UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 333-17895
---------
Rayovac Corporation
--------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 22-2423556
----------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
601 Rayovac Drive, Madison, Wisconsin 53711
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(608) 275-3340
----------------------------------------------------
(Registrant's telephone number, including area code)
not applicable
--------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares outstanding of the Registrant's common stock, $.01 par
value, as of February 17, 1999, was 27,484,780.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
RAYOVAC CORPORATION
Condensed Consolidated Balance Sheets
As of January 3, 1999 and September 30, 1998
(In thousands, except per share amounts)
-ASSETS-
January 3, 1999 September 30, 1998
--------------- ------------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,742 $ 1,594
Receivables 108,386 104,335
Inventories 56,405 62,762
Prepaid expenses and other 18,545 14,729
--------------- ---------------
Total current assets 186,078 183,420
Property, plant and equipment, net 72,448 71,367
Deferred charges and other 38,134 31,554
--------------- ---------------
Total assets $ 296,660 $ 286,341
=============== ===============
-LIABILITIES AND SHAREHOLDERS' EQUITY-
Current liabilities:
Current maturities of long-term debt $ 4,766 $ 3,590
Accounts payable 63,381 64,799
Accrued liabilities:
Wages and benefits and other 28,867 26,585
Recapitalization and other special charges 4,136 6,789
--------------- ---------------
Total current liabilities 101,150 101,763
Long-term debt, net of current maturities 149,139 148,686
Employee benefit obligations, net of current portion 10,788 10,433
Other 4,011 3,585
--------------- ---------------
Total liabilities 265,088 264,467
Shareholders' equity:
Common stock, $.01 par value, authorized 150,000 shares; issued
56,959 and 56,907 shares respectively;
outstanding 27,485 and 27,471 shares, respectively 570 569
Additional paid-in capital 103,533 103,304
Notes receivable from officers/shareholders (890) (890)
Retained earnings 55,727 45,735
--------------- ---------------
158,940 148,718
Less stock held in trust for deferred compensation
plan, 15 and 24 shares, respectively (337) (412)
Less treasury stock, at cost, 29,474 and 29,436
shares, respectively (128,975) (128,472)
Accumulated other comprehensive income (expense):
Foreign currency translation adjustment 2,404 2,500
Minimum pension liability adjustment (460) (460)
--------------- ---------------
Total shareholders' equity 31,572 21,874
--------------- ---------------
Total liabilities and shareholders' equity $ 296,660 $ 286,341
=============== ===============
See accompanying notes which are an integral part of these statements.
RAYOVAC CORPORATION
Condensed Consolidated Statements of Operations
For the three month periods ended January 3, 1999 and December 27, 1997
(Unaudited)
(In thousands, except per share amounts)
Fiscal 1999 Fiscal 1998
----------- -----------
Net sales $ 160,542 $ 149,995
Cost of goods sold 81,859 77,407
--------------- -----------------
Gross profit 78,683 72,588
Selling 47,589 45,472
General and administrative 8,794 7,677
Research and development 2,081 2,057
Other special charges (income) 648 (1,219)
--------------- -----------------
Total operating expenses 59,112 53,987
Income from operations 19,571 18,601
Other expense (income):
Interest expense 3,656 5,024
Other expense (income) 227 (233)
--------------- -----------------
3,883 4,791
Income before income taxes and extraordinary item 15,688 13,810
Income tax expense 5,696 5,276
--------------- -----------------
Income before extraordinary item 9,992 8,534
Extraordinary item, loss on early extinguishment of debt,
net of income tax benefit of $1,263 -- 1,975
--------------- -----------------
Net income $ 9,992 $ 6,559
=============== =================
Basic earnings per share
Average shares outstanding 27,483 23,453
Income before extraordinary item $ 0.36 $ 0.36
Extraordinary item -- (0.08)
--------------- -----------------
Net income $ 0.36 $ 0.28
=============== =================
Diluted earnings per share
Average shares outstanding and common stock equivalents 29,171 25,091
Income before extraordinary item $ 0.34 $ 0.34
Extraordinary item -- (0.08)
--------------- -----------------
Net income $ 0.34 $ 0.26
=============== =================
See accompanying notes which are an integral part of these statements.
