold fully charged, retain their charge longer and
are environmentally safer.

Introduce New Niche Products. The Company has developed leading positions
in several important niche markets, including those for lantern batteries and
lithium coin cells for personal computer memory back-up. The Company intends to
continue selectively pursuing opportunities to exploit under-served niche
markets, as well as further develop recent initiatives including the sales and
marketing of photo and keyless entry batteries. In the lighting products
segment, the Company is introducing a number of attractively designed new
products over the next twelve months and intends to bring new products to the
market in the future on a six-month cycle. New products have been proven to be
a key element in gaining market share for lighting products.

Develop New Markets. The Company intends to leverage its existing
resources to expand its business into new markets for batteries and related
products both domestically and internationally. The Company expects to pursue a
strategy of selective acquisitions and regularly considers potential
acquisition candidates. These acquisitions may focus on expansion into new
geographic markets, technologies or product lines and, in addition, such
acquisitions may be of a significant size and could involve domestic or
international parties. See "Risk Factors--Risks Associated with Future
Acquisitions."

The Offerings

The offering of 5,360,000 shares of the Company's Common Stock in the
United States and Canada (the "U.S. Offering"), the offering of 1,340,000
shares of the Common Stock outside the United States and Canada (the
"International Offering") and the offering of 137,000 shares of Common Stock to
certain employee participants in the Company's Profit Sharing and Savings Plan
(the "Direct Offering") are collectively referred to herein as the "Offerings."

Common Stock offered by the Company(1) ...... 6,837,000 shares
Common Stock to be outstanding after the
Offerings(2) .............................. 27,418,431 shares
Use of proceeds .............................. The net proceeds to be received by the Company from the
Offerings will be used to repay indebtedness incurred in
connection with the recapitalization of the Company
completed in September 1996. See "The Recapitalization"
and "Use of Proceeds."
New York Stock Exchange symbol ............... "ROV"

- ----------------
(1) Includes 137,000 shares of Common Stock concurrently being offered directly
by the Company in the Direct Offering.
(2) Excludes 5,426,905 shares of Common Stock reserved for sale or issuance
under the Company's employee benefit plans, of which options to purchase
2,318,127 shares have been granted and 3,108,778 shares remain available
for issuance or sale. See "Management--Stock Option Plans."

The Company is concurrently offering up to 137,000 shares of Common Stock
in the Direct Offering pursuant to a separate prospectus. The shares are being
offered at a price per share equal to the per share Price to Public as set
forth on the cover page of this Prospectus less a discount of approximately 3%
which, at the request of the administrator of the Company's Profit Sharing and
Savings Plan, addresses certain matters with respect to the administration of
the fund through which such purchases will be made. Since such shares are being
sold directly by the Company and not through the Underwriters, no underwriting
discount will be paid to the Underwriters with respect to such shares.

Industry Market Data

External market information in this Prospectus is provided by the Company,
based on data licensed from A.C. Nielsen. The two primary sources of market
data are Nielsen Scanner Data (obtained from checkout scanners in selected food
stores, drug stores and mass merchandisers) and Nielsen Consumer Panel Data
(obtained from a group of representative households selected by A.C. Nielsen
equipped with in-home scanners). Except as set forth below, specific market
share references are obtained from Nielsen Scanner Data. Specific hearing aid
battery market share references are obtained from Nielsen Scanner Data, as
supplemented by National Family Opinion Purchase Diary Data. Information
regarding the size (in terms of both dollars and unit sales) of the total U.S.
retail battery market is based upon Nielsen Scanner Data, as supplemented by
Nielsen Consumer Panel Data. The Company has derived worldwide hearing aid
market share data and specialty battery market share data based on data from
the above noted sources, together with information relating to the Company's
sales of hearing aid batteries in Europe, the Company's estimates of
manufacturers' production levels of hearing aid products or other devices which
utilize specialty batteries and market price data.

Other industry data used throughout this Prospectus has been obtained from
a variety of industry surveys (including surveys forming a part of primary
research studies conducted by the Company) and publications but has not been
independently verified by the Company. The Company believes that information
contained in such surveys and publications has been obtained from reliable
sources, but there can be no assurance as to the accuracy and completeness of
such information.

Unless otherwise indicated, all market share estimates are Company
estimates based on the foregoing, are for the U.S. market and reflect units
sold.

Risk Factors

Purchasers of Common Stock in the Offerings should carefully consider the
risk factors set forth under the caption "Risk Factors" and the other
information included in this Prospectus prior to making an investment decision.
See "Risk Factors."

Forward-Looking Statements

This Prospectus contains certain forward-looking statements relating to,
among other things, future results of operations, growth plans, sales, capital
requirements and general industry and business conditions applicable to the
Company. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from those implied by these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include changes in external competitive market
factors, changes in the Company's business strategy or an inability to execute
its strategy due to unanticipated changes in the Company's industry or the
economy in general and various competitive factors that may prevent the Company
from competing successfully in existing or new markets. In light of these risks
and uncertainties, many of which are described in further detail under the
caption "Risk Factors," there can be no assurance that the forward-looking
statements contained in this Prospectus will in fact be realized.

---------------------
Established in 1906, the Company is a Wisconsin corporation with its
principal executive offices at 601 Rayovac Drive, Madison, Wisconsin,
53711-2497. The Company's telephone number is (608) 275-3340.

SUMMARY FINANCIAL DATA

The following summary historical financial data as of and for the two
fiscal years ended June 30, 1996, the Transition Period ended September 30,
1996 and the fiscal year ended September 30, 1997 is derived from the audited
consolidated financial statements of the Company, together with the notes
thereto, included elsewhere in this Prospectus. The summary historical
financial data as of and for the twelve months ended September 30, 1996 is
derived from the unaudited condensed consolidated financial statements of the
Company and, in the opinion of management, includes all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of financial
position and results of operations as of the date and for the period indicated
which are not included herein. The summary historical financial data of the
Company as of and for the two fiscal years ended June 30, 1993 and June 30,
1994 is derived from audited consolidated financial statements of the Company
which are not included herein. The following summary financial data should be
read in conjunction with the Company's consolidated financial statements and
the related notes thereto and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.

This financial data, as well as all other financial data set forth herein,
gives effect to the reclassification by the Company of certain promotional
expenses, previously reported as a reduction of net sales, to selling expense.
The amounts which have been reclassified are $19.0 million, $17.5 million,
$24.2 million, and $24.0 million for the fiscal years ended June 30, 1993,
1994, 1995, and 1996, respectively, $6.9 million for the Transition Period
ended September 30, 1996, $24.1 million for the twelve months ended September
30, 1996 and $28.7 million for the fiscal year ended September 30, 1997. The
Company believes that this reclassification is consistent with the method used
by other consumer products companies.

Fiscal Year Ended June 30, Transition Twelve Months Fiscal Year
---------------------------------------- Period Ended Ended Ended
September 30, September 30, September 30,
1993 1994 1995 1996 1996 1996 1997
-------- ----------- --------- --------- --------------- --------------- --------------
(In millions, except per share data)

Statement of Operations Data:
Net sales .................. $372.4 $ 403.7 $ 415.2 $ 423.4 $ 101.9 $ 417.9 $432.6
Gross profit ............... 171.0 168.8 178.1 184.0 42.6 180.0 198.0
Income from operations before
non-recurring charges(1) 31.2 21.9 31.5 30.3 4.7 27.0 37.5
Income (loss) from
operations(2)(3)(4) ...... 31.2 10.9 31.5 30.3 (23.7) (1.4) 34.5
Interest expense ............ 6.0 7.7 8.6 8.4 4.4 10.5 24.5
Net income (loss)(5) ...... 15.0 4.4 16.4 14.3 (20.9) (10.2) 6.2
Pro Forma Operations Data(6):
Income before provision for
income taxes ............ $ 17.4
Provision for income taxes 6.4
-------
Pro forma net income ...... $ 11.0
=======
Pro forma net income per
common and common
equivalent share ......... $ 0.38
Weighted average common and
common equivalent shares 29.0
Other Financial Data:
Depreciation ............... $ 7.4 $ 10.3 $ 11.0 $ 11.9 $ 3.3 $ 12.1 $ 11.3
Capital expenditures(7) ... 30.3 12.5 16.9 6.6 1.2 8.4 10.9
Cash flows from operating
activities ............... 15.8 ( 18.7) 35.5 17.8 (1.1) 26.0 35.7
EBITDA(8) .................. 39.3 21.2 41.3 42.2 (20.4) 10.7 45.8

September 30, 1997
------------------------
(In millions)
Actual As Adjusted
Balance Sheet Data(9): --------- ------------

Working capital ..................... $ 33.8 $ 35.1
Total assets ........................ 236.9 236.9
Total debt ........................... 207.3 122.7
Shareholders' equity (deficit) ...... (80.6) 5.3

(footnotes on following page)

- ----------------
(1) Income (loss) from operations includes expenses incurred during the
Fennimore Expansion, and Recapitalization and other special charges in
fiscal 1994, the Transition Period Ended September 30, 1996, and the
fiscal year ended September 30, 1997. Income from operations before these
non-recurring charges was as follows:

Fiscal Year Ended June 30, Transition Twelve Months Fiscal Year
-------------------------------- Period Ended Ended Ended
September 30, September 30, September 30,
1993 1994 1995 1996 1996 1996 1997
------- -------- ------- ------- --------------- --------------- --------------
(In millions)

Income (loss) from operations ............... $31.2 $ 10.9 $31.5 $30.3 $ (23.7) $ (1.4) $34.5
Fennimore Expansion ........................... -- 9.5 -- -- -- -- --
Recapitalization and other special charges . -- 1.5 -- -- 28.4 28.4 3.0
------ ------- ------ ------ ------- ------ ------
Income from operations before non-
recurring charges ........................... $31.2 $ 21.9 $31.5 $30.3 $ 4.7 $ 27.0 $37.5
====== ======= ====== ====== ======= ====== ======

(2) Income from operations in fiscal 1994 was impacted by increased selling
expenses due to higher advertising and promotion expenses related to the
Renewal Introduction (as defined herein). In addition, income from
operations was impacted by non-recurring costs of $9.5 million in
connection with the Fennimore Expansion (as defined herein) including $8.4
million of increased cost of goods sold and $1.1 million of increased
general and administrative expenses, and other special charges of
approximately $1.5 million related to a plan to reduce the Company's cost
structure and to improve productivity through an approximate 2.5%
reduction in headcount on a worldwide basis. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations--Introduction."
(3) During the Transition Period, the Company recorded charges of $12.3 million
directly related to the Recapitalization and other special charges of
$16.1 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) In the fiscal year ended September 30, 1997, the Company recorded other
special charges of $5.9 million offset by a special credit of $2.9 million
which was related to the curtailment of the Company's defined benefit
pension plan covering all domestic non-union employees. The special
charges related to organizational restructuring in the United States, the
discontinuation of certain manufacturing operations at the Company's
Newton Aycliffe, United Kingdom facility and the discontinuation of
operations at the Company's facility in Kinston, North Carolina.
(5) The Recapitalization of the Company included repayment of certain
outstanding indebtedness, including prepayment fees and penalties. Such
prepayment fees and penalties of $2.4 million, net of income tax benefit
of $0.8 million, has been recorded as an extraordinary item in the
Combined Consolidated Statement of Operations for the Transition Period
and the twelve months ended September 30, 1996.
(6) The unaudited pro forma operations data gives effect to the sale by the
Company of 6,837,000 shares of Common Stock offered in the Offerings
(after deducting the underwriting discounts and estimated offering
expenses), and the application of the net proceeds therefrom as if they
had occurred at the beginning of the fiscal year ended September 30, 1997.
The pro forma adjustments are based upon available data and certain
assumptions that the Company believes are reasonable. The unaudited pro
forma operations data does not purport to represent what the Company's
results of operations would actually have been had the sale by the Company
of 6,837,000 shares of Common Stock in fact occurred at such prior time or
to project the Company's results of operations for or at any future period
or date. The pro forma adjustments for the fiscal year ended September 30,
1997 record (i) the reduction in interest expense of $7.8 million to give
effect to the sale by the Company of 6,837,000 shares of Common Stock
offered in the Offerings (after deduction for the underwriting discounts
and estimated offering expenses) and the application of the net proceeds
therefrom; and (ii) the incremental income tax expense of $3.0 million
relating to the pro forma interest adjustment (computed using an effective
income tax rate of 39%). Interest expense was calculated using the
following average rates: (i) Revolving Credit Facility (as defined
herein), 8.4%; (ii) Term Loan Facility (as defined herein), 8.4% to 9.2%;
and (iii) Notes (as defined herein), 10.25%.

The Company will use approximately $38.2 million of the net proceeds to
redeem or repurchase approximately $35.0 million principal amount of the
Notes, including a $3.2 million premium. The $3.2 million premium charge
which will be reported as an extraordinary item, net of applicable income
tax, was not reflected in the pro forma operations data presented.
(7) From fiscal 1993 through fiscal 1995 the Company invested an aggregate of
$32.7 million in connection with the Fennimore Expansion, including $19.7
million incurred in fiscal 1993. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Introduction."
(8) EBITDA represents income from operations plus depreciation and amortization
(excluding amortization of debt issuance costs) and reflects an adjustment
of income from operations to eliminate the establishment and subsequent
reversal of two reserves ($0.7 million established in fiscal 1993 and
reversed in fiscal 1995, and $0.5 million established in fiscal 1992 and
reversed in fiscal 1995). The Company believes that EBITDA and related
measures are commonly used by certain investors and analysts to analyze
and compare, and provide useful information regarding, the Company's
ability to service its indebtedness. However, the following factors should
be considered in evaluating such measures: EBITDA and related measures (i)
should not be considered in isolation, (ii) are not measures of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), (iii) should not be construed as alternatives or
substitutes for income from operations, net income or cash flows from
operating activities in analyzing the Company's operating performance,
financial position or cash flows (in each case, as determined in
accordance with GAAP) and (iv) should not be used as indicators of the
Company's operating performance or measures of its liquidity.
Additionally, because all companies do not calculate EBITDA and related
measures in a uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled measures of
other companies.
(9) As adjusted to give effect to the sale by the Company of 6,837,000 shares
of Common Stock offered in the Offerings (after deducting the underwriting
discounts and estimated offering expenses), and the application of the net
proceeds therefrom. See "Use of Proceeds."

RISK FACTORS

Prospective investors should carefully consider all of the information set
forth in this Prospectus, including the risk factors set forth below.

Competition
The industries in which the Company participates are very competitive.
Competition is based upon brand name recognition, perceived quality, price,
performance, product packaging and product innovation, as well as creative
marketing, promotion and distribution strategies. In the U.S. battery industry,
the Company competes primarily with two well established companies, Duracell
International Inc. ("Duracell"), a subsidiary of The Gillette Company, and
Eveready Battery Company, Inc., a subsidiary of Ralston Purina Company and
producer of Energizer brand batteries ("Energizer"), each of which has
substantially greater financial and other resources and greater overall market
share than the Company. In addition, the Company believes that Duracell and
Energizer may have lower costs of production and higher profit margins in
certain key product lines than the Company. The Company competes with these
competitors for the limited shelf space that retailers allot to battery
products and for the promotional efforts of such retailers.

Although foreign battery manufacturers historically have not been
successful in penetrating the U.S. retail market to any significant extent,
they have, from time to time, attempted to establish a significant presence in
the U.S. battery market. There can be no assurance that these attempts will not
be successful in the future or that the Company will be able to compete
effectively with current or prospective participants in the U.S. battery
industry. In addition, the battery-powered lighting device industry is highly
competitive and includes a greater number of competitors than the U.S. battery
industry, some of which have greater financial and other resources than the
Company. See "Business--Competition."

Dependence on Key Customers
Wal-Mart Stores, Inc. ("Wal-Mart"), the Company's largest retailer
customer, accounted for 20% of the Company's net sales in fiscal 1997. In
addition, the Company's three largest retailer customers, including Wal-Mart,
together accounted for 29% of the Company's net sales in fiscal 1997. The
Company does not have long-term agreements with any of its major customers, and
sales are generally made to them through the use of individual purchase orders,
consistent with industry practice. There can be no assurance that there will
not be a significant reduction in purchases by any of the Company's three
largest retailer customers, which could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Sales and Distribution."

Substantial Leverage
As of September 30, 1997, the Company had total indebtedness of $207.3
million and total shareholders' deficit of $80.6 million. After giving effect
to the Offerings and the application of the net proceeds to the Company
therefrom, as of September 30, 1997, the Company would have had total
indebtedness of $122.7 million and total shareholders' equity of $5.3 million.
Subject to the restrictions contained in the Company's Credit Agreement (as
defined herein) and the indenture (the "Indenture") relating to the Company's
10-1/4% Series B Senior Subordinated Notes due 2006 (the "Notes"), the Company
may incur additional indebtedness from time to time to finance acquisitions or
capital expenditures or for other corporate purposes. A significant portion of
cash flow from operations must be dedicated to the payment of principal of and
interest on the Company's indebtedness, thereby reducing the amount of funds
available for working capital, capital expenditures and other purposes. The
Company's ability to make scheduled payments on its outstanding indebtedness
will depend on its future operating performance which, in turn, will be
affected by prevailing economic conditions and financial, competitive,
regulatory and similar factors. The Credit Agreement and the Indenture impose
operational and financial restrictions on the Company. See "Description of
Certain Indebtedness." Although the Company believes that, based on current
levels of operations, its cash flow from operations, together with external
sources of liquidity, will be adequate to make required payments on its debt,
whether at or prior to maturity, finance anticipated capital expenditures and
fund working capital requirements, there can be no assurance in this regard.

Risks Associated with Future Acquisitions
An element of the Company's growth strategy is to pursue increased market
penetration through strategic acquisitions, which could be of significant size
and involve either domestic or international parties. The diversion of
management attention required by the acquisition and integration of a separate
organization, as well as other difficulties which may be encountered in the
transition and integration process, could have a material adverse effect on the
revenue and operating results of the Company. There can be no assurance that
the Company will identify suitable acquisition candidates, that acquisitions
will be consummated on acceptable terms or that the Company will be able to
successfully integrate the operations of any acquisition. In addition, the
Company may incur additional indebtedness in connection with acquisitions,
which might not be available on terms as favorable to the Company as current
terms and which would increase the leveraged position of the Company. See
"--Substantial Leverage." Further, acquisitions utilizing equity may be
dilutive to shareholders.

Environmental Matters
The Company's facilities are subject to a broad range of federal, state,
local and foreign laws and regulations relating to the environment, including
those governing discharges to the air and water and land, the handling and
disposal of solid and hazardous substances and wastes and the remediation of
contamination associated with releases of hazardous substances at Company
facilities and at off-site disposal locations. Risk of environmental liability
is inherent in the Company's business, however, and there can be no assurance
that material environmental costs will not arise in the future. In particular,
the Company might incur capital and other costs to comply with increasingly
stringent environmental laws and enforcement policies. Based on currently
available information, the Company believes that it is substantially in
compliance with applicable environmental regulations at its facilities,
although no assurance can be provided with respect to such compliance in the
future.

The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or similar state laws with respect to the past disposal of waste.
Such laws may impose liability on certain statutory classes of persons that are
considered jointly and severally liable for the costs of investigation and
remediation of contaminated properties, regardless of fault or the legality of
the original disposal. These persons include the present or former owner or
operator of a facility and companies that generated, disposed or arranged for
the disposal of hazardous substances found at the facility. The Company may be
named as a PRP at additional sites in the future, and the costs associated with
such additional or existing sites may be material. In addition, certain of the
Company's battery manufacturing facilities have been in operation for decades
and, over such time, the Company and other prior operators of such facilities
have generated and disposed of wastes such as manganese, cadmium and mercury
which are or may be considered hazardous. The Company has not conducted
invasive testing to identify all potential risks, and given the age of the
Company's facilities and the nature of the Company's operations, there can be
no assurance that material liabilities will not arise in the future in
connection with its current or former facilities. The discovery of previously
unknown contamination of property underlying or in the vicinity of the
Company's manufacturing facilities could require the Company to incur material
unforeseen expenses. Occurrences of any such events may have a material adverse
effect on the Company's financial condition.

In addition, the Company has been notified that its former manganese
processing facility in Covington, Tennessee is being evaluated by the Tennessee
Department of Environment and Conservation ("TDEC") for a determination as to
whether the facility should be added to the National Priorities List as a
Superfund site. Groundwater monitoring at the site conducted pursuant to the
post-closure maintenance of solid waste lagoons on site, and recent groundwater
testing beneath former process areas on site, indicate that there are elevated
levels of certain inorganic contaminants, particularly (but not exclusively)
manganese, in the groundwater underneath the site. The Company cannot predict
the outcome of TDEC's investigation of the site. See "Business--Environmental
Matters."

The Company has been and is subject to several proceedings related to its
disposal of industrial and hazardous material at off-site disposal locations
under CERCLA or analogous state laws that hold persons who "arranged for" the
disposal or treatment of such substances strictly liable for the costs incurred
in responding to the release or threatened release of hazardous substances from
such sites. Except for the Velsicol Chemical and Morton International
proceedings described below (as to which there is insufficient information to
make a judgment as to its impact on the Company at this time), the Company does
not believe that any of its pending CERCLA or

analogous state matters, either individually or in the aggregate, will have a
material impact on the Company's operations, financial condition or liquidity.

The Company has been named as a defendant in two lawsuits in connection
with a Superfund site located in Bergen County, New Jersey (Velsicol Chemical
Corporation, et al. v. A.E. Staley Manufacturing Company, et al., and Morton
International, Inc. v. A.E. Staley Manufacturing Company, et al., United States
District Court for the District of New Jersey, filed July 29, 1996). These
lawsuits involve contamination at a former mercury processing facility and the
watershed of a nearby creek (the "Bergen County Site"). The Company is one of
approximately 100 defendants named in these lawsuits. The cost to remediate the
Bergen County Site has not been determined and the Company cannot predict the
outcome of these proceedings. See "Business--Environmental Matters."

Battery Technology
The battery industry generally involves continually evolving technology
with individual advances typically resulting in modest increases in product
life. There can be no assurance that, as existing battery products and
technologies improve and new, more advanced products and technologies are
introduced, the Company's products will be able to compete effectively in any
of its targeted market segments. The development and successful introduction of
new and enhanced products and other competing technologies that may outperform
the Company's batteries and technological developments by competitors or
consumer perceptions as to improved product offerings of competitors may have a
material adverse effect on the Company's business, financial condition or
results of operations, particularly in the context of the substantially greater
resources of the Company's two principal competitors in the general battery
market, Duracell and Energizer. See "--Competition." Similarly, in those market
segments where the Company's battery products currently have technological
advantages there can be no assurance that the Company's products will maintain
such advantages.

The general battery industry historically has sustained unit sales growth
even as battery life has increased with innovation (largely due to expansion in
the use of and the number of applications for batteries); however, there can be
no assurance that continued enhancements of battery performance (including
rechargeable battery performance) will not have an adverse effect on unit
sales.

Risks of Foreign Sales; Exchange Rate Fluctuations
The Company's foreign sales and certain expenses are transacted in foreign
currencies. In fiscal 1997, approximately 19% of the Company's revenues and 18%
of the Company's expenses were denominated in currencies other than U.S.
dollars. International operations and exports and imports to and from foreign
markets are subject to a number of special risks including, but not limited to,
risks with respect to currency exchange rates, economic and political
destabilization, restrictive actions by foreign governments (e.g. duties and
quotas and restrictions on transfer of funds), changes in United States and
foreign laws regarding trade and investment and difficulty in obtaining
distribution and support. Significant increases in the value of the U.S. dollar
relative to certain foreign currencies could have a material adverse effect on
the Company's results of operations. The Company generally hedges a portion of
its foreign currency exposure and will, in the future, be vulnerable to the
effects of currency exchange rate fluctuations. For a description of the
Company's operations in different geographic areas, including the Company's
sales, revenue and profit or loss and identifiable assets attributable to each
of the Company's geographic areas, see Note 12 of Notes to Combined
Consolidated Financial Statements.

Raw Materials
The Company's principal raw material for the production of its battery
products is zinc and the Company expects to spend approximately $8.4 million
for zinc in fiscal 1998. Prices for zinc are subject to market forces beyond
the control of the Company. The Company regularly engages in forward purchases
and hedging transactions to effectively manage raw material costs and inventory
relative to anticipated production requirements for the next six to twelve
months. However, the Company's future profitability may be materially adversely
affected by increased zinc prices to the extent it is unable to pass on higher
raw material costs to its customers. See Note 2.o. of Notes to Combined
Consolidated Financial Statements.

Limited Intellectual Property Protection
The Company relies upon a combination of patent, trademark and trade
secret laws, together with licenses, confidentiality agreements and other
contractual covenants, to establish and protect its technology and other
intellectual property rights. There can be no assurance that the steps taken by
the Company will be adequate to

prevent misappropriation of its technology or other intellectual property or
that the Company's competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technology. Moreover,
although the Company believes that its current products do not infringe upon
the valid proprietary rights of others, there can be no assurance that third
parties will not assert infringement claims against the Company and that, in
the event of an unfavorable ruling on any such claim, a license or similar
agreement will be available to the Company on reasonable terms. Moreover, the
laws of certain foreign countries do not protect intellectual property rights
to the same extent as do the laws of the United States.

Certain technology underlying the Company's rechargeable line of alkaline
batteries is the subject of a non- exclusive license from a third party and
could be made available to the Company's competitors. The licensing of that
technology to a competitor could have an adverse effect on the Company's
business, financial condition or results of operations. The Company does not
believe, however, that this effect would be material to the Company because
revenues from sales of the Company's rechargeable alkaline batteries and
rechargers account for less than 10% of the Company's total revenues.

The Company does not have any right to the trademark "Rayovac" in Brazil,
where the mark is owned by an independent third-party battery manufacturer. In
addition, ROV Limited, a third party unaffiliated with the Company, has an
exclusive, perpetual, royalty-free license for the use on general batteries
(but not hearing aid or other specialty batteries) and lighting devices of the
Rayovac trademark in a number of countries, including in Latin America. See
"Business--Patents, Licenses and Trademarks."

Seasonality
Sales of the Company's products are seasonal, with the highest sales
occurring in the fiscal quarter ending on or about December 31, during the
holiday season. During the past four fiscal years, the Company's sales in the
quarter ending on or about December 31 have represented an average of 33% of
annual net sales. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."

Control by Existing Shareholders
Upon completion of the Offerings, the Company's existing shareholders will
beneficially own 75.1% of the Company's outstanding Common Stock (71.4% if the
Underwriters' over-allotment options are exercised in full). Of those shares,
the Thomas H. Lee Equity Fund III, L.P. (the "Lee Fund") and certain other
affiliates of Thomas H. Lee Company ("THL Co."; the Lee Fund and such other
affiliates being referred to herein as the "Lee Group") will beneficially own
65.1% of the Company's outstanding Common Stock (61.4% if the Underwriters'
over-allotment options are exercised in full). Consequently, the Lee Group will
control the Company and have the power to elect the board of directors of the
Company (the "Board of Directors") and to approve any action requiring
shareholder approval, including the adoption of amendments to the Company's
Amended and Restated Articles of Incorporation and the approval of mergers or
sales of all or substantially all of the Company's assets. See "Ownership of
Capital Stock." The Company's ability to take certain of these actions is
limited by certain terms of its outstanding indebtedness. See "Description of
Certain Indebtedness."

Shares Eligible for Future Sale; Potential for Adverse Effect on Stock Price;
Registration Rights
Sales of a substantial number of shares of Common Stock in the public
market or the perception that such sales could occur could adversely affect
prevailing market prices for the Common Stock. Upon completion of the
Offerings, the Company will have outstanding 27,418,431 shares of Common Stock,
excluding 2,318,127 shares of Common Stock which have been granted under the
Company's stock incentive plans. Of these shares, the shares of Common Stock to
be sold in the Offerings will be freely tradable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), except for any such
shares which may be acquired by an "affiliate" of the Company. In connection
with the Offerings, certain existing shareholders and the executive officers of
the Company (holding an aggregate of approximately 20 million shares of Common
Stock upon consummation of the Offerings) and the Company have agreed, subject
to certain exceptions, not to dispose of any shares of Common Stock for a
period of 180 days from the date of this Prospectus (the "Lockup Period")
without the consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") on behalf of the Underwriters. Upon expiration of the Lockup
Period, substantially all of such shares will be eligible for sale in the
public market subject to compliance with the volume limitations and other
restrictions of Rule 144 under the Securities Act.

Following the consummation of the Offerings, the Lee Group will hold
17,852,158 shares of Common Stock (without giving effect to the Underwriters'
over-allotment options) and will be entitled to certain registration rights
with respect to the registration of such shares under the Securities Act. Under
the terms of a shareholders agreement between the Company and certain
shareholders, dated as of September 12, 1996, as amended as of August 1, 1997
(the "Shareholders Agreement"), at any time when the Lee Group and their
permitted transferees own in the aggregate at least 10% of the shares acquired
in the Recapitalization, the Lee Group has the right to require the Company to
file a registration statement under the Securities Act in order to register the
sale of all or any part of its shares of Common Stock. See "Shares Eligible for
Future Sale." The Lee Group is entitled to demand that the Company register
their shares of Common Stock on three occasions at the Company's expense;
provided, however, that if the Lee Group owns at least 10%, but not more than
25%, of the shares acquired in the Recapitalization, then the Company shall be
obligated to effect only one such registration. Additionally, the Lee Group and
shareholders party to the Shareholders Agreement have the right, subject to
certain limitations, to include their shares in certain offerings initiated by
the Company whether for its own account or for other shareholders. The Company
may in certain circumstances defer such registrations, and the underwriters
with respect to such sale have the right, subject to certain limitations, to
limit the number of shares included in such registrations. In the event that
the Company proposes to register the sale of any of its securities under the
Securities Act, the Company is required to promptly give such shareholders
written notice no later than 10 days before the effective date of the
registration statement, at which point such shareholders will have five days to
make a written request of the Company to include their shares of Common Stock
in such registration, subject to the underwriters' right to limit such shares
and certain other limitations. In general, the Company is required to bear the
expense of all such registrations except for transfer taxes. The sale of such
shares could have an adverse effect on the Company's ability to raise equity
capital in the public markets. The shares held by the Lee Group are subject to
the Lockup Period referred to in the preceding paragraph. See "Shares Eligible
for Future Sale."

No Prior Market for Common Stock; Offering Price
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if developed, that such market will be sustained. The initial public
offering price of the Common Stock was determined through negotiations between
the Company and the representatives of the Underwriters. In addition, the
Company believes that factors such as quarterly fluctuations in the financial
results of the Company, as well as developments that affect the Company's
industry, the overall economy and the financial markets in general could cause
the price of the Common Stock to fluctuate substantially. See "Underwriting."

Anti-Takeover and Other Provisions of Wisconsin Law
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Charter"), the Amended and Restated By-laws (the "By-laws")
and of Wisconsin corporation law may have the effect of discouraging, delaying
or preventing a change in control of the Company or unsolicited acquisition
proposals. Under certain provisions of Wisconsin law, shareholders may have
certain liabilities with respect to liabilities of a corporation with respect
to unpaid wages under certain circumstances. See "Description of Capital
Stock--Anti-Takeover Effects of Provisions of the Charter and By-laws and of
Wisconsin Law" and "--Common Stock."

Substantial and Immediate Dilution to Investors Purchasing in the Offerings
Investors purchasing shares of Common Stock in the Offerings will
experience immediate and substantial dilution in net tangible book value per
share of $13.89. See "Dilution."

THE RECAPITALIZATION

Effective as of September 12, 1996, the Company, all of the shareholders
of the Company, the Lee Fund and other affiliates of THL Co. completed a
recapitalization (the "Recapitalization") pursuant to which, among other
things: (i) the Company obtained senior financing under a Credit Agreement
dated as of September 12, 1996 by and among the Company, Bank of America
National Trust and Savings Association and DLJ Capital Funding, Inc. (the
"Credit Agreement") in an aggregate amount of $170.0 million, of which $131.0
million was borrowed at the closing of the Recapitalization, including $26.0
million under the Revolving Credit Facility; (ii) the Company obtained $100.0
million in financing through the issuance of bridge notes (the "Bridge Notes");
(iii) the Company redeemed a portion of the shares of Common Stock held by
Thomas F. Pyle, Jr., the former President and Chief Executive Officer of the
Company; (iv) the Lee Group purchased for cash shares of Common Stock owned by
shareholders of the Company (a group consisting of current and former directors
and management of the Company and the Thomas Pyle and Judith Pyle Charitable
Remainder Trust (the "Pyle Trust")) which resulted in a change of control of
the Company; and (v) the Company repaid certain of its outstanding
indebtedness, including prepayment fees and penalties. The Bridge Notes were
subsequently repaid with the proceeds of the sale of 10-1/4% Senior
Subordinated Notes Due 2006, which were later exchanged for a like principal
amount of the Notes.

USE OF PROCEEDS

The net proceeds to the Company from the sale of shares of Common Stock
offered in the Offerings are estimated to be approximately $87.9 million after
deducting the underwriting discounts and estimated offering expenses. The
Company will not receive any of the proceeds from the sale of the shares to be
sold, if any, by certain existing shareholders of the Company who have granted
over-allotment options to the Underwriters (the "Over-Allotment Selling
Shareholders").

Of the net proceeds to the Company from this offering, approximately $38.2
million will be used to redeem or repurchase approximately $35.0 million
principal amount of the Notes and pay the associated premium, and approximately
$49.7 million will be used to repay term loans provided pursuant to the Credit
Agreement incurred in connection with the Recapitalization. The Notes bear
interest at a rate of 10-1/4%, payable semiannually, and mature on November 1,
2006. The term loans under the Credit Agreement consist of a six-year Tranche A
term loan of $55.0 million, a seven-year Tranche B term loan of $25.0 million
and an eight-year Tranche C term loan of $25.0 million (collectively, the "Term
Loan Facility"). Borrowings under the Credit Agreement bear interest, in each
case at the Company's option, as follows: (i) with respect to the Tranche A
loans, at Bank of America National Trust and Savings Association's base rate
plus 1.50% per annum, or at IBOR plus 2.50% per annum; (ii) with respect to the
Tranche B loans, at Bank of America National Trust and Savings Association's
base rate plus 2.00% per annum, or at IBOR plus 3.00% per annum; and (iii) with
respect to the Tranche C loans, at Bank of America National Trust and Savings
Association's base rate plus 2.25% per annum, or at IBOR plus 3.25% per annum.
The Credit Agreement requires the Company to apply 50% of the proceeds of the
Offerings not used to redeem or repurchase Notes to repayment of indebtedness
under the Credit Agreement, pro rata among the tranches except as may be
otherwise agreed. See "Description of Certain Indebtedness."

DIVIDEND POLICY

The Company does not anticipate paying cash dividends in the foreseeable
future, but intends to retain any future earnings for reinvestment in its
business. In addition, the Credit Agreement and the Notes restrict the
Company's ability to pay dividends to its shareholders. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements, contractual restrictions and such other
factors as the Board of Directors deems relevant.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1997, after giving effect to the Company's Charter effective
prior to the date hereof and as adjusted as of that date to give effect to the
sale by the Company of 6,837,000 shares of Common Stock offered in the
Offerings and the application of the net proceeds therefrom as described in
"Use of Proceeds." This table should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.