2
RAYOVAC CORPORATION
Condensed Consolidated Statements of Cash Flows
For the three month periods ended January 3, 1999 and December 27, 1997
(Unaudited)
(In thousands)
Fiscal 1999 Fiscal 1998
----------- -----------
Cash flows from operating activities:
Net income $ 9,992 $ 6,559
Non-cash adjustments to net income:
Amortization 693 483
Depreciation 2,889 2,834
Net changes in other assets and liabilities,
net of effects from acquisition (7,567) (8,155)
-------- --------
Net cash provided by operating activities 6,007 1,721
Cash flows from investing activities:
Purchases of property, plant and equipment (3,995) (1,832)
Payment for acquisition -- (4,853)
-------- --------
Net cash used by investing activities (3,995) (6,685)
Cash flows from financing activities:
Reduction of debt (3,831) (69,922)
Proceeds from debt financing 3,318 2,333
Proceeds from issuance of common stock -- 88,299
Other (351) 45
-------- --------
Net cash provided (used) by financing activities (864) 20,755
-------- --------
Effect of exchange rate changes on cash and cash
equivalents -- (18)
-------- --------
Net increase in cash and cash equivalents 1,148 15,773
Cash and cash equivalents, beginning of period 1,594 1,133
-------- --------
Cash and cash equivalents, end of period $ 2,742 $ 16,906
======== ========
See accompanying notes which are an integral part of these statements.
3
RAYOVAC CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands except per share amounts)
1 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: These financial statements have been prepared by
Rayovac Corporation (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the
"SEC") and, in the opinion of the Company, include all adjustments (all
of which are normal and recurring in nature) necessary to present
fairly the financial position of the Company at January 3, 1999,
results of operations for the three month periods ended January 3,
1999, and December 27, 1997, and cash flows for the three month periods
ended January 3, 1999, and December 27, 1997. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. These
condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto as
of September 30, 1998. Certain prior year amounts have been
reclassified to conform with the current year presentation.
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 accrued liabilities or accounts
receivable. The Company has entered into an interest rate swap
agreement which effectively fixes the interest rate on floating rate
debt at a rate of 6.16% for a notional principal amount of $62,500
through October 1999. The fair value of the unrealized portion of this
contract at January 3, 1999 is ($565).
The Company has entered into an amortizing cross currency interest rate
swap agreement related to financing the acquisition of Brisco. The
agreement effectively fixes the interest and foreign exchange on
floating rate debt denominated in U.S. Dollars at a rate of 5.34%
denominated in German Marks. The unamortized notional principal amount
at January 3, 1999 is $3,948. The fair value at January 3, 1999 ($278).
The Company enters into forward foreign exchange contracts to mitigate
the risk from anticipated settlement in local currencies of
intercompany purchases and sales. These contracts generally require the
Company to exchange foreign currencies for U.S. dollars. The contracts
are marked to market, and the related adjustment is recognized in other
expense (income). The related amounts payable to, or receivable from,
the counterparties are included in accounts payable or accounts
receivable. The Company has $4,728 of forward exchange contracts at
January 3, 1999. The fair value of the unrealized portion of the
contracts at January 3, 1999, approximated the contract value.
The Company also enters into forward foreign exchange contracts to
hedge the risk from anticipated settlement in local currencies of trade
sales. These contracts generally require the Company to exchange
foreign currencies for Pounds Sterling. The related amounts receivable
from the trade customers are included in accounts receivable. The
Company has approximately $5,519 of such forward exchange contracts at
January 3, 1999. The fair value of the unrealized portion of the
contracts at January 3, 1999, approximated the contract value.
The Company enters into forward foreign exchange contracts to hedge the
risk from settlement in local currencies of trade purchases. These
contracts generally require the Company to exchange foreign currencies
for U.S. Dollars and Pounds Sterling. The Company has entered into
foreign exchange contracts to hedge payment obligations denominated in
Japanese Yen under a commitment to purchase certain production
equipment from Matsushita. The Company has $6,682 of such forward
exchange contracts
4
outstanding at January 3, 1999. See related purchase commitment
discussed in the commitments and contingencies note. The fair value at
January 3, 1999 was $588.
The Company is exposed to risk from fluctuating prices for zinc and
silver commodities used in the manufacturing process. The Company
hedges some of this risk through the use of commodity swaps, calls and
puts. The swaps effectively fix the floating price on a specified
quantity of a commodity through a specified date. Buying calls allows
the Company to purchase a specified quantity of a commodity for a fixed
price through a specified date. Selling puts allows the buyer of the
put to sell a specified quantity of a commodity to the Company for a
fixed price through a specific date. The maturity of, and the
quantities covered by, the contracts highly correlate to the Company's
anticipated purchases of the commodities. The cost of the calls, and
the premiums received from the puts, are amortized over the life of the
contracts and are recorded in cost of goods sold, along with the
effects of the swap, put and call contracts.
At January 3, 1999, the Company had entered into a series of swaps for
zinc with a contract value of $5,930 for the period December 1998
through March 2000. At January 3, 1999, the Company had purchased a
series of calls with a contract value of $690 and sold a series of puts
with a contract value of $636 for portions of the period from January
1999 through March 1999, designed to set a ceiling and floor price for
zinc. While these transactions have no carrying value, the fair value
of the unrealized portion of these contracts was ($571) at January 3,
1999.
At January 3, 1999, the Company had entered into a series of swaps for
silver with a contract value of $1,128 for the period December 1998
through March 1999. While these transactions have no carrying value,
the fair value of the unrealized portion of these contracts at January
3, 1999 was ($118).
2 INVENTORIES
Inventories consist of the following:
January 3, 1999 September 30, 1998
--------------- ------------------
Raw material $20,553 $22,311
Work-in-process 15,363 16,230
Finished goods 20,489 24,221
-------- --------
$56,405 $62,762
======= =======
3 OTHER COMPREHENSIVE INCOME
Effective October 1, 1998 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
Comprehensive income and the components of other comprehensive income
(loss) for the three months ended January 3, 1999 and December 27, 1997
are as follows:
Fiscal 1999 Fiscal 1998
----------- -----------
Net income $9,992 $6,559
Other comprehensive income (loss)
foreign currency translation (96) 606
---- ---
Comprehensive income $9,896 $7,165
====== ======
5
4 EARNINGS PER SHARE DISCLOSURE
Earnings per share is calculated based upon the following:
Three month period ended January 3, 1999 Three month period ended December 27, 1997
---------------------------------------------- ----------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Income before extraordinary
item $9,992 $8,534
Basic EPS
Income available to common
shareholders $9,992 27,483 $0.36 $8,534 23,453 $0.36
===== =====
Effect of Dilutive Securities
Stock Options 1,688 1,638
----- -----
Diluted EPS
Income available to common
shareholders plus assumed
conversion $9,992 29,171 $0.34 $8,534 25,091 $0.34
====== ====== ===== ====== ====== =====
5 COMMITMENTS AND CONTINGENCIES
In March 1998, the Company entered into an agreement to purchase
certain equipment and to pay annual royalties. In connection with the
1998 agreement the Company committed to pay royalties of $2,000 in 1998
and 1999, $3,000 in 2000 through 2003, and $500 in each year
thereafter, as long as the related equipment patents are enforceable
(2023). Additionally, the Company has committed to purchase $7,500 of
production equipment and $411 of tooling.
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 $1,499, 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.
6 OTHER
During the year ended September 30, 1998, the Company recorded special
charges and credits as follows: (i) a credit of $1,243 related to the
settlement of deferred compensation agreements with certain former
employees, (ii) charges of $5,280 related to (a) the September 1998
closing of the Company's Newton Aycliffe, United Kingdom, packaging
facility, (b) the phasing out of direct distribution by June 1998 in the
United Kingdom, and (c) the September 1998 closing of one of the
Company's German sales offices, which amounts include $1,771 of employee
termination benefits for 73 employees, $1,457 of lease cancellation
costs, and $1,032 of equipment and intangible asset write-offs, and
$1,020 of other costs, (iii) charges of $2,184 related to the closing by
April 1999 of the Company's Appleton, Wisconsin, manufacturing facility,
which amount includes $1,449 of employee termination benefits for 153
employees, $200 of fixed asset write-offs
6
and $535 of other costs, (iv) charges of $1,963 related to the exit by
March 1999 of certain manufacturing operations at the Company's
Madison, Wisconsin, facility, which amount includes $295 of employee
termination benefits for 29 employees, $1,256 of fixed asset
write-offs, and $412 of other costs, (v) a $2,435 gain on the sale of
the Company's previously closed Kinston, North Carolina, facility, (vi)
charges of $854 related to the secondary offering of the Company's
common stock, and (vii) miscellaneous credits of $420. A summary of the
1998 restructuring activities follows:
1998 Restructuring Summary
Termination Other
benefits costs Total
-------- ----- -----
Expense accrued $3,700 $3,800 $7,500
Change in estimate (100) 500 400
Expensed as incurred 200 1,300 1,500
Cash expenditures (1,500) (1,400) (2,900)
Non-cash charges -- (1,600) (1,600)
------ ------ ------
Balance 9/30/98 $2,300 $2,600 $4,900