As of September 30, 1997
--------------------------
Actual As Adjusted
----------- ------------
(Dollars in millions)

Debt:
Revolving Credit Facility(1) ................................. $ 4.5 $ 4.5
Term Loan Facility(2) .......................................... 100.5 50.9
Notes ......................................................... 100.0 65.0
Capitalized leases and foreign currency borrowings ............ 2.3 2.3
-------- --------
Total debt ................................................... 207.3 122.7
-------- --------
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding (3) ........................... -- --
Common stock, $.01 par value, 150,000,000 shares authorized;
20,581,431 and 27,418,431 shares outstanding, respectively,
actual and as adjusted (3) ................................. 0.5 0.6
Additional paid in capital .................................... 16.0 103.8
Foreign currency translation ................................. 2.3 2.3
Notes receivable from officers/shareholders .................. (1.7) (1.7)
Retained earnings ............................................. 31.3 29.3
Less stock held in trust .................................... (1.0) (1.0)
Less treasury stock, at cost, 29,418,569 shares ............... (128.0) (128.0)
-------- --------
Total shareholders' equity (deficit) ........................ (80.6) 5.3
-------- --------
Total capitalization ....................................... $ 126.7 $ 128.0
======== ========

- ----------------
(1) For a description of the Revolving Credit Facility, see "Description of
Certain Indebtedness--The Credit Agreement." Total availability under the
Revolving Credit Facility is $65.0 million.
(2) For a description of the Term Loan Facility, see "Description of Certain
Indebtedness--The Credit Agreement."
(3) On October 22, 1997, the shareholders of the Company approved the
authorization of 5,000,000 shares of Preferred Stock, $.01 par value, and
an increase in authorized shares of Common Stock from 90,000,000 to
150,000,000.

DILUTION

The net tangible book value of the Company as of September 30, 1997 was
$(82.8) million, or $(4.02) per share. Net tangible book value per share is
determined by dividing total tangible assets less total liabilities of the
Company by the total number of outstanding shares of Common Stock. After giving
effect to the sale of the shares of Common Stock offered in the Offerings,
deducting the underwriting discount and estimated expenses to be paid by the
Company and applying the estimated net proceeds as set forth in "Use of
Proceeds," the pro forma net tangible book value of the Company at September
30, 1997 would have been $3.1 million or $0.11 per share. This represents an
immediate increase in net tangible book value of $4.13 per share to existing
shareholders and an immediate dilution of $13.89 per share to new investors
purchasing shares in the Offerings. The following table illustrates this
dilution per share:

Initial public offering price per share ........................... $ 14.00
Net tangible book value per share as of September 30, 1997 ...... $ (4.02)
Increase in net tangible book value per share attributable to new
investors ...................................................... 4.13
-------
Pro forma net tangible book value per share after the Offerings ... 0.11
--------
Dilution per share to new investors .............................. $ 13.89
========

The following table sets forth, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid by
existing shareholders and by the new investors purchasing shares of Common
Stock from the Company in the Offerings (before deducting underwriting
discounts and estimated offering expenses).

Shares Purchased Total Consideration
------------------------ ---------------------- Average
Price per
Number Percent Amount Percent Share
------------ --------- ---------- --------- ----------
(Dollars in thousands, except per share data)

Existing shareholders ...... 20,581,431 75.1% $ 76,280 44.4% $ 3.71
New investors ............... 6,837,000 24.9 95,660 55.6 13.99
----------- ------ --------- ------
Total ..................... 27,418,431 100.0% $171,940 100.0% $ 6.27
=========== ====== ========= ======

The foregoing tables assume no exercise of the Underwriters'
over-allotment options. The Company currently has outstanding options to
purchase an aggregate of 2,318,127 shares of Common Stock at a weighted average
exercise price of $4.33 per share. See "Management--Option Grants and
Exercises." To the extent that outstanding options are exercised in the future,
there will be further dilution to new investors.

SELECTED FINANCIAL DATA

The following selected historical financial data as of and for the two
fiscal years ended June 30, 1996, the Transition Period ended September 30,
1996 and the fiscal year ended September 30, 1997 is derived from the audited
consolidated financial statements of the Company, together with the notes
thereto, included elsewhere in this Prospectus. The selected historical
financial data as of and for the twelve months ended September 30, 1996 is
derived from the unaudited condensed consolidated financial statements of the
Company and, in the opinion of management, includes all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of financial
position and results of operations as of the date and for the period indicated
which are not included herein. The selected historical financial data of the
Company as of and for the two fiscal years ended June 30, 1993 and June 30,
1994 is derived from audited consolidated financial statements of the Company
which are not included herein. The following selected financial data should be
read in conjunction with the Company's consolidated financial statements and
the related notes thereto and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.

Fiscal Year Ended June 30,
--------------------------------------------
1993 1994 1995 1996
-------- ----------- ----------- -----------
(In millions, except per share data)
Statement of Operations Data:

Net sales .............................. $372.4 $ 403.7 $ 415.2 $ 423.4
Cost of goods sold ..................... 201.4 234.9 237.1 239.4
------- --------- ---------- ----------
Gross profit ........................... 171.0 168.8 178.1 184.0
Selling expense ........................ 98.8 121.3 108.7 116.5
General and administrative expense ...... 35.4 29.4 32.9 31.8
Research and development expense ...... 5.6 5.7 5.0 5.4
Recapitalization and other special
charges(1)(2) ........................ -- 1.5 -- --
------- --------- ---------- ----------
Income (loss) from operations (3)(4) . 31.2 10.9 31.5 30.3
Interest expense ........................ 6.0 7.7 8.6 8.4
Other expense (income), net ............ 1.2 ( 0.6) 0.3 0.6
------- --------- ---------- ----------
Income (loss) before income taxes
and extraordinary item ............... 24.0 3.8 22.6 21.3
Income tax expense (benefit) ............ 9.0 ( 0.6) 6.2 7.0
------- --------- ---------- ----------
Income (loss) before extraordinary
item ................................. 15.0 4.4 16.4 14.3
Extraordinary item(5) .................. -- -- -- --
------- --------- ---------- ----------
Net income (loss) ..................... $ 15.0 $ 4.4 $ 16.4 $ 14.3
======= ========= ========== ==========
Net income (loss) per common share
before extraordinary item ............ $ 0.29 $ 0.08 $ 0.32 $ 0.28
======= ========= ========== ==========
Net income (loss) per common
share(6) .............................. $ 0.29 $ 0.08 $ 0.32 $ 0.28
======= ========= ========== ==========
Weighted average common and
common equivalent shares ............... 51.6 51.6 51.6 51.1
Pro Forma Operations Data(7):
Income before provision for income
taxes .................................
Provision for income taxes ............
Pro forma net income ..................
Pro forma net income per common
and common equivalent share ............
Weighted average common and
common equivalent shares ...............
Other Financial Data:
Depreciation ........................... $ 7.4 $ 10.3 $ 11.0 $ 11.9
Capital expenditures(8) ............... 30.3 12.5 16.9 6.6
Cash flows from operating activities . 15.8 ( 18.7) 35.5 17.8
EBITDA(9) .............................. 39.3 21.2 41.3 42.2
Balance Sheet Data:
Working capital ........................ $ 31.6 $ 63.6 $ 55.9 $ 63.2
Total assets ........................... 189.0 222.4 220.6 221.1
Total debt .............................. 74.1 109.0 88.3 81.3
Shareholders' equity (deficit) ......... 36.7 37.9 53.6 61.6

Transition Twelve Months Fiscal Year
Period Ended Ended Ended
September 30, September 30, September 30,
1996 1996 1997
--------------- --------------- --------------
Statement of Operations Data:

Net sales .............................. $ 101.9 $ 417.9 $ 432.6
Cost of goods sold ..................... 59.3 237.9 234.6
------- ------- --------
Gross profit ........................... 42.6 180.0 198.0
Selling expense ........................ 27.8 114.4 122.1
General and administrative expense ...... 8.6 33.0 32.2
Research and development expense ...... 1.5 5.6 6.2
Recapitalization and other special
charges(1)(2) ........................ 28.4 28.4 3.0
------- ------- --------
Income (loss) from operations (3)(4) . (23.7) (1.4) 34.5
Interest expense ........................ 4.4 10.5 24.5
Other expense (income), net ............ 0.1 0.5 0.4
------- ------- --------
Income (loss) before income taxes
and extraordinary item ............... (28.2) (12.4) 9.6
Income tax expense (benefit) ............ (8.9) (3.8) 3.4
------- ------- --------
Income (loss) before extraordinary
item ................................. (19.3) (8.6) 6.2
Extraordinary item(5) .................. (1.6) (1.6) --
------- ------- --------
Net income (loss) ..................... $ (20.9) $ (10.2) $ 6.2
======= ======= ========
Net income (loss) per common share
before extraordinary item ............ $ (0.42) $ (0.17) $ 0.28
======= ======= ========
Net income (loss) per common
share(6) .............................. $ (0.46) $ (0.21) $ 0.28
======= ======= ========
Weighted average common and
common equivalent shares ............... 45.5 49.7 22.2
Pro Forma Operations Data(7):
Income before provision for income
taxes ................................. $ 17.4
Provision for income taxes ............ 6.4
--------
Pro forma net income .................. $ 11.0
========
Pro forma net income per common
and common equivalent share ............ $ 0.38
Weighted average common and
common equivalent shares ............... 29.0
Other Financial Data:
Depreciation ........................... $ 3.3 $ 12.1 $ 11.3
Capital expenditures(8) ............... 1.2 8.4 10.9
Cash flows from operating activities . (1.1) 26.0 35.7
EBITDA(9) .............................. (20.4) 10.7 45.8
Balance Sheet Data:
Working capital ........................ $ 64.6 $ 64.6 $ 33.8
Total assets ........................... 243.7 243.7 236.9
Total debt .............................. 233.7 233.7 207.3
Shareholders' equity (deficit) ......... (85.7) (85.7) (80.6)

(footnotes on following page)

- ------------
(1) During the Transition Period, the Company recorded charges of $12.3 million
directly related to the Recapitalization and other special charges of
$16.1 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

(2) In the fiscal year ended September 30, 1997, the Company recorded other
special charges of $5.9 million offset by a special credit of $2.9 million
which was related to the curtailment of the Company's defined benefit
pension plan covering all domestic non-union employees. The special
charges related to organizational restructuring in the United States, the
discontinuation of certain manufacturing operations at the Company's
Newton Aycliffe, United Kingdom facility and the discontinuation of
operations at the Company's facility in Kinston, North Carolina.

(3) Income (loss) from operations includes expenses incurred during the
Fennimore Expansion (as defined herein), and Recapitalization and other
special charges in fiscal 1994, the Transition Period Ended September 30,
1996, and the fiscal year ended September 30, 1997. Income from operations
before these non-recurring charges was as follows:

Income (loss) from operations ............... $31.2 $ 10.9 $31.5 $30.3 $ (23.7) $ (1.4) $34.5
Fennimore Expansion ........................ -- 9.5 -- -- -- -- --
Recapitalization and other special charges . -- 1.5 -- -- 28.4 28.4 3.0
------ ------- ------ ------ ------- ------ ------
Income from operations before non-
recurring charges ........................ $31.2 $ 21.9 $31.5 $30.3 $ 4.7 $ 27.0 $37.5
====== ======= ====== ====== ======= ====== ======

(4) Income from operations in fiscal 1994 was impacted by increased selling
expenses due to higher advertising and promotion expenses related to the
Renewal Introduction (as defined herein). In addition, income from
operations was impacted by non-recurring costs of $9.5 million in
connection with the Fennimore Expansion including $8.4 million of
increased cost of goods sold and $1.1 million of increased general and
administrative expenses, and other special charges of approximately $1.5
million related to a plan to reduce the Company's cost structure and to
improve productivity through an approximate 2.5% reduction in headcount on
a worldwide basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Introduction."

(5) The Recapitalization of the Company included repayment of certain
outstanding indebtedness, including prepayment fees and penalties. Such
prepayment fees and penalties of $2.4 million, net of income tax benefit
of $0.8 million, has been recorded as an extraordinary item in the
Combined Consolidated Statement of Operations for the Transition Period
ended September 30, 1996.

(6) Net income (loss) per share data has been computed using the weighted
average number of shares of common and common equivalent shares from stock
options (when dilutive using the treasury stock method). Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin No. 83,
common stock warrants and options issued during the twelve-month period
immediately preceding the Offerings have been included in the calculation
as if they were outstanding for all periods presented (even if
antidilutive, using the treasury stock method and the initial public
offering price).

(7) The unaudited pro forma operations data gives effect to the sale by the
Company of 6,837,000 shares of Common Stock offered in the Offerings
(after deducting the underwriting discounts and estimated offering
expenses), and the application of the net proceeds therefrom as if they
had occurred at the beginning of the fiscal year ended September 30, 1997.
The pro forma adjustments are based upon available data and certain
assumptions that the Company believes are reasonable. The unaudited pro
forma operations data does not purport to represent what the Company's
results of operations would actually have been had the sale by the Company
of 6,837,000 shares of Common Stock in fact occurred at such prior time or
to project the Company's results of operations for or at any future period
or date.

The pro forma adjustments for the fiscal year ended September 30, 1997
record (i) the reduction in interest expense of $7.8 million to give effect
to the sale by the Company of 6,837,000 shares of Common Stock offered in
the Offerings (after deduction for the underwriting discounts and estimated
offering expenses) and the application of the net proceeds therefrom; and
(ii) the incremental income tax expense of $3.0 million relating to the pro
forma interest adjustment (computed using an effective income tax rate of
39%). Interest expense was calculated using the following average rates:
(i) Revolving Credit Facility, 8.4%; (ii) Term Loan Facility (as defined
herein), 8.4% to 9.2%; and (iii) Notes, 10.25%.

(8) From fiscal 1993 through fiscal 1995 the Company invested an aggregate of
$32.7 million in connection with the Fennimore Expansion, including $19.7
million incurred in fiscal 1993. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Introduction."

(9) EBITDA represents income from operations plus depreciation and amortization
(excluding amortization of debt issuance costs) and reflects an adjustment
of income from operations to eliminate the establishment and subsequent
reversal of two reserves ($0.7 million established in fiscal 1993 and
reversed in fiscal 1995, and $0.5 million established in fiscal 1992 and
reversed in fiscal 1995). The Company believes that EBITDA and related
measures are commonly used by certain investors and analysts to analyze
and compare, and provide useful information regarding, the Company's
ability to service its indebtedness. However, the following factors should
be considered in evaluating such measures: EBITDA and related measures (i)
should not be considered in isolation, (ii) are not measures of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), (iii) should not be construed as alternatives or
substitutes for income from operations, net income or cash flows from
operating activities in analyzing the Company's operating performance,
financial position or cash flows (in each case, as determined in
accordance with GAAP) and (iv) should not be used as indicators of the
Company's operating performance or measures of its liquidity.
Additionally, because all companies do not calculate EBITDA and related
measures in a uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled measures of
other companies.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's combined consolidated financial statements
and the related notes thereto, included elsewhere herein.

Introduction
Upon completion of the Recapitalization, the Company changed its fiscal
year end from June 30 to September 30. For clarity of presentation and
comparison, references herein to fiscal 1994, fiscal 1995 and fiscal 1996 are
to the Company's fiscal years ended June 30, 1994, June 30, 1995 and June 30,
1996, respectively, and references to the "Transition Period ended September
30, 1996" and the "Transition Period" are to the period from July 1, 1996 to
September 30, 1996. References to fiscal 1997 are to the Company's fiscal year
ended September 30, 1997.

The Company's operating performance depends on a number of factors, the
most important of which are: (i) general retailing trends, especially in the
mass merchandise segment of the retail market; (ii) the Company's overall
product mix among various specialty and general household batteries and
battery-powered lighting devices, which sell at different price points and
profit margins; (iii) the Company's overall competitive position, which is
affected by both the introduction of new products and promotions by the Company
and its competitors and the Company's relative pricing and battery performance;
and (iv) changes in operating expenses. Set forth below are specific
developments that have affected and may continue to affect the Company's
performance.

Investment in Future Growth Opportunities. Since the Recapitalization, the
Company has undertaken significant measures to pursue growth opportunities and
increase the Company's market share for its products. These measures included
the launch of a new integrated advertising campaign which shifted expenditures
from the Renewal line to the Rayovac brand name. The Company also introduced
new product graphics and packaging designed to build the awareness and image of
the Rayovac brand name and leverage the Company's value brand position. See
"Business--Growth Strategy."

Cost Rationalization Initiatives. Following the Recapitalization, the
Company initiated significant measures to rationalize the Company's
manufacturing, distribution and general overhead costs. The initiatives
relating to manufacturing activities included discontinuing certain
manufacturing operations at the Company's Newton Aycliffe, United Kingdom
facility and closing the Company's Kinston, North Carolina facility. In
addition, the Company implemented a significant organizational restructuring in
the United States and the United Kingdom and eliminated costs associated with
the use of a corporate aircraft. These cost rationalization initiatives
resulted in cash costs of approximately $6.3 million for fiscal 1996 and fiscal
1997 and are expected to result in annual savings of approximately $8.6
million.

Expansion of Production Facility. From fiscal 1993 through fiscal 1995
the Company invested an aggregate of $32.7 million in the modernization and
expansion of its production lines at its Fennimore, Wisconsin facility (the
"Fennimore Expansion") at which the Company manufactures all of its alkaline
products. As a result of the Fennimore Expansion, the Company replaced
substantially all of its alkaline battery manufacturing equipment with
state-of-the-art technology which more than doubled the Company's aggregate
capacity for AA and AAA size alkaline batteries. This investment also resulted
in a reformulation of the Company's alkaline batteries so as to be
mercury-free, better performing and higher quality. The Fennimore Expansion
resulted in $9.5 million of non-recurring costs in fiscal 1994. Such costs
included increased raw material costs incurred pursuant to the terms of
equipment purchase agreements entered into in connection with the Fennimore
Expansion which required the Company to source material from specified foreign
vendors at an increased cost. These incremental costs decreased in fiscal 1996
as a result of the increased use of lower-cost domestic raw material sources to
replace the foreign vendor sourcing, which replacement was substantially
completed in fiscal 1997.

Effect of Recapitalization. The Recapitalization of the Company, which was
completed on September 12, 1996, resulted in non-recurring charges of $12.3
million which were recognized in the Transition Period, including (i) $5.0
million of advisory, legal and consulting fees and (ii) $7.3 million of stock
option compensation, severance payments and employment contract settlements for
the benefit of certain current and former officers, directors and management of
the Company. In connection with the Recapitalization, the Company incurred
other non-recurring special charges of $16.1 million recognized in the
Transition Period, including (i) $2.7 million of charges related to the
discontinuation of manufacturing operations at the Company's Newton Aycliffe,
United Kingdom facility;

(ii) $1.7 million of charges for deferred compensation plan obligations to
former officers of the Company resulting from the curtailment of the plan;
(iii) $1.5 million of charges reflecting the present value of lease payments
for land which new management determined would not be used for any future
productive purpose; (iv) $5.6 million in costs and asset writedowns principally
related to changes in pricing strategies for Power Station, the Renewal
recharging system; and (v) $4.6 million of termination benefits and other
charges. See "The Recapitalization."

Renewal Product Line. In fiscal 1994, the Company introduced the Renewal
rechargeable battery, the first alkaline rechargeable battery sold in the
United States (the "Renewal Introduction"). The Company incurred significant
advertising and promotional expense related to Renewal of $26.0 million in
fiscal 1994, $15.7 million in fiscal 1995 and $20.3 million in fiscal 1996,
with the fiscal 1996 increase largely due to the Company's new promotional
campaign featuring basketball superstar Michael Jordan.

Since the Recapitalization, the Company has significantly revised its
marketing and advertising strategies for the Renewal product line. Management
believes that continued improvement in consumer awareness of the value and
money-saving benefits of Renewal over conventional disposable alkaline
batteries will be necessary to further expand the Company's market for
Renewal. Although the percentage of the Company's advertising budget allocated
to the Renewal product line has decreased, the Company has begun aggressively
marketing Renewal's money-saving benefit over disposable alkaline batteries and
performance advantage over rechargeable nickel cadmium batteries and has
lowered the prices of the recharger system for Renewal. Due to the historically
high levels of investment associated with Renewal, the Renewal product line has
been unprofitable. However, initiatives implemented by the Company's new
management team resulted in the Renewal product line becoming profitable in the
fourth quarter of fiscal 1997.

Seasonality
The Company's sales are seasonal, with the highest sales occurring in the
fiscal quarter ending on or about December 31, during the holiday season.
During the past four fiscal years, the Company's sales in the quarter ended on
or about December 31 have represented an average of 33% of annual net sales. As
a result of this seasonality, the Company's working capital requirements and
revolving credit borrowings are typically higher in the third and fourth
calendar quarters of each year. The following table sets forth the Company's
net sales for each of the periods presented.

Fiscal Quarter Ended
----------------------------------------------------------------------------------------------------------
December 30, March 30, June 30, September 30, December 28, March 29, June 29, September 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------------- ----------- ---------- --------------- -------------- ----------- ---------- --------------
(In millions)

Net sales ...... $140.9 $80.5 $94.6 $101.9 $141.9 $83.6 $95.5 $111.5

Results of Operations

This financial data, as well as all other data set forth herein, gives
effect to the reclassification by the Company of certain promotional expenses,
previously reported as a reduction of net sales, to selling expense. The
amounts which have been reclassified are $24.2 million and $24.0 million for
the years ended June 30, 1995 and 1996, respectively, $6.7 million for the
three months ended September 30, 1995, $6.9 million for the Transition Period
ended September 30, 1996, $24.1 million for the twelve months ended September
30, 1996 and $28.7 million for the fiscal year ended September 30, 1997. The
Company believes that this reclassification is consistent with the method used
by other consumer products companies.

The following table sets forth the percentage relationship of certain
items in the Company's statement of operations to net sales for the periods
presented:

Fiscal Year Ended Transition Twelve
June 30, Three Months Period Months Fiscal
-------------------- Ended Ended Ended Year Ended
September 30, September 30, September 30, September 30,
1995 1996 1995 1996 1996 1997
-------- ----------- --------------- --------------- --------------- --------------

Net sales ..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ............ 57.1 56.5 59.7 58.2 56.9 54.2
------ ------- ------ --------- -------- ------
Gross profit .................. 42.9 43.5 40.3 41.8 43.1 45.8
Selling expense ............... 26.2 27.5 27.9 27.3 27.4 28.2
General and administrative
expense ..................... 7.9 7.5 6.9 8.4 7.9 7.5
Research and development
expense ..................... 1.2 1.3 1.2 1.5 1.3 1.4
Recapitalization and other
special charges ............... -- -- -- 27.9 6.8 0.7
------ ------- ------ --------- -------- ------
Income (loss) from operations . 7.6% 7.2% 4.3% (23.3%) (0.3%) 8.0%

Fiscal Year Ended September 30, 1997 Compared to Twelve Months Ended September
30, 1996

Net Sales. The Company's net sales increased $14.7 million, or 3.5%, to
$432.6 million in fiscal 1997 from $417.9 million in the twelve months ended
September 30, 1996, primarily due to higher sales of alkaline batteries and
lithium batteries, offset in part by decreases in sales of heavy duty
batteries, lantern batteries and Renewal rechargeables. In the last quarter of
fiscal 1997, net sales increased $9.6 million, or 9.4%, to $111.5 million from
$101.9 million in the Transition Period, primarily due to higher sales of
alkaline batteries attributed to the introduction of a 4% price increase on
alkaline batteries in the U.S. phased in beginning May 1997, significant
promotional programs, and sales to new accounts.

Sales of alkaline batteries increased as a result of the launch of a new
integrated advertising campaign emphasizing the alkaline brand, new product
graphics and packaging (designed to build brand awareness and the Company's
value brand position), and strong promotional programs in the Company's fourth
fiscal quarter. The Company also gained significant new distribution on the
strength of this program.

Lithium sales increased primarily due to increased sales of computer clock
and memory back-up batteries to Compaq Computers and SGS Thomson, two of the
Company's larger OEM (Original Equipment Manufacturers) customers.

Sales of heavy duty and lantern batteries decreased primarily due to
declines in the market as consumers move toward alkaline batteries away from
heavy duty batteries. Lantern battery volume was also adversely impacted by the
migration to reflective tape in place of flashing lights on construction
barricades.

Hearing aid battery sales increased as a result of continued growth in the
overall hearing aid battery market. The Company's market leadership position in
this product line has resulted in new distribution gains in the retail channel,
the fastest growing channel for hearing aid batteries as consumers shift their
purchases toward this channel.

Net sales of lighting products increased slightly over the prior twelve
months due primarily to growth in key mass merchandiser accounts and wholesale
clubs.

Dollar sales of Renewal rechargeables were down approximately 12% due
primarily to the Company's decision to decrease prices of the chargers by 33%
in the first quarter of fiscal 1997 to reposition the product and encourage
consumers to purchase the system. Unit sales of chargers and batteries combined
were approximately 7% higher than the prior twelve months.

Gross Profit. Gross profit increased $18.0 million, or 10.0%, to $198.0
million in fiscal 1997 from $180.0 million for the twelve months ended
September 30, 1996. Gross profit as a percentage of net sales increased to
45.8% in fiscal 1997 from 43.1% in the prior twelve months. These increases are
attributed to increased sales of higher margin alkaline batteries, the
introduction of a 4% price increase on alkaline batteries in the U.S. phased in
beginning May 1997, and lower manufacturing costs as a result of cost
rationalization initiatives. Gross profit increased $12.7 million, or 29.8%, to
$55.3 million in the three months ended September 30, 1997 from $42.6 million
in the Transition Period, for these same reasons.

Selling Expense. Selling expense increased $7.7 million, or 6.7%, to
$122.1 million in fiscal 1997 from $114.4 million in the twelve months ended
September 30, 1996 due primarily to increased marketing expense to support the
launch of the Company's new graphics and packaging and increased consumer
promotions on the old graphics and packaging to help retailers promote this
product. These increases were partially offset by reduced advertising expense
while the Company developed its new advertising program. Selling expense
increased as a percentage of net sales to 28.2% in fiscal 1997 from 27.4% in
the prior twelve months because of increased marketing expenses.

General and Administrative Expense. General and administrative expense
decreased $0.8 million, or 2.4%, to $32.2 million in fiscal 1997 from $33.0
million in the twelve months ended September 30, 1996 due in part to cost
rationalization initiatives which included the elimination of the use of a
corporate aircraft. These decreases were partially offset by the expense
related to a new management incentive program implemented for fiscal 1997.
There were no management incentives earned during the twelve months ended
September 30, 1996. As a percentage of net sales, general and administrative
expense decreased to 7.5% in fiscal 1997 from 7.9% in the prior twelve months.

Research and Development Expense. Research and development expense
increased $0.6 million, or 10.7%, to $6.2 million for fiscal 1997 from $5.6
million for the twelve months ended September 30, 1996 due primarily to the
development of an on-the-label battery tester which the Company decided not to
introduce.

Recapitalization and Other Special Charges. During fiscal 1997, the
Company recorded special charges of $3.0 million compared to $28.4 million
recorded in the twelve months ended September 30, 1996 as discussed above under
"Effect of Recapitalization." The current year amount represents the net
charges for organizational restructuring in the United States, the
discontinuation of certain manufacturing operations at the Company's Newton
Aycliffe, United Kingdom facility and the discontinuation of certain
manufacturing operations at the Company's facility in Kinston, North Carolina
partially offset by a credit of $2.9 million related to the curtailment of the
Company's defined benefit pension plan covering all domestic non-union
employees.

Income from Operations. Income from operations increased $35.9 million to
$34.5 million in fiscal 1997 from a loss of $(1.4) million for the twelve
months ended September 30, 1996. The Company's Recapitalization and other
special charges decrease of $25.4 million in combination with increased gross
profits were partially offset by increased operating expenses related to the
new marketing and advertising programs discussed above.

Interest Expense. Interest expense increased $14.0 million to $24.5
million in fiscal 1997 from $10.5 million in the prior twelve months due
primarily to increased indebtedness associated with the Recapitalization and a
write-off of $2.0 million of unamortized debt issuance costs related to the
Bridge Notes the Company issued in September 1996 which were refinanced in
fiscal 1997.

Net Income. Net income increased $16.4 million to $6.2 million in fiscal
1997 from a net loss of $(10.2) million in the twelve months ended September
30, 1996 primarily due to increased income from operations as discussed above
partially offset by increased interest expense due to the Recapitalization. The
Company's effective tax rate for fiscal 1997 was 35.6% compared to an effective
tax benefit rate of 31.0% for the prior twelve months due primarily to some of
the Recapitalization expenses in the prior twelve months being non-tax
deductible and the tax benefits of Rayovac International Corporation, a
domestic international sales corporation ("DISC") owned by the shareholders in
the prior twelve months. The DISC was terminated in August 1996 and replaced
with Rayovac Foreign Sales Corporation, a foreign sales corporation ("FSC"), in
fiscal 1997 which generated fewer tax benefits in fiscal 1997.

Net income for the prior twelve months also decreased $1.6 million
resulting from an extraordinary loss on the early retirement of debt related to
the Recapitalization.

Fiscal Year Ended September 30, 1997 Compared to Transition Period Ended
September 30, 1996
Results of operations for fiscal 1997 include amounts for a twelve-month
period, while results for the Transition Period include amounts for a
three-month period. Results (in terms of dollars) for these periods are not
directly comparable. Accordingly, management's discussion and analysis for
these periods is generally based upon a comparison of specified results as a
percentage of net sales.

Net Sales. The Company's net sales increased $330.7 million to $432.6
million in fiscal 1997 from $101.9 million in the Transition Period due
primarily to fiscal 1997 including twelve months compared to three months

in the Transition Period. Sales during the Transition Period were unfavorably
impacted by the pending sale of the Company.

Gross Profit. Gross profit increased $155.4 million to $198.0 million in
fiscal 1997 from $42.6 million in the Transition Period. As a percentage of net
sales, gross profit increased to 45.8% in fiscal 1997 from 41.8% in the
Transition Period due to selling more higher margin products like alkaline and
hearing aid batteries in fiscal 1997, the alkaline price increase discussed
above, and lower manufacturing costs attributed to cost rationalization
initiatives.

Selling Expense. Selling expense increased $94.3 million to $122.1 million
in fiscal 1997 from $27.8 million in the Transition Period. As a percentage of
net sales, selling expense increased to 28.2% in fiscal 1997 from 27.3% in the
Transition Period due to increased promotional spending to support the new
alkaline battery graphics and packaging, the new advertising program to build
brand awareness and increased spending to gain new distribution.

General and Administrative Expense. General and administrative expense
increased $23.6 million to $32.2 million in fiscal 1997 from $8.6 million in
the Transition Period. As a percentage of net sales, general and administrative
expense decreased to 7.5% in fiscal 1997 from 8.4% in the Transition Period
attributed to the effects of cost rationalization initiatives.

Research and Development Expense. Research and development expense
increased $4.7 million to $6.2 million in fiscal 1997 from $1.5 million in the
Transition Period. As a percentage of net sales, research and development
expense decreased slightly to 1.4% in fiscal 1997 from 1.5% in the Transition
Period due primarily to the effects of the cost rationalization initiatives.

Recapitalization and Other Special Charges. Recapitalization and other
special charges decreased by $25.4 million, or 89.4%, to $3.0 million in fiscal
1997 from $28.4 million in the Transition Period which is explained above in
the discussion of fiscal 1997 compared to the twelve months ended September 30,
1996.

Income (loss) from Operations. Income (loss) from operations increased
$58.2 million to $34.5 million in fiscal 1997 from $(23.7) million in the
Transition Period. As a percentage of net sales, income (loss) from operations
increased to 8.0% in fiscal 1997 from (23.3)% in the Transition Period for the
reasons discussed above.

Net Income (loss). Net income (loss) for fiscal 1997 increased $27.1
million to $6.2 million from $(20.9) million in the Transition Period. As a
percentage of net sales, net income (loss) increased to 1.4% in fiscal 1997
from (20.5)% in the Transition Period primarily due to significant
Recapitalization and other special charges in the Transition Period. In
addition, an extraordinary loss on the early retirement of debt decreased net
income in the Transition Period by $1.6 million, net of income taxes. The
effective tax rate for fiscal 1997 was 35.6% compared to 31.6% in the
Transition Period due primarily to some of the Recapitalization expenses being
non-tax deductible in the Transition Period.

Transition Period Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
Net Sales. The Company's net sales decreased $5.4 million, or 5.0%, to
$101.9 million in the Transition Period from $107.3 million in the three months
ended September 30, 1995 (the "Prior Fiscal Year Period") primarily due to
decreased sales to the food and drug store retail channels and the Company
having made sales to certain retail customers in connection with promotional
orders after the Transition Period which were made during the Prior Fiscal Year
Period.

Gross Profit. Gross profit decreased $0.6 million, or 1.4%, to $42.6
million in the Transition Period from $43.2 million in the Prior Fiscal Year
Period, primarily as a result of decreased sales in the Transition Period, as
discussed above. Gross profit increased as a percentage of net sales to 41.8%
in the Transition Period from 40.3% in the Prior Fiscal Year Period due
primarily to a lower proportion of promotion sales as discussed above.

Selling Expense. Selling expense decreased $2.1 million, or 7.0%, to $27.8
million in the Transition Period from $29.9 million in the Prior Fiscal Year
Period, primarily due to decreased advertising expense in the Transition
Period.

General and Administrative Expense. General and administrative expense
increased $1.2 million, or 16.2%, to $8.6 million in the Transition Period from
$7.4 million in the Prior Fiscal Year Period, primarily as a result of

the Company having incurred certain expenditures during the Transition Period
which were incurred subsequent to the Prior Fiscal Year Period.

Research and Development Expense. Research and development expense
increased $0.2 million, or 15.4%, to $1.5 million in the Transition Period from
$1.3 million in the Prior Fiscal Year Period, primarily as a result of
increased product development efforts.

Recapitalization and Other Special Charges. During the Transition Period,
the Company recorded charges of $28.4 million, including non-recurring charges
related to the Recapitalization and other special charges.

Non-recurring charges of $12.3 million related to the Recapitalization
include (i) $5.0 million of advisory, legal and consulting fees and (ii) $7.3
million of stock option compensation, severance payments and employment
contract settlements for the benefit of certain present and former officers,
directors and management of the Company.

Other special charges of $16.1 million include (i) $2.7 million of charges
related to the discontinuation of manufacturing operations at the Company's
Newton Aycliffe, United Kingdom facility; (ii) $1.7 million of charges for
deferred compensation plan obligations to former officers of the Company
resulting from the curtailment of the plan; (iii) $1.5 million of charges
reflecting the present value of lease payments for land which new management
determined would not be used for any future productive purpose; (iv) $5.6
million in costs and asset writedowns principally related to changes in Renewal
Power Station pricing strategies adopted by new management subsequent to the
Recapitalization and prior to September 30, 1996; and (v) $4.6 million of
termination benefits and other charges.

Income (loss) from Operations. Income (loss) from operations decreased
$28.3 million to $(23.7) million in the Transition Period from $4.6 million in
the Prior Fiscal Year Period for the reasons discussed above.

Net Income (loss). Net income (loss) for the Transition Period decreased
$22.3 million to $(20.9) million from $1.4 million in the Prior Fiscal Year
Period, primarily because of non-recurring charges related to the
Recapitalization and other special charges discussed above. In addition,
amortization of deferred finance charges related to the Bridge Notes and an
extraordinary loss on the early retirement of debt decreased net income in the
Transition Period by $2.6 million, net of income taxes.

Transition Period Ended September 30, 1996 Compared to Fiscal Year Ended June
30, 1996
Results of operations for the Transition Period Ended September 30, 1996
include amounts for a three-month period, while results for the fiscal year
ended June 30, 1996 include amounts for a twelve-month period. Results (in
terms of dollar amounts) for these periods are not directly comparable.
Accordingly, management's discussion and analysis for these periods is
generally based upon a comparison of specified results as a percentage of net
sales.

Net Sales. The Company's net sales decreased $321.5 million, or 75.9%, to
$101.9 million in the Transition Period from $423.4 million in fiscal 1996
because the Transition Period included only three months of net sales as
compared to twelve months in fiscal 1996. Overall pricing was relatively
constant between the two periods.

Gross Profit. Gross profit decreased $141.4 million, or 76.8%, to $42.6
million in the Transition Period from $184.0 million in fiscal 1996. As a
percentage of net sales, gross profit decreased to 41.8% in the Transition
Period from 43.5% in fiscal 1996, primarily because the products sold during
the Transition Period carried a higher average unit cost than the overall
average unit cost of products sold in fiscal 1996 due to seasonal sales trends.

Selling Expense. Selling expense decreased $88.7 million, or 76.1%, to
$27.8 million in the Transition Period from $116.5 million in fiscal 1996. As a
percentage of net sales, selling expenses decreased to 27.3% in the Transition
Period from 27.5% in fiscal 1996, primarily as a result of decreased
advertising expense in the Transition Period.

General and Administrative Expense. General and administrative expense
decreased $23.2 million, or 73.0%, to $8.6 million in the Transition Period
from $31.8 million in fiscal 1996. As a percentage of net sales, general and
administrative expense increased to 8.4% in the Transition Period from 7.5% in
fiscal 1996, primarily as a result of the effects of seasonal sales trends in
the Transition Period.

Research and Development Expense. Research and development expense
decreased $3.9 million, or 72.2%, to $1.5 million in the Transition Period from
$5.4 million in fiscal 1996. As a percentage of net sales, research and
development expense increased to 1.5% in the Transition Period from 1.3% in
fiscal 1996, primarily as a result of increased support for ongoing product
development efforts.

Recapitalization and Other Special Charges. During the Transition Period
ended September 30, 1996, the Company recorded charges totalling $28.4 million,
including non-recurring charges related to the Recapitalization and other
special charges. Non-recurring charges of $12.3 million related to the
Recapitalization include (i) $5.0 million of advisory, legal and consulting
fees and (ii) $7.3 million of stock option compensation, severance payments and
employment contract settlements for the benefit of certain present and former
officers, directors and management of the Company.

Income (loss) from Operations. Income (loss) from operations decreased
$54.0 million, or 178.2%, to $(23.7) million in the Transition Period from
$30.3 million in fiscal 1996. As a percentage of net sales, income (loss) from
operations decreased to (23.3)% in the Transition Period from 7.2% in fiscal
1996 for the reasons discussed above.

Net Income (loss). Net income (loss) decreased $35.2 million, or 246.2%,
to $(20.9) million for the Transition Period from $14.3 million in fiscal 1996.
As a percentage of net sales, net income (loss) decreased to (20.5)% in the
Transition Period from 3.4% in fiscal 1996, primarily because of non-recurring
charges related to the Recapitalization and other special charges discussed
above. In addition, amortization of deferred finance charges related to the
Bridge Notes and an extraordinary loss on the early retirement of debt
decreased net income in the Transition Period by $2.6 million, net of income
taxes.

Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Net Sales. The Company's net sales increased $8.2 million, or 2.0%, to
$423.4 million in fiscal 1996 from $415.2 million in fiscal 1995, primarily due
to higher unit sales of hearing aid batteries, Renewal rechargeable batteries
and alkaline batteries, offset in part by decreases in unit sales of heavy duty
and lantern batteries. Overall pricing was relatively constant between the two
periods. Sales of hearing aid batteries increased as a result of unit sales
growth in the overall hearing aid battery market as well as increased
penetration by the Company's Loud'n Clear line of hearing aid batteries and the
introduction of a new miniature size battery, used in hearing aids that fit
completely in the ear. Unit sales of Renewal rechargeable alkaline batteries
increased as a result of increased consumer awareness of the benefits of
Renewal over nickel-cadmium household rechargeable batteries and disposable
batteries and as replacement sales increased to retailers who had sold through
their high levels of fiscal 1995 Renewal inventory. The Company's unit sales of
alkaline batteries increased as the Company participated to a certain extent in
the continued overall growth in the market for alkaline batteries. Unit sales
of heavy duty batteries decreased due to the continued worldwide migration away
from heavy duty batteries and toward alkaline batteries while unit sales of
lantern batteries also decreased due to an overall decline in the lantern
battery market.

Gross Profit. Gross profit increased $5.9 million, or 3.3%, to $184.0
million in fiscal 1996 from $178.1 million in fiscal 1995. Gross profit
increased as a percentage of net sales to 43.5% in fiscal 1996 from 42.9% in
fiscal 1995. These increases are primarily attributable to increased sales of
higher margin products such as Renewal rechargeable batteries and hearing aid
batteries. In addition, the Company experienced manufacturing cost
improvements, particularly for alkaline battery raw materials related to the
Fennimore Expansion as discussed above.

Selling Expense. Selling expense increased $7.8 million, or 7.2%, to
$116.5 million in fiscal 1996 from $108.7 million in fiscal 1995. Selling
expense as a percentage of net sales increased to 27.5% in 1996 from 26.2% in
1995. These increases are primarily attributable to increased advertising costs
to promote the Renewal product line as discussed above.

General and Administrative Expense. General and administrative expense
decreased $1.1 million, or 3.3%, to $31.8 million in fiscal 1996 from $32.9
million in fiscal 1995. General and administrative expense as a percentage

of net sales decreased from 7.9% in fiscal 1995 to 7.5% in fiscal 1996. These
decreases occurred primarily because the $4.0 million payment of management
incentives in 1995 was not repeated in fiscal 1996.

Research and Development Expense. Research and development expense
increased $0.4 million, or 8.0%, to $5.4 million in fiscal 1996 from $5.0
million in fiscal 1995 as a result of continued support for ongoing product
development efforts.

Income from Operations. Income from operations decreased $1.2 million, or
3.8%, to $30.3 million, or 7.2% of net sales in fiscal 1996, from $31.5
million, or 7.6% of net sales, in fiscal 1995 for the reasons discussed above.

Net Income. Net income decreased $2.1 million, or 12.8%, to $14.3 million
for fiscal 1996 from $16.4 million in fiscal 1995, principally as a result of
decreased income from operations and higher effective tax rates, which
increased from 27.4% in 1995 to 32.9% in 1996. The Company's effective income
tax rates in fiscal 1996 and fiscal 1995 were impacted by the income tax
benefits of Rayovac International Corporation, a domestic international sales
corporation ("DISC") owned by the Company's shareholders, and fiscal 1995 was
also impacted by the utilization of a foreign net operating loss carryforward.

Liquidity and Capital Resources
For fiscal 1997, net cash provided by operating activities increased $9.7
million to $35.7 million from $26.0 million for the prior twelve months due
primarily to increased focus on working capital management and increased
earnings from operations partially offset by the payment of Recapitalization
and other special charges accrued during the prior twelve months.

Capital expenditures for fiscal 1997 were $10.9 million, an increase of
$2.5 million from the prior twelve months, due primarily to new computer
information systems purchased in September 1997. Capital expenditures for
fiscal 1996 and the Transition Period reflected maintenance level spending.
Spending will continue on the new computer systems in fiscal 1998 with
implementation currently planned in calendar 1998. Capital expenditures for
fiscal 1998 are expected to increase to approximately $23.0 million due to
alkaline capacity expansion, alkaline vertical integration programs, and the
new computer information systems.

Since the Recapitalization, the Company's primary capital requirements
have been for debt service, working capital, and capital expenditures. The
Company believes that cash flow from operating activities and periodic
borrowings under its existing credit facilities will be adequate to meet the
Company's short-term and long-term liquidity requirements prior to the maturity
of those credit facilities, although no assurance can be given in this regard.
The Company's current credit facilities include a revolving credit facility of
$65.0 million of which $4.5 million was outstanding at September 30, 1997, and
approximately $0.6 million was utilized for outstanding letters of credit.
After giving effect to the Offerings and the application of net proceeds
therefrom, the Company will have approximately $50.9 million outstanding under
the term loans pursuant to the Company's credit facilities which will be
subject to quarterly amortization. See "Risk Factors--Substantial Leverage" and
"Description of Certain Indebtedness."

The Company periodically assesses its outstanding debt arrangements and
would seek to refinance its existing debt agreements or enter into new
agreements under such circumstances as it determines appropriate.

The Company is subject to various federal, state, local and foreign
environmental laws and regulations in the jurisdictions in which it operates,
including laws and regulations relating to discharges to air, water and land,
the handling and disposal of solid and hazardous waste and the cleanup of
properties affected by hazardous substances. Except for liabilities related to
the Velsicol Chemical and Morton International proceedings described under
"Business--Environmental Matters" as to which the Company cannot predict the
impact of such liabilities, the Company does not currently anticipate any
material adverse effect on its operations or financial condition or any
material capital expenditure as a result of its efforts to comply with
environmental laws and as of September 30, 1997 had reserved $1.8 million for
known on-site and off-site environmental liabilities. Some risk of
environmental liability is inherent in the Company's business, however, and
there can be no assurance that material environmental costs will not arise in
the future. The Company has been identified as a PRP under CERCLA or similar
state laws with respect to the past disposal of waste and is a party to two
lawsuits as to which there is insufficient information to make a judgment as to
the likelihood of a material impact on the Company's operations, financial
condition or liquidity at this time. The Company may be named as a PRP at
additional sites in the future, and the costs associated with such additional
or existing sites may be material. In addition, certain of the Company's
facilities have been in operation for decades and, over such time, the Company
and other prior operators of such facilities have generated and disposed of
wastes which are or may be considered hazardous such as cadmium and mercury
utilized in the

battery manufacturing process. See "Risk Factors--Environmental Matters" and
"Business--Environmental Matters." The Company engages in hedging transactions
in the ordinary course of its business. See Note 2.o. to Notes to Consolidated
Financial Statements.

Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("FAS
128"). FAS 128 will be effective for periods ending after December 15, 1997,
and specifies the computation, presentation, and disclosure requirements for
earnings per share. Adoption of this accounting standard is not expected to
have a material effect on the earnings per share computations of the Company
assuming the current capital structure.

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("FAS 130"), which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are to be reported
in a financial statement that is displayed with the same prominence as other
financial statements. FAS 130 requires that an enterprise (i) classify items of
other comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the equity section of the
balance sheet. FAS 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The Company is evaluating the effect of
this pronouncement on its consolidated financial statements.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("FAS 131"), which is effective for financial statements for periods beginning
after December 15, 1997. FAS 131 establishes standards for the way public
business enterprises are to report information about operating segments in
annual financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company is evaluating the effect of this pronouncement on its
consolidated financial statements.

BUSINESS

General
The Company is the leading value brand and the third largest domestic
manufacturer of general batteries (including alkaline, heavy duty and
rechargeable alkaline), and is the leading worldwide manufacturer of hearing
aid batteries. The Company is also the leading domestic manufacturer of
rechargeable household batteries, heavy duty batteries and certain other
specialty batteries, including lantern batteries and lithium batteries for
personal computer clocks and memory backup. In addition, the Company is a
leading marketer of battery-powered lighting products. Originally introduced in
1921, the Rayovac brand is a well recognized name in the battery industry. The
Company attributes the longevity and strength of its brand name to its
high-quality products and to the success of its marketing and merchandising
initiatives.

The Company has established its position as the leading value brand in the
U.S. general alkaline battery market by focusing on the mass merchandiser
channel. The Company achieved this position by (i) offering batteries with
quality and performance substantially equivalent to batteries offered by its
principal competitors at a lower price, (ii) emphasizing innovative in-store
merchandising programs, and (iii) offering retailers attractive margins. The
Company has established its position as the leader in various specialty battery
niche markets through (i) continual technological advances, (ii) creative
distribution and marketing, and (iii) strong relationships with industry
professionals and manufacturers. The Company sells and distributes its products
in several channels including mass merchandisers, food and convenience stores,
drug and specialty retailers, hardware/home centers, department stores, hearing
aid professionals, industrial and government/OEM. The Company markets all of
its branded products under the Rayovac[RegTM] name and selected products under
sub-brand names such as MAXIMUM[TM], Renewal[RegTM], Loud'n Clear[RegTM],
ProLine[RegTM], Lifex[TM], Power Station[RegTM], Workhorse[RegTM], and
Roughneck[RegTM].

To implement its new strategy, the Company has undergone a significant
transformation since the Recapitalization.

include: (i) the selection of Young & Rubicam as the Company's new advertising
agency and the development of its first major national advertising campaign for
general battery products, (ii) the launch of a new and improved alkaline
product line under the MAXIMUM sub-brand, (iii) the redesign of all product
graphics and packaging to convey a high quality image and emphasize the Rayovac
brand name, (iv) the extension of the Company's existing contract with Michael
Jordan to include his representation for all Rayovac products, (v) the
restructuring of the Company's sales representative network, and (vi) the
implementation of a 4% price increase for alkaline general battery products in
May 1997.

over the past five years. As a result, the Company has achieved a 19% share of
domestic alkaline battery unit sales through mass merchandisers. However, this
narrow focus contributed to much lower market share in all other retail
channels which represent a market of $1.7 billion or 70% of the general battery
market. The Company believes its value brand positioned products and innovative
merchandising programs make it an attractive supplier to these channels. The
Company has reorganized its marketing, sales, and sales representative
organizations by channel in order to grow market share by (i) gaining new
customers, (ii) penetrating existing customers with a larger assortment of
products, (iii) introducing new products, and (iv) utilizing more aggressive
and channel specific promotional programs.

Battery Industry
The U.S. battery industry had aggregate sales in 1996 of approximately
$4.2 billion as set forth below.

1996 U.S. Battery Industry Sales (In billions)

Retail:
General ........................... $ 2.4
Hearing aid ........................ 0.2
Other specialty ..................... 0.8
Industrial, OEM and Government ...... 0.8
------
Total ........................... $ 4.2
======

Retail sales of general batteries represented $2.4 billion of aggregate
U.S. battery industry sales in 1996. As set forth below, this segment has
experienced steady growth, with compound annual unit sales growth since 1990 of

[line chart]
RETAIL GENERAL BATTERY MARKET
Total Retail General Batteries
------------------------------

Dollars Units
(Millions) (Millions)
1990 1834 2225
1991 1912 2358
1992 2003 2543
1993 2099 2715
1994 2192 2910
1995 2310 3071
1996 2497 3250

Source: A.C. Nielsen Scanner Data
A.C. Nielsen Consumer Panel Data

The U.S. battery industry is dominated by three manufacturers, (Duracell,
Energizer and Rayovac) each of which manufactures and markets a wide variety of
batteries. Together, these three accounted for approximately 90% of the U.S.
retail general battery market in the 52 weeks ended July 5, 1997. Retail sales
of general and specialty batteries represent the largest portion of the U.S.
battery industry, accounting for approximately 80% of sales in 1996. Batteries
are popular with many retailers because they provide attractive profit margins.
As batteries are an impulse purchase item, increasing display locations in
stores tends to generate increased sales.

The growth in retail sales of general batteries in the U.S. is largely due
to (i) the popularity and proliferation of battery-powered devices (such as
remote controls, personal radios and cassette players, pagers, portable compact
disc players, electronic and video games and battery-powered toys), (ii) the
miniaturization of battery-powered devices, which has resulted in consumption
of a larger number of smaller batteries, and (iii) increased purchases of
multiple-battery packages for household "pantry" inventory. These factors have
increased the average household usage of batteries from an estimated 23
batteries per year in 1986 to an estimated 35 batteries per year in 1996.

Similar to general retailing trends, increased battery sales through mass
merchandisers and warehouse clubs have driven the overall growth of retail
battery sales. Mass merchandisers accounted for 53% of the total increase in
general battery retail dollar sales from 1992 through 1996 and, together with
warehouse clubs, accounted for 43% of total retail battery sales in 1996.

In 1996, U.S. and worldwide retail sales of hearing aid batteries were
approximately $205 million and $530 million, respectively, and have grown at a
compound annual growth rate of 7% and 5%, respectively, over the last five
years. Growth in the hearing aid battery market has been driven by an aging
population; increases in hearing instrument device sales driven by
technological advances, including miniaturization, which provides higher
cosmetic appeal and improved amplification; and the higher replacement rates of
smaller hearing instruments.

Other markets in which the Company operates include those for replacement
watch and calculator batteries, which had worldwide sales of approximately $920
million in 1996, photo batteries, which had worldwide sales of approximately
$600 million in 1996 and lithium coin cells, which had worldwide sales of
approximately $50 million in 1996.

Products
Rayovac develops, manufactures and markets a wide variety of batteries and
battery-powered lighting devices. The Company's broad line of products includes
(i) general batteries (including alkaline, heavy duty and rechargeable alkaline
batteries) and specialty batteries (including hearing aid, watch, photo,
keyless entry, and personal computer clock and memory back-up batteries) and
(ii) lighting products and lantern batteries. General batteries (D, C, AA, AAA
and 9-volt sizes) are used in devices such as radios, remote controls, personal
radios and cassette players, pagers, portable compact disc players, electronic
and video games and battery-powered toys, as well as a variety of
battery-powered industrial applications. Of the Company's specialty batteries,
button cells are used in smaller devices (such as hearing aids and watches),
lithium coin cells are used in cameras, calculators, communication equipment,
medical instrumentation and personal computer clocks and memory back-up
systems, and lantern batteries are used almost exclusively in battery-powered
lanterns. The Company's lighting products include flashlights, lanterns and
similar portable products.

Net sales data for the Company's products as a percentage of net sales for
fiscal 1995, fiscal 1996, the Transition Period and fiscal 1997 are set forth
below.

Percentage of Company Net Sales
----------------------------------------------------------
Fiscal Year June 30, Transition Fiscal Year
----------------------- Period Ended Ended
September 30, September 30,
1995 1996 1996 1997
Product Type ---------- ---------- --------------- --------------

Battery Products:
Alkaline ....................................... 43.4% 43.6% 41.4% 45.0%
Heavy Duty .................................... 14.1 12.2 12.7 10.4
Rechargeable Batteries ........................ 5.6 7.1 5.1 5.5
Hearing Aid ................................. 12.7 14.6 14.3 14.8
Other Specialty Batteries ..................... 10.0 8.6 10.1 9.8
------ ------ ------ ------
Total ....................................... 85.8 86.1 83.6 85.5
Lighting Products and Lantern Batteries ...... 14.2 13.9 16.4 14.5
------ ------ ------ ------
Total ....................................... 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======

Battery Products
A description of the Company's major battery products including their
typical uses is set forth below.

General Batteries Hearing Aid Other Specialty Batteries Lantern
Batteries Batteries
Technology Alkaline Zinc Zinc Air Lithium Silver Zinc
Types/ - Disposable - Heavy Duty -- -- -- Lantern (Zinc
Common - Rechargeable (Zinc Chloride) Chloride and
Name: Zinc Carbon)
Brand; Sub-brand Rayovac; MAXIMUM, Rayovac Rayovac; Loud'n Rayovac; Lifex Rayovac Rayovac
Names(1): Renewal, Power Clear, ProLine
Station
Sizes: D, C, AA, AAA, 9-volt(2) for both 5 sizes 5 primary sizes 10 primary sizes Standard
Alkaline and Zinc lantern
Typical All standard household applications Hearing Personal com- Watches Beam lanterns
Uses: including pagers, personal radios aids puter clocks and Camping
and cassette players, remote con- memory back-up lanterns
trols and a wide variety of
industrial applications

(1) The Company also produces and supplies private label brands in selected
categories.

(2) The Company does not produce 9-volt rechargeable batteries.

Products

Alkaline Batteries. Alkaline batteries are based on technology which first
gained widespread application during the 1980s. Alkaline batteries provide
greater average energy per cell and considerably longer service life than
traditional zinc chloride (heavy duty) or zinc carbon (general purpose)
batteries, the dominant battery types

throughout the world until the 1980s. Alkaline performance superiority has
resulted in alkaline batteries steadily displacing zinc chloride and zinc
carbon batteries. In the domestic retail general battery market, for instance,
alkaline batteries represented approximately 87% of total battery unit sales in
the 52 weeks ended July 5, 1997, despite higher per battery prices than zinc
batteries.

Rayovac produces a full line of alkaline batteries including D, C, AA, AAA
and 9-volt size batteries for both consumers and industrial customers. The
Company's alkaline batteries are marketed and sold primarily under the Rayovac
MAXIMUM brand, although the Company also engages in limited private label
manufacture of alkaline batteries. AA and AAA size batteries are often used
with smaller electronic devices such as remote controls, photography equipment,
personal radios and cassette players, pagers, portable compact disc players and
electronic and video games. C and D size batteries are generally used in
devices such as flashlights, lanterns, radios, cassette players and battery-
powered toys. 9-volt size batteries are generally used in fire alarms, smoke
detectors and communication devices.

The Company regularly tests the performance of its alkaline batteries
against those of its competitors across a number of applications and battery
sizes using American National Standards Institute ("ANSI") testing criteria,
the standardized testing criteria generally used by industry participants to
evaluate battery performance, as well as its own specific product device
testing, which the Company believes may provide more relevant information to
consumers. Although relative performance varies based on battery size and
device tests, the average performance of the Company's alkaline batteries and
those of its competitors are substantially equivalent. The Company's
performance comparison results are corroborated by published independent test
results.

For the 52 weeks ended July 5, 1997, the Company had an 11% overall
alkaline battery unit market share and a 19% alkaline battery unit market share
within the mass merchandiser retail channel.

Heavy Duty Batteries. Heavy duty batteries include zinc chloride batteries
designed for low and medium-drain devices such as lanterns, flashlights, radios
and remote controls. The Company produces a full line of heavy duty batteries,
although AA, C and D size heavy duty batteries together accounted for 90% of
the Company's heavy duty battery unit sales in fiscal 1997.

The Company had a 46% unit market share in the heavy duty battery market
through mass merchandisers, food and drug stores for the 52 weeks ended July 5,
1997. Generally, the size of the heavy duty battery market has been decreasing
because of increased sales of alkaline batteries for uses traditionally served
by non-alkaline batteries.

Rechargeable Batteries. The Company's Renewal rechargeable battery is the
only rechargeable alkaline battery in the U.S. market, commanding a 66% market
share of the rechargeable household battery market through mass merchandisers,
food and drug stores for the 52 weeks ended July 5, 1997. Since the
Recapitalization, management has lowered the price of Renewal rechargers by 33%
to encourage consumers to purchase the system and shifted Renewal's marketing
message from its environmental benefits to its money-saving benefits. Renewal
batteries present a value proposition to consumers because they can be
recharged over 25 times, providing 10 times the energy of disposable alkaline
batteries at only twice the retail price. In addition, alkaline rechargeables
are superior to nickel cadmium rechargeables (the primary competing technology)
because they provide more energy between charges, are sold fully charged,
retain their charge longer and are environmentally safer. Certain technology
underlying the Company's Renewal line of rechargeable alkaline batteries could
be made available to the Company's competitors under certain circumstances. See
"Risk Factors--Limited Intellectual Property Protection."

Hearing Aid Batteries. The Company was the largest worldwide seller of
hearing aid batteries in fiscal 1996, with a market share of approximately 50%.
This strong market position is the result of hearing aid battery products with
advanced technological capabilities, consistent product performance, a strong
distribution system and an extensive marketing program. Hearing aid batteries
are produced in several sizes and are designed for use with various types and
sizes of hearing aids. The Company produces five sizes and two types of zinc
air button cells for use in hearing aids, which are sold under the Loud'n Clear
and ProLine brand names and under several private labels, including Beltone,
Miracle Ear and Siemens. Zinc air is a highly reliable, high energy density,
lightweight battery system with performance superior to that of traditional
hearing aid batteries. The Company was the pioneer and currently is the leading
manufacturer of the smallest (5A and 10A size) hearing aid batteries. The
Company's zinc air button cells offer consistently strong performance, capacity
and reliability based on ANSI testing criteria as applied by the Company.

Other Specialty Batteries. The Company's other specialty battery products
include non-hearing aid button cells, lithium coin cells, photo batteries and
keyless entry batteries. The Company produces button and coin cells

for watches, cameras, calculators, communications equipment and medical
instrumentation. The Company's market shares within each of these categories
vary. The Company's Lifex lithium coin cells are high-quality lithium batteries
with certain performance advantages over other lithium battery systems. These
products are used in calculators and personal computer clocks and memory
back-up systems. Lifex lithium coin cells have outstanding shelf life and
excellent performance. The Company believes that the market for lithium
personal computer memory back-up batteries has significant growth potential due
to growth in the personal computer market.

Battery Merchandising and Advertising

Alkaline and Rechargeable Batteries. Since the Recapitalization, the
Company has substantially revised its merchandising and advertising strategies
for general batteries. Key elements of the Company's strategies include:
building the awareness and image of the Rayovac brand name; focusing on the
reformulated MAXIMUM alkaline product line; improving consumer perceptions of
the quality and performance of the Company's products; upgrading and unifying
product packaging; and solidifying the Company's position as the value brand by
offering batteries of equal quality and performance at a lower price than those
offered by its principal competitors. The Company's strategy is to provide
products of quality and performance equal to its major competitors in the
general battery market at a lower price, appealing to a large segment of the
population desiring a value brand. To demonstrate its value positioning,
Rayovac offers comparable battery packages at a lower price or, in some cases,
more batteries for the same price. The Company also works with individual
retail channel participants to develop unique merchandising programs and
promotions and to provide retailers with attractive profit margins to encourage
retailer brand support.

In response to the introduction by the Company's principal competitors in
the U.S. general battery market of on-the-label battery testers for alkaline
batteries, the Company developed an on-the-label tester for the Company's
alkaline batteries. Based on the Company's consumer testing which indicated
that such testers are difficult to use, prone to failure and do not represent a
significant marketing advantage, management decided not to proceed with the
implementation of such testers.

In the three fiscal years prior to the Recapitalization, the Company spent
substantially all of its advertising budget on its Renewal product line. The
Company's current advertising campaign designed by Young & Rubicam, the
Company's new advertising agency, has shifted advertising efforts to the
Company's MAXIMUM alkaline products. In addition, the Company is launching its
first major national advertising campaign. The campaign is designed to increase
awareness of the Rayovac brand and to heighten customers' perceptions of the
quality, performance and value of Rayovac products. The Company has engaged
Michael Jordan as a spokesperson for its general battery products under a
contract which extends through 2004.

The Company substantially overhauled its marketing strategy for its
Renewal rechargeable batteries in 1997 to focus on the economic advantages of
Renewal rechargeable batteries and to position the rechargers at lower, more
attractive price points. As part of its marketing strategy for its rechargeable
batteries, the Company actively pursues OEM arrangements and other alliances
with major electronic device manufacturers.

Hearing Aid Batteries. To market and distribute its hearing aid battery
products, the Company continues to use a highly successful national print
advertising campaign featuring Arnold Palmer. A binaural wearer and user of
Rayovac hearing aid batteries, Mr. Palmer has been extremely effective in
promoting the use of hearing aids, expanding the market and communicating the
specific product benefits of Rayovac hearing aid batteries. The Company has
also developed a national print advertising campaign in selected publications
such as Modern Maturity to reach the largest potential market for hearing aid
batteries. The Company also pioneered the use of multipacks and intends to
further expand multipack distribution in additional professional and retail
channels. Additionally, the Company believes that it has developed strong
relationships with hearing aid manufacturers and audiologists, the primary
purveyors of hearing aids, and seeks to further penetrate the professional
market. The Company has also established relationships with major Pacific Rim
hearing aid battery distributors to take advantage of anticipated global market
growth.

Other Specialty Batteries. The Company's marketing strategies for its
other specialty batteries focus on leveraging the Company's brand name and
strong market position in hearing aid batteries to promote its specialty
battery products. The Company has redesigned its product graphics and packaging
of its other specialty battery products to achieve a uniform brand appearance
with the Company's other products and generate greater brand awareness and
loyalty. In addition, the Company plans to continue to develop relationships
with manufacturers of

communications equipment and other products in an effort to expand its share of
the non-hearing aid button cell market. The Company believes there to be
significant opportunity for growth in the photo and keyless entry battery
markets and seeks to further penetrate the replacement market for these
products.

With regard to lithium coin cells, the Company seeks to further penetrate
the OEM portable personal computer market, as well as to broaden its customer
base by focusing additional marketing and distribution efforts on
telecommunication and medical equipment manufacturers.

Lighting Products and Lantern Batteries

Products

The Company is a leading marketer of battery-powered lighting devices,
including flashlights, lanterns and similar portable products for the retail
and industrial markets. For the 52 weeks ended July 5, 1997, the Company's
products accounted for 12% of aggregate lighting product retail dollar sales in
the mass merchandiser retail market segment. Rayovac has established its
position in this market based on innovative product features, consistent
product quality and creative product packaging. In addition, the Company
endeavors to regularly introduce new products to stimulate consumer demand and
promote impulse purchases.

The Company also produces a wide range of consumer and industrial lantern
batteries. For the 52 weeks ended July 5, 1997, the Company held a 44% unit
market share in the lantern battery market. This market has experienced a
decline in recent years due to the declining use of this product for highway
construction barricades.

Merchandising and Advertising

The Company's marketing strategy for its lighting products and lantern
batteries focuses on leveraging the Company's strong brand name, regularly
introducing new products, utilizing innovative packaging and merchandising
programs, and promoting impulse buying and gift purchases.

Sales and Distribution

General

After the Recapitalization, the Company reorganized its sales force by
distribution channel. As a result of this reorganization, the Company maintains
separate U.S. sales forces primarily to service its retail sales and
distribution channels and its hearing aid professionals, industrial and OEM
sales and distribution channels. In addition, the Company utilizes a network of
independent brokers to service participants in selected distribution channels.
In conjunction with its broader cost rationalization initiatives, the Company
has reduced the number of independent brokers and sales agents from over 100 to
approximately 50. With respect to sales of the Company's hearing aid batteries,
while most of the Company's sales have historically been through hearing aid
professionals, the Company is actively engaged in efforts to increase sales
through retail channels. In addition, the Company maintains its own sales force
of approximately 30 employees in Europe which promotes the sale of all of the
Company's products.

Retail

In the retail segment, the Company realigned its sales resources to create
a sales force dedicated to each of its retail distribution channels. The
primary retail distribution channels include: mass merchandisers (both national
and regional); food and convenience stores; drug and specialty retailers;
hardware/home centers; department stores; automotive aftermarket dealers;
military sales; and catalog showrooms. The Company works closely with
individual retailers to develop unique product promotions and to provide them
with the opportunity for attractive profit margins to encourage brand support.

The Company's sales efforts in the retail channel focus primarily on sales
and distribution to national mass merchandisers, in particular the Wal-Mart,
Kmart and Target chains, which collectively accounted for 48% of industry sales
growth in the domestic alkaline battery market over the past five years. The
Company's sales strategy for these and other mass merchandisers includes
increasing market share for all of the Company's products through the use of
account specific programs and a separate sales and marketing team dedicated to
these large retailers.

The Company's sales strategy is to penetrate further particular retail
distribution channels, including home centers, hardware stores, warehouse clubs
and food and drug stores. The Company's strategy for these retail channels is
to develop creative and focused marketing campaigns which emphasize the
performance parity and consumer cost advantage of the Rayovac brand and to
tailor specific promotional programs unique to these distribution channels.

Industrial and OEM

In the industrial battery market, the Company services three sales and
distribution channels: contract sales to governments and related agencies;
maintenance repair organizations (including buying groups); and office product
supply companies. The primary products sold to this market include alkaline,
heavy duty, and lantern batteries and flashlights. Maintenance repair
organizations, the largest of which is W.W. Grainger (to whom the Company is a
major supplier of battery and lighting products), generally sell to contractors
and manufacturers. The office product supply channel includes sales to both
professional and retail companies in the office product supply business.

In the OEM sales channel, the Company actively pursues OEM arrangements
and other alliances with major electronic device manufacturers for its
rechargeable batteries. The Company also utilizes the OEM channel for the sale
and distribution of its hearing aid batteries through strong relationships it
has developed with hearing aid manufacturers. The Company plans to continue to
develop relationships with manufacturers of communications equipment and other
products in an effort to expand its share of the non-hearing aid button cell
market. With regard to lithium coin cells, the Company plans to penetrate
further the OEM portable personal computer market and broaden its customer base
by focusing additional sales and distribution efforts on telecommunications and
medical equipment manufacturers.

Manufacturing and Raw Materials
The Company manufactures batteries in the United States and the United
Kingdom. Since the Recapitalization, the Company has shifted manufacturing
operations from its Newton Aycliffe, United Kingdom and Kinston, North Carolina
facilities to other facilities of the Company and outsourced the manufacture of
certain lighting products. These efforts have increased plant capacity
utilization and eliminated some of the Company's underutilized manufacturing
capacity.

During the past five years, the Company has spent significant resources on
capital improvements, including the modernization of many of its manufacturing
lines and manufacturing processes. These manufacturing improvements have
enabled the Company to increase the quality and service life of its alkaline
batteries and to increase its manufacturing capacity. Management believes that
the Company's manufacturing capacity is sufficient to meet its anticipated
production requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

The most significant raw materials used by the Company to manufacture
batteries are zinc powder, electrolytic manganese dioxide powder, graphite and
steel. There are a number of worldwide sources for all necessary raw materials,
and management believes that Rayovac will continue to have access to adequate
quantities of such materials at competitive prices. The Company regularly
engages in forward purchases and hedging transactions to effectively manage raw
material costs and inventory relative to anticipated production requirements.
See "Risk Factors--Raw Materials."

Research and Development
The Company's research and development strategy is to purchase or license
state-of-the-art manufacturing technology from third parties and to develop
such technology through the Company's own research and development efforts. The
Company's research and development efforts focus primarily on performance and
cost improvements of existing products and technologies. In recent years, these
efforts have led to advances in alkaline, heavy duty and lithium chemistries,
as well as zinc air hearing aid batteries and enhancements of licensed
rechargeable alkaline technology.

The Company believes that continued development efforts are important in
light of the continually evolving nature of battery technology and credits the
competitive performance of its products to its recent development efforts. In
the hearing aid battery segment, the Company's research and development group
maintains close alliances with the developers of hearing aid devices and often
works in conjunction with these developers in preparing new product designs.
The success of these efforts is most recently demonstrated by the Company's
development of the two smallest (5A and 10A size) hearing aid batteries. The
Company's research and development efforts in the Lighting Products and Lantern
Batteries segment are focused on the development of new products. Further, the
Company continues to partner with the U.S. government in research efforts to
develop new battery technology. The Company's research and development group
includes approximately 95 employees, the expense for some of whom is funded by
U.S. government research contracts. See "--Patents, Trademarks and Licenses."

Information Systems
The Company has completed an initial reorganization of its information
systems function by (i) hiring an experienced Chief Information Officer, (ii)
outsourcing mainframe computer operations, (iii) completing an enterprise
software system analysis and selection, and (iv) retaining Electronic Data
Systems to modernize and upgrade its data processing and telecommunications
infrastructure. The Company has purchased from SAP and begun implementing an
enterprise-wide, integrated information system to upgrade and modernize its
business operations, the majority of which will be substantially implemented by
late 1998. When fully implemented, this system is expected to reduce cycle
times, lower manufacturing and administrative costs, improve both asset and
employee productivity and address the Year 2000 issue.