====== ====== ======
Change in estimate (500) -- (500)
Expensed as incurred 300 800 1,100
Cash expenditures (900) (2,100) (3,000)
Non-cash charges -- (100) (100)
------ ----- ------
Balance 1/03/99 $1,200 $1,200 $2,400
====== ====== ======
During the year ended September 30, 1997, the Company recorded special
charges as follows: (i) $2,500 of charges related to the exit of certain
manufacturing and distribution operations at the Company's Kinston,
North Carolina facility by early fiscal 1998, which includes $1,100 of
employee termination benefits for 137 employees, (ii) $1,400 of employee
termination benefits for 71 employees related to organizational
restructuring in Europe and the exit of certain manufacturing operations
in the Company's Newton Aycliffe, United Kingdom facility which the
Company completed in fiscal 1998, (iii) $2,000 of charges for employee
termination benefits for 77 employees related to organizational
restructuring in the United States which the Company completed in fiscal
1998. The number of employees anticipated to be terminated was
approximately equal to the actual numbers referenced above. The charges
were partially offset by a $2,900 million gain related to the
curtailment of the Company's defined benefit pension plan covering all
domestic non-union employees. A summary of the 1997 restructuring
activities follows:
1997 Restructuring Summary
Termination Other
benefits costs Total
-------- ----- -----
Expenses accrued $4,000 $600 $4,600
Change in estimate 500 600 1,100
Expensed as incurred -- 200 200
Expenditures (3,300) (700) (4,000)
------- ----- -------
Balance 9/30/97 $1,200 $700 $1,900
====== ==== ======
Change in estimate -- -- --
Expensed as incurred -- -- --
Expenditures (700) -- (700)
---- ---- ------
Balance 12/27/97 $500 $700 $1,200
==== ==== ======
7
Change in estimate (100) (400) (500)
Expensed as incurred -- -- --
Expenditures (200) (200) (400)
----- ----- -----
Balance 3/28/98 $200 $100 $300
==== ==== ====
Change in estimate -- -- --
Expensed as incurred -- -- --
---- ----- -----
Expenditures -- (100) (100)
---- ----- -----
Balance 6/27/98 $200 $ -- $200
==== ===== ====
Change in estimate (100) -- (100)
Expensed as incurred -- -- --
Expenditures (100) -- (100)
----- ----- -----
Balance 9/30/98 $ -- $ -- $ --
===== ===== =====
7 SUBSEQUENT EVENTS
On December 23, 1998 the Company entered into a Stock Purchase
Agreement to acquire 99.6% of the outstanding common stock of ROV
Limited ("ROV") for a purchase price of $120,000. Subsequently, the
Company agreed in principle to acquire the remaining 0.4% of ROV's
outstanding common stock, together with minority interests in certain
of ROV's subsidiaries currently owned by a ROV distributor, for an
additional $15,000. The Company currently is negotiating to change the
structure and related aspects of its planned ROV Limited acquisition
and, as a result, closing of the acquisition will be delayed to March,
1999. There can be no assurance, however, that the Company will be
successful in these negotiations or that the Company will complete an
acquisition of the common stock or business of ROV Limited.
On December 24, 1998 the Company filed a registration statement with
the SEC for a stock offering of 6,000 shares of common stock. Of the
total shares offered, 4,000 new shares would be offered by the Company
with the net proceeds of the stock sale to partially finance the ROV
Limited acquisition. Another 2,000 shares would be offered by the
existing shareholders. On January 27, 1999 the Company announced it
would not proceed with the equity offering under the previously-filed
registration statement which was not yet effective.
On January 27, 1999 the Company announced its intent to enter into
$300,000 of new senior secured credit facilities with a banking
syndicate, led by the agent for the existing syndicate, to finance the
entire ROV Limited acquisition and refinance debt outstanding under the
Company's existing bank facilities.
8 GUARANTOR SUBSIDIARY (ROV Holding, Inc.)
The following condensed consolidating financial data illustrate the
composition of the consolidated financial statements. Investments in
subsidiaries are accounted for by the Company and the Guarantor
Subsidiary using the equity method for purposes of the consolidating
presentation. Earnings of subsidiaries are therefore reflected in the
Company's and Guarantor Subsidiary's investment accounts and earnings.
The principal elimination entries eliminate investments in subsidiaries
and inter-company balances and transactions. Separate financial
statements of the Guarantor Subsidiary are not presented because
management has determined that such financial statements would not be
material to investors.