Patents, Trademarks and Licenses
The Company's success and ability to compete depends in part upon its
technology. The Company relies upon a combination of patent, trademark and
trade secret laws, together with licenses, confidentiality agreements and other
contractual covenants, to establish and protect its technology and other
intellectual property rights.

The Company owns or licenses from third parties a considerable number of
patents and patent applications throughout the world, primarily for battery
product improvements, additional features and manufacturing equipment.

The Company also uses a number of trademarks in its business, including
Rayovac[RegTM], MAXIMUM[TM], Renewal[RegTM], Loud'n Clear[RegTM], Power
Station[RegTM], ProLine[RegTM], Lifex[TM], Smart Pack[RegTM], Smart[TM] Strip,
Workhorse[RegTM] and Roughneck[RegTM]. The Company relies on both registered
and common law trademarks in the United States to protect its trademark rights.
The Rayovac[RegTM] mark is also registered in countries outside the United
States, including in Europe and the Far East. The Company does not have any
right to the trademark "Rayovac" in Brazil, where the mark is owned by an
independent third-party battery manufacturer. In addition, ROV Limited, a third
party unaffiliated with the Company, has an exclusive, perpetual, royalty-free
license for the use of certain of the Company's trademarks (including the
"Rayovac" mark) in connection with zinc carbon and alkaline batteries and
certain lighting devices in many countries outside the United States, including
Latin America.

The Company has obtained a non-exclusive license to use certain technology
underlying its rechargeable battery line to manufacture such batteries in the
United States, Puerto Rico and Mexico and to sell and distribute batteries
based on the licensed technology worldwide. This license terminates with the
expiration of the last-expiring patent covering the licensed technology. In
addition, in the conduct of its business, the Company relies upon other
licensed technology in the manufacture of its products. See Note 13 to Notes to
Combined Consolidated Financial Statements.

Competition
The Company believes that the markets for its products are highly
competitive. Duracell and Energizer are the Company's primary battery industry
competitors, each of which has substantially greater financial and other
resources and greater overall market share than the Company. Although other
competitors have sought to enter this market, the Company believes that new
market entrants would need significant financial and other resources to develop
brand recognition and the distribution capability necessary to serve the U.S.
marketplace. Substantial capital expenditures would be required to establish
U.S. battery manufacturing operations, although potential competitors could
import their products into the U.S. market. The Company and its primary
competitors enjoy significant advantages in having established brand
recognition and distribution channels. See "Risk Factors--Competition."

In the U.S. market for general batteries competition is based on brand
name recognition, perceived quality, price, performance, product packaging and
design innovation, as well as creative marketing, promotion and distribution
strategies. In comparison to the U.S. battery market, the international general
battery market has more competitors, is as highly competitive and has similar
methods of competition.

Competition in the hearing aid battery industry is based upon reliability,
performance, quality, product packaging and brand name recognition. The
Company's primary competitors in the hearing aid battery industry include
Duracell, Energizer and Panasonic. The battery-powered lighting device industry
is also very competitive and includes a greater number of competitors
(including Black & Decker, Mag-Lite and Energizer) than the U.S. battery
industry.

Employees
As of September 30, 1997 the Company had approximately 2,150 full-time
employees. The Company believes its relationship with its employees is good and
there have been no work stoppages involving Company employees since 1981. A
significant number of the Company's factory employees are represented by one of
four labor unions. The Company has recently entered into collective bargaining
agreements with its Madison and Fennimore, Wisconsin employees, each of which
expires in 2000. The Company's collective bargaining agreement with 24 of its
Washington, United Kingdom employees is scheduled to expire in December 1997.
In addition, the Company's collective bargaining agreements with its five
Hayward, California and 203 Portage, Wisconsin employees are scheduled to
expire in May and July 1998, respectively.

Properties and Equipment
The following table sets forth information regarding the Company's six
manufacturing sites in the United States and the United Kingdom:

Location Product Owned/Leased Square Feet

Fennimore, WI Alkaline batteries and Renewal rechargeable batteries Owned 176,000
Madison, WI Heavy duty/general purpose batteries Owned 158,000
Portage, WI Zinc air and silver button cells Owned 62,000
Appleton, WI Lithium coin cells and alkaline computer batteries Owned 60,600
Wonewoc, WI Battery-powered lighting products and lantern batteries Leased 60,000
Washington, UK Mercuric oxide and zinc air button cells Leased 63,000

From fiscal 1993 through fiscal 1995 the Company has invested in all of
its major battery facilities. During this period, the Company invested
approximately $33 million in connection with the Fennimore Expansion.
Additional investments in zinc air battery production have helped to increase
output and precision of assembly as well as to increase the capacity of
critical component manufacturing. Investments in lithium coin cell production
have been used to build capacity for newly developed sizes of lithium coin
cells as well as to increase capacity of the largest volume sizes of such
cells. The Company has recently shifted manufacturing operations from its
Newton Aycliffe, United Kingdom and Kinston, North Carolina facilities to other
facilities of the Company and outsourced the manufacture of certain lighting
products. The following table sets forth information regarding the Company's
four packaging and distribution sites in the United States and the United
Kingdom, all of which are leased:

Location Square Feet

Middleton, WI 220,000
Laverne, TN 73,000
Hayward, CA 30,000
Newton Aycliffe, UK 75,000

The Company believes that its facilities, in general, are adequate for its
present and currently foreseeable needs.

Environmental Matters
The Company's facilities are subject to a broad range of federal, state,
local and foreign laws and regulations relating to the environment, including
those governing discharges to the air and water and land, the handling and
disposal of solid and hazardous substances and wastes, and the remediation of
contamination associated with releases of hazardous substances at Company
facilities and at off-site disposal locations. The Company has a proactive
environmental management program that includes the use of periodic
comprehensive environmental audits to detect and correct practices that violate
environmental laws or are inconsistent with best management practices. Based on
information currently available to Company management, the Company believes
that it is substantially in compliance with applicable environmental
regulations at its facilities, although no assurance can be provided with
respect to such compliance in the future. There are no pending proceedings
against the Company alleging that the Company is or has been in violation of
environmental laws, and the Company is not aware of any such proceedings
contemplated by governmental authorities. The Company is, however, subject to
certain proceedings under CERCLA or analogous state laws, as described below.

The Company has from time to time been required to address the effect of
historic activities on the environmental condition of its properties, including
without limitation the effect of releases from underground storage tanks.
Several Company facilities have been in operation for decades and are
constructed on fill that includes,

among other materials, used batteries containing various heavy metals. The
Company has accepted a deed restriction on one such property in lieu of
conducting remedial activities, and may consider similar actions at other
properties if appropriate. Although the Company is currently engaged in
remedial projects at a few of its facilities, the Company does not expect that
such projects will cause it to incur material expenditures. Nonetheless, the
Company has not conducted invasive testing to identify all potential risks and,
given the age of the Company's facilities and the nature of the Company's
operations, there can be no assurance that the Company will not incur material
liabilities in the future with respect to its current or former facilities.

The Company has been notified that its former manganese processing
facility in Covington, Tennessee is being evaluated by TDEC for a determination
as to whether the facility should be added to the National Priorities List as a
Superfund site pursuant to CERCLA. Groundwater monitoring conducted pursuant to
the post-closure maintenance of solid waste lagoons on site, and recent
groundwater testing beneath former process areas on site, indicate that there
are elevated levels of certain inorganic contaminants, particularly (but not
exclusively) manganese, in the groundwater underneath the site. The Company has
completed closure of the aforementioned lagoons and has completed the
remediation of a stream that borders the site. The Company cannot predict the
outcome of TDEC's investigation of the site and there can be no assurance that
the Company will not incur material liabilities in the future with respect to
this site.

The Company has been and is subject to several proceedings related to its
disposal of industrial and hazardous waste at off-site disposal locations,
under CERCLA or analogous state laws that hold persons who "arranged for" the
disposal or treatment of such substances strictly liable for the costs incurred
in responding to the release or threatened release of hazardous substances from
such sites. Current and former owners and operators of such sites, and
transporters of waste who participated in the selection of such sites, are also
strictly liable for such costs. Liability under CERCLA is generally "joint and
several," so that a responsible party under CERCLA may be held liable for all
of the costs incurred at a particular site. However, as a practical matter,
liability at such sites generally is allocated among all of the viable
responsible parties. Some of the most significant factors for allocating
liabilities to persons that disposed of wastes at Superfund sites are the
relative volume of waste such persons sent to the site and the toxicity of
their waste streams. Other than the Velsicol Chemical and Morton International
proceedings described below (as to which there is insufficient information to
make a judgment as to the likelihood of a material impact on the Company's
operations, financial condition or liquidity at this time), the Company does
not believe that any of its pending proceedings under CERCLA or analogous state
laws, either individually or in the aggregate, will have a material impact on
the Company's operations, financial condition or liquidity, and the Company is
not aware of any such matters contemplated by governmental agencies that will
have such an impact. However, the Company may be named as a PRP at additional
sites in the future, and the costs associated with such additional or existing
sites may be material. In addition, certain of the Company's facilities have
been in operation for decades and, over such time, the Company and other prior
operators of such facilities have generated and disposed of wastes which are or
may be considered hazardous such as cadmium and mercury utilized in the battery
manufacturing process.

The Company has been named as a defendant in two lawsuits in connection
with a Superfund site located in Bergen County, New Jersey (Velsicol Chemical
Corporation, et al, v. A.E. Staley Manufacturing Company, et al., and Morton
International, Inc. v. A.E. Staley Manufacturing Company, et al., United States
District Court for the District of New Jersey, filed July 29, 1996). The
Company is one of almost one hundred defendants named in these cases. Both
cases involve contamination at a former mercury processing plant. One case was
brought by the current owner and the other case by a former owner. The
complaints in the two cases are identical, with four counts alleging claims for
contribution under CERCLA, the New Jersey Spill Act, the Federal Declaratory
Judgment Act and the common law. The plaintiffs allege that the Company
arranged for the treatment or disposal of hazardous substances at the site.
Consequently, the plaintiffs allege, the Company is liable to them for
contribution toward the costs of investigating and remediating the site.

No ad damnum is specified in either complaint. The Remedial
Investigation/Feasibility Study ("RI/FS") of the site has just begun.
Plaintiff's counsel estimates the cost of the RI/FS to be $4 million. There is
no estimate at this juncture as to the potential cost of remediation. The
Company is one of approximately 75 defendants who allegedly arranged for
treatment or disposal at the site. The remaining defendants are former owners
or operators of the site and adjacent industrial facilities which allegedly
contributed to the contamination. Evidence developed in discovery to date
indicates that while the Company was a customer of the facility, the
relationship was of relatively

brief duration. The cost to remediate the Bergen County Site has not been
determined and the Company cannot predict the outcome of these proceedings.
"See Risk Factors--Environmental Matters."

There can be no assurances that additional proceedings relating to
off-site disposal locations will not arise in the future or that such
proceedings will not have a material adverse effect on the Company's business,
financial condition or results of operations. The discovery of previously
unknown contamination of property underlying or in the vicinity of the
Company's manufacturing facilities could require the Company to incur material
unforeseen expenses. Occurrences of any such events may have a material adverse
effect on the Company's financial condition. See "Risk Factors--Environmental
Matters." As of September 30, 1997, the Company has reserved $1.8 million for
known on-site and off-site environmental liabilities. The Company believes
these reserves are adequate, although there can be no assurance that this
amount will be adequate to cover such matters.

Legal Proceedings
In the ordinary course of business, various suits and claims are filed
against the Company. The Company has been named as a defendant in two lawsuits
in connection with a Superfund site located in Bergen County, New Jersey
(Velsicol Chemical Corporation, et al. v. A.E. Staley Manufacturing Company, et
al. and Morton International, Inc. v. A.E. Staley Manufacturing Company, et
al., United States District Court for the District of New Jersey, filed July
29, 1996). For a discussion of the principal parties, the factual basis alleged
to underlie the proceedings and the relief sought, see "Business--Environmental
Matters." See also "Risk Factors--Environmental Matters." Other than the
Velsicol Chemical and Morton International proceedings (as to which there is
insufficient information to make a judgment as to the likelihood of a material
impact on the Company's business or financial condition at this time), the
Company is not party to any legal proceedings which, in the opinion of
management of the Company, are material to the Company's business or financial
condition.

MANAGEMENT

Directors and Executive Officers
Set forth below is certain information regarding each director and
executive officer of the Company as of October 1, 1997:

Name Age Position and Offices
- ---------------------- ----- --------------------------------------------------------

David A. Jones 48 Chairman of the Board, Chief Executive Officer and
President
Kent J. Hussey 51 Executive Vice President of Finance and Administration,
Chief Financial Officer and Director
Roger F. Warren 56 President/International and Contract Micropower and
Director
Trygve Lonnebotn 60 Executive Vice President of Operations and Director
Stephen P. Shanesy 41 Senior Vice President of Marketing and General Manager
of General Batteries
Kenneth V. Biller 49 Senior Vice President and General Manager of Lighting
Products & Industrial
Merrell M. Tomlin 44 Senior Vice President of Sales
James A. Broderick 54 Vice President, General Counsel and Secretary
Scott A. Schoen 39 Director
Thomas R. Shepherd 67 Director
Warren C. Smith, Jr. 41 Director

Mr. Jones has served as the Chairman of the Board of Directors, Chief
Executive Officer and President of the Company since September 12, 1996.
Between February 1995 and March 1996, Mr. Jones was Chief Operating Officer,
Chief Executive Officer and Chairman of the Board of Directors of Thermoscan,
Inc. From 1989 to September 1994, he served as President and Chief Executive
Officer of The Regina Company, a manufacturer of vacuum cleaners and other
floor care equipment. Mr. Jones has over 25 years of experience working in the
consumer durables industry, most recently in management of operations,
manufacturing and marketing.

Mr. Hussey is a director of the Company and has served as Executive Vice
President of Finance and Administration, Chief Financial Officer since October
1, 1996. Prior to that time and since 1994, Mr. Hussey was Vice President and
Chief Financial Officer of ECC International, a producer of industrial minerals
and specialty chemicals, and from 1991 to July 1994 he served as Vice President
and Chief Financial Officer of The Regina Company.

Mr. Warren is a director of the Company and has served as
President/International and Contract Micropower of the Company since 1995. Mr.
Warren joined the Company in 1985 and has held several positions including
Executive Vice President and General Manager and Senior Vice President and
General Manager/International.

Mr. Lonnebotn is a director of the Company and, since 1985, has served as
Executive Vice President of Operations. He joined Rayovac in 1965.

Mr. Shanesy is the Senior Vice President of Marketing and the General
Manager of General Batteries of the Company. From 1991 to 1995, Mr. Shanesy was
Vice President of Marketing of Oscar Mayer. Prior to that time and since 1983,
Mr. Shanesy held various marketing positions with Kraft Foods.

Mr. Biller has been the Senior Vice President and General Manager of
Lighting Products & Industrial since 1996. Prior to such time he was Vice
President and General Manager of Lighting Products & Industrial since 1995. Mr.
Biller joined the Company in 1972 and has held several positions, including
Director of Technology/Battery Products and Vice President of Manufacturing.

Mr. Tomlin is the Senior Vice President of Sales of the Company. From
March 1996 to September 30, 1996, Mr. Tomlin served as Vice President Sales of
Braun of North America/Thermoscan and from August 1995 to March 1996, he served
as Vice President Sales of Thermoscan, Inc. Prior to that time, Mr. Tomlin was
Vice President of Sales of various divisions of Casio Electronics.

Mr. Broderick is Vice President, General Counsel and Secretary for Rayovac
and has held these positions since 1985.

Mr. Schoen has been a director of the Company since the Recapitalization
and is a managing director of THL Co., which he joined in 1986. In addition,
Mr. Schoen is a Vice President of Thomas H. Lee Advisors I and Thomas H. Lee
Advisors II. He is also a director of First Alert, Inc., Signature Brands,
U.S.A., Inc. and various private corporations.

Mr. Shepherd has been a director of the Company since the Recapitalization
and is a managing director of THL Co. and has been engaged as a consultant to
THL Co. since 1986. In addition, Mr. Shepherd is an Executive Vice President of
Thomas H. Lee Advisors I and an officer of various other THL Co. affiliates. He
is also a director of General Nutrition Companies, Inc. and various private
corporations and Chairman of Signature Brands, U.S.A., Inc.

Mr. Smith has been director of the Company since the Recapitalization and
is a managing director of THL Co. and has been employed by THL Co. since 1990.
In addition, Mr. Smith is a Vice President of Thomas H. Lee Advisors II. He is
also a director of Finlay Enterprises, Inc., Finlay Fine Jewelry Corporation
and various private corporations.

The Company anticipates that it will designate two additional, independent
persons to the Board of Directors following the Offerings.

Board Committees and Terms of Office
The Board of Directors has established an audit committee (the "Audit
Committee") and a compensation committee (the "Compensation Committee"). The
members of the Audit Committee and the Compensation Committee are Messrs.
Schoen, Shepherd and Smith. The independent directors will be elected to the
Audit Committee and replace the existing members.

The Company's Charter provides that the Board of Directors is classified
into three classes, with the members of the respective classes serving for
staggered three-year terms. The first class consists of Messrs. Jones,
Lonnebotn and Schoen, the second of Messrs. Warren and Shepherd and the third
of Messrs. Hussey and Smith, with the initial terms of the directors comprising
the classes expiring upon the election and qualification of directors at the
annual meetings of shareholders following the fiscal years ended September 30,
1998, 1999 and 2000, respectively. At each annual meeting of shareholders,
directors will be reelected or elected for full three-year terms. See
"Description of Capital Stock--Anti-Takeover Effects of Provisions of the
Charter and By-laws and of Wisconsin Law."

Executive Compensation
The following table sets forth compensation paid to the former and current
Chief Executive Officer of the Company and the other four most highly
compensated executive officers of the Company during fiscal 1997, the three
month Transition Period ended September 30, 1996 and fiscal 1996 (the "Named
Executive Officers") for services rendered in all capacities to the Company.

Other
Annual Securities
Compen- Underlying All Other
Name and Principal Position Fiscal Year Salary ($) Bonus ($) sation ($) Options (#) Compensation($)
- ------------------------------- ------------------- ------------ ----------- ------------ ------------- ----------------

David A. Jones, 1997 $400,000 $218,500 $65,800 84,204
Chairman of the Board, Transition Period 19,700 179,500 911,577
Chief Executive Officer
and President
Kent J. Hussey, 1997 275,000 185,000 253,756 $57,000(1)
Executive Vice President of
Finance and Administration
and Chief Financial Officer
Roger F. Warren, 1997 258,000 103,200 28,569
President/International Transition Period 64,500 24,700 227,894 486,600(2)
and Contract Micropower 1996 248,100
Trygve Lonnebotn, 1997 240,200 96,100 24,074
Executive Vice President Transition Period 60,100 32,400 170,921 377,800(2)
of Operations 1996 231,000
Steven P. Shanesy, 1997 154,900 140,000 137,024
Senior Vice President of
Marketing and General Manager
of General Batteries

- ----------------
(1) Represents relocation payments.
(2) Represents amounts paid by the Company in connection with the
Recapitalization.

Option Grants and Exercises
In connection with the Recapitalization, the Board adopted the Rayovac
Corporation 1996 Stock Option Plan (the "1996 Plan"). Pursuant to the 1996
Plan, options may be granted with respect to an aggregate of 3,000,000 shares
of Common Stock. The Board of Directors has granted an aggregate of 2,318,127
options to purchase shares of Common Stock at a weighted average exercise price
of $4.33 per share, 911,577 of which have been granted to David A. Jones in
accordance with the terms of his employment agreement. See "--Employment
Agreement." Pursuant to the Company's 1997 Stock Option Plan (the "1997 Plan"),
options to purchase an aggregate of 556,222 shares of Common Stock were granted
to certain management employees, which options were immediately exercised or
surrendered to the Company's Deferred Compensation Plan as of such date. See
"Benefit Plans--Stock Option Plans."

The following table discloses the grants of stock options during fiscal
1997 to the Named Executive Officers.

Option/SAR Grants in Fiscal 1997

Individual Grants
-------------------------------------------------------------- Potential Realizable
Value At Assumed
Number of Percent of Total Annual Rates of Stock
Securities Options/SARs Exercise Price Appreciation for
Underlying Granted to or Base Option Term
Options/SARs Employees in Price ----------------------
Name Granted (#) Fiscal Year ($/Share) Expiration Date 5% ($) 10% ($)
- ------------------------- -------------- ----------------- ----------- ----------------- ---------- -----------

David A. Jones ......... 84,204(1) 6.0 $6.01 11/30/1997 $ 8,434 $ 16,869
Roger F. Warren ...... 28,569(1) 2.0 6.01 11/30/1997 2,862 5,723
Trygve Lonnebotn ...... 24,074(1) 1.7 6.01 11/30/1997 2,411 4,823
Kent J. Hussey ......... 227,894 16.2 4.39 10/01/2006 629,181 1,594,467
25,862(1) 1.8 6.01 11/30/1997 2,591 5,181
Steven P. Shanesy ...... 113,947 8.1 4.39 10/01/2006 314,590 797,234
23,077(1) 1.6 6.01 11/30/1997 2,312 4,623

- ----------------
(1) These options granted under the 1997 Plan were exercised immediately upon
grant. See "Benefit Plans--Stock Option Plans."

The following table sets forth information concerning options to purchase
Common Stock held by the Named Executive Officers.

Aggregated Option Exercises In Fiscal 1997 And Fiscal Year-End Option Values

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money (2)
Shares Options at Options at
Acquired Value Fiscal Year End (#) Fiscal Year End ($)
Name on Exercise Realized $ (1) (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- ------------------------- ------------- ---------------- ----------------------------- ----------------------------

David A. Jones ......... 84,204 $-0- 182,315/729,262 $1,752,047/$7,008,208
Roger F. Warren ...... 28,569 -0- 45,579/182,315 438,014/1,752,047
Trygve Lonnebotn ...... 24,074 -0- 34,184/136,737 328,508/1,314,043
Kent J. Hussey ......... 25,862 -0- 45,579/182,315 438,014/1,752,047
Steven P. Shanesy ...... 23,077 -0- 22,789/91,158 219,002/876,028

- ----------------
(1) These options granted under the 1997 Plan were immediately exercised and no
value was received by the Named Executive Officers. See "Benefit
Plans--Stock Option Plans."
(2) These values are calculated using the initial public offering price of
$14.00 per share, less the exercise price of the options.

Compensation Committee Interlocks and Insider Participation
During fiscal 1997, the Compensation Committee of the Board of Directors
was composed of Scott A. Schoen, Thomas R. Shepherd and Warren C. Smith, Jr.

The Company and THL Co. (which together with its affiliates will own 65.1%
of the outstanding Common Stock following the Offerings) are parties to a
Management Agreement entered into in connection with the Recapitalization
pursuant to which the Company has engaged THL Co. to provide consulting and
management advisory services for an initial period of five years through
September 12, 2001. Under the Management Agreement and in connection with the
closing of the Recapitalization, the Company paid THL Co. and an affiliate an
aggregate fee of $3.25 million (the "THL Transaction Fee"). In consideration of
the consulting and management advisory services, the Company pays THL Co. and
its affiliate an aggregate annual fee of $360,000 plus expenses (the
"Management Fee"). The Company believes that this Management Agreement is on
terms no less favorable to the Company than could have been obtained from an
independent third party.

In connection with the Recapitalization, the Lee Group, certain other
shareholders of the Company and the Company entered into the Shareholders
Agreement. The Shareholders Agreement provides for certain restrictions on
transfer of the shares beneficially owned by the parties thereto. Additionally,
the Shareholders Agreement provides that, subject to certain limitations, so
long as the Lee Group and their permitted transferees own at least 10% of the
shares of Common Stock acquired in the Recapitalization, the Lee Group shall be
entitled to three "demand" registrations which may be exercised at any time.
The shareholders party to the Shareholders Agreement, including the Lee Group,
are also entitled, subject to certain limitations, to include shares of Common
Stock held by them in other registrations of equity securities of the Company
initiated by the Company for its own account or pursuant to a request for
registration by the Lee Group. See "Risk Factors--Shares Eligible for Future
Sale."

Employment Agreement
Under the employment agreement between David A. Jones and the Company (the
"Jones Employment Agreement"), Mr. Jones is entitled to a salary of $400,000
per annum (which may be increased from time to time at the discretion of the
Board of Directors) and an annual bonus based upon the Company achieving
certain annual performance goals established by the Board of Directors. The
Jones Employment Agreement became effective on September 12, 1996 for a term of
three years expiring on September 30, 1999 which automatically renews for
successive one year periods unless terminated earlier upon 90 days prior
written notice by either party. At any time Mr. Jones has the right to resign
and terminate the agreement upon 60 days notice. Upon such resignation, the
Company must pay to Mr. Jones any unpaid base salary and any accrued but unpaid
bonus through the date of resignation. The agreement provides that, upon the
termination of Mr. Jones' employment for death or disability, the Company will
pay to Mr. Jones or his estate any unpaid base salary, any accrued but unpaid
bonus through the date of termination and a pro rata portion of the bonus for
such period. The Company has the right to terminate employment for "cause" (as
defined) and shall be obligated to pay to Mr. Jones any unpaid base salary to
the date of termination. In the event Mr. Jones is terminated without cause (as
defined), the Company must pay to him any unpaid base salary, any accrued but
unpaid bonus through the date of termination and Mr. Jones' base salary and any
additional salary until the earlier of the end of the term of the agreement or
12 months from the date of termination as well as other benefits under the
agreement.

The agreement also provides that, during the term of the agreement or the
period of time served as a director, and for one year thereafter, Mr. Jones
shall not engage in or have a financial interest in any business which is
involved in the industries in which the Company is engaged. The Company has
also granted Mr. Jones options to purchase 911,577 shares of Common Stock at
$4.39 per share, half of which become exercisable at a rate of 20% per year
over a five-year period and the other half of which become exercisable at the
end of ten years with accelerated vesting over each of the next five fiscal
years if the Company achieves certain performance goals. In connection with the
Recapitalization, Mr. Jones individually also purchased 227,895 shares of
Common Stock at approximately $4.39 per share. One-half of the purchase price
was paid in cash and one-half with a promissory note. The Company holds this
promissory note in the principal amount of $500,000 from Mr. Jones in
connection with the purchase of shares of Common Stock. Mr. Jones will receive
additional salary of $35,000 annually as long as the promissory note remains
outstanding. See "Certain Relationships and Related Transactions."

Severance Agreements
Each of Kent J. Hussey, Executive Vice President of Finance and
Administration and Chief Financial Officer, Roger F. Warren,
President/International and Contract Micropower, Trygve Lonnebotn, Executive
Vice President of Operations, Stephen P. Shanesy, Senior Vice President of
Marketing and General Manager of General Batteries, and Merrell M. Tomlin,
Senior Vice President of Sales has entered into a severance agreement (each, a
"Severance

Agreement") with the Company pursuant to which, in the event that his
employment is terminated during the term of the Severance Agreement (a) by the
Company without cause (as defined) or (b) by reason of death or disability (as
defined), the Company shall pay him an amount in cash equal to the sum of (i)
his base salary as in effect for the fiscal year ending immediately prior to
the fiscal year in which such termination occurs and (ii) the annual bonus (if
any) earned by him pursuant to any annual bonus or incentive plan maintained by
the Company in respect of the fiscal year ending immediately prior to the
fiscal year in which such termination occurs, such amount to be paid ratably
monthly in arrears over the remaining term of the Severance Agreement. In the
event of such termination, the Company shall also maintain for the twelve-month
period following such termination insurance benefits for such individual and
his dependents similar to those provided immediately prior to such termination.
Under the Severance Agreements, each of Messrs. Hussey, Warren, Lonnebotn,
Shanesy and Tomlin has agreed that for one year following the later of the end
of the term of the Severance Agreement or the date of termination, that he will
not engage or have a financial interest in any business which is involved in
the industries in which the Company is engaged. The initial term of each
Severance Agreement is one year with automatic one-year renewals thereafter,
subject to thirty days notice of non-renewal prior to the end of the then
current term.

Director Compensation
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors of the Company are
reimbursed for their out-of-pocket expenses in attending meetings of the Board
of Directors. Messrs. Schoen, Shepherd and Smith receive no fees in their
capacities as directors. See "Certain Relationships and Related Transactions"
for a description of certain other arrangements pursuant to which THL Co., of
which they are managing directors, receives compensation from the Company.

Benefit Plans
Rayovac Profit Sharing and Savings Plan. The Company sponsors the Rayovac
Profit Sharing and Savings Plan (the "Profit Sharing Plan"). Under the terms of
the Profit Sharing Plan, eligible employees may elect to contribute to the
Profit Sharing Plan, through payroll deductions, up to 15% of their
compensation for services rendered in any year, not to exceed a statutorily
prescribed annual limit. The Profit Sharing Plan provides that for any pay
period the Company may in its discretion make contributions to the Profit
Sharing Plan on behalf of each Profit Sharing Plan participant, which
contributions shall be a percentage of each participant's compensation for such
pay period. Participants may direct the investment of all contributions among
the funds offered by the Profit Sharing Plan. The executive officers of the
Company participate in the Profit Sharing Plan. Participants in the Profit
Sharing Plan are fully vested in their Profit Sharing Plan accounts.

Deferred Compensation Plan. The Company has adopted the Rayovac
Corporation Deferred Compensation Plan (the "Deferred Compensation Plan") for
eligible management employees employed at the level of vice president or above.
Participants in the Deferred Compensation Plan may elect to defer some or all
of their base salary and bonuses pursuant to elections made prior to the period
with respect to which such compensation is earned ("Deferrals"). In general,
Deferrals are payable upon retirement, death or disability, with a participant
also being eligible for certain hardship withdrawals. The normal form of
Deferral payment is in up to 15 annual installments, with a participant having
the option to receive a lump sum payment with the consent of the Company. The
Deferral will not be subject to federal income tax at the time of the Deferral.
Participants are credited with earnings on their accounts based upon individual
participant's selection from among investment benchmarks chosen by the Company.
The Company has established a related trust to fund Deferrals upon a change in
control of the Company. The Deferrals are unsecured liabilities payable by the
Company out of its general assets.

The Company also has nonqualified deferred compensation agreements with
certain current and former officers under which the Company has agreed to pay
such individuals designated amounts annually for the first 15 years subsequent
to retirement or to a designated beneficiary upon death. The Company estimates
the actuarial present value of the unfunded liabilities related to such
agreements to be approximately $8.7 million as of September 30, 1997. See Note
10 to Notes to Consolidated Financial Statements.

Stock Option Plans. In connection with the Recapitalization, the Company
adopted the 1996 Plan. The 1996 Plan provides for the grant, from time to time,
of non-qualified stock options for an aggregate of 3,000,000 shares of Common
Stock to employees and directors of the Company or a subsidiary to encourage
continuity of service with the Company, to increase their efforts on behalf of
the Company and to promote the success of the Company's business. The 1996 Plan
is administered by the Compensation Committee. Subject to the provisions of the
1996

Plan, the Compensation Committee is empowered to, among other things, determine
the persons to whom and the time or times at which options may be granted, the
number of shares to which an option may relate and the terms, conditions and
restrictions relating to any option.

The 1996 Plan provides that the exercise price of options shall be paid in
full at the time of exercise and may be paid in cash or in shares of Common
Stock having a fair market value equal to the exercise price, or in a
combination of cash and shares of Common Stock or, in the discretion of the
Compensation Committee, through a cashless exercise procedure.

Unless otherwise provided in the applicable option agreement, options may
be exercised only during the period that the recipient is an employee or member
of the Board of the Company and for a period of 30 days after termination of
employment other than for cause or due to the death or disability of the
recipient or for a period of twelve months from the date of termination due to
the death or disability of the recipient. The 1996 Plan may, at any time and
from time to time, be altered, amended, suspended or terminated by the Board of
Directors or the Compensation Committee, in whole or in part; provided that no
amendment may be made which adversely affects any of the rights of a recipient
of an option theretofore granted, without such recipient's consent, and no
amendment which requires shareholder approval under applicable law or in order
for the plan to continue to comply with Section 162 (m) of the Internal Revenue
Code of 1986, as amended, will be effective unless it is approved by the
requisite vote of shareholders. Options granted under the 1996 Plan are subject
to adjustment under certain specified circumstances to prevent dilution.
Options to purchase an aggregate of 2,318,127 shares of Common Stock were
granted under the 1996 Plan as of September 30, 1997.

In connection with the purchase by the Company and the Lee Group of shares
of Common Stock from Thomas F. Pyle, Jr., former Chairman, President and Chief
Executive Officer of the Company as of August 1, 1997, the Company adopted the
Rayovac Corporation 1997 Stock Option Plan (the "1997 Plan"). The 1997 Plan
provides for the grant of options to purchase an aggregate of 665,000 shares of
Common Stock to employees of the Company at a specified management level and
above to provide an incentive to such employees to remain in the Company's
employ and to increase their efforts for the success of the Company by offering
them an opportunity to increase their proprietary interest in the Company. The
1997 Plan is administered by David Jones as administrator (the
"Administrator").

The 1997 Plan provides that the exercise price of an option under the 1997
Plan shall be $6.01 per share. The Administrator may determine those persons
who shall be entitled to receive options and may prescribe the minimum and
maximum number of shares of Common Stock for which a participant may exercise
an option, the expiration date of such option and such other terms and
conditions as the Administrator shall deem appropriate. The 1997 Plan and each
option granted thereunder shall expire no later than November 30, 1997. The
1997 Plan provides that the Administrator may cause the Company to lend to a
participant the amount of cash necessary to exercise the option granted to such
participant; provided, however, that such participant simultaneously executes a
promissory note in the form prescribed by the 1997 Plan.

The Administrator may permit a participant to surrender an option held by
such participant and elect instead to have a portion of the amounts credited to
such participant's account under the Company's Deferred Compensation Plan
credited as deferred stock units, each economically equivalent to a share of
Common Stock. The maximum amount which a participant may elect to have so
credited shall be equal to the aggregate purchase price of the shares of Common
Stock subject to the option (or portion thereof) so surrendered.

Pursuant to the 1997 Plan, as of August 1, 1997, options to purchase an
aggregate of 500,868 shares of Common Stock were granted to certain management
employees of the Company. Such options were immediately exercised or
surrendered to the Deferred Compensation Plan as of such date and the proceeds
from the exercise or surrender thereof were used to fund the Company's purchase
of shares of Common Stock from the former Chairman, President and Chief
Executive Officer of the Company occurring as of such date. On September 15,
1997, options to purchase 55,354 shares were granted to certain management
employees, immediately exercised or surrendered to the Deferred Compensation
Plan and the proceeds used to fund the Company's purchase of Common Stock from
another former executive officer of the Company.

On September 5, 1997, the Board adopted the 1997 Rayovac Incentive Plan
(the "Incentive Plan") which was approved by the Shareholders on October 22,
1997 to support the Company's ongoing efforts to develop and retain
exceptionally talented employees and give the Company the ability to provide
employees with incentives that are directly linked to the profitability of the
Company's businesses and increases in shareholder value. The Incentive

Plan replaces the 1996 Plan and no further awards will be granted under the
1996 Plan other than awards of options for shares up to an amount equal to the
number of shares covered by options that terminate or expire prior to being
exercised. Under the Incentive Plan, the Company may grant to employees and
non-employee directors stock options, stock appreciation rights ("SARs"),
restricted stock, and other stock-based awards, as well as cash-based annual
and long-term incentive awards. The Company believes that the Incentive Plan
will form an important part of the Company's overall compensation program.