8
RAYOVAC CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
January 3, 1999
(Unaudited)
(In thousands)
-ASSETS-
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
---------- ------------- ------------- -------------- -----------
Current assets:
Cash and cash equivalents $ 2,415 $ 43 $ 284 $ -- $ 2,742
Receivables $ 97,789 280 19,049 (8,732) 108,386
Inventories 45,550 -- 10,681 174 56,405
Prepaid expenses and other 17,061 342 1,142 -- 18,545
--------- --------- --------- --------- ---------
Total current assets 162,815 665 31,156 (8,558) 186,078
Property, plant and equipment, net 67,666 -- 4,782 -- 72,448
Deferred charges and other 38,886 -- 5,280 (6,032) 38,134
Investment in subsidiaries 17,504 16,930 -- (34,434) --
--------- --------- --------- --------- ---------
Total assets $ 286,871 $ 17,595 $ 41,218 $ (49,024) $ 296,660
========= ========= ========= ========= =========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
Current liabilities:
Current maturities of long-term debt $ 2,260 $ -- $ 3,516 $ (1,010) $ 4,766
Accounts payable 57,225 -- 13,060 (6,904) 63,381
Accrued liabilities:
Wages and benefits and other 25,779 (140) 4,292 (1,064) 28,867
Recapitalization and other special charges 4,012 -- 124 -- 4,136
--------- --------- --------- --------- ---------
Total current liabilities 89,276 (140) 20,992 (8,978) 101,150
Long-term debt, net of current maturities 149,939 -- 3,031 (3,831) 149,139
Employee benefit obligations, net of current portion 10,788 -- -- -- 10,788
Other 3,515 231 265 -- 4,011
--------- --------- --------- --------- ---------
Total liabilities 253,518 91 24,288 (12,809) 265,088
Shareholders' equity:
Common stock 570 -- 12,072 (12,072) 570
Additional paid-in capital 103,533 3,525 750 (4,275) 103,533
Notes receivable from officers/shareholders (890) -- -- -- (890)
Retained earnings 57,508 11,575 1,704 (15,060) 55,727
--------- --------- --------- --------- ---------
160,721 15,100 14,526 (31,407) 158,940
Less stock held in trust for deferred
compensation plan (337) -- -- -- (337)
Less treasury stock, at cost (128,975) -- -- -- (128,975)
Accumulated other comprehensive income (expense):
Foreign currency translation adjustment 2,404 2,404 2,404 (4,808) 2,404
Minimum pension liability adjustment (460) -- -- -- (460)
--------- --------- --------- --------- ---------
Total shareholders' equity 33,353 17,504 16,930 (36,215) 31,572
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity $ 286,871 $ 17,595 $ 41,218 $ (49,024) $ 296,660
========= ========= ========= ========= =========
9
RAYOVAC CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Operations
For the three month period ended January 3, 1999
(Unaudited)
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
---------- -------------- -------------- -------------- ------------
Net sales $ 149,041 $ -- $ 19,977 $ (8,476) $ 160,542
Cost of goods sold 78,617 -- 11,722 (8,480) 81,859
--------- --------- --------- ---------- ---------
Gross profit 70,424 -- 8,255 4 78,683
Selling 42,549 -- 5,040 -- 47,589
General and administrative 7,158 (246) 1,900 (18) 8,794
Research and development 2,081 -- -- -- 2,081
Other special charges 71 -- 577 -- 648
--------- --------- --------- --------- ---------
Total operating expenses 51,859 (246) 7,517 (18) 59,112
Income from operations 18,565 246 738 22 19,571
Other expense (income):
Interest expense 3,459 -- 195 2 3,656
Equity in profit of subsidiary (371) (302) -- 673 --
Other expense (income) 24 9 196 (2) 227
--------- --------- --------- --------- ---------
3,112 (293) 391 673 3,883
Income (loss) before income taxes 15,453 539 347 (651) 15,688
Income tax expense 5,483 168 45 -- 5,696
--------- --------- --------- --------- ---------
Net income (loss) $ 9,970 $ 371 $ 302 $ (651) $ 9,992
========= ========= ========= ========= =========
10
RAYOVAC CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
For the three month period ended January 3, 1999
(Unaudited)
(In thousands)
Guarantor Nonguarantor Consolidated
Parent Subsidiary Subsidiaries Eliminations Total
---------- ----------- ------------- ------------- --------------
Net cash provided by operating activities $ 7,283 $ (1) $ (996) $ (279) $ 6,007
Cash flows from investing activities:
Purchases of property, plant and equipment (3,951) -- (44) -- (3,995)
Payment for acquisition -- -- -- -- --
------ ------- ------- ------- -------