All employees of the Company, its subsidiaries and its affiliates as well
as non-employee members of the Boards of Directors of the Company, its
subsidiaries, and its affiliates will be eligible to receive awards under the
Incentive Plan.

It is currently anticipated that the Incentive Plan will be administered
by the Compensation Committee or a subcommittee thereof. The Compensation
Committee will select the individuals to whom awards will be granted and will
establish the terms of such awards. The Compensation Committee may delegate its
authority under the Incentive Plan to officers of the Company, subject to
Board-approved guidelines, with respect to employees or directors who are not
"executive officers" of the Company.

Up to 3,000,000 shares of Common Stock may be issued under the Incentive
Plan of which none have been issued as of September 30, 1997. The Incentive
Plan will permit the granting of incentive stock options, which qualify for
special tax treatment, and nonqualified stock options. SARs may also be granted
either singly or in combination with underlying stock options. Cash-based
annual and long-term incentive awards granted under the Incentive Plan will be
earned only if corporate, business unit or individual performance objectives
over performance cycles established by or under the direction of the
Compensation Committee are met.

The Incentive Plan also provides for awards that are denominated in,
valued by reference to, or otherwise based on or related to, Common Stock.
These awards may include, without limitation, performance shares and restricted
stock units that entitle the recipient to receive, upon satisfaction of
performance goals or other conditions, a specified number of shares of Common
Stock or the cash equivalent thereof.

The Incentive Plan provides that in the event of a "Change in Control" (as
defined in the Incentive Plan), all stock options and SARs will become
immediately exercisable, the restrictions applicable to outstanding restricted
stock and other stock-based awards will lapse, and, unless otherwise determined
by the Compensation Committee, the value of outstanding stock options, SARs,
restricted stock and other stock-based awards will be cashed out on the basis
of the highest price paid (or offered) during the preceding 60-day period. In
addition, outstanding incentive awards will be vested and paid out on a
prorated basis, based on the maximum award opportunity of such awards and the
number of months elapsed compared with the total number of months in the
performance cycle.

The Incentive Plan will expire on August 31, 2007, unless terminated
earlier, or extended, by the Board. Any awards granted before the Incentive
Plan expires or is terminated may extend beyond the expiration or termination
date. The Board may amend the Incentive Plan at any time, provided that no such
amendment will be made without shareholder approval if such approval is
required under applicable law, or if such amendment would increase the number
of shares that may be issued under the Incentive Plan.

The terms and conditions of each award will be set forth in award
agreements, which can be amended by the Compensation Committee. The
Compensation Committee may require or permit deferral of the payment of awards
and may provide for the payment of interest or other earnings on deferred
amounts or the payment of dividend equivalents where the deferred amounts are
denominated in stock equivalents. Awards under the Incentive Plan may earn
dividends or dividend equivalents, as determined by the Compensation Committee.

Under the Incentive Plan, no recipient may receive awards during the term
of the Incentive Plan that cover in the aggregate more than 25% of the shares
originally reserved for distribution. The value of a recipient's annual
incentive award may not exceed $1 million; individual long-term incentive
awards are limited to $1 million times the number of years in the applicable
performance cycle.

It is presently intended that the Incentive Plan constitute an "unfunded"
plan for incentive compensation. The Incentive Plan authorizes the creation of
trusts and other arrangements to facilitate or ensure payment of the Company's
obligations.

PRINCIPAL AND OVER-ALLOTMENT SELLING SHAREHOLDERS

The following table sets forth as of the date hereof and after giving
effect to the sale of the shares of Common Stock offered in the Offerings
(including upon full exercise of the over-allotment options granted to the
Underwriters) certain information with respect to beneficial ownership of the
Common Stock by each director, executive officer and beneficial owner of more
than 5% of the Company's outstanding Common Stock, by all directors and
executive officers of the Company as a group and by the Over-Allotment Selling
Shareholders.

Shares of Common
Stock Beneficially
Shares of Common Owned After the
Stock Beneficially Shares Subject Offerings and Assuming
Owned Prior to to Over-Allotment Full Exercise of
the Offerings(2) Options(3) Over-Allotment Options
------------------------- ------------------- ------------------------
Number of Percentage Number of Percentage
Name and Address(1) Shares of Class Shares of Class
- --------------------------------------------- ------------ ------------ ------------ -----------

Thomas H. Lee Equity Fund III, L.P.(4) ... 15,298,292 74.2% 861,228 14,437,064 52.6%
75 State Street, Ste. 2600
Boston, MA 02109
Thomas H. Lee Foreign Fund III, L.P.(4) ... 947,692 4.6 53,351 894,341 3.3
75 State Street, Ste. 2600
Boston, MA 02109
THL-CCI Limited Partnership(5) ............ 1,606,174 7.8 90,421 1,515,753 5.5
75 State Street, Ste. 2600
Boston, MA 02109
David A. Jones(6) ........................... 498,970 2.4 -- 498,713 1.8
Kent J. Hussey(7) ........................... 95,610 * -- 95,610 *
Roger F. Warren(8) ........................ 583,883 2.8 -- 583,883 2.1
Stephen P. Shanesy(9) ..................... 82,313 * -- 82,313 *
Kenneth V. Biller(10) ..................... 134,403 * -- 134,403 *
Merrell M. Tomlin(11) ..................... 66,830 * -- 66,830 *
James A. Broderick(12) ..................... 231,399 1.1 -- 231,399 *
Trygve Lonnebotn(13) ........................ 468,468 2.3 -- 468,468 1.7
Scott A. Schoen(4)(14) ..................... 77,096 * -- 72,756 *
Thomas R. Shepherd(14) ..................... 40,154 * -- 37,894 *
Warren C. Smith, Jr.(4)(14) ............... 64,258 * -- 60,640 *
All directors and executive officers of the
Company as a group (11 persons)(4)(14) ...... 2,343,384 11.2% -- 2,332,909 8.4%

*Less than 1%.

(1) Addresses are given only for beneficial owners of more than 5% of the
outstanding shares of Common Stock.

(2) Unless otherwise noted, the nature of beneficial ownership is sole voting
and/or investment power, except to the extent authority is shared by
spouses under applicable law. Shares of Common Stock not outstanding but
deemed beneficially owned by virtue of the right of a person or group to
acquire them within 60 days are treated as outstanding only for purposes of
determining the number and percent of outstanding shares of Common Stock
owned by such person or group, except that 40,000 immediately exercisable
options to purchase Common Stock of an employee of the Company who is not
an executive officer of the Company are included for all purposes.

(3) Each Over-Allotment Selling Shareholder is an affiliate of the Lee Group.
See "Risk Factors--Control by Existing Shareholders."

(4) THL Equity Advisors III Limited Partnership ("Advisors"), the general
partner of the Lee Fund and Thomas H. Lee Foreign Fund III, L.P., THL
Equity Trust III ("Equity Trust"), the general partner of Advisors, Thomas
H. Lee, Scott A. Schoen, Warren C. Smith, Jr. and other managing directors
of THL Co., as Trustees of Equity Trust, and Thomas H. Lee as sole
shareholder of Equity Trust, may be deemed to be beneficial owners of the
shares of Common Stock held by such Funds. Each of such persons maintains a
principal business address at Suite 2600, 75 State Street, Boston, MA
02109. Each of such persons disclaims beneficial ownership of all shares.

(5) THL Investment Management Corp., the general partner of THL-CCI Limited
Partnership, and Thomas H. Lee, as director and sole shareholder of THL
Investment Management Corp., may also be deemed to be beneficial owners of
the shares of Common Stock held by THL-CCI Limited Partnership. Each of
such persons maintains a principal business address at Suite 2600, 75 State
Street, Boston, MA 02109.

(6) Includes 4,556 shares representing Mr. Jones' proportional interest in the
Lee Fund (which proportional interest would be 4,299 shares assuming full
exercise of the over-allotment options granted to the Underwriters) before
giving effect to the allocation of fees and obligations to the Lee Fund
which allocation would reduce the number of shares representing Mr. Jones'
proportional interest in the Lee Fund. Mr. Jones disclaims beneficial
ownership of these shares. Also includes 182,315 shares subject to options
which are currently exercisable and 42,606 shares allocated for the
account of such individual pursuant to the Deferred Compensation Plan.

(7) Includes 45,579 shares subject to options which are currently exercisable
and 8,419 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.

(8) Includes 45,579 shares subject to options which are currently exercisable
and 16,922 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.

(9) Includes 22,789 shares subject to options which are currently exercisable
and 14,757 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.

(10) Includes 22,789 shares subject to options which are currently exercisable
and 12,134 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.

(11) Includes 22,789 shares subject to options which are currently exercisable
and 8,386 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.

(12) Includes 10,000 shares subject to options which are currently exercisable
and 7,974 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.

(13) Includes 34,184 shares subject to options which are currently exercisable
and 15,754 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.

(14) Represents the proportional interest of such individual in THL-CCI Limited
Partnership; in the case of Mr. Smith, also includes 15,078 shares which
Mr. Smith may be deemed to beneficially own as a result of Mr. Smith's
children's proportional beneficial interest in THL-CCI Limited
Partnership. The proportional interests of Messrs. Schoen, Shepherd, Smith
and Mr. Smith's children in THL-CCI Limited Partnership, assuming full
exercise of the over-allotment options granted to the Underwriters, would
be 72,756 shares, 37,894 shares, 46,411 shares and 14,229 shares,
respectively.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company and THL Co. (which, together with its affiliates will own
65.1% of the outstanding Common Stock following the Offerings) are parties to a
Management Agreement entered into in connection with the Recapitalization
pursuant to which the Company has engaged THL Co. to provide consulting and
management advisory services for an initial period of five years through
September 12, 2001. Under the Management Agreement and in connection with the
closing of the Recapitalization, the Company paid THL Co. and an affiliate an
aggregate fee of $3.25 million (the "THL Transaction Fee"). In consideration of
the consulting and management advisory services, the Company pays THL Co. and
its affiliate an aggregate annual fee of $360,000 plus expenses (the
"Management Fee"). The Company believes that this Management Agreement is on
terms no less favorable to the Company than could have been obtained from an
independent third party.

The Company and David A. Jones are parties to the Jones Employment
Agreement pursuant to which Mr. Jones agreed to be the Chairman of the Board of
Directors, Chief Executive Officer and President of the Company. Mr. Jones also
purchased from the Company 227,895 shares of Common Stock with cash and a
$500,000 promissory note held by the Company with interest payable at a rate of
7% per annum and principal payable on the earliest of the following to occur:
(i) the fifth anniversary of the note; (ii) the date on which (a) Mr. Jones
terminates his employment for any reason other than a Constructive Termination
(as defined in the Jones Employment Agreement) and (b) he is no longer a
director of the Company; or (iii) the date the Company terminates Mr. Jones'
employment for Cause (as defined in the Jones Employment Agreement). Proceeds
from any sale of Mr. Jones' shares must be used to immediately prepay, in whole
or in part, the principal amount of the promissory note outstanding and any
accrued and unpaid interest on the portion prepaid or the holder of the
promissory note may declare the entire principal amount of such note to be
immediately due and payable. Mr. Jones receives additional salary of $35,000
annually during the period the promissory note is outstanding. See
"Management--Employment Agreement."

The Company holds five year promissory notes dated March 17, 1997 from
Messrs. Hussey, Tomlin and Shanesy, in principal amounts of $75,000, $60,000
and $80,000, respectively, with interest payable at 8% per annum.

Such notes were incurred in connection with the purchase of shares of Common
Stock by Messrs. Hussey, Tomlin and Shanesy upon joining the Company.

Pursuant to the 1997 Plan, on August 1, 1997, certain executive officers
of the Company, including Messrs. Jones, Hussey, Tomlin and Shanesy, exercised
options to purchase shares of Common Stock under the 1997 Plan with five-year
promissory notes held by the Company, in principal amounts of $250,000,
$50,000, $50,000 and $20,000, respectively, with interest payable at 8% per
annum. On September 15, 1997, certain other executive officers, including
Messrs. Warren, Lonnebotn, Shanesy and Hussey, exercised options under the 1997
Plan with, in the case of Messrs. Warren, Lonnebotn and Shanesy, five-year
promissory notes held by the Company, in principal amounts of $50,003, $46,079
and $30,002, respectively, with interest payable at 8% per annum and in the
case of Mr. Hussey, a non-interest bearing promissory note in the principal
amount of $36,000 held by the Company due November 21, 1997 of which no
principal amount remains outstanding. No principal amounts have been paid to
date on such other notes.

In connection with the Recapitalization, the Lee Group, certain other
shareholders of the Company and the Company entered into the Shareholders
Agreement. The Shareholders Agreement provides for certain restrictions on
transfer of the shares beneficially owned by the parties thereto. Additionally,
the Shareholders Agreement provides that, subject to certain limitations, so
long as the Lee Group and their permitted transferees own at least 10% of the
shares of Common Stock acquired in the Recapitalization, the Lee Group shall be
entitled to three "demand" registrations which may be exercised at any time.
The shareholders party to the Shareholders Agreement including the Lee Group
are also entitled, subject to certain limitations, to include shares of Common
Stock held by them in other registrations of equity securities of the Company
initiated by the Company for its own account or pursuant to a request for
registration by the Lee Group. See "Risk Factors--Shares Eligible for Future
Sale."

DESCRIPTION OF CAPITAL STOCK

The following summary description of the capital stock of the Company does
not purport to be complete, and is subject to the detailed provisions of, and
is qualified in its entirety by reference to, the Company's Charter, a copy of
which is filed as an exhibit to the Registration Statement (the "Registration
Statement") of which this is a part and the Wisconsin Business Corporation Law
(the "WBCL"). Whenever particular provisions of the foregoing are referred to,
such provisions are incorporated by reference as a part of the statements made
and such statements are qualified in their entirety by reference to such
provisions.

General
Upon the closing of the Offerings, the authorized capital stock of the
Company will consist of 150,000,000 shares of Common Stock, par value $.01 per
share, 27,418,431 shares of which will be issued and outstanding, and 5,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"),
none of which will be outstanding.

Common Stock
Holders of Common Stock are entitled to one vote per share in all matters
to be voted on by the shareholders of the Company and do not have cumulative
voting rights. Accordingly, holders of a majority of the outstanding shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any Preferred Stock outstanding at the time, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of the Company's liabilities and the liquidation preference, if
any, of any outstanding Preferred Stock. Holders of shares of Common Stock have
no preemptive, subscription, redemption or conversion rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All of
the outstanding shares of Common Stock are, and the shares offered by the
Company in the Offerings will be, when issued and paid for, fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. In addition, under Section 180.0622 of the
WBCL, holders of shares of Common Stock are personally liable, up to the par
value of the shares owned, for debts of the Company owed to its employees for
services rendered by employees to the Company during no more than a six month
period in any one case. Certain Wisconsin courts have interpreted "par value"
to mean the full amount paid upon the purchase of the Common Stock.

At present, there is no established trading market for the Common Stock.
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "ROV," subject to official notice of issuance.

Preferred Stock
The Board of Directors may, without further action by the Company's
shareholders, from time to time, direct the issuance of shares of Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board of Directors, without
shareholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect holders of shares of Common
Stock. Upon consummation of the Offerings, there will be no shares of Preferred
Stock outstanding, and the Company has no present intention to issue any shares
of Preferred Stock.

Limitations on Directors' Liability
Wisconsin law provides that, except as limited in a corporation's articles
of incorporation, directors of a corporation will not be liable to the
corporation, its shareholders, or any person asserting rights on behalf of the
corporation or its shareholders, for damages, settlements, fees, fines,
penalties or other monetary liabilities arising from a breach of, or failure to
perform, any duty resulting solely from his or her status as a director, unless
the person asserting liability proves that the breach or failure to perform
constitutes (i) a willful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the director has a material
conflict of interest; (ii) a violation of criminal law, unless the director had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful; (iii) a transaction from
which the director derived an improper personal profit; or (iv) willful
misconduct.

Anti-Takeover Effects of Provisions of the Charter and By-laws and of Wisconsin
Law

Charter and By-laws

The Charter and the By-laws, together with certain provisions of Wisconsin
law, contain certain provisions that could discourage potential takeover
attempts and make more difficult the acquisition of a substantial block of the
Common Stock. The Charter provides for a Board of Directors that is divided
into three classes. The directors in Class I will hold office until the first
annual meeting of shareholders following the Offerings, the directors in Class
II will hold office until the second annual meeting of shareholders following
the Offerings, and the directors in Class III will hold office until the third
annual meeting of shareholders following the Offerings (or, in each case, until
their successors are duly elected and qualified or until their earlier
resignation, removal from office for cause or death), and, after each such
election, the directors in each such class will then serve in succeeding terms
of three years and until their successors are duly elected and qualified. The
classification system of electing directors and the ability of shareholders to
remove directors only for cause may tend to discourage a third party from
making a tender offer or otherwise attempting to obtain control of the Company
and may maintain the incumbency of the Board of Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the directors.

The Charter authorizes the directors to issue, without shareholder
approval, shares of Preferred Stock in one or more series and to fix the voting
powers, designations, preferences and relative, participating, optional or
other special rights (and the qualifications, limitations or restrictions of
such preferences and rights) of the shares of each such series. The Charter
also provides that special meetings of the Company's shareholders may be called
only by the Chairman of the Board of Directors (if there is one) or the
President, any Vice President (if there is one), the Secretary or any Assistant
Secretary (if there is one) and shall be called by any such officer at the
written request of a majority of the directors. The By-laws also provide that
nominations for directors may not be made by shareholders at any annual or
special meeting thereof unless the shareholder intending to make a nomination
notifies the Company of its intentions a specified number of days in advance of
the meeting and furnishes to the Company certain information regarding itself
and the intended nominee. The By-laws also require a shareholder to provide to
the Secretary of the Company advance notice

of business to be brought by such shareholder before any annual or special
meeting of shareholders as well as certain information regarding such
shareholder and others known to support such proposal and any material interest
they may have in the proposed business. These provisions could delay
shareholder actions that are favored by the holders of a majority of the
outstanding shares of the Company until the next shareholders' meeting.

Wisconsin Anti-Takeover Statute

As a Wisconsin corporation, the Company is subject to certain provisions
of the WBCL, including a business combination statute, a fair price statute and
a control share statute, which provide Wisconsin corporations with anti-
takeover protection.

Sections 180.1140 to 180.1144 of the WBCL (collectively, the "Wisconsin
Business Combination Statute") regulate a broad range of "business
combinations" between a Wisconsin corporation and an "interested stockholder."
The Wisconsin Business Combination Statute defines a "business combination" to
include a merger or share exchange, sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets equal to at least 5% of the aggregate
market value of the stock or assets of a corporation or 10% of its earning
power, or the issuance of stock or rights to purchase stock with an aggregate
market value equal to at least 5% of the aggregate market value of all of the
outstanding stock, adoption of a plan of liquidation or dissolution, and
certain other transactions involving an "interested stockholder." An
"interested stockholder" is defined as a person who beneficially owns, directly
or indirectly, 10% of the voting power of the outstanding voting stock of a
corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting power of the then outstanding voting stock
within the last three years. The Wisconsin Business Combination Statute
prohibits a corporation from engaging in a business combination (other than a
business combination of a type specifically excluded from the coverage of the
statute) with an interested stockholder for a period of three years following
the date such person becomes an interested stockholder, unless the board of
directors approved the business combination or the acquisition of the stock
that resulted in a person becoming an interested stockholder prior to such
acquisition. Business combinations after the three-year period following the
stock acquisition date are permitted only if (a) the board of directors
approved the acquisition of the stock prior to the acquisition date, (b) the
business combination is approved by a majority of the outstanding voting stock
not beneficially owned by the interested stockholder at a meeting called for
that purpose, or (c) the consideration to be received by shareholders meets
certain requirements of the Wisconsin Business Combination Statute with respect
to form and amount.

In addition, Sections 180.1130 to 180.1134 of the WBCL provide that
certain mergers, share exchanges or sales, leases, exchanges or other
dispositions of assets in a transaction involving a "significant shareholder"
are subject to a supermajority vote of shareholders, in addition to any
approval otherwise required by law or the articles of incorporation of the
corporation (the "Wisconsin Fair Price Statute"). A "significant shareholder"
is defined as a person who beneficially owns, directly or indirectly, 10% or
more of the voting power of the outstanding voting shares of a corporation or
an affiliate of the corporation which beneficially owned, directly or
indirectly, 10% or more of the voting power of the then outstanding voting
shares of the corporation. The Wisconsin Fair Price Statute provides that
certain transactions with a significant shareholder must be approved by 80% of
the votes entitled to be cast by outstanding voting shares of the corporation
and at least two-thirds of the votes entitled to be cast by holders of voting
shares other than voting shares beneficially owned by the significant
shareholder who is a party to the relevant transaction or any of its affiliates
or associates, in each case voting together as a single group, unless the
following fair price standards have been met: (a) the aggregate value of the
per share consideration is equal to the higher of (i) the highest price paid
for any common shares of the corporation by the significant shareholder in the
transaction in which it became a significant shareholder or within two years
before the date of the transaction, (ii) the market value of the corporation's
shares on the date of commencement of any tender offer by the significant
shareholder, the date on which the person became a significant shareholder or
the date of the first public announcement of the proposed transaction,
whichever is higher, or (iii) the highest liquidation or dissolution
distribution to which holders of the shares would be entitled; and (b) either
cash, or the form of consideration used by the significant shareholder to
acquire the largest number of shares, is offered.

Under Section 180.1150 (the "Wisconsin Control Share Statute"), the voting
power of shares, including shares issuable upon conversion of securities or
exercise of options or warrants, of an "issuing public corporation" held by any
person or persons acting as a group in excess of 20% of the voting power in the
election of directors is limited to 10% of the full voting power of those
shares. The Wisconsin Control Share Statute does not apply to shares acquired
directly from the issuing public corporation, in certain specified
transactions, or in a transaction in which the corporation's shareholders have
approved restoration of the full voting power of the otherwise restricted
shares.

Section 180.1134 (the "Wisconsin Defensive Action Restrictions") provides
that, in addition to the vote otherwise required by law or the articles of
incorporation of an issuing public corporation, the approval of the holders of
a majority of the shares entitled to vote is required before such corporation
can take certain action while a takeover offer for such corporation's shares is
being made or after a takeover offer has been publicly announced and before it
is concluded. Under the Wisconsin Defensive Action Restrictions, shareholder
approval is required for the corporation to (a) acquire more than 5% of the
outstanding voting shares at a price above the market value from any individual
or organization that owns more than 3% of the outstanding voting shares and has
held such shares for less than two years, unless a similar offer is made to
acquire all voting shares and all securities which may be converted into voting
shares, or (b) sell or option assets of the corporation which amount to at
least 10% of the market value of the corporation, unless the corporation has at
least three independent directors and a majority of the independent directors
vote not to have this provision apply to the corporation. The restrictions
described in clause (a) above may have the effect of deterring a shareholder
from acquiring shares of the Company with the goal of seeking to have the
Company repurchase such shares at a premium over the market price.

Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Firstar Trust
Company.

DESCRIPTION OF CERTAIN INDEBTEDNESS

The following summaries of the principal terms of certain outstanding
indebtedness of the Company do not purport to be complete and are subject to
the detailed provisions of, and qualified in their entirety by reference to,
the respective financing agreements, copies of which have been filed or
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part and to which exhibits reference is hereby made.
Whenever particular provisions of such documents are referred to, such
provisions are incorporated by reference as a part of the statements made, and
the statements are qualified in their entirety by such reference.

The Credit Agreement
Pursuant to the Credit Agreement, BA Securities, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and certain of its affiliates (collectively,
the "Arrangers"), as Arrangers for a group of financial institutions and other
accredited investors, have provided senior bank facilities in an aggregate
amount of $170.0 million.

The Credit Agreement provides for a six-year Tranche A term loan of up to
$55.0 million, a seven-year Tranche B term loan of up to $25.0 million and an
eight-year Tranche C term loan of up to $25.0 million (collectively, the "Term
Loan Facility"), and a six-year Revolving Credit Facility of up to $65.0
million under which working capital loans may be made and with a $10.0 million
sublimit for letters of credit (the "Revolving Credit Facility," and, together
with the Term Loan Facility, referred to collectively as the "Bank
Facilities"). On September 13, 1996 (the "Closing Date"), the Company borrowed
an aggregate amount of $131.0 million comprised of $26.0 million of Revolving
Loans, $55.0 million of Term A Loans, $25.0 million of Term B Loans and $25.0
million of Term C Loans.

As shown in the table below, quarterly amortization of the Tranche A loans
is in aggregate amounts ranging from $1.0 million to $3.75 million and began
December 31, 1996. Amortization of the Tranche B loans is in aggregate
quarterly amounts of $0.0625 million during each of the first six years and
$5.875 million during the seventh year and began December 31, 1996. After
consummation of the Offerings and the application of the net proceeds therefrom
to repay approximately $49.7 million of the amounts outstanding under the Term
Loan Facility, the amortization schedule will be adjusted to give effect to
such repayment applied pro rata among the tranches, except as may be otherwise
agreed. Amortization of the Tranche C loans will be in aggregate quarterly
amounts of $0.0625 million during each of the first seven years and $5.8125
million during the eighth year and began December 31, 1996. The Revolving
Credit Facility must be reduced for 30 consecutive days each year to no more
than $10.0 million for the fiscal year ending September 30, 1997, $5.0 million
for fiscal year ending September 30, 1998 and to zero for any fiscal year
thereafter.

Term Loan Quarterly Amortization
(Dollars in millions)

Year Tranche A Tranche B Tranche C
- ---------- ----------- ----------- ----------

1 ...... $ 1.0 $ .0625 $ .0625
2 ...... 1.5 .0625 .0625
3 ...... 2.0 .0625 .0625
4 ...... 2.5 .0625 .0625
5 ...... 3.0 .0625 .0625
6 ...... 3.75 .0625 .0625
7 ...... -- 5.875 .0625
8 ...... -- -- 5.8125

Borrowings under the Credit Agreement bear interest, in each case at the
Company's option, as follows: (i) with respect to the Tranche A loans and the
Revolving Credit Facility, at Bank of America National Trust and Savings
Association's base rate plus 1.50% per annum, or at IBOR plus 2.50% per annum;
(ii) with respect to the Tranche B loans, at Bank of America National Trust and
Savings Association's base rate plus 2.00% per annum, or at IBOR plus 3.00% per
annum; (iii) with respect to the Tranche C loans, at Bank of America National
Trust and Savings Association's base rate plus 2.25% per annum, or at IBOR plus
3.25% per annum; and (iv) with respect to the Revolving Credit Facility, at
Bank of America National Trust and Savings Association's base rate plus 1.50%
per annum, or at IBOR plus 2.50% per annum. Performance-based reductions of the
Tranche A and Revolving Credit Facility interest rates are available. The
Company also incurs standard letter of credit fees to issuing institutions and
other standard commitment fees. The Company obtained interest rate protection
in the form of an interest rate swap for $62.5 million of the Term Loan
Facility on October 7, 1996.

The indebtedness outstanding under the Credit Agreement has been
guaranteed by ROV Holding, Inc. and is secured by all existing and
after-acquired personal property of the Company and its domestic subsidiaries,
including the stock of all domestic subsidiaries of the Company and any
intercompany debt obligations and 65% of the stock of all foreign subsidiaries
(other than dormant subsidiaries) held directly by the Company or its domestic
subsidiaries, and, subject to certain exceptions, all existing and
after-acquired real and intangible property.

The Credit Agreement contains financial and other restrictive covenants
customary and usual for credit facilities of this type, including those
involving maintenance of minimum coverage for fixed charges, a required minimum
level of earnings before income taxes, depreciation and amortization, a
required minimum net worth and a required maximum leverage. The Credit
Agreement's covenants also restrict the ability of the Company to incur
additional indebtedness, create liens, make investments or specified payments,
give guarantees, merge or acquire or sell assets, make capital expenditures and
restrict certain other activities. The Credit Agreement requires the Company to
apply 50% of the proceeds of the Offerings not used to redeem or repurchase
Notes to repayment of indebtedness under the Credit Agreement, pro rata among
the tranches except as may be otherwise agreed.

"Events of Default" under the Credit Agreement include, among other
things, failure to make payments when due, defaults under certain other
agreements or instruments of indebtedness, noncompliance with covenants,
breaches of representations and warranties, certain bankruptcy or insolvency
events, judgments in excess of specified amounts, pension plan defaults,
impairment of security interests in collateral, invalidity of guarantees and
certain "changes of control" (as defined in the Credit Agreement).

The Notes
Pursuant to an Indenture (the "Indenture") dated October 22, 1996 by and
among the Company, ROV Holding, Inc. and Marine Midland Bank as trustee, the
Company issued $100 million of 101/4% Senior Subordinated Notes Due 2006 to
repay certain bridge financing incurred in connection with the
Recapitalization. On March 11, 1997, the Company consummated an offer to
exchange such notes for the Notes registered under the Securities Act.

The Notes bear interest at the rate of 101/4% per annum, payable
semi-annually on May 1 and November 1 of each year and mature on November 1,
2006. The Notes are unsecured senior subordinated general obligations of the
Company and are unconditionally guaranteed on an unsecured senior subordinated
basis by ROV Holding, Inc. The payment of principal of, premium, if any, and
interest on the Notes and the guarantees thereon are subordinated in right of
payment to all existing and future Senior Debt (as defined in the Indenture),
including borrowings under the Credit Agreement, whether outstanding on the
date of the Indenture or thereafter incurred.

The Notes are not redeemable at the option of the Company prior to
November 1, 2001. Thereafter the Notes are subject to redemption at the option
of the Company, in whole or in part, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning November 1 of the years indicated below:

Year Percentage
- --------------------------------------- -----------

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

In addition, at any time on or before October 22, 1999, the Company may
redeem up to 35% of the original aggregate principal amount of the Notes with
the net proceeds of a public equity offering at a redemption price equal to
109.25% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption, provided that at least 65% of the
original aggregate principal amount of the Notes remains outstanding
immediately after such redemption. The Company intends to use a portion of the
net proceeds of the Offerings to redeem or repurchase Notes in the aggregate
principal amount of $35.0 million. See "Use of Proceeds." The Company is not
required to make mandatory redemption or sinking fund payments with respect to
the Notes.

Each holder of Notes has the right to require the Company to repurchase
all or any part of such holder's Notes at an offer price in cash equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid interest
thereon upon a change of control of the Company. A change of control for this
purpose includes any of the following: (i) any transaction pursuant to which a
person or group becomes the beneficial owner of 50% or more of the voting power
of the voting stock of the Company, and more of the voting power of the Company
than is at that time

beneficially owned by the Lee Group, (ii) the time at which individuals who
were either members of the Board of Directors of the Company as of the date of
the Indenture or whose election was approved by such members cease to be a
majority of the directors of the Company then in office or (iii) the sale,
lease, transfer or other disposition in one or a series of related transactions
of all or substantially all the assets of the Company.

The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness, pay dividends or make certain other restricted
payments, incur liens to secure pari passu or subordinated indebtedness, engage
in any sale and leaseback transaction, sell stock of subsidiaries, sell assets,
merge or consolidate with any other person, sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company,
enter into certain transactions with affiliates, or incur indebtedness that is
subordinate in right of payment to any Senior Debt (including indebtedness
incurred under the Credit Agreement and any other indebtedness permitted to be
incurred under the Indenture) and senior in right of payment to the Notes. The
Indenture permits, under certain circumstances, the Company's subsidiaries to
be deemed unrestricted subsidiaries and thus not be subject to the restrictions
of the Indenture.

The Indenture contains standard events of default, including (i) defaults
in the payment of principal, premium or interest, (ii) defaults in the
compliance with covenants contained in the Indenture, (iii) cross defaults on
more than $5 million of other indebtedness, (iv) failure to pay more than $5
million of judgments and (v) certain events of bankruptcy with respect to the
Company and certain of its subsidiaries.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offerings, the Company will have 27,418,431 shares
of Common Stock outstanding. The 6,837,000 shares of Common Stock offered in
the Offerings will be freely tradeable without restriction or further
registration under the Securities Act, except for any such shares which may be
acquired by or shares sold by persons deemed to be "affiliates" of the Company,
as such term is defined under the Securities Act, which shares will be subject
to the resale limitations of Rule 144. Substantially all other shares will be
eligible for resale pursuant to Rule 144 after the Lockup Period.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least one year, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock which does not exceed the greater of one percent of the number of then
outstanding shares of Common Stock or the average weekly reported trading
volume during the four calendar weeks preceding the sale. Sales under Rule 144
are also subject to certain notice requirements and to the availability of
current public information about the Company and must be made in unsolicited
brokers' transactions or to a market maker. A person (or persons whose shares
are aggregated) who is not an "affiliate" of the Company under the Securities
Act during the three months preceding a sale and who had beneficially owned
such shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume, notice, information and manner of sale
provisions of such Rule.

An aggregate of 2,318,127 shares of Common Stock are reserved for issuance
upon the exercise of outstanding options granted to employees and directors of
the Company pursuant to the 1996 Plan. After the Offerings, the Company intends
to file a registration statement on Form S-8 to register the shares of Common
Stock issuable upon the exercise of options granted pursuant to the the 1996
Plan and the Incentive Plan. Accordingly, shares issued upon exercise of such
options will be freely tradeable, except for any shares held by an "affiliate"
of the Company.

Prior to the Offerings, there has been no market for the Common Stock. No
predictions can be made of the effect, if any, that sales of shares of Common
Stock or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of
Common Stock or the perception that such sales may occur could adversely affect
the prevailing market price of Common Stock, as well as impair the ability of
the Company to raise capital through the issuance of additional equity
securities. See "Risk Factors--Shares Eligible for Future Sale; Potential for
Adverse Effect on Stock Price; Registration Rights."

Notwithstanding the foregoing, in connection with the Offerings, the
Company, its executive officers and directors, the Lee Group and certain other
shareholders (holding an aggregate of approximately 20 million shares of Common
Stock upon consummation of the Offerings) have agreed, subject to certain
exceptions, not to directly or indirectly (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of or otherwise
dispose of or transfer any shares of Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
thereafter acquired by the person executing the agreement or with respect to
which the person executing the agreement thereafter acquires the power of
disposition, or file a registration statement under the Securities Act with
respect to the foregoing or (ii) enter into any swap or other agreement that
transfers, in whole or in part, the economic consequence of ownership of the
Common Stock whether any such swap or transaction is to be settled by delivery
of Common Stock or other securities, in cash or otherwise, without the prior
written consent of Merrill Lynch & Co. on behalf of the Underwriters for a
period of 180 days after the date of this Prospectus, other than (i) the sale
to the Underwriters of the shares of Common Stock under the Underwriting
Agreement, (ii) upon the exercise of outstanding stock options or (iii) the
issuance of options pursuant to the Company's stock option plans.