Net cash used by investing activities (3,951) -- (44) -- (3,995)
Cash flows from financing activities:
Reduction of debt (2,447) -- (1,730) 346 (3,831)
Proceeds from debt financing 500 -- 2,885 (67) 3,318
Proceeds from issuance of common stock -- -- -- -- --
Other (325) -- (26) -- (351)
------ ------- ------- ------- -------
Net cash provided (used) by financing
activities (2,272) -- 1,129 279 (864)
Effect of exchange rate changes on cash and cash
equivalents -- -- -- -- --
------ ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents 1,060 (1) 89 -- 1,148
Cash and cash equivalents, beginning of period 1,355 44 195 -- 1,594
------- ------- ------- ------- -------
Cash and cash equivalents, end of period $ 2,415 $ 43 $ 284 $ -- $ 2,742
======= ======= ======= ======= =======
11
Item 2. Management Discussion and Analysis of Financial Condition and Results of
Operations
Fiscal First Quarter Ended January 3, 1999 Compared to
Fiscal First Quarter Ended December 27, 1997
Net Sales. Net sales for the three months ended January 3, 1999 (the
"Fiscal 1999 Quarter") increased $10.5 million, or 7.0%, to $160.5 million from
$150.0 million in the three months ended December 27, 1997 (the "Fiscal 1998
Quarter"). The increase was driven by increased sales of alkaline, alkaline
rechargeable, hearing aid, lighting products, and specialty products partially
offset by the continued decline in heavy duty battery sales and a decrease in
watch battery sales.
Alkaline sales in the Fiscal 1999 Quarter increased $3.9 million, or 4.5%, to
$87.6 million from $83.7 million in the same period a year ago. The growth in
alkaline was due to expanded distribution and strong promotional programs
partially offset by a slowdown in orders as mass merchandisers adjusted
inventories and a decision to exit certain private label battery business in
England.
Alkaline rechargeable sales increased $2.0 million, or 28.2%, versus the same
period a year ago due to increased distribution of rechargeables with a major
retailer of rechargeables and expanded international distribution.
Hearing aid battery sales increased $1.3 million, or 7.7%, compared to the same
period a year ago due to increased distribution with existing customers and the
impact of the Best Labs acquisition completed during the second quarter of
Fiscal 1998.
Lighting product sales increased $2.6 million, or 13.8%, to $21.2 million due
primarily to new product launches, hurricane season inventory replenishments,
and expanded distribution in our industrial lantern battery business.
Specialty battery sales increased $3.8 million to $5.1 million primarily
attributable to the impact of the Direct Power Plus acquisition completed during
the second quarter of Fiscal 1998.
Heavy duty sales decreased $1.5 million, or 10.4%, compared to the same period a
year ago due primarily to the continued decline in the market as consumers move
toward alkaline and away from heavy duty batteries.
Watch battery sales decreased $1.3 million, or 36.6%, compared to the same
period a year ago due primarily to pricing pressures attributable to industry
over-capacity.
Gross Profit. Gross profit increased $6.1 million, or 8.4%, to $78.7
million from $72.6 million in the Fiscal 1998 Quarter. Gross profit margin
increased to 49.0% from 48.4% in the same period a year ago. These increases
were primarily attributable to sales volume increases and reduced manufacturing
costs as a result of cost rationalization initiatives launched in Fiscal 1997
and 1998.
12
Selling Expense. Selling expense increased $2.1 million, or 4.7%, to $47.6
million for the Fiscal 1999 Quarter from $45.5 million in the Fiscal 1998
Quarter. As a percentage of sales, selling expense decreased to 29.6% from 30.3%
in the same period a year ago. The increase in dollars is due primarily to
increased advertising and promotional spending in support of increased sales.
The decrease in selling expense as a percentage of net sales is primarily
attributable to the benefits of leveraging advertising, marketing, and selling
expenses.
General and Administrative Expense. General and administrative expense
increased $1.1 million, or 14.6%, to $8.8 million for the Fiscal 1999 Quarter
from $7.7 million in the Fiscal 1998 Quarter. The increase was due primarily to
increased costs associated with information system improvements and increased
expenses and amortization related to acquisitions.
Research and Development Expense. Research and development expense was $2.1
million in the Fiscal 1999 Quarter which was approximately equal to the Fiscal
1998 Quarter.
Special Charges and (Income). Special charges for the Fiscal 1999 Quarter
were $0.6 million compared to income of ($1.2) million in the Fiscal 1998
Quarter associated with the buyout of deferred compensation agreements. Special
charges in the Fiscal 1999 Quarter reflect costs associated with closing our
Appleton, Wisconsin and Newton Aycliffe, United Kingdom, facilities which was
announced in the second quarter of fiscal 1998.
Income from Operations. Income from operations increased $1.0 million, or
5.2%, to $19.6 million from $18.6 million in the Fiscal 1998 Quarter. The
increase was primarily attributable to increased sales and gross profit margins
partially offset by increased expenses and special charges.
Interest Expense. Interest expense for the Fiscal 1999 Quarter decreased
$1.3 million, or 27.2%, to $3.7 from $5.0 in the Fiscal 1998 Quarter. The
decrease was primarily a result of decreased indebtedness due to our initial
public offering completed in November 1997.
Other Expense/(Income). Foreign exchange losses and interest income
resulted in net expense of $0.2 million in the Fiscal 1999 Quarter. In the
Fiscal 1998 Quarter interest income was partially offset by foreign exchange
losses and resulted in net income of ($0.2) million.
Income Tax Expense. Our effective tax rate before extraordinary item for
the Fiscal 1999 Quarter was 36.3% compared to 38.2% for the Fiscal 1998 Quarter.
The improved effective rate is impacted by lower state income taxes and a lower
foreign tax rate as compared to our statutory rate.
Extraordinary Item. The Fiscal 1998 Quarter reflects an extraordinary
expense of $2.0 million, net of tax, for the premium payment on the redemption
of a portion of our Series B Senior Subordinated Notes.
Net Income. Net income for the Fiscal 1999 Quarter increased $3.4 million,
or 52.3%, to $10.0 million from $6.6 million in the Fiscal 1998 Quarter. The
increase reflects the impact of sales growth, improved margins, and the absence
of the $2.0 million extraordinary item.
13
Liquidity and Capital Resources
For the Fiscal 1999 Quarter, operating activities provided $6.0 million in
net cash compared with $1.7 million for Fiscal 1998 Quarter. Operating cash flow
before working capital requirements generated $13.6 million in cash flow
compared to $9.9 million in the year ago quarter reflecting improvements in
income from operations and lower interest expense. Working capital requirements
used cash of $7.6 million in the Fiscal 1999 Quarter which was $0.6 million
favorable to the Fiscal 1998 Quarter primarily reflecting a smaller increase in
receivables than was experienced in the Fiscal 1998 Quarter. Cash costs
associated with the restructuring activities announced in Fiscal 1998 have been
and are expected to be funded with cash provided from operations.
Net cash used by investing activities decreased $2.7 million versus the
same period a year ago primarily reflecting the acquisition of Brisco for $4.9
million in the Fiscal 1998 Quarter. This decrease was partially offset by
increased capital expenditures in the Fiscal 1999 Quarter. Capital expenditures
for the Fiscal 1999 Quarter were approximately $4.0 million, an increase of $2.2
million from the Fiscal 1998 Quarter reflecting continued spending on the
implementation of the new SAP business enterprise system and the building
expansion at our Portage, Wisconsin manufacturing facility. The Company
currently expects capital spending for fiscal 1999 to be approximately $24.0
million due to alkaline capacity expansion, alkaline vertical integration
programs, building expansion at our Portage, Wisconsin, and our continued
implementation of the new SAP computer system.
During the Fiscal 1999 First Quarter our board of directors granted
approximately 285,000 options to purchase shares of common stock to various
employees of the company under the 1996 Stock Option Plan and the 1997 Incentive
Plan. All grants have been at an exercise price equal to the market price of the
common stock on the date of the grant which was $16.19 per share.
In December, 1998 the Company agreed to acquire 99.6% of the outstanding
common stock of ROV Limited ("ROV") for a purchase price of $120 million.
Subsequently, the Company agreed in principle to acquire the remaining 0.4% of
ROV's outstanding common stock, together with minority interests in certain of
ROV's subsidiaries currently owned by a ROV distributor, for an additional $15
million. The Company currently is negotiating to change the structure and
related aspects of its planned ROV Limited acquisition and, as a result, closing
of the acquisition will be delayed to March, 1999. There can be no assurance,
however, that the Company will be successful in these negotiations or that the
Company will complete the acquisition of the common stock or business of ROV
Limited.