In connection with the Recapitalization, the Lee Fund and other affiliates
of THL Co. which purchased shares of Common Stock pursuant to the
Recapitalization, certain other shareholders of the Company and the Company
entered into the Shareholders Agreement. The Shareholders Agreement provides
for certain restrictions on transfer of the shares beneficially owned by the
parties thereto. The Shareholders Agreement also provides that, subject to
certain limitations, the Lee Group and their permitted transferees have demand
registration rights with respect to their shares of Common Stock. The Lee Group
and certain other shareholders also have certain piggy-back registration
rights. See "Risk Factors--Shares Eligible for Future Sale; Potential for
Adverse Effect on Stock Price; Registrations Rights" and "Certain Relationships
and Related Transactions."

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS

The following is a general discussion of certain United States federal
income and estate tax considerations with respect to the ownership and
disposition of Common Stock applicable to Non-U.S. Holders. In general, a "Non-
U.S. Holder" is any holder other than (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized in the United
States or under the laws of the United States or of any state, (iii) an estate,
the income of which is includable in gross income for United States federal
income tax purposes regardless of its source, or (iv) a trust if (a) a court
within the United States is able to exercise primary supervision over the
administration of the trust and (b) one or more United States persons have the
authority to control all substantial decisions of the trust. This discussion is
based on current law, which is subject to change (possibly with retroactive
effect), and is for general information only. This discussion does not address
aspects of United States federal taxation other than income and estate taxation
and does not address all aspects of income and estate taxation or any aspects
of state, local or non-United States taxes, nor does it consider any specific
facts or circumstances that may apply to a particular Non-U.S. Holder
(including certain U.S. expatriates). ACCORDINGLY, PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE,
LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSIDERATIONS OF HOLDING AND
DISPOSING OF SHARES OF COMMON STOCK.

Dividends
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate of the gross amount (or a lower rate
prescribed by an applicable income tax treaty) unless the dividends are either
(i) effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States, or (ii) if certain income tax treaties apply,
attributable to a permanent establishment in the United States maintained by
the Non-U.S. Holder. Dividends effectively connected with such a United States
trade or business or attributable to such a United States permanent
establishment generally will not be subject to United States withholding tax if
the Non-U.S. Holder files certain forms, including Internal Revenue Service
Form 4224, with the payor of the dividend, and generally will be subject to
United States federal income tax on a net income basis, in the same manner as
if the Non-U.S. Holder were a resident of the United States. A Non-U.S. Holder
that is a corporation may be subject to an additional branch profits tax at a
rate of 30% (or such lower rate as may be specified by an applicable income tax
treaty) on the repatriation from the United States of its "effectively
connected earnings and profits," subject to certain adjustments. To determine
the applicability of a tax treaty providing for a lower rate of withholding
under the currently effective United States Treasury Department regulations
(the "Current Regulations"), dividends paid to an address in a foreign country
are presumed to be paid to a resident of that country absent knowledge to the
contrary. Under United States Treasury Department regulations issued on October
6, 1997 (the "Final Regulations") generally effective for payments made after
December 31, 1998, a Non-U.S. Holder (including, in certain cases of Non-U.S.
Holders that are fiscally transparent entities, the owner or owners of such
entities) will be required to provide to the payor certain documentation that
such Non-U.S. Holder (or the owner or owners of such fiscally transparent
entities) is a foreign person in order to claim a reduced rate of withholding
pursuant to an applicable income tax treaty.

Gain on Sale or Other Disposition of Common Stock
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of Common Stock unless (i) the gain either is effectively
connected with a trade or business carried on by the non-U.S. Holder within the
United States or, if certain income tax treaties apply, is attributable to a
permanent establishment in the United States maintained by the Non-U.S. Holder
(and, in either case, the branch profits tax discussed above may also apply if
the Non-U.S. Holder is a corporation); (ii) the Non-U.S. Holder is an
individual who holds shares of Common Stock as a capital asset and is present
in the United States for 183 days or more in the taxable year of disposition,
and certain other tests are met; or (iii) the Company is or has been a United
States real property holding corporation (a "USRPHC") for United States federal
income tax purposes (which the Company does not believe that it is or is likely
to become) at any time within the shorter of the five year period preceding
such disposition or such Non-U.S. Holder's holding period. If the Company were
or were to become a USRPHC at any time during this period, gains realized upon
a disposition of Common Stock by a Non-U.S. Holder which did not directly or
indirectly own more than 5% of the Common Stock during this period generally
would not be subject to United States federal income tax, provided that the
Common Stock is regularly traded on an established securities market.

Estate Tax
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the time of death will be includable in the
individual's gross estate for United States federal estate tax purposes unless
an applicable estate tax treaty provides otherwise, and therefore may be
subject to United States federal estate tax.

Backup Withholding, Information Reporting and Other Reporting Requirements
The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides or is established.

Under the Current Regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than
those discussed above under "Dividends") generally will not apply to dividends
paid on Common Stock to a Non-U.S. Holder at an address outside the United
States. Backup withholding and information reporting generally will apply,
however, to dividends paid on shares of Common Stock to a Non-U.S. Holder at an
address in the United States, if such holder fails to establish an exemption or
to provide certain other information to the payor.

Under the Current Regulations, the payment of proceeds from the
disposition of Common Stock to or through a United States office of a broker
will be subject to information reporting and backup withholding unless the
beneficial owner, under penalties of perjury, certifies, among other things,
its status as a Non-U.S. Holder or otherwise establishes an exemption. The
payment of proceeds from the disposition of Common Stock to or through a
non-U.S. office of a non-U.S. broker generally will not be subject to backup
withholding and information reporting except as noted below. In the case of
proceeds from a disposition of Common Stock paid to or through a non-U.S.
office of a broker that is (i) a United States person, (ii) a "controlled
foreign corporation" for United States federal income tax purposes, or (iii) a
foreign person 50% or more of whose gross income from certain periods is
effectively connected with a United States trade or business, information
reporting (but not backup withholding) will apply unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder (and the
broker has no actual knowledge to the contrary).

Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of Common Stock to a Non-U.S. Holder may be
subject to information reporting and backup withholding unless such recipient
provides to the payor certain documentation as to its status as a Non-U.S.
Holder or otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules from a payment to a Non-U.S. Holder will be
refunded or credited against the Non-U.S. Holder's United States federal income
tax liability, if any, provided that the required information is furnished to
the Internal Revenue Service in a timely manner.

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Smith Barney Inc. are acting as representatives (the "U.S.
Representatives") of each of the Underwriters named below (the "U.S.
Underwriters"). Subject to the terms and conditions set forth in a U.S.
purchase agreement (the "U.S. Purchase Agreement") among the Company, the Over-
Allotment Selling Shareholders and the U.S. Underwriters, and concurrently with
the sale of 1,340,000 shares of Common Stock to the International Managers (as
defined below), the Company has agreed to sell to the U.S. Underwriters, and
each of the U.S. Underwriters severally and not jointly has agreed to purchase
from the Company, the number of shares of Common Stock set forth opposite its
name below.

Number
U.S. Underwriter of Shares
- -------------------------------------------------------------- ----------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated .................................... 802,500
Bear, Stearns & Co. Inc. ................................. 802,500
Donaldson, Lufkin & Jenrette Securities Corporation ...... 802,500
Smith Barney Inc. ....................................... 802,500
CIBC Oppenheimer Corp. .................................... 100,000
Credit Suisse First Boston Corporation .................. 100,000
A.G. Edwards & Sons, Inc. ................................. 100,000
Goldman, Sachs & Co. .................................... 100,000
Lazard Freres & Co. LLC ................................. 100,000
Lehman Brothers Inc. .................................... 100,000
J.P. Morgan Securities Inc. .............................. 100,000
NationsBanc Montgomery Securities, Inc. .................. 100,000
PaineWebber Incorporated ................................. 100,000
Prudential Securities Incorporated ........................ 100,000
SBC Warburg Dillon Read Inc. .............................. 100,000
Sutro & Co. Incorporated ................................. 100,000
Tucker Anthony Incorporated .............................. 100,000
Robert W. Baird & Co. Incorporated ........................ 50,000
William Blair & Company, L.L.C. ........................... 50,000
Cleary Gull Reiland & McDevitt Inc. ..................... 50,000
Crowell, Weedon & Co. .................................... 50,000
EVEREN Securities, Inc. ................................. 50,000
Fahnestock & Co. Inc. .................................... 50,000
Hilliard Lyons Inc. ....................................... 50,000
Janney Montgomery Scott Inc. .............................. 50,000
Edward D. Jones & Co., L.P. .............................. 50,000
McDonald & Company Securities, Inc. ..................... 50,000
Moors & Cabot, Inc. ....................................... 50,000
Needham & Company, Inc. ................................. 50,000
Ormes Capital Markets, Inc. .............................. 50,000
Pennsylvania Merchant Group Ltd. ........................ 50,000
Ragen MacKenzie Incorporated .............................. 50,000
Utendahl Capital Partners, L.P. ........................... 50,000
Wheat, First Securities, Inc. ........................... 50,000
----------
Total ............................................. 5,360,000
==========

The Company has also entered into an international purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International,
Bear, Stearns International Limited, Donaldson, Lufkin & Jenrette Securities
Corporation and Smith Barney Inc. are acting as lead managers (the "Lead
Managers"). Subject to the terms and conditions set forth in the International
Purchase Agreement, and concurrently with the sale of 5,360,000 shares of
Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement,
the Company has agreed to sell to the International Managers, and the
International Managers severally and not jointly have agreed to purchase from
the Company, an aggregate of 1,340,000 shares of Common Stock. The initial
public offering price per share and the underwriting discount per share of
Common Stock are identical under the U.S. Purchase Agreement and the
International Purchase Agreement.

In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant to
such agreement are purchased. Under certain circumstances, under the U.S.
Purchase Agreement and the International Purchase Agreement, the commitments of
non-defaulting U.S. Underwriters may be increased. The closings with respect to
the sale of shares of Common Stock to be purchased by the U.S. Underwriters and
International Managers are conditioned upon one another.

The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the shares of Common Stock to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $.58 per share of Common Stock. The U.S. Underwriters may allow, and
such dealers may reallow, a discount not in excess of $.10 per share of Common
Stock on sales to certain other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.

The Over-Allotment Selling Shareholders have granted options to the U.S.
Underwriters, exercisable for 30 days after the date of this Prospectus, to
purchase up to an aggregate of 804,000 additional shares of Common Stock at the
initial public offering price set forth on the cover page of this Prospectus,
less the underwriting discount. The U.S. Underwriters may exercise these
options solely to cover over-allotments, if any, made on the sale of the Common
Stock offered hereby. To the extent that the U.S. Underwriters exercise these
options, each U.S. Underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares of Common Stock
proportionate to such U.S. Underwriters' initial amount reflected in the
foregoing table. The Over-Allotment Selling Shareholders also have granted
options to the International Managers, exercisable for 30 days after the date
of this Prospectus, to purchase up to an aggregate of 201,000 additional shares
of Common Stock to cover over-allotments, if any, on terms similar to those
granted to the U.S. Underwriters.

At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 350,000 of the shares offered hereby
to be sold to certain employees of the Company and certain other persons. The
number of shares of Common Stock available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not orally confirmed for purchase within one day of
the pricing of the Offerings will be offered by the Underwriters to the general
public on the same terms as the other shares offered hereby.

The Company, the Company's executive officers and directors, the Lee
Group, and certain other shareholders have agreed, subject to certain
exceptions, not to directly or indirectly (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of or otherwise
dispose of or transfer any shares of Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
thereafter acquired by the person or entity executing the agreement or with
respect to which the person or entity executing the agreement thereafter
acquires the power of disposition, or file a registration statement under the
Securities Act with respect to the foregoing or (ii) enter into any swap or
other agreement that transfers, in whole or in part, the economic consequence
of ownership of the Common Stock whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise,
without the prior written consent of Merrill Lynch on behalf of the
Underwriters for a period of 180 days after the date of this Prospectus. See
"Shares Eligible for Future Sale."

The Lee Group, the beneficial owner of more than 10% of the Company's
outstanding Common Stock, may be deemed to be an affiliate of Sutro & Co.
Incorporated and Tucker Anthony Incorporated, members of the NASD which may
participate in the U.S. Offering and the International Offering. Accordingly,
the U.S. Offering and the International Offering were conducted in accordance
with NASD Conduct Rule 2720 which provides that the initial public offering
price of the Common Stock may not be higher than the price recommended by a
Qualified Independent Underwriter which has participated in the preparation of
this Prospectus and performed its usual standard of due diligence with respect
thereto. Smith Barney Inc. has acted as the Qualified Independent Underwriter
for the U.S. Offering and the International Offering, and in such role has
recommended a price in compliance with the requirements of Rule 2720.

The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares
of Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer
to whom they sell shares of Common Stock will not offer to sell or sell shares
of Common Stock to persons who are non-U.S.

or non-Canadian persons or to persons they believe intend to resell to persons
who are non-U.S. or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to U.S. persons or to Canadian persons or to
persons they believe intend to resell to U.S. or Canadian persons, except in
the case of transactions pursuant to the Intersyndicate Agreement.

Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial public offering price was determined through
negotiations among the Company, the U.S. Representatives and the Lead Managers.
The factors considered in determining the initial public offering price, in
addition to prevailing market conditions, were price-earnings ratios of
publicly traded companies that the U.S. Representatives and Lead Managers
believe to be comparable to the Company, certain financial information of the
Company, the history of, and the prospects for, the Company and the industry in
which it competes, and an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present state of the Company's development and the above factors
in relation to market and various valuation measures of other companies engaged
in activities similar to the Company. There can be no assurance given that an
active trading market will develop for the Common Stock or that the Common
Stock will trade in the public market subsequent to the Offerings at or above
the initial public offering price.

The Common Stock has been approved for listing on the New York Stock
Exchange under the trading symbol "ROV," subject to official notice of
issuance. In order to meet the requirements for listing of the Common Stock on
the New York Stock Exchange, the U.S. Underwriters and International Managers
have undertaken to sell lots of 100 or more shares to a minimum of 2,000
beneficial owners.

The Underwriters and International Managers do not intend to confirm sales
of the Common Stock offered hereby to any accounts over which they exercise
discretionary authority.

The Company and the Over-Allotment Selling Shareholders have agreed to
indemnify the U.S. Underwriters and the International Managers against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments which the U.S. Underwriters and International Managers
may be required to make in respect thereof.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the U.S. Representatives are
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in
the open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.

The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the Common Stock,
they may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offerings.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might have been in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of the Common Stock to the
extent that it discourages resales of the Common Stock.

Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.

Donaldson, Lufkin & Jenrette Securities Corporation and its affiliate, DLJ
Capital Funding, Inc., have provided from time to time, and may provide in the
future, commercial and investment banking services to the Company and its
affiliates, including in connection with the Credit Agreement between the
Company, BA Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and its affiliate DLJ Capital Funding, Inc. as arrangers for a
group of financial institutions and accredited investors which provided the
Company with senior bank facilities in an aggregate amount of $170 million.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by DeWitt Ross & Stevens s.c., Madison,
Wisconsin. Certain other legal matters will be passed upon for the Company by
Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts, special
counsel to the Company. Certain legal matters will be passed upon for the
Underwriters by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), New York, New York. Fried, Frank, Harris,
Shriver & Jacobson will rely on the opinion of DeWitt Ross & Stevens s.c. as to
certain matters of Wisconsin law.

EXPERTS

The financial statements and schedule of the Company and Subsidiaries as
of September 30, 1997, and for the year then ended, have been included herein
and elsewhere in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

The financial statements and schedules of the Company and Subsidiaries as
of June 30, 1996 and as of September 30, 1996 and for each of the years in the
two-year period ended June 30, 1996, and the Transition Period ended September
30, 1996 included herein and elsewhere in the Registration Statement have been
included herein and in the Registration Statement in reliance upon the reports
of Coopers & Lybrand L.L.P., independent certified public accountants,
appearing elsewhere herein, given upon the authority of said firm as experts in
accounting and auditing.

The Company believes, and it has been advised by Coopers & Lybrand L.L.P.
that it concurs in such belief, that, during the period of its engagement, the
Company and Coopers & Lybrand L.L.P. did not have any disagreement on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Coopers & Lybrand L.L.P., would have caused it to make
reference in connection with its report on the Company's financial statements
to the subject matter of the disagreement.

The report of Coopers & Lybrand L.L.P. on the Company's consolidated
financial statements as of June 30, 1995 and 1996 and as of September 30, 1996
and for each of the years in the three-year period ended June 30, 1996, and the
Transition Period ended September 30, 1996, did not contain an adverse opinion
or a disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope or accounting principles. During that period there were no
"reportable events" within the meaning of Item 304(a)(1)(v) of Regulation S-K
promulgated under the Securities Act.

In June 1997, KPMG Peat Marwick LLP replaced Coopers & Lybrand L.L.P. as
the Company's independent accountants. The decision to engage KPMG Peat Marwick
LLP was made with the approval of the Company's Audit Committee.

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, and in accordance therewith files periodic reports and
other information with the Commission. The Company has filed with the
Commission the Registration Statement under the Securities Act with respect to
the shares of Common Stock being offered in the Offerings. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, to which reference is hereby made. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description
thereof. Such reports, the Registration Statement and other exhibits and other
information omitted from this Prospectus may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also
be available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Additionally, the Commission maintains a World Wide
Web site at (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission through the Electronic Data Gathering, Analysis and
Retrieval System.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements of the Company and quarterly reports
containing unaudited financial information for the Company for the first three
fiscal quarters of each fiscal year.

RAYOVAC CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
-----

Independent Auditors' Report .................................... F-2
Report of Independent Accountants .............................. F-3
Consolidated Balance Sheets .................................... F-4
Consolidated Statements of Operations ........................... F-5
Consolidated Statements of Cash Flows ........................... F-6
Consolidated Statements of Shareholders' Equity (Deficit) ...... F-7
Notes to Consolidated Financial Statements ..................... F-8

F-1

Independent Auditors' Report

The Board of Directors
Rayovac Corporation:

We have audited the accompanying consolidated balance sheet of Rayovac
Corporation and Subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, shareholders' deficit, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying consolidated
financial statements of Rayovac Corporation and Subsidiaries as of June 30,
1996 and September 30, 1996, and for each of the years ended June 30, 1995 and
1996, and the transition period from July 1, 1996 to September 30, 1996, were
audited by other auditors whose report thereon dated November 22, 1996,
expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the fiscal year 1997 consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Rayovac Corporation and Subsidiaries as of September 30, 1997, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Milwaukee, Wisconsin
October 28, 1997

F-2

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Rayovac Corporation

We have audited the accompanying combined consolidated balance sheets of
Rayovac Corporation and Subsidiaries as of June 30, 1996 and September 30,
1996, and the related combined consolidated statements of operations,
shareholders' equity (deficit), and cash flows for each of the two years in the
period ended June 30, 1996 and the period July 1, 1996 to September 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the combined consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Rayovac Corporation and Subsidiaries as of June 30, 1996 and September 30,
1996, and the results of their operations and their cash flows for each of the
two years in the period ended June 30, 1996 and the period July 1, 1996 to
September 30, 1996, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Milwaukee, Wisconsin
November 22, 1996

F-3

RAYOVAC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------

ASSETS
Current assets:
Cash and cash equivalents ................................. $ 2,190 $ 4,255 $ 1,133
Receivables:
Trade accounts receivable, net of allowance for doubtful
receivables of $786, $722 and $1,221, respectively ...... 55,830 62,320 76,590
Other ................................................... 2,322 4,156 3,079
Inventories ................................................ 66,941 70,121 58,551
Deferred income taxes ....................................... 5,861 9,158 9,099
Prepaid expenses and other ................................. 4,975 4,864 5,928
-------- ---------- ----------
Total current assets ................................. 138,119 154,874 154,380
-------- ---------- ----------
Property, plant and equipment, net ........................ 73,181 68,640 65,511
Deferred charges and other ................................. 9,655 7,413 7,713
Debt issuance costs ....................................... 173 12,764 9,277
-------- ---------- ----------
Total assets .......................................... $221,128 $ 243,691 $ 236,881
======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $11,631 $ 8,818 $ 23,880
Accounts payable .......................................... 38,695 46,921 57,259
Accrued liabilities:
Wages and benefits ....................................... 6,126 5,894 9,343
Accrued interest ....................................... 1,890 631 5,613
Recapitalization and other special charges ............... -- 14,942 4,612
Other ................................................... 16,557 13,019 19,856
-------- ---------- ----------
Total current liabilities ........................... 74,899 90,225 120,563
-------- ---------- ----------
Long-term debt, net of current maturities .................. 69,718 224,845 183,441
Employee benefit obligations, net of current portion ...... 12,141 12,138 11,291
Deferred income taxes ....................................... 2,584 142 735
Other ...................................................... 162 2,061 1,446
-------- ---------- ----------
Total liabilities .................................... 159,504 329,411 317,476
-------- ---------- ----------
Shareholders' equity (deficit):
Common stock, $.01 par value, authorized 90,000 shares;
issued 50,000 shares; outstanding 49,500, 20,470 and
20,581 shares, respectively .............................. 500 500 500
Rayovac International Corporation common stock, $.50 value,
authorized 18 shares; issued and outstanding 10 shares at
June 30, 1996 .......................................... 5 -- --
Additional paid-in capital ................................. 12,000 15,970 15,974
Foreign currency translation adjustment .................. 1,650 1,689 2,270
Notes receivable from officers/shareholders ............... -- (500) (1,658)
Retained earnings .......................................... 48,002 25,143 31,321
-------- ---------- ----------
62,157 42,802 48,407
Less stock held in trust for deferred compensation
plan, 160 shares ....................................... -- -- (962)
Less treasury stock, at cost, 500, 29,530 and 29,419 shares,
respectively ............................................. (533) (128,522) (128,040)
-------- ---------- ----------
Total shareholders' equity (deficit) ........................ 61,624 (85,720) (80,595)
-------- ---------- ----------
Total liabilities and shareholders' equity (deficit) ...... $221,128 $ 243,691 $ 236,881
======== ========== ==========

See accompanying notes to consolidated financial statements.
F-4

RAYOVAC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)

Year ended June 30, Transition
----------------------- Period ended Year ended
September 30, September 30,
1995 1996 1996 1997
---------- ---------- --------------- --------------

Net sales .................................... $415,224 $423,354 $ 101,880 $432,552
Cost of goods sold ........................... 237,126 239,343 59,242 234,569
--------- --------- --------- ---------
Gross profit ................................. 178,098 184,011 42,638 197,983
--------- --------- --------- ---------
Operating expenses:
Selling ....................................... 108,703 116,525 27,796 122,055
General and administrative .................. 32,861 31,767 8,628 32,205
Research and development ..................... 5,005 5,442 1,495 6,196
Recapitalization charges ..................... -- -- 12,326 --
Other special charges ........................ -- -- 16,065 3,002
--------- --------- --------- ---------
146,569 153,734 66,310 163,458
--------- --------- --------- ---------
Income (loss) from operations ............... 31,529 30,277 (23,672) 34,525
Interest expense .............................. 8,644 8,435 4,430 24,542
Other expense, net ........................... 230 552 76 378
--------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item ........................... 22,655 21,290 (28,178) 9,605
Income tax expense (benefit) .................. 6,247 7,002 (8,904) 3,419
--------- --------- --------- ---------
Income (loss) before extraordinary item ...... 16,408 14,288 (19,274) 6,186
Extraordinary item, loss on early
extinguishment of debt, net of income tax
benefit of $777 .............................. -- -- (1,647) --
--------- --------- --------- ---------
Net income (loss) ........................... $ 16,408 $ 14,288 $ (20,921) $ 6,186
========= ========= ========= =========
Net income (loss) per common share:
Income (loss) before extraordinary item ...... $ 0.32 $ 0.28 $ (0.42) $ 0.28
Extraordinary item ........................... -- -- (0.04) --
--------- --------- --------- ---------
Net income (loss) ........................... $ 0.32 $ 0.28 $ (0.46) $ 0.28
========= ========= ========= =========
Weighted average shares of common stock
outstanding ................................. 51,648 51,148 45,469 22,179
========= ========= ========= =========

See accompanying notes to consolidated financial statements.
F-5

RAYOVAC CORPORATIONAND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)

Year ended June 30, Transition
-------------------------- Period ended Year ended
September 30, September 30,
1995 1996 1996 1997
------------ ------------- --------------- --------------

Cash flows from operating activities:
Net income (loss) ................................................ $ 16,408 $ 14,288 $ (20,921) $ 6,186
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Recapitalization and other special charges ..................... -- -- 13,449 --
Extraordinary item, loss on early extinguishment of debt ...... -- -- 2,424 --
Amortization of debt issuance costs ........................... 103 53 1,609 3,563
Depreciation ................................................... 11,024 11,932 3,279 11,308
Deferred income taxes .......................................... 346 3 (5,739) 652
Loss (gain) on disposal of fixed assets ........................ 110 (108) 1,289 (326)
Curtailment gain ............................................. -- -- -- (2,923)
Changes in assets and liabilities:
Accounts receivable .......................................... (2,537) (6,166) (8,940) (14,794)
Inventories ................................................... 9,004 (1,779) (3,078) 11,987
Prepaid expenses and other .................................... (990) 1,148 741 (563)
Accounts payable and accrued liabilities ..................... 2,051 (1,526) (185) 30,905
Accrued recapitalization and other special charges ............ -- -- 14,942 (10,330)
---------- ----------- ---------- ----------
Net cash provided (used) by operating activities ............ 35,519 17,845 (1,130) 35,665
---------- ----------- ---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment ..................... (16,938) (6,646) (1,248) (10,856)
Proceeds from sale of property, plant and equipment ............ 139 298 1,281 52
---------- ----------- ---------- ----------
Net cash provided (used) by investing activities ............ (16,799) (6,348) 33 (10,804)
---------- ----------- ---------- ----------
Cash flows from financing activities:
Reduction of debt ................................................ (106,383) (104,526) (107,090) (135,079)
Proceeds from debt financing .................................... 85,698 96,252 259,489 108,890
Cash overdraft ................................................... 3,925 2,339 (2,493) 164
Debt issuance costs ............................................. -- -- (14,373) --
Extinguishment of debt .......................................... -- -- (2,424) --
Proceeds from direct financing lease .............................. -- -- -- 100
Distributions from DISC .......................................... (1,500) (5,187) (1,943) --
Issuance of stock ................................................ -- -- -- 271
Acquisition of treasury stock .................................... -- (533) (127,925) (3,343)
Exercise of stock options ....................................... -- -- -- 1,438
Payments on capital lease obligation ........................... -- (295) (84) (426)
---------- ----------- ---------- ----------
Net cash provided (used) by financing activities ............ (18,260) (11,950) 3,157 (27,985)
---------- ----------- ---------- ----------
Effect of exchange rate changes on cash and cash
equivalents ...................................................... (345) (2) 5 2
---------- ----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents . 115 (455) 2,065 (3,122)
Cash and cash equivalents, beginning of period .................. 2,530 2,645 2,190 4,255
---------- ----------- ---------- ----------
Cash and cash equivalents, end of period ........................ $ 2,645 $ 2,190 $ 4,255 $ 1,133
========== =========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest .......................................... $ 8,789 $ 7,535 $ 7,977 $ 16,030
Cash paid for income taxes ....................................... 8,821 5,877 419 1,172
========== =========== ========== ==========

See accompanying notes to consolidated financial statements.
F-6

RAYOVAC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands, except per share amounts)

F-7

Rayovac
International
Corporation
common stock
Common Stock (DISC) Foreign
--------------------- ----------------- Additional currency
paid-in translation
Shares Amount Shares Amount capital adjustment
------------ -------- -------- -------- ------------ -------------

Balances at June 30, 1994 .................. 50,000 $500 10 $ 5 $12,000 $1,555
-------- ----- ---- ------ -------- ------
Net income ................................. -- -- -- -- -- --
Distributions from DISC ..................... -- -- -- -- -- --
Translation adjustment ..................... -- -- -- -- -- 424
Adjustment of additional minimum pension
liability ................................. -- -- -- -- -- --
-------- ----- ---- ------ -------- ------
Balances at June 30, 1995 .................. 50,000 500 10 5 12,000 1,979
-------- ----- ---- ------ -------- ------
Net income ................................. -- -- -- -- -- --
Distributions from DISC ..................... -- -- -- -- -- --
Translation adjustment ..................... -- -- -- -- -- (329)
Adjustment of additional minimum pension
liability ................................. -- -- -- -- -- --
Treasury stock acquired ..................... (500) -- -- -- -- --
-------- ----- ---- ------ -------- ------
Balances at June 30, 1996 .................. 49,500 500 10 5 12,000 1,650
-------- ----- ---- ------ -------- ------
Net loss .................................... -- -- -- -- -- --
Common stock acquired in Recapitalization ... (29,030) -- -- -- -- --
Exercise of stock options .................. -- -- -- -- 3,970 --
Increase in cost of existing treasury stock -- -- -- -- -- --
Note receivable from officers/shareholders ... -- -- -- -- -- --
Termination of DISC ........................ -- -- (10) (5) -- --
Translation adjustment ..................... -- -- -- -- -- 39
-------- ----- ---- ------ -------- ------
Balances at September 30, 1996 ............... 20,470 500 -- -- 15,970 1,689
-------- ----- ---- ------ -------- ------
Net income ................................. -- -- -- -- -- --
Sale of common stock ........................ 111 -- -- -- 4 --
Treasury stock acquired ..................... (556) -- -- -- -- --
Exercise of stock options and sale of common
stock to trust .............................. 556 -- -- -- -- --
Notes receivable from officers/shareholders -- -- -- -- -- --
Adjustment of additional minimum pension
liability ................................. -- -- -- -- -- --
Translation adjustment ..................... -- -- -- -- -- 581
-------- ----- ---- ------ -------- ------
Balances at September 30, 1997 ............... 20,581 $500 -- -- $15,974 $2,270
======== ===== ==== ====== ======== ======

Notes Total
receivable Stock shareholders'
officers/ Retained held in Treasury equity
shareholders earnings trust stock (deficit)
-------------- -------------- --------- ------------- --------------

Balances at June 30, 1994 .................. $ -- $ 23,862 $ -- $ -- $ 37,922
-------- ----------- ------ ---------- ------------
Net income ................................. -- 16,408 -- -- 16,408
Distributions from DISC ..................... -- (1,500) -- -- (1,500)
Translation adjustment ..................... -- -- -- -- 424
Adjustment of additional minimum pension
liability ................................. -- 333 -- -- 333
-------- ----------- ------ ---------- ------------
Balances at June 30, 1995 .................. -- 39,103 -- -- 53,587
-------- ----------- ------ ---------- ------------
Net income ................................. -- 14,288 -- -- 14,288
Distributions from DISC ..................... -- (5,187) -- -- (5,187)
Translation adjustment ..................... -- -- -- -- (329)
Adjustment of additional minimum pension
liability ................................. -- (202) -- -- (202)
Treasury stock acquired ..................... -- -- -- (533) (533)
-------- ----------- ------ ---------- ------------
Balances at June 30, 1996 .................. -- 48,002 -- (533) 61,624
-------- ----------- ------ ---------- ------------
Net loss .................................... -- (20,921) -- -- (20,921)
Common stock acquired in Recapitalization ... -- -- -- (127,425) (127,425)
Exercise of stock options .................. -- -- -- -- 3,970
Increase in cost of existing treasury stock -- -- -- (564) (564)
Note receivable from officers/shareholders ... (500) -- -- -- (500)
Termination of DISC ........................ -- (1,938) -- -- (1,943)
Translation adjustment ..................... -- -- -- -- 39
-------- ----------- ------ ---------- ------------
Balances at September 30, 1996 ............... (500) 25,143 -- (128,522) (85,720)
-------- ----------- ------ ---------- ------------
Net income ................................. -- 6,186 -- -- 6,186
Sale of common stock ........................ -- -- -- 482 486
Treasury stock acquired ..................... -- -- -- (3,343) (3,343)
Exercise of stock options and sale of common
stock to trust .............................. -- -- (962) 3,343 2,381
Notes receivable from officers/shareholders (1,158) -- -- -- (1,158)
Adjustment of additional minimum pension
liability ................................. -- (8) -- -- (8)
Translation adjustment ..................... -- -- -- -- 581
-------- ----------- ------ ---------- ------------
Balances at September 30, 1997 ............... $ (1,658) $ 31,321 $ (962) $ (128,040) $ (80,595)
======== =========== ====== ========== ============

See accompanying notes to consolidated financial statements.

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)

1. Description of Business and Recapitalization

Rayovac Corporation and its wholly owned subsidiaries (Company)
manufacture and market a variety of battery types including general (alkaline,
rechargeables, heavy duty, lantern and general purpose), button cell and
lithium. The Company also produces a variety of lighting devices such as
flashlights and lanterns. The Company's products are sold primarily to
retailers in the United States, Canada, Europe, and the Far East.

Effective as of September 12, 1996, the Company, all of the shareholders
of the Company, Thomas H. Lee Equity Fund III L.P. (Lee Fund) and other
affiliates of Thomas H. Lee Company (THL Co.) completed a recapitalization of
the Company (Recapitalization) pursuant to which: (i) the Company obtained
senior financing in an aggregate of $170,000, of which $131,000 was borrowed at
the closing of the Recapitalization; (ii) the Company obtained $100,000 in
financing through the issuance of senior subordinated increasing rate notes of
the Company (Bridge Notes); (iii) the Company redeemed a portion of the shares
of common stock held by the former President and Chief Executive Officer of the
Company; (iv) the Lee Fund and other affiliates of THL Co. purchased for cash
shares of common stock owned by shareholders of the Company; and (v) the
Company repaid certain of its outstanding indebtedness, including prepayment
fees and penalties. The prepayment fees and penalties paid have been recorded
as an extraordinary item in the Consolidated Statements of Operations. Other
non-recurring charges of $12,300 related to the Recapitalization were also
expensed, including $2,200 in advisory fees paid to the financial advisor to
the Company's selling shareholders; various legal and consulting fees of
$2,800; and $7,300 of stock option compensation, severance payments and
employment contract settlements for the benefit of certain present and former
officers, directors and management of the Company. Payment for these costs was
or is expected to be as follows: (i) $8,900 was paid prior to September 30,
1996; (ii) $2,815 was paid in fiscal year 1997 and (iii) $585 is expected to be
paid in fiscal year 1998.

In 1996, the Company changed its fiscal year end from June 30 to September
30. For clarity of presentation herein, the period from July 1, 1996, to
September 30, 1996 is referred to as the "Transition Period Ended September 30,
1996" or "Transition Period."

2. Significant Accounting Policies and Practices
a. Principles of Combination and Consolidation: The consolidated financial
statements include the financial statements of Rayovac Corporation and
its wholly owned subsidiaries. Rayovac International Corporation, a
Domestic International Sales Corporation (DISC) which was owned by the
Company's shareholders, was combined with Rayovac Corporation through
August 1996, when the DISC was terminated and the net assets distributed
to its shareholders. All intercompany transactions have been eliminated.
For reporting purposes, all financial statements are referred to as
"consolidated" financial statements.

b. Revenue Recognition: The Company recognizes revenue from product sales
upon shipment to the customer.

c. Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.

d. Cash Equivalents: For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.

e. Concentrations of Credit Risk, Major Customers and Employees: The
Company's trade receivables are subject to concentrations of credit risk
as three principal customers accounted for 26%, 24% and 24% of the
outstanding trade receivables as of June 30, 1996, and September 30, 1996
and 1997, respectively. The Company derived 28%, 28%, 25% and 29% of its
net sales during the years ended June 30, 1995

F-8

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
2. Significant Accounting Policies and Practices--Continued

and 1996, the Transition Period, and the year ended September 30, 1997,
respectively, from the same three customers.

The Company has one customer that represented over 10% of its net
sales. The Company derived 16%, 18%, 18%, and 20% of its net sales from
this customer during the years ended June 30, 1995 and 1996, the
Transition Period, and the year ended September 30, 1997, respectively.

A significant number of the Company's factory employees are represented
by one of four labor unions. The Company has recently entered into
collective bargaining agreements with its Madison and Fennimore,
Wisconsin employees each of which expires in 2000. The Company's
collective bargaining agreement with 24 of its Washington, United Kingdom
employees is scheduled to expire in December 1997. In addition, the
Company's collective bargaining agreements with its 5 Hayward, California
and 203 Portage, Wisconsin employees are scheduled to expire in May and
July 1998, respectively. The Company believes its relationship with its
employees is good and there have been no work stoppages involving Company
employees since 1981.

f. Displays and Fixtures: The costs of displays and fixtures are
capitalized and recorded as a prepaid asset and charged to expense when
shipped to a customer location. Such prepaid assets amount to
approximately $1,068, $730 and $1,456 as of June 30, 1996, and September
30, 1996 and 1997, respectively.

g. Inventories: Inventories are stated at lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.

h. Property, Plant and Equipment: Property, plant and equipment are stated
at cost. Depreciation on plant and equipment is calculated on the
straight-line method over the estimated useful lives of the assets.
Depreciable lives by major classification are as follows:

Building and improvements ............ 20-30 years
Machinery, equipment and other ...... 5-20 years

i. Debt Issuance Costs: Debt issuance costs are capitalized and amortized
to interest expense over the lives of the related debt agreements.

j. Accounts Payable: Included in accounts payable at June 30, 1996, and
September 30, 1996 and 1997, is approximately $7,805, $5,312, and $5,476,
respectively, of book overdrafts on disbursement accounts which were
replenished prior to the presentation of checks for payment.

k. Income Taxes: Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.

l. Foreign Currency Translation: Assets and liabilities of the Company's
foreign subsidiaries are translated at the rate of exchange existing at
year-end, with revenues, expenses, and cash flows translated at the
average of the monthly exchange rates. Adjustments resulting from
translation of the financial statements are accumulated as a separate
component of shareholders' equity (deficit). Exchange gains (losses) on
foreign currency transactions aggregating ($112), ($750), ($70), and
($639) for the years ended June 30, 1995 and 1996, the Transition Period,
and the year ended September 30, 1997, respectively, are included in
other expense, net, in the Consolidated Statements of Operations.

F-9

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
2. Significant Accounting Policies and Practices--Continued

m. Advertising Costs: The Company incurred expenses for advertising of
$25,556, $29,976, $7,505 and $24,326 in the years ended June 30, 1995
and 1996, the Transition Period, and the year ended September 30, 1997,
respectively. The Company expenses advertising production costs as such
costs are incurred.

n. Net Income (Loss) Per Share: Net income (loss) per share data has been
computed using the weighted average number of shares of common stock and
common equivalent shares from stock options (when dilutive using the
treasury stock method). Stock options issued during the 12-month period
prior to the Company's proposed initial public offering have been
included in the calculation as if they were outstanding for all periods
presented (even if antidilutive using the treasury stock method and the
anticipated initial public offering price). Net income (loss) per share
on a historical basis (per APB 15) was $0.33, $0.29, and $(0.48) for
fiscal 1995, 1996, and the Transition Period, respectively.

o. Derivative Financial Instruments: Derivative financial instruments are
used by the Company principally in the management of its interest rate,
foreign currency and raw material price exposures.

The Company uses interest rate swaps to manage its interest rate risk.
The net amounts to be paid or received under interest rate swap
agreements designated as hedges are accrued as interest rates change and
are recognized over the life of the swap agreements, as an adjustment to
interest expense from the underlying debt to which the swap is
designated. The related amounts payable to, or receivable from, the
counterparties are included in accounts payable or accounts receivable.
The Company has entered into an interest rate swap agreement which
effectively fixes the interest rate on floating rate debt at a rate of
6.16% for notional principal amount of $62,500 through October 1999. The
fair value of this contract at September 30, 1997 is ($159).

The Company enters into forward foreign exchange contracts relating to
the anticipated settlement in local currencies of intercompany purchases
and sales. These contracts generally require the Company to exchange
foreign currencies for U.S. dollars. The contracts are marked to market,
and the related adjustment is recognized in other expense, net. The
related amounts payable to, or receivable from, the counterparties are
included in accounts payable or accounts receivable. The Company has
approximately $3,100 of forward exchange contracts at September 30, 1997.
The fair value at September 30, 1997, approximated the contract value.

The Company is exposed to risk from fluctuating prices for commodities
used in the manufacturing process. The Company hedges some of this risk
through the use of commodity calls and puts. The Company is buying calls,
which allow the Company to purchase a specified quantity of zinc through
a specified date for a fixed price, and writing puts, which allow the
buyer to sell to the Company a specified quantity of zinc through a
specified date at a fixed price. The maturity of, and the quantities
covered by, the contracts highly correlate to the Company's anticipated
purchases of the commodity. The cost of the calls, and the premiums
received from the puts, are amortized over the life of the agreements and
are recorded in cost of goods sold, along with the effect of the put and
call agreements. At September 30, 1997, the Company has purchased a
series of calls with a contract value of approximately $2,800 and sold a
series of puts with a contact value of approximately $2,400 for the
period from October through March designed to set a ceiling and floor
price. While these transactions have no carrying value, the fair value of
these contracts was approximately $138 at September 30, 1997. The Company
has a receivable at September 30, 1997, of approximately $222 in the
accompanying consolidated balance sheet from the settlement of September
contracts.

These fair values represent the estimated amount the Company would
receive or pay to terminate agreements at September 30, 1997, taking into
consideration current market rates and the current credit worthiness of
the counterparties based on dealer quotes. The Company may be exposed to
credit loss in

F-10

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
2. Significant Accounting Policies and Practices--Continued

the event of nonperformance by the counterparties to these contracts, but
does not anticipate such nonperformance.

p. Environmental Expenditures: Environmental expenditures that relate to
current ongoing operations or to conditions caused by past operations are
expensed. The Company determines its liability on a site by site basis
and records a liability at the time when it is probable and can be
reasonably estimated. The estimated liability is not reduced for possible
recoveries from insurance carriers.

q. Stock Split: In September 1996, the Company's Board of Directors
declared a five-for-one stock split. A total of 16,376 additional shares
were issued in conjunction with the stock split to shareholders of
record. All applicable share and per share amounts herein have been
restated to reflect the stock split retroactively.

r. Reclassification: Certain prior year amounts have been reclassified to
conform with the current year presentation.

The Company has reclassified certain promotional expenses, previously
reported as a reduction of net sales, to selling expense. The amounts
which have been reclassified are $24,236 and $23,970 for the years ended
June 30, 1995 and 1996, respectively, $6,899 for the Transition Period
ended September 30, 1996, and $28,702 for the year ended September 30,
1997.

s. Impact of Recently Issued Accounting Standards: In February 1997, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share (FAS 128). FAS 128 will
be effective for periods ending after December 15, 1997, and specifies
the computation, presentation, and disclosure requirements for earnings
per share. Adoption of this accounting standard is not expected to have a
material effect on the earnings per share computations of the Company
assuming the current capital structure.

In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (FAS 130), which
establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
All items that are required to be recognized under accounting standards
as components of comprehensive income are to be reported in a financial
statement that is displayed with the same prominence as other financial
statements. FAS 130 requires that an enterprise (i) classify items of
other comprehensive income by their nature in a financial statement, and
(ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. FAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. The Company is evaluating the effect of this pronouncement on
its consolidated financial statements.

In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (FAS 131), which is effective for financial
statements for periods beginning after December 15, 1997. FAS 131
establishes standards for the way public business enterprises are to
report information about operating segments in annual financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company is evaluating the effect of this pronouncement on
its consolidated financial statements.

F-11

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)

3. Inventories
Inventories consist of the following:

June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------

Raw material ......... $24,238 $25,300 $23,291
Work-in-process ...... 19,081 14,651 15,286
Finished goods ...... 23,622 30,170 19,974
-------- -------- --------
$66,941 $70,121 $58,551
======== ======== ========

4. Property, Plant and Equipment
Property, plant and equipment consist of the following:

June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------

Land, building and improvements ...... $ 15,469 $ 16,824 $ 10,752
Machinery, equipment and other ...... 117,248 117,754 120,894
Construction in process ............... 5,339 6,232 11,326
--------- --------- ---------
138,056 140,810 142,972
Less accumulated depreciation ......... 64,875 72,170 77,461
--------- --------- ---------
$ 73,181 $ 68,640 $ 65,511
========= ========= =========

5. Debt
Debt consists of the following:

June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------

Term loan facility ....................................... $ -- $105,000 $ 100,500
Revolving credit facility ................................. -- 23,500 4,500
Series B Senior Subordinated Notes, due November 1,
2006, with interest at 101/4% payable semi-annually ...... -- -- 100,000
Bridge Notes ............................................. -- 100,000 --
Debt paid September 1996 due to Recapitalization:
Senior Secured Notes due 1997 through 2002 ............... 29,572 -- --
Subordinated Notes due through 2003 ..................... 7,270 -- --
Revolving credit facility ................................. 39,250 -- --
Notes payable in Pounds Sterling to a foreign bank, due
on demand, with interest at bank's base rate plus
1.87% ................................................... 1,242 939 --
Capitalized lease obligation .............................. 1,330 1,246 866
Notes and obligations, weighted average interest rate of
5.24% at September 30, 1997 .............................. 2,685 2,978 1,455
-------- --------- ----------
81,349 233,663 207,321
Less current maturities .................................... 11,631 8,818 23,880
-------- --------- ----------
Long-term debt ............................................. $69,718 $224,845 $ 183,441
======== ========= ==========

F-12

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
5. Debt --Continued

On September 12, 1996, the Company executed a Credit Agreement (Agreement)
arranged by BA Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and certain of its affiliates for a group of financial institutions
and other accredited investors. The Agreement provides for senior bank
facilities, including term and revolving credit facilities in an aggregate
amount of $170,000. Interest on borrowings is computed, at the Company's
option, based on the Bank of America Illinois' base rate, as defined, (Base
Rate) or the Interbank Offering Rate (IBOR).

The term loan facility includes: (i) Tranche A term loan of $55,000,
quarterly amortization ranging from $1,000 to $3,750 beginning December 31,
1996, through September 30, 2002, interest at the Base Rate plus 1.5% per annum
or at IBOR plus 2.5% per annum (8.49% at September 30, 1997); (ii) Tranche B
term loan of $25,000, quarterly amortization amounts of $62.5 during each of
the first six years and $5,875 in the seventh year beginning December 31, 1996,
through September 30, 2003, interest at the Base Rate plus 2.0% per annum, or
IBOR plus 3.0% per annum (8.93% at September 30, 1997); (iii) Tranche C term
loan of $25,000, quarterly amortization of $62.5 during each of the first seven
years and $5,812.5 during the eighth year beginning December 31, 1996, through
September 30, 2004; interest at the Base Rate plus 2.25% per annum or IBOR plus
3.25% per annum (9.10% at September 30, 1997).

The revolving credit facility provides for aggregate working capital loans
up to $65,000 through September 30, 2002, reduced by outstanding letters of
credit ($10,000 limit), and other existing credit facilities and outstanding
obligations (approximately $5,000 at September 30, 1997). Interest on
borrowings is at the Base Rate plus 1.5% per annum or IBOR plus 2.5% per annum
(10.0% at September 30, 1997). The Company had outstanding letters of credit of
approximately $631 at September 30, 1997. A fee of 2.5% per annum is payable on
the outstanding letters of credit. The Company also incurs a fee of .25% per
annum of the average daily maximum amount available to be drawn on each letter
of credit issued. The revolving credit facility must be reduced for 30
consecutive days to no more than $5,000 for the fiscal year ending September
30, 1998, and to zero for any fiscal year thereafter.

The Agreement contains financial covenants with respect to borrowings
which include fixed charge coverage, adjusted net worth, and minimum earnings
before interest, income taxes, depreciation, amortization. In addition, the
Agreement restricts capital expenditures and the payment of dividends. The
Company is required to pay a commitment fee of 0.50% per annum on the average
daily unused portion of the revolving credit facility. The Tranche A term loan
and the revolving credit facility interest rates may be adjusted downward if
the Company's leverage ratio, as defined, decreases. Borrowings under the
Agreement are collateralized by substantially all the assets of the Company.
The Agreement also contains certain mandatory prepayment provisions, one of
which requires the Company to pay down $14.5 million by December 29, 1997 due
to excess cash flow generated as of September 30, 1997.

On October 22, 1996, the Company completed a private debt offering of
10-1/4% Senior Subordinated Notes due in 2006 (Old Notes) pursuant to an
Indenture. In March 1997, the Company exchanged the Old Notes for 10-1/4% Series
B Senior Subordinated Notes due in 2006 (New Notes) registered with the
Securities and Exchange Commission. The terms of the New Notes are identical in
all material respects to terms of the Old Notes. On or after November 1, 2001
or in certain circumstances, after a public offering of equity securities of
the Company, the New Notes will be redeemable at the option of the Company, in
whole or in part, at prescribed redemption prices plus accrued and unpaid
interest.

Upon a change in control, the Company shall be required to repurchase all
or any part of the New Notes at a purchase price equal to 101% of the aggregate
principal amount. The Company is also required to repurchase all or a portion
of the New Notes upon consummation of an asset sale, as defined, in excess of
$5,000.

The terms of the New Notes restrict or limit the ability of the Company
and its subsidiaries to, among other things, (i) pay dividends or make other
restricted payments, (ii) incur additional indebtedness and issue preferred

F-13

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
5. Debt --Continued

stock, (iii) create liens, (iv) incur dividend and other payment restrictions
affecting subsidiaries, (v) enter into mergers, consolidations, or sales of all
or substantially all of the assets of the Company, (vi) make asset sales, (vii)
enter into transactions with affiliates, and (viii) issue or sell capital stock
of wholly owned subsidiaries of the Company. Payment obligations under the New
Notes are fully and unconditionally guaranteed on a joint and several basis by
the Company's directly and wholly owned subsidiary, ROV Holding, Inc. (ROV or
Guarantor Subsidiary). The foreign subsidiaries of the Company, which do not
guarantee the payment obligations under the New Notes (Nonguarantor
Subsidiaries), are directly and wholly owned by ROV. See note 17.

The proceeds from the new Notes were used to pay down the Bridge Notes.
The Bridge Notes bore interest at prime plus 3.5%.

The aggregate scheduled maturities of debt are as follows:

Year ending September 30,
1998 .............................. $ 23,880
1999 .............................. 12,441
2000 .............................. 10,500
2001 .............................. 12,500
2002 .............................. 15,500
Thereafter ........................ 132,500
---------
$207,321
=========

The capitalized lease obligation is payable in Pounds Sterling in
installments of $425 in 1998 and $441 in 1999.

The carrying values of the debt instruments noted above are approximately
96% of their estimated fair values.

6. Shareholders' Equity (Deficit)
During the year ended June 30, 1996, the former principal shareholder of
the Company granted an officer and a director options to purchase 235 shares of
common stock owned by the shareholder personally at exercise prices per share
ranging from $3.65 to $5.77 (the book values per share at the respective dates
of grant). These options were exercised in conjunction with the
Recapitalization and resulted in a charge to earnings of approximately $3,970
during the Transition Period and an increase in additional paid-in capital in
the Consolidated Statements of Shareholders' Equity (Deficit).

Treasury stock acquired during the year ended June 30, 1996 was subject to
an agreement which provided the selling shareholder with additional
compensation for the common stock sold if a change in control occurred within a
specified period of time. As a result of the Recapitalization, the selling
shareholder was entitled to an additional $564, which is reflected as an
increase in treasury stock in the Consolidated Statements of Shareholders'
Equity (Deficit).

Retained earnings includes DISC retained earnings of $1,594 at June 30,
1996. In August 1996, the DISC was terminated and the net assets were
distributed to its shareholders.

In January 1997, the Company established a trust to fund future payments
under a deferred compensation plan. Certain employees eligible to participate
in the plan assigned stock options to the plan. The plan exercised the options
and purchased 160 shares of the Company's common stock. Shares issued to the
trust are valued at $962 and are reflected as a reduction of stockholders'
equity in the consolidated balance sheet.

The Company and the former principal shareholder of the Company, entered
into a Stock Sale Agreement, dated as of August 1, 1997 pursuant to which the
former principal shareholder sold 2,023 shares of common stock at $6.01 per
share to the Company and to the Thomas H. Lee Equity Fund III, L.P. (the "Lee
Fund") and certain other affiliates of Thomas H. Lee Company ("THL Co.," the
Lee Fund and such other affiliates being referred to

F-14

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
6. Shareholders' Equity (Deficit) --Continued

herein as the "Lee Group"). The Stock Sale Agreement provides that, among other
things, if (i) the Company enters into a business combination or other
transaction with a third party whereby less than a majority of the outstanding
capital stock of the surviving entity is owned by the Lee Group, and (ii) such
business combination or other transaction is the result of negotiations or
discussions entered into prior to December 31, 1997 and such combination is
consummated prior to June 30, 1998, then the Lee Group will remit to the former
principal shareholder all amounts, if any, received by the Lee Group (or any
affiliated transferee of shares owned by the Lee Group) from the sale of the
shares of common stock to such third party in excess of $6.01 per share. In
September 1997, another former shareholder sold 205 shares of common stock to
the Company and the Lee Group under similar terms.

On October 22, 1997, the shareholders of the Company approved the
authorization of 5,000 shares of Preferred Stock, $.01 par value, and an
increase in authorized shares of Common Stock from 90,000 to 150,000.

7. Stock Option Plans
Effective September 1996, the Company's Board of Directors (Board)
approved the Rayovac Corporation 1996 Stock Option Plan (1996 Plan) which is
intended to afford an incentive to select employees and directors of the
Company to promote the interests of the Company. Under the 1996 Plan, stock
options to acquire up to 3,000 shares of common stock, in the aggregate, may be
granted under either or both a time-vesting or a performance-vesting formula at
an exercise price equal to the market price of the common stock on the date of
grant. The time-vesting options become exercisable primarily in equal 20%
increments over a five year period. The performance-vesting options become
exercisable at the end of ten years with accelerated vesting over each of the
next five years if the Company achieves certain performance goals. Accelerated
vesting may occur upon sale of the Company, as defined in the Plan.

On September 3, 1997, the Board adopted the 1997 Rayovac Incentive Plan
(Incentive Plan) which was approved by the Shareholders on October 22, 1997 and
expires in August 2007. The Incentive Plan replaces the 1996 Plan and no
further awards will be granted under the 1996 Plan other than awards of options
for shares up to an amount equal to the number of shares covered by options
that terminate or expire prior to being exercised. Under the Incentive Plan,
the Company may grant to employees and non-employee directors stock options,
stock appreciation rights (SARs), restricted stock, and other stock-based
awards, as well as cash-based annual and long-term incentive awards.
Accelerated vesting will occur in the event of a change in control, as defined
in the Incentive Plan. Up to 3,000 shares of common stock may be issued under
the Incentive Plan.

During 1997, the Company adopted the Rayovac Corporation 1997 Stock Option
Plan (1997 Plan). Under the 1997 Plan, stock options to acquire up to 665
shares of common stock, in the aggregate, may be granted. The exercise price is
$6.01. The 1997 Plan and each option granted thereunder expire no later than
November 30, 1997.

A summary of the status of the Company's plan is as follows:

Transition period ended Year ended
September 30, 1996 September 30, 1997
------------------------------ -----------------------------
Weighted-average Weighted-average
Options exercise price Options exercise price
--------- ------------------ --------- -----------------

Outstanding, beginning of period ......... -- $ -- 1,464 $4.39
Granted ................................. 1,464 4.30 1,410 5.03
Exercised .............................. -- -- (556) 6.01
------ ------ ----- ------
Outstanding, end of period ............... 1,464 $4.30 2,318 $4.33
====== ====== ===== ======
Options exercisable, end of period ...... 40 $1.14 496 $4.13
====== ====== ===== ======

The stock options outstanding on September 30, 1997, have a
weighted-average remaining contractual life estimated at 9.5 years.

F-15

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
7. Stock Option Plans --Continued

Transition
period ended Year ended
September 30, 1996 September 30, 1997
-------------------- -------------------

Weighted-average grant-date
fair value of options granted during period ...... $1.92 $1.84
Assumptions used:
Risk-free interest rate ........................... 6.78% 6.78%
Expected life .................................... 8 years 8 years

The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized in the Consolidated
Statements of Operations. Had the Company recognized compensation expense
determined on the fair value at the grant dates for awards under the plans
consistent with the method prescribed by FASB Statement No. 123, Accounting for
Stock Based Compensation (SFAS No. 123), the Company's net income (loss) and
net income (loss) per share, on a pro forma basis, for the Transition Period
and the year ended September 30, 1997, would have been ($21,035) and ($0.46)
per share and $5,680 and $0.26 per share, respectively. The effects of applying
FASB 123 may not be representative of the effects on reported net income (loss)
for future years.

8. Income Taxes
Pretax income (loss) (income (loss) before income taxes and extraordinary
item) and income tax expense (benefit) consist of the following:

Years ended
June 30, Transition Year
--------------------- period ended ended
September 30, September 30,
1995 1996 1996 1997
--------- --------- --------------- --------------

Pretax income (loss):
United States .................. $16,505 $17,154 $ (27,713) $6,214
Outside the United States ...... 6,150 4,136 (2,889) 3,391
------- ------- --------- ------
Total pretax income (loss) ...... $22,655 $21,290 $ (30,602) $9,605
======= ======= ========= ======
Income tax expense (benefit):
Current:
Federal ........................ $3,923 $5,141 $ (3,870) $2,926
Foreign ........................ 797 1,469 (72) (176)
State ........................ 1,181 389 -- 17
------- ------- --------- ------
Total current 5,901 6,999 (3,942) 2,767
------- ------- --------- ------
Deferred:
Federal ........................ 799 54 (3,270) (842)
Foreign ........................ (544) (57) (847) 809
State ........................ 91 6 (1,622) 685
------- ------- --------- ------
Total deferred .................. 346 3 (5,739) 652
------- ------- --------- ------
$6,247 $7,002 $ (9,681) $3,419
======= ======= ========= ======

F-16

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
8. Income Taxes --Continued

The following reconciles the Federal statutory income tax rate with the
Company's effective tax rate:

Years ended
June 30, Transition Year
----------------- period ended ended
September 30, September 30,
1995 1996 1996 1997
------- ------- --------------- --------------

Statutory Federal income tax rate ..................... 35.0% 35.0% 35.0% 35.0%
DISC/FSC commission income ........................... (5.9) (5.2) 0.4 (1.2)
Effect of foreign items and rate differentials ...... (4.0) 1.0 (1.2) 0.3
State income taxes, net .............................. 3.6 1.1 3.9 4.9
Reduction of prior year tax provision ............... -- -- -- (3.0)
Nondeductible recapitalization charges ............... -- -- (6.2) --
Other ................................................ (1.1) 1.0 (0.3) (0.4)
----- ----- ----- -----
27.6% 32.9% 31.6% 35.6%
===== ===== ===== =====

The components of the net deferred tax asset and types of significant
basis differences were as follows:

June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------

Current deferred tax assets:
Recapitalization charges ........................ $ -- $ 2,991 $ 792
Inventories and receivables ..................... 1,395 1,407 1,495
Marketing and promotional accruals ............... 1,498 1,252 3,256
Employee benefits .............................. 1,554 1,780 1,509
Environmental accruals ........................... 420 752 679
Other .......................................... 994 976 1,368
-------- -------- --------
Total current deferred tax assets ............... 5,861 9,158 9,099
-------- -------- --------
Noncurrent deferred tax assets:
Employee benefits .............................. 3,053 4,504 4,214
State net operating loss carryforwards ......... -- 1,249 468
Package design expense ........................... 532 523 927
Promotional expense .............................. 784 854 594
Other .......................................... 1,516 1,475 1,753
-------- -------- --------
Total noncurrent deferred tax assets ............ 5,885 8,605 7,956
-------- -------- --------
Noncurrent deferred tax liabilities:
Property, plant, and equipment .................. (8,430) (8,708) (8,651)
Other .......................................... (39) (39) (40)
-------- -------- --------
Total noncurrent deferred tax liabilities ...... (8,469) (8,747) (8,691)
-------- -------- --------
Net noncurrent deferred tax liabilities ......... $(2,584) $ (142) $ (735)
======== ======== ========

At September 30, 1997, the Company has operating loss carryforwards for
state income tax purposes of approximately $6,000, which expire generally in
years through 2012.

During 1995, the Company used approximately $3,200 of foreign net
operating loss carryforwards for which a deferred tax asset had not been
recognized in prior years due to uncertainty regarding future earnings of the

F-17

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
8. Income Taxes --Continued

subsidiaries to which the carryforwards related. As a result, the Company
reversed the valuation allowance of $1,240 recorded at June 30, 1994, in 1995.

Provision has not been made for United States income taxes on a portion of
the undistributed earnings of the Company's foreign subsidiaries (approximately
$4,342, $4,216, and $4,737 at June 30, 1996, and September 30, 1996 and 1997,
respectively), either because any taxes on dividends would be offset
substantially by foreign tax credits or because the Company intends to reinvest
those earnings. Such earnings would become taxable upon the sale or liquidation
of these foreign subsidiaries or upon remittance of dividends. It is not
practicable to estimate the amount of the deferred tax liability on such
earnings.

9. Leases
Future minimum rental commitments under noncancelable operating leases,
principally pertaining to land, buildings and equipment, are as follows:

Year ending September 30,
1998 .................. $ 6,828
1999 .................. 5,404
2000 .................. 4,455
2001 .................. 4,012
2002 .................. 4,017
Thereafter ............ 34,112
--------
$58,828
========

The above lease commitments include payments under leases for the
corporate headquarters facilities and other properties from partnerships in
which one of the Company's former shareholders is a partner. Annual minimum
rental commitments on the headquarters facility of $2,817 are subject to an
adjustment based upon changes in the Consumer Price Index. The leases on the
other properties require annual lease payments of $470 subject to annual
inflationary increases. All of the leases expire during the years 1998 through
2013.

Total rental expense was $8,189, $8,213, $1,995, and $8,126, for the years
ended June 30, 1995 and 1996, the Transition Period, and the year ended
September 30, 1997, respectively.

10. Postretirement Pension Benefits
The Company has various defined benefit pension plans covering
substantially all of its domestic employees. Plans covering salaried employees
provide pension benefits that are based on the employee's average compensation
for the five years which yield the highest average during the 10 consecutive
years prior to retirement. Plans covering hourly employees and union members
generally provide benefits of stated amounts for each year of service. The
Company's policy is to fund pension costs at amounts within the acceptable
ranges established by the Employee Retirement Income Security Act of 1974.

The Company also has nonqualified deferred compensation agreements with
certain of its employees under which the Company has agreed to pay certain
amounts annually for the first 15 years subsequent to retirement or to a
designated beneficiary upon death. It is management's intent that life
insurance contracts owned by the Company will fund these agreements.

F-18

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
10. Postretirement Pension Benefits --Continued

Net periodic pension cost for the aforementioned plans is summarized as
follows:

Years ended
June 30, Transition Year
------------------------- period ended ended
September 30, September 30,
1995 1996 1996 1997
----------- ----------- --------------- --------------

Service cost ................................. $1,711 $1,501 $2,149 $1,705
Interest cost .............................. 3,390 3,513 944 3,834
Actual return on plan assets ............... (2,054) (7,880) (605) (6,191)
Net amortization and deferral ............... (708) 4,994 (166) 2,763
Curtailment gain ........................... -- -- -- (2,923)
-------- -------- ------ --------
Net periodic pension cost (benefit) ...... $ 2,339 $ 2,128 $2,322 $ (812)
======== ======== ====== ========

The following tables set forth the plans' funded status:

June 30, 1996
--------------------------------
Assets exceed Accumulated
accumulated benefits
benefits exceed assets
--------------- --------------

Actuarial present value of benefit obligations:
Vested benefit obligation ....................................... $ 24,927 $ 19,138
Accumulated benefit obligation ................................. 25,576 19,932
======== =========
Projected benefit obligation .................................... $ 31,462 $ 19,932
Plan assets at fair value, primarily listed stocks, bonds and
cash equivalents ................................................ 32,297 9,349
-------- ---------
Projected benefit obligation (in excess of) less than plan assets 835 (10,583)
Unrecognized net gain ............................................. (2,341) (893)
Unrecognized net obligation (asset) .............................. (211) 4,711
Additional minimum liability .................................... -- (3,823)
-------- ---------
Pension liability ............................................. $ (1,717) $ (10,588)
======== =========

September 30, 1996
--------------------------------
Assets exceed Accumulated
accumulated benefits
benefits exceed assets
--------------- --------------

Actuarial present value of benefit obligations:
Vested benefit obligation ....................................... $ 25,273 $ 19,495
Accumulated benefit obligation ................................. 25,930 20,305
======== =========
Projected benefit obligation .................................... $ 31,910 $ 20,305
Plan assets at fair value, primarily listed stocks, bonds and
cash equivalents ................................................ 32,341 9,364
-------- ---------
Projected benefit obligation (in excess of) less than plan assets 431 (10,941)
Unrecognized net gain ............................................. (2,147) (832)
Unrecognized net obligation (asset) .............................. (208) 2,894
Additional minimum liability .................................... -- (2,067)
Contribution ...................................................... 86 756
-------- ---------
Pension liability ............................................. $ (1,838) $ (10,190)
======== =========

F-19

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
10. Postretirement Pension Benefits --Continued

September 30, 1997
--------------------------------
Assets exceed Accumulated
accumulated benefits
benefits exceed assets
--------------- --------------

Actuarial present value of benefit obligations:
Vested benefit obligation ....................................... $ 42,696 $ 13,326
Accumulated benefit obligation ................................. 43,046 13,704
======== =========
Projected benefit obligation .................................... $ 43,046 $ 13,704
Plan assets at fair value, primarily listed stocks, bonds and
cash equivalents ................................................ 43,212 3,098
-------- ---------
Projected benefit obligation (in excess of) less than plan assets 166 (10,606)
Unrecognized net loss (gain) .................................... (1,194) 1
Unrecognized net asset .......................................... 1,028 1,476
Additional minimum liability .................................... -- (1,486)
-------- ---------
Pension liability ............................................. $ -- $ (10,615)
======== =========

Assumptions used in accounting for the aforementioned plans were:

Years ended
June 30, Transition Year
--------------- period ended ended
September 30, September 30,
1995 1996 1996 1997
------ ------ --------------- --------------
Discount rate used for funded status calculation ...... 8.0% 7.5% 7.5% 7.5%

Discount rate used for net periodic pension cost
calculations ....................................... 7.5 8.0 7.5 7.5
Rate of increase in compensation levels
(salaried plan only) .............................. 5.5 5.0 5.0 5.0
Expected long-term rate of return on assets ...... 9.0 9.0 9.0 9.0

During the year ended September 30, 1997, the Company merged two of its
defined benefit plans and ceased future benefit accruals. The Company
recognized a $2,923 curtailment gain, which is included in other special
charges in the consolidated statement of operations. A discount rate of 6.5%
was used in the accounting for the curtailed plans. The Company has recorded an
additional minimum pension liability of $3,823, $2,067, and $1,486 at June 30,
1996, and September 30, 1996 and 1997, respectively, to recognize the
underfunded position of certain of its benefits plans. An intangible asset of
$3,582, $1,826, and $1,232 at June 30, 1996, and September 30, 1996 and 1997,
respectively, equal to the unrecognized prior service cost of these plans, has
also been recorded. The excess of the additional minimum liability over the
unrecognized prior service cost of $241 at June 30 and September 30, 1996, and
$249 at September 30, 1997, respectively, has been recorded as a reduction of
shareholders' equity (deficit).

The Company sponsors a defined contribution pension plan for its domestic
salaried employees which allows participants to make contributions by salary
reduction pursuant to Section 401(k) of the Internal Revenue Code. The Company
contributes annually 1% of participants' compensation, and may make additional
discretionary contributions. The Company also sponsors defined contribution
pension plans for employees of certain foreign subsidiaries. Company
contributions charged to operations, including discretionary amounts, for the
years ended June 30, 1995 and 1996, the Transition Period, and September 30,
1997, were $1,273, $ 1,000, $181, and $914, respectively.

F-20

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)

11. Other Postretirement Benefit Plan
The Company provides certain health care and life insurance benefits to
eligible retired employees. Participants earn retiree health care benefits
after reaching age 45 over the next 10 succeeding years of service and remain
eligible until reaching age 65. The plan is contributory; retiree contributions
have been established as a flat dollar amount with contribution rates expected
to increase at the active medical trend rate. The plan is unfunded. The Company
is amortizing the transition obligation over a 20-year period.

The following sets forth the plan's funded status reconciled with amounts
reported in the Company's consolidated balance sheets:

June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------

Accumulated postretirement benefit obligation (APBO):
Retirees .......................................... $ 723 $ 687 $ 722
Fully eligible active participants ............... 805 820 813
Other active participants ........................ 896 970 869
-------- -------- --------
Total APBO .......................................... 2,424 2,477 2,404
Unrecognized net loss .............................. (1,269) (1,246) (1,008)
Unrecognized transition obligation .................. (641) (631) (591)
-------- -------- --------
Accrued postretirement benefit liability ......... $ 514 $ 600 $ 805
======== ======== ========

Net periodic postretirement benefit cost includes the following
components:

Years ended
June 30, Transition Year
--------------- period ended ended
September 30, September 30,
1995 1996 1996 1997
------ ------ --------------- --------------

Service cost ....................................... $110 $129 $58 $249
Interest ....................................... 85 111 44 179
Net amortization and deferral .................. 40 54 35 138
----- ----- ----- -----
Net periodic postretirement benefit cost ...... $235 $294 $137 $566
===== ===== ===== =====

For measurement purposes, a 9.5% annual rate of increase in the per capita
costs of covered health care benefits was assumed for fiscal 1996 and 1997,
gradually decreasing to 5.5%. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of September 30,
1997, by $148 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year ended September 30, 1997,
by $40. A discount rate of 7.5% was used to determine the accumulated
postretirement benefit obligation.

F-21

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)

12. Business Segment and International Operations
Information about the Company's operations in different geographic areas
is summarized follows:

Years ended
June 30, Transition Year
------------------------- period ended ended
September 30, September 30,
1995 1996 1996 1997
------------ ------------ --------------- --------------

Net sales to unaffiliated customers:
United States .................. $ 337,888 $ 341,967 $ 82,329 $ 352,468
Foreign:
Europe ........................ 60,696 64,432 15,304 62,546
Other ........................... 16,640 16,955 4,247 17,538
--------- --------- --------- ---------
Total ........................... $ 415,224 $ 423,354 $ 101,880 $ 432,552
========= ========= ========= =========
Transfers between geographic areas:
United States .................. $ 26,928 $ 27,097 $ 7,432 $ 28,403
Foreign:
Europe ........................ 1,637 730 422 1,459
Other ........................... 49 -- -- --
--------- --------- --------- ---------
Total ........................... $ 28,614 $ 27,827 $ 7,854 $ 29,862
========= ========= ========= =========
Net sales:
United States .................. $ 364,816 $ 369,065 $ 89,760 $ 380,872
Foreign:
Europe ........................ 62,333 65,161 15,727 64,004
Other ........................... 16,689 16,955 4,247 17,538
Eliminations ..................... (28,614) (27,827) (7,854) (29,862)
--------- --------- --------- ---------
Total ........................... $ 415,224 $ 423,354 $ 101,880 $ 432,552
========= ========= ========= =========
Income (loss) from operations:
United States .................. $ 24,335 $ 24,759 $ (20,983) $ 30,379
Foreign:
Europe ........................ 5,410 5,002 (2,539) 3,759
Other ........................... 1,784 516 (150) 387
--------- --------- --------- ---------
Total ........................... $ 31,529 $ 30,277 $ (23,672) $ 34,525
========= ========= ========= =========
Total assets:
United States .................. $ 189,557 $ 192,441 $ 213,730 $ 208,971
Foreign:
Europe ........................ 34,345 33,719 35,065 32,137
Other ........................... 16,093 17,532 18,782 17,946
Eliminations ..................... (19,405) (22,564) (23,886) (22,173)
--------- --------- --------- ---------
Total ........................... $ 220,590 $ 221,128 $ 243,691 $ 236,881
========= ========= ========= =========

13. Commitments and Contingencies
The Company has entered into agreements to purchase certain equipment and
to pay annual royalties. In a December 1991 agreement, the Company committed to
pay $1,500 in January 1992 and annual royalties of $1,500 for the first five
years, beginning in 1993, plus $500 for each year thereafter, as long as the
related equipment patents are enforceable. In a March 1994 agreement, the
Company committed to pay $500 in April 1994 and annual royalties

F-22

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
13. Commitments and Contingencies --Continued

of $500 for five years beginning in 1995. Additionally, the Company has
committed to purchase tooling of $957 related to this equipment, $66 for other
tooling, at an unspecified date in the future and purchase manganese ore
amounting to $120 by March 1998.

The Company has provided for the estimated costs associated with
environmental remediation activities at some of its current and former
manufacturing sites. In addition, the Company, together with other parties, has
been designated a potentially responsible party of various third-party sites on
the United States EPA National Priorities List (Superfund). The Company
provides for the estimated costs of investigation and remediation of these
sites when such losses are probable and the amounts can be reasonably
estimated. The actual cost incurred may vary from these estimates due to the
inherent uncertainties involved. The Company believes that any additional
liability in excess of the amounts provided of $1,787, which may result from
resolution of these matters, will not have a material adverse effect on the
financial condition, liquidity, or cash flow of the Company.

The Company has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary course of
business. In the opinion of management, such contingent liabilities are not
likely to have a material adverse effect on the financial condition, liquidity
or cash flow of the Company.

14. Related Party Transactions
The Company and THL Co. are parties to a Management Agreement pursuant to
which the Company has engaged THL Co. to provide consulting and management
advisory services for an initial period of five years through September 2001.
In consideration of ongoing consulting and management advisory services, the
Company will pay THL Co. an aggregate annual fee of $360 plus expenses. Under
the Management Agreement and in connection with the closing of the
Recapitalization, the Company paid THL Co. and an affiliate $3,250 during the
Transition Period. The Company paid THL Co. aggregate fees of $386 for the year
ended September 30, 1997.

The Company and a shareholder of the Company (the principal shareholder
prior to the Recapitalization) are parties to agreements which include a
consulting arrangement and noncompetition provisions. Terms of the agreements
required the shareholder to provide consulting services for an annual fee of
$200 plus expenses. The term of these agreements runs concurrent with the
Management Agreement, subject to certain conditions as defined in the
agreements. The Consulting Agreement was terminated August 1, 1997. The Company
paid the shareholder $175 for the year ended September 1997.

The Company has notes receivable from officers in the amount of $500 and
$1,261 at September 30, 1996 and 1997, respectively, generally payable in five
years, which bear interest at 7% to 8%. Since the officers utilized the
proceeds of the notes to purchase common stock of the Company, directly or
through the exercise of stock options, the notes have been recorded as a
reduction of shareholders' equity (deficit). The Company has short-term notes
receivable from employees of $397 at September 30, 1997 which were used to
purchase common stock of the Company, through the exercise of stock options,
and are also classified as a reduction of shareholders' equity (deficit).

15. Other Special Charges
During the year ended September 30, 1997, the Company recorded special
charges as follows: (i) $3,900 of charges related to the exit of certain
manufacturing operations at the Company's Newton Aycliffe, United Kingdom and
Kinston, North Carolina facilities which include severance, outplacement
service, other employee benefits and asset write-downs and (ii) $2,000 of
charges for organization restructuring in the United States relating to
severance, outplacement service, and other employee benefits. These charges are
partially offset by a $2,900 gain related to the curtailment of the Company's
defined benefit pension plan covering all domestic non-union employees. The
Company paid $4,000 of these costs in fiscal 1997 and $1,900 is expected to be
paid thereafter.

F-23

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
15. Other Special Charges--Continued

During the Transition Period, the Company recorded special charges as
follows: (i) $2,700 of charges related to the exit of certain manufacturing
operations, (ii) $1,700 of charges to increase net deferred compensation plan
obligations to reflect curtailment of such plans; (iii) $1,500 of charges
reflecting the present value of lease payments for land which management has
determined will not be used for any future productive purpose; (iv) $6,900 in
costs and asset write-downs principally related to changes in product pricing
strategies adopted by management subsequent to the Recapitalization; and (v)
$3,300 of employee termination benefits and other charges. Payment for these
costs was or is expected to be as follows: $7,700 was paid prior to September
30, 1996; $5,600 was paid in fiscal 1997; and $2,800 is expected to be paid
thereafter.

16. Quarterly Results (unaudited)

Quarter Ended
----------------------------------------------------------
December 30, March 30, June 29, September 30,
1995 1996 1996 1996
-------------- ----------- ---------- --------------

Net sales ....................................... $140,707 $80,563 $94,731 $101,880
Gross profit ................................. 63,219 34,672 39,495 42,638
Income (loss) before extraordinary item ...... 6,059 310 4,361 (19,274)
Net income (loss) ........................... 6,059 310 4,361 (20,921)
Net income (loss) per share .................. 0.12 0.01 0.09 (0.46)

Quarter Ended
----------------------------------------------------------
December 28, March 29, June 29, September 30,
1996 1997 1997 1997
-------------- ----------- ---------- --------------

Net sales ........................... $141,922 $83,633 $95,466 $111,531
Gross profit ..................... 62,903 36,510 43,249 55,321
Net income (loss) ............... 2,380 (1,720) 2,652 2,874
Net income (loss) per share ...... 0.11 (0.08) 0.12 0.13

17. Consolidated Financial Statements
The following condensed consolidating financial data illustrates the
composition of the consolidated financial statements. Investments in
subsidiaries are accounted for by the Company on an unconsolidated basis (the
Company and the DISC) and the Guarantor Subsidiary using the equity method for
purposes of the consolidating presentation. Earnings of subsidiaries are
therefore reflected in the Company's and Guarantor Subsidiary's investment
accounts and earnings. The principal elimination entries eliminate investments
in subsidiaries and intercompany balances and transactions. Separate financial
statements of the Guarantor Subsidiary are not presented because management has
determined that such financial statements would not be material to investors.

F-24

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997

Guarantor
Parent subisidiary
------------- -------------

ASSETS
Current assets:
Cash and cash equivalents ................................. $ 633 $ 46
Receivables:
Trade accounts receivable, net ........................... 61,400 --
Other ................................................... 8,500 702
Inventories ............................................. 45,003 --
Deferred income taxes .................................... 8,664 342
Prepaid expenses and other .............................. 5,101 --
----------- --------
Total current assets ................................. 129,301 1,090
----------- --------
Property, plant and equipment, net ........................ 60,860 --
Deferred charges and other ................................. 8,411 --
Debt issuance costs ....................................... 9,277 --
Investment in subsidiaries ................................. 16,111 15,627
----------- --------
Total assets ....................................... $ 223,960 $16,717
=========== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $ 22,000 $ --
Accounts payable .......................................... 50,797 150
Accrued liabilities:
Wages and benefits ....................................... 7,766 --
Accrued interest ....................................... 5,594 --
Recapitalization and other special charges ............... 4,235 --
Other ................................................... 16,182 226
----------- --------
Total current liabilities ........................... 106,574 376
----------- --------
Long-term debt, net of current maturities .................. 183,441 --
Employee benefit obligations, net of current portion ...... 11,291 --
Deferred income taxes ....................................... 554 --
Other ...................................................... 956 230
----------- --------
Total liabilities .................................... 302,816 606
----------- --------
Shareholders' equity (deficit):
Common stock ............................................. 500 --
Additional paid-in capital .............................. 15,974 3,525
Foreign currency translation adjustment .................. 2,270 2,270
Notes receivable from officers/shareholders ............... (1,658) --
Retained earnings ....................................... 33,060 10,316
----------- --------
50,146 16,111
Less stock held in trust for deferred compensation . (962) --
Less treasury stock ....................................... (128,040) --
----------- --------
Total shareholders' equity (deficit) ........................ (78,856) 16,111
----------- --------
Total liabilities and shareholders' equity (deficit) ...... $ 223,960 $16,717
=========== ========

Nonguarantor
subsidiaries Eliminations Consolidated
-------------- -------------- -------------

ASSETS
Current assets:
Cash and cash equivalents ................................. $ 454 $ -- $ 1,133
Receivables:
Trade accounts receivable, net ........................... 15,190 -- 76,590
Other ................................................... 2,659 (8,782) 3,079
Inventories ............................................. 13,722 (174) 58,551
Deferred income taxes .................................... 93 -- 9,099
Prepaid expenses and other .............................. 827 -- 5,928
-------- --------- -----------
Total current assets ................................. 32,945 (8,956) 154,380
-------- --------- -----------
Property, plant and equipment, net ........................ 4,651 -- 65,511
Deferred charges and other ................................. 612 (1,310) 7,713
Debt issuance costs ....................................... -- -- 9,277
Investment in subsidiaries ................................. -- (31,738) --
-------- --------- -----------
Total assets ....................................... $38,208 $ (42,004) $ 236,881
======== ========= ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $ 1,880 $ -- $ 23,880
Accounts payable .......................................... 14,847 (8,535) 57,259
Accrued liabilities:
Wages and benefits ....................................... 1,577 -- 9,343
Accrued interest ....................................... 19 -- 5,613
Recapitalization and other special charges ............... 377 -- 4,612
Other ................................................... 3,448 -- 19,856
-------- --------- -----------
Total current liabilities ........................... 22,148 (8,535) 120,563
-------- --------- -----------
Long-term debt, net of current maturities .................. -- -- 183,441
Employee benefit obligations, net of current portion ...... -- -- 11,291
Deferred income taxes ....................................... 181 -- 735
Other ...................................................... 260 -- 1,446
-------- --------- -----------
Total liabilities .................................... 22,589 (8,535) 317,476
-------- --------- -----------
Shareholders' equity (deficit):
Common stock ............................................. 12,072 (12,072) 500
Additional paid-in capital .............................. 750 (4,275) 15,974
Foreign currency translation adjustment .................. 2,270 (4,540) 2,270
Notes receivable from officers/shareholders ............... -- -- (1,658)
Retained earnings ....................................... 527 (12,582) 31,321
-------- --------- -----------
15,619 (33,469) 48,407
Less stock held in trust for deferred compensation . -- -- (962)
Less treasury stock ....................................... -- -- (128,040)
-------- --------- -----------
Total shareholders' equity (deficit) ........................ 15,619 (33,469) (80,595)
-------- --------- -----------
Total liabilities and shareholders' equity (deficit) ...... $38,208 $ (42,004) $ 236,881
======== ========= ===========

F-25

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997

Guarantor Nonguarantor
Parent subsidiary subsidiaries Eliminations Consolidated
---------- ------------ -------------- -------------- -------------

Net sales ..................... $380,872 $ -- $81,542 $ (29,862) $432,552
Cost of goods sold ............ 212,861 -- 52,180 (30,472) 234,569
-------- -------- -------- --------- ---------
Gross profit .................. 168,011 -- 29,362 610 197,983
-------- -------- -------- --------- ---------
Operating expenses:
Selling ........................ 104,685 -- 17,370 -- 122,055
General and administrative ... 26,039 (817) 5,655 1,328 32,205
Research and development ...... 6,196 -- -- -- 6,196
Other special charges ......... 1,348 -- 1,654 -- 3,002
-------- -------- -------- --------- ---------
138,268 (817) 24,679 1,328 163,458
-------- -------- -------- --------- ---------
Income from operations ...... 29,743 817 4,683 (718) 34,525
Interest expense ............... 24,118 -- 424 -- 24,542
Equity in income of subsidiary (3,475) (2,948) -- 6,423 --
Other (income) expense, net ... (590) 6 962 -- 378
-------- -------- -------- --------- ---------
Income before income taxes ... 9,690 3,759 3,297 (7,141) 9,605
Income tax expense ............ 2,786 284 349 -- 3,419
-------- -------- -------- --------- ---------
Net income .................. $ 6,904 $ 3,475 $ 2,948 $ (7,141) $ 6,186
======== ======== ======== ========= =========

F-26

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997

Guarantor Nonguarantor
Parent subsidiary subsidiaries Eliminations Consolidated
------------ ------------ -------------- -------------- -------------

Net cash provided (used) by operating activities $ 34,436 $ (11) $ 1,240 $-- $ 35,665
Cash flows from investing activities:
Purchases of property, plant and equipment ...... (10,113) -- (743) -- (10,856)
Proceeds from sale of property, plant and
equipment .................................... 52 -- -- -- 52
Sale (purchase) of equipment and technology ...... (1,866) -- 1,866 -- --
---------- ----- --------- ---- ----------
Net cash provided (used) by investing activities (11,927) -- 1,123 -- (10,804)
---------- ----- --------- ---- ----------
Cash flows from financing activities:
Reduction of debt .............................. (123,489) -- (11,590) -- (135,079)
Proceeds from debt financing ..................... 100,000 -- 8,890 -- 108,890
Cash overdrafts ................................. 164 -- -- -- 164
Proceeds from direct financing lease ............ 100 -- -- -- 100
Issuance of stock .............................. 271 -- -- -- 271
Acquisition of treasury stock .................. (3,343) -- -- -- (3,343)
Exercise of stock options ........................ 1,438 -- -- -- 1,438
Payments on capital lease obligations ............ -- -- (426) -- (426)
---------- ----- --------- ---- ----------
Net cash provided (used) by financing activities (24,859) -- (3,126) -- (27,985)
---------- ----- --------- ---- ----------
Effect of exchange rate changes on cash and
cash equivalents ................................. -- -- 2 -- 2
---------- ----- --------- ---- ----------
Net increase (decrease) in cash and cash
equivalents .................................... (2,350) (11) (761) -- (3,122)
Cash and cash equivalents, beginning of period ... 2,983 57 1,215 -- 4,255
---------- ----- --------- ---- ----------
Cash and cash equivalents, end of period ......... $ 633 $ 46 $ 454 $-- $ 1,133
========== ===== ========= ==== ==========

F-27

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 1996

Guarantor
Parent subsidiary
------------- ------------

ASSETS
Current assets:
Cash and cash equivalents ................................. $ 2,983 $ 57
Receivables:
Trade accounts receivable, net ........................... 45,614 --
Other ................................................... 15,128 162
Inventories ............................................. 57,615 --
Deferred income taxes .................................... 7,888 1,026
Prepaid expenses and other .............................. 3,457 --
----------- --------
Total current assets ................................. 132,685 1,245
----------- --------
Property, plant and equipment, net ........................ 61,495 --
Deferred charges and other ................................. 6,815 --
Debt issuance costs ....................................... 12,764 --
Investment in subsidiaries ................................. 12,056 12,098
----------- --------
Total assets ....................................... $ 225,815 $13,343
=========== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $ 4,500 $ --
Accounts payable .......................................... 40,830 597
Accrued liabilities:
Wages and benefits ....................................... 4,759 --
Accrued interest ....................................... 618 --
Recapitalization and other special charges ............ 11,645 --
Other ................................................... 10,043 484
----------- --------
Total current liabilities ........................... 72,395 1,081
----------- --------
Long-term debt, net of current maturities .................. 223,990 --
Employee benefit obligations, net of current portion ...... 12,138 --
Deferred income taxes .................................... (64) 206
Other ...................................................... 2,061 --
----------- --------
Total liabilities .................................... 310,520 1,287
Shareholders' equity (deficit):
Common stock ............................................. 500 --
Additional paid-in capital .............................. 15,970 3,525
Foreign currency translation adjustment .................. 1,689 1,689
Notes receivable from officers/shareholders ............... (500) --
Retained earnings ....................................... 26,158 6,842
----------- --------
43,817 12,056
Less treasury stock, at cost ........................... (128,522) --
----------- --------
Total shareholders' equity (deficit) ..................... (84,705) 12,056
----------- --------
Total liabilities and shareholders' equity (deficit) ...... $ 225,815 $13,343
=========== ========

Nonguarantor Combined
subsidiaries Eliminations consolidated
-------------- -------------- -------------

ASSETS
Current assets:
Cash and cash equivalents ................................. $ 1,215 $ -- $ 4,255
Receivables:
Trade accounts receivable, net ........................... 16,706 -- 62,320
Other ................................................... 95 (11,229) 4,156
Inventories ............................................. 13,303 (797) 70,121
Deferred income taxes .................................... 244 -- 9,158
Prepaid expenses and other .............................. 1,407 -- 4,864
--------- --------- -----------
Total current assets ................................. 32,970 (12,026) 154,874
--------- --------- -----------
Property, plant and equipment, net ........................ 7,145 -- 68,640
Deferred charges and other ................................. 598 -- 7,413
Debt issuance costs ....................................... -- -- 12,764
Investment in subsidiaries ................................. -- (24,154) --
--------- --------- -----------
Total assets ....................................... $ 40,713 $ (36,180) $ 243,691
========= ========= ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $ 4,318 -- $ 8,818
Accounts payable .......................................... 16,505 (11,011) 46,921
Accrued liabilities:
Wages and benefits ....................................... 1,135 -- 5,894
Accrued interest ....................................... 13 -- 631
Recapitalization and other special charges ............ 3,297 -- 14,942
Other ................................................... 2,492 -- 13,019
--------- --------- -----------
Total current liabilities ........................... 27,760 (11,011) 90,225
--------- --------- -----------
Long-term debt, net of current maturities .................. 855 -- 224,845
Employee benefit obligations, net of current portion ...... -- -- 12,138
Deferred income taxes .................................... -- -- 142
Other ...................................................... -- -- 2,061
--------- --------- -----------
Total liabilities .................................... 28,615 (11,011) 329,411
Shareholders' equity (deficit):
Common stock ............................................. 12,072 (12,072) 500
Additional paid-in capital .............................. 750 (4,275) 15,970
Foreign currency translation adjustment .................. 1,689 (3,378) 1,689
Notes receivable from officers/shareholders ............... -- -- (500)
Retained earnings ....................................... (2,413) (5,444) 25,143
--------- --------- -----------
12,098 (25,169) 42,802
Less treasury stock, at cost ........................... -- -- (128,522)
--------- --------- -----------
Total shareholders' equity (deficit) ..................... 12,098 (25,169) (85,720)
--------- --------- -----------
Total liabilities and shareholders' equity (deficit) ...... $ 40,713 $ (36,180) $ 243,691
========= ========= ===========

F-28

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Transition period ended September 30, 1996

Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------

Net sales ........................... $ 89,760 -- $ 19,974 $ (7,854) $ 101,880
Cost of goods sold .................. 53,480 -- 13,470 (7,708) 59,242
--------- --------- -------- -------- ---------
Gross profit ........................ 36,280 -- 6,504 (146) 42,638
--------- --------- -------- -------- ---------
Operating expenses:
Selling .............................. 23,539 -- 4,257 -- 27,796
General and administrative ......... 6,508 2 2,109 9 8,628
Research and development ............ 1,495 -- -- -- 1,495
Recapitalization charges ............ 12,326 -- -- -- 12,326
Other special charges ............... 12,768 - 3,297 -- 16,065
--------- --------- -------- -------- ---------
56,636 2 9,663 9 66,310
--------- --------- -------- -------- ---------
Loss from operations ............... (20,356) (2) (3,159) (155) (23,672)
Interest expense ..................... 4,320 -- 110 -- 4,430
Equity in loss of subsidiary ......... 2,508 2,611 -- (5,119) --
Other (income) expense, net ......... (170) (162) 408 -- 76
--------- --------- -------- -------- ---------
Loss before income taxes and
extraordinary item .................. (27,014) (2,451) (3,677) 4,964 (28,178)
Income tax (benefit) expense ......... (7,895) 57 (1,066) -- (8,904)
--------- --------- -------- -------- ---------
Loss before extraordinary item ...... (19,119) (2,508) (2,611) 4,964 (19,274)
Extraordinary item, loss on early
extinguishment of debt, net of income
tax benefit of $777 .................. (1,647) -- -- -- (1,647)
--------- --------- -------- -------- ---------
Net loss ........................... $ (20,766) $ (2,508) $ (2,611) $ 4,964 $ (20,921)
========= ========= ======== ======== =========

F-29

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Transition period ended September 30, 1996

Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------

Net cash provided (used) by operating activities ...... $ (2,078) $16 $ 932 $-- $ (1,130)
Cash flows from investing activities: ...............
Purchases of property, plant and equipment ............ (912) -- (336) -- (1,248)
Proceeds from sale of property, plant and
equipment .......................................... 1,281 -- -- -- 1,281
---------- ---- -------- ---- ----------
Net cash provided (used) by investing activities ...... 369 -- (336) -- 33
---------- ---- -------- ---- ----------
Cash flows from financing activities:
Reduction of debt .................................... (104,138) -- (2,952) -- (107,090)
Proceeds from debt financing ........................ 256,500 -- 2,989 -- 259,489
Cash overdraft ....................................... (2,493) -- -- -- (2,493)
Debt issuance costs ................................. (14,373) -- -- -- (14,373)
Extinguishment of debt .............................. (2,424) -- -- -- (2,424)
Distributions from DISC .............................. (1,943) -- -- -- (1,943)
Acquisition of treasury stock ........................ (127,925) -- -- -- (127,925)
Payments on capital lease obligation .................. -- -- (84) -- (84)
---------- ---- -------- ---- ----------
Net cash provided (used) by financing activities ...... 3,204 -- (47) -- 3,157
---------- ---- -------- ---- ----------
Effect of exchange rate changes on cash and cash
equivalents .......................................... -- -- 5 -- 5
---------- ---- -------- ---- ----------
Net increase (decrease) in cash and cash
equivalents ....................................... 1,495 16 554 -- 2,065
Cash and cash equivalents, beginning of period ......... 1,488 41 661 -- 2,190
---------- ---- -------- ---- ----------
Cash and cash equivalents, end of period ............... $ 2,983 $57 $ 1,215 -- $ 4,255
========== ==== ======== ==== ==========

F-30

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 1996

Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
---------- ------------ -------------- -------------- -------------

ASSETS
Current assets:
Cash and cash equivalents ................................. $ 1,488 $ 41 $ 661 $ -- $ 2,190
Receivables:
Trade accounts receivable, net ........................... 40,138 -- 15,692 -- 55,830
Other ................................................... 11,434 318 780 (10,210) 2,322
Inventories ............................................. 54,486 -- 12,951 (496) 66,941
Deferred income taxes .................................... 5,439 179 243 -- 5,861
Prepaid expenses and other .............................. 3,415 -- 1,560 -- 4,975
-------- ------- -------- --------- --------
Total current assets ................................. 116,400 538 31,887 (10,706) 138,119
-------- ------- -------- --------- --------
Property, plant and equipment, net ........................ 65,747 -- 7,434 -- 73,181
Deferred charges and other ................................. 9,047 -- 608 -- 9,655
Debt issuance costs ....................................... 173 -- -- -- 173
Investment in subsidiaries ................................. 14,524 14,670 -- (29,194) --
-------- ------- -------- --------- --------
Total assets ....................................... $205,891 $15,208 $39,929 $ (39,900) $221,128
======== ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities: ....................................
Current maturities of long-term debt ..................... $ 7,350 $ -- $ 4,281 $ -- $ 11,631
Accounts payable .......................................... 32,906 492 15,145 (9,848) 38,695
Accrued liabilities:
Wages and benefits ....................................... 5,077 -- 1,049 -- 6,126
Accrued interest ....................................... 1,850 -- 40 -- 1,890
Other ................................................... 12,768 (14) 3,803 -- 16,557
-------- ------- -------- --------- --------
Total current liabilities ........................... 59,951 478 24,318 (9,848) 74,899
-------- ------- -------- --------- --------
Long-term debt, net of current maturities .................. 68,777 -- 941 -- 69,718
Employee benefit obligations, net of current portion ...... 12,141 -- -- -- 12,141
Deferred income taxes .................................... 2,378 206 -- -- 2,584
Other ...................................................... 162 -- -- -- 162
-------- ------- -------- --------- --------
Total liabilities .................................... 143,409 684 25,259 (9,848) 159,504
-------- ------- -------- --------- --------
Shareholders' equity (deficit): ...........................
Common stock ............................................. 500 -- 12,072 (12,072) 500
Rayovac International Corporation common stock ............ 5 -- -- -- 5
Additional paid-in capital .............................. 12,000 3,525 750 (4,275) 12,000
Foreign currency translation adjustment .................. 1,650 1,650 1,650 (3,300) 1,650
Retained earnings ....................................... 48,860 9,349 198 (10,405) 48,002
-------- ------- -------- --------- --------
63,015 14,524 14,670 (30,052) 62,157
Less treasury stock, at cost ........................... (533) -- -- -- (533)
Total shareholders' equity (deficit) ..................... 62,482 14,524 14,670 (30,052) 61,624
-------- ------- -------- --------- --------
Total liabilities and shareholders' equity (deficit) ...... $205,891 $15,208 $39,929 $ (39,900) $221,128
======== ======= ======== ========= ========

F-31

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year ended June 30, 1996

Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
---------- ------------ -------------- -------------- -------------

Net sales ..................... $369,065 $ -- $82,116 $ (27,827) $423,354
Cost of goods sold ............ 213,349 -- 53,846 (27,852) 239,343
-------- -------- -------- --------- ---------
Gross profit .................. 155,716 -- 28,270 25 184,011
-------- -------- -------- --------- ---------
Operating expenses:
Selling ........................ 99,486 -- 17,039 -- 116,525
General and administrative ... 25,967 12 5,775 13 31,767
Research and development ...... 5,442 -- -- -- 5,442
-------- -------- -------- --------- ---------
130,895 12 22,814 13 153,734
-------- -------- -------- --------- ---------
Income (loss) from operations 24,821 (12) 5,456 12 30,277
Interest expense ............... 7,731 -- 704 -- 8,435
Equity in income of subsidiary (2,507) (2,167) -- 4,674 --
Other (income) expense, net ... (51) (570) 1,173 -- 552
-------- -------- -------- --------- ---------
Income before income taxes ...... 19,648 2,725 3,579 (4,662) 21,290
Income tax expense ............ 5,372 218 1,412 -- 7,002
-------- -------- -------- --------- ---------
Net income ..................... $14,276 $ 2,507 $ 2,167 $ (4,662) $ 14,288
======== ======== ======== ========= =========

F-32

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended June 30, 1996

Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------

Net cash provided (used) by operating activities ...... $ 14,449 $ (292) $ 3,688 $ $ 17,845
Cash flows from investing activities:
Purchases of property, plant and equipment ............ (6,558) -- (88) -- (6,646)
Proceeds from sale of property, plant and
equipment .......................................... 298 -- -- 298
--------- ------ --------- -----------
Net cash provided (used) by investing activities ...... (6,260) -- (88) -- (6,348)
--------- ------ --------- ---- -----------
Cash flows from financing activities:
Reduction of debt .................................... (97,627) -- (6,899) -- (104,526)
Proceeds from debt financing ........................ 93,600 -- 2,652 -- 96,252
Cash overdraft ....................................... 2,339 -- -- -- 2,339
Distributions from DISC .............................. (5,187) -- -- -- (5,187)
Intercompany dividends .............................. -- 130 (130) -- --
Acquisition of treasury stock ........................ (533) -- -- -- (533)
Payments on capital lease obligation .................. -- -- (295) -- (295)
--------- ------ --------- ---- -----------
Net cash provided (used) by financing activities ...... (7,408) 130 (4,672) -- (11,950)
--------- ------ --------- ---- -----------
Effect of exchange rate changes on cash and cash
equivalents .......................................... -- -- (2) -- (2)
--------- ------ --------- ---- -----------
Net increase (decrease) in cash and cash
equivalents .......................................... 781 (162) (1,074) -- (455)
Cash and cash equivalents, beginning of period ......... 707 203 1,735 -- 2,645
--------- ------ --------- ---- -----------
Cash and cash equivalents, end of period ............... $ 1,488 $ 41 $ 661 $-- $ 2,190
========= ====== ========= ==== ===========

F-33

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year ended June 30, 1995

Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
---------- ------------ -------------- -------------- -------------

Net sales ........................... $364,816 $ -- $79,022 $ (28,614) $415,224
Cost of goods sold .................. 214,119 -- 51,781 (28,774) 237,126
-------- -------- -------- --------- ---------
Gross profit ........................ 150,697 -- 27,241 160 178,098
-------- -------- -------- --------- ---------
Operating expenses:
Selling ........................... 93,935 -- 14,768 -- 108,703
General and administrative ......... 27,556 (651) 5,872 84 32,861
Research and development ............ 5,005 -- -- -- 5,005
-------- -------- -------- --------- ---------
126,496 (651) 20,640 84 146,569
-------- -------- -------- --------- ---------
Income from operations ............ 24,201 651 6,601 76 31,529
Interest expense ..................... 7,889 -- 755 -- 8,644
Equity in income of subsidiary ...... (5,520) (4,928) -- 10,448 --
Other (income) expense, net ......... (116) (319) 665 -- 230
-------- -------- -------- --------- ---------
Income before income taxes............ 21,948 5,898 5,181 (10,372) 22,655
Income tax expense .................. 5,616 378 253 -- 6,247
-------- -------- -------- --------- ---------
Net income ........................ $16,332 $ 5,520 $ 4,928 $ (10,372) $ 16,408
======== ======== ======== ========= =========

F-34

RAYOVAC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements --Continued

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended June 30, 1995

Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------

Net cash provided (used) by operating activities ...... $ 32,394 $ (3,823) $ 3,737 $ 3,211 $ 35,519
Cash flows from investing activities:
Purchases of property, plant and equipment ............ (14,288) -- (2,650) -- (16,938)
Proceeds from sale of property, plant and
equipment .......................................... 139 -- -- -- 139
---------- -------- -------- -------- ----------
Net cash (used) by investing activities ............... (14,149) -- (2,650) -- (16,799)
---------- -------- -------- -------- ----------
Cash flows from financing activities:
Reduction of debt .................................... (100,536) -- (5,847) -- (106,383)
Proceeds from debt financing ........................ 79,749 -- 5,223 726 85,698
Cash overdraft ....................................... 3,925 -- -- -- 3,925
Distributions from DISC .............................. (1,500) -- -- -- (1,500)
Intercompany dividends .............................. -- 3,899 (3,899) -- --
---------- -------- -------- -------- ----------
Net cash provided (used) by financing activities ...... (18,362) 3,899 (4,523) 726 (18,260)
========== ======== ======== ======== ==========
Effect of exchange rate changes on cash and cash
equivalents .......................................... -- -- 3,592 (3,937) (345)
---------- -------- -------- -------- ----------
Net increase (decrease) in cash and cash
equivalents .......................................... (117) 76 156 -- 115
Cash and cash equivalents, beginning of period ......... 824 127 1,579 -- 2,530
---------- -------- -------- -------- ----------
Cash and cash equivalents, end of period ............... $ 707 $ 203 $ 1,735 $ -- $ 2,645
========== ======== ======== ======== ==========

F-35

[Inside Back Cover]

[Picture of Rayovac Store Display [Picture of Five Rayovac Photo/Electronic
for Remote Keyless Entry System and Keyless Entry Battery Packs
Batteries on Gray Background] on White and Blue Background]

[Picture of a Rayovac Alkaline [Picture of Rayovac Battery Products
Computer Battery on and Flashlights on Gray Background]
Black Background]

[Picture of Rayovac Loud'n Clear [Picture of Five Packs of Rayovac
Premium Zinc Air Hearing Aid Pro Line Premium Zinc Air Hearing Aid
Battery Pack on Battery Packs on Gray Background]
Light Gray Background]

================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
solicitation of an offer to buy the Common Stock in any jurisdiction where, or
to any person to whom, it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has not been any
change in the facts set forth in this Prospectus or in the affairs of the
Company since the date hereof.

----------------------------------
TABLE OF CONTENTS

Page
----------

Prospectus Summary ........................ 3
Risk Factors .............................. 10
The Recapitalization ..................... 15
Use of Proceeds ........................... 15
Dividend Policy ........................... 15
Capitalization ........................... 16
Dilution ................................. 17
Selected Financial Data .................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................... 21
Business ................................. 30
Management .............................. 43
Principal and Over-Allotment Selling
Shareholders ........................... 51
Certain Relationships and Related
Transactions ........................... 52
Description of Capital Stock ............ 53
Description of Certain Indebtedness ...... 57
Shares Eligible for Future Sale ......... 60
Certain United States Federal Tax
Considerations for Non-United States
Holders .............................. 61
Underwriting .............................. 63
Legal Matters ........................... 66
Experts ................................. 66
Available Information ..................... 66
Index to Financial Statements ............ F-1

6,700,000 Shares

[Rayovac Logo]

Common Stock

----------------------------------
P R O S P E C T U S
----------------------------------
Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.

November 20, 1997

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

Filed Pursuant to Rule 424(b)4
Registration No. 333-35181

PROSPECTUS

6,700,000 Shares

[Rayovac Logo]

Common Stock
-----------
All of the 6,700,000 shares of Common Stock offered hereby are being sold
by Rayovac Corporation ("Rayovac" or the "Company"). Of the 6,700,000 shares of
Common Stock offered hereby, 1,340,000 shares are being offered for sale
initially outside the United States and Canada by the International Managers
and 5,360,000 shares are being offered for sale initially in a concurrent
offering in the United States and Canada by the U.S. Underwriters. The initial
public offering price and the aggregate underwriting discount per share are
identical for both Offerings. See "Underwriting."

Prior to the Offerings, there has been no public market for the Common
Stock. For a discussion relating to factors considered in determining the
initial public offering price, see "Underwriting."

The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "ROV," subject to official notice of issuance.

See "Risk Factors" beginning on page 10 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -----------------------------------------------------

Price to Underwriting Proceeds to
Public Discount (1) Company (2)

Per Share ...... $ 14.00 $ .98 $ 13.02
Total (3) ...... $93,800,000 $6,566,000 $87,234,000

- -----------------------------------------------------
(1) The Company and the Over-Allotment Selling Shareholders have agreed to
indemnify the several Underwriters against certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,200,000.
(3) The Over-Allotment Selling Shareholders have granted the International
Managers and the U.S. Underwriters options to purchase up to an additional
201,000 shares and 804,000 shares of Common Stock, respectively, in each
case exercisable within 30 days after the date hereof, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Over-Allotment
Selling Shareholders will be $107,870,000, $7,550,900 and $13,085,100,
respectively. See "Underwriting."

-----------
The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York on or about November 26, 1997.
-----------
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
-----------
The date of this Prospectus is November 20, 1997.