In conjunction with the ROV acquisition, the Company intends to refinance
its existing senior secured credit facilities. These new senior secured credit
facilities will be used to finance the entire ROV Limited purchase and refinance
the current debt outstanding under the Company's existing bank facilities. The
new facilities will consist of a $225 million 5-year revolving credit facility
("Revolver") and a $75 million 5-year amortizing term loan. The Company expects
that at the close of the ROV acquisition, approximately $159 million will be
funded under the Revolver, leaving approximately $66 million available for
future acquisitions and working capital needs. The Company is also seeking the
consent of the holders of its 10 1/4% Series B Senior Subordinated Notes due
2006 (the "Notes") to certain amendments to the indenture governing the Notes to
facilitate the ROV Limited acquisition and its planned financing thereof.
The Company had previously filed with the Securities and Exchange
Commission a registration statement for an offering of common stock to finance a
portion of its acquisition of ROV Limited. The Company has determined not to
proceed with this equity offering.
The Company believes that cash flow from operating activities and periodic
borrowings under its planned amended credit facilities will be adequate to meet
the Company' short-term and long-term liquidity requirements prior to the
maturity of those credit facilities, although no guarantee can be given in this
regard. The Company's current credit facilities include a revolving credit
facility of $90.0 million of which $77.7 million was outstanding as of
January 3, 1999,
14
with approximately $5.3 million utilized for outstanding letters of credit. The
Company also has $7.8 million outstanding on its acquisition facility as of
January 3, 1999.
Year 2000
The following should be read in conjunction with Item 7. Management
Discussion and Analysis of Financial Condition and Results of Operations in the
Form 10-K as of September 30, 1998.
State of Readiness. The Company's Year 2000 Project is continuing on
schedule with remediation and/or replacement of legacy systems scheduled for
mid-1999.
Costs to Address Year 2000 Issues. Expenditures directly related to
identification, evaluation and remediation of Year 2000 exposures are currently
projected to be $0.8 million for fiscal 1999.
Capital expenditures for projects undertaken for other reasons but which
address Year 2000 issues (primarily SAP) are currently projected to be $5.5
million for fiscal 1999. Other expenditures associated with these capital
expenditures are currently projected to be $1.6 million for fiscal 1999.
Forward Looking Statements
Certain statements contained in this Form 10-Q are forward-looking
statements which involve risks and uncertainties. Actual results may differ
materially from those set forth in such forward-looking statements. Important
factors that could cause the Company's actual results to differ materially from
those set forth in such forward-looking statements are set forth in the
Company's most recent Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Factors
The Company has market risk exposure from changes in interest rates,
foreign currency exchange rates and commodity prices. Derivative financial
instruments are used by the Company, for purposes other than trading purposes,
to mitigate the risk from such exposures.
A discussion of the Company's accounting policies for derivative financial
instruments is included in Note 1 "Significant Accounting Policies" in Notes to
Condensed Consolidated Financial Statements.
Sensitivity Analysis
The change in fair value of outstanding derivative financial instruments is
related to an opposing change in the value of the underlying asset or liability.
The net impact on reported earnings and cash flows of finite shifts in the
outstanding derivative financial instruments and the assets and liabilities
underlying those instruments has not materially changed since the Company's most
recently completed fiscal year end as set forth in its Annual Report on Form
10-K.
15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
3.1+ Amended and Restated Articles of Incorporation of the Company.
3.2+ Amended and Restated By-laws of the Company.
4.1** Indenture, dated as of October 22, 1996, by and among the
Company, ROV Holding, Inc. and Marine Midland Bank, as trustee,
relating to the Company's 10 1/4% Senior Subordinated Notes due
2006.
4.2** Specimen of the Notes (included as an exhibit to Exhibit 4.1)
4.3**** Amended and Restated Credit Agreement, dated as of
December 30, 1997, by and among the Company, the lenders
party thereto and Bank of America National Trust and
Savings Association ("BofA"), as Administrative Agent.
4.4** The Security Agreement, dated as of September 12, 1996, by and
among the Company, ROV Holding, Inc. and BofA.
4.5** The Company Pledge Agreement, dated as of September 12, 1996,
by and between the Company and BofA.
4.6*** Shareholders Agreement, dated as of September 12, 1996, by and
among the Company and the shareholders of the Company referred
to therein.
4.7*** Amendment No. 1 to Rayovac Shareholders Agreement, dated
August 1, 1997, by and among the Company and the shareholders of
the Company referred to therein.
4.8 Amendment No. 2 to Rayovac Shareholders Agreement, dated as of
January 8, 1999, by and among the Company and the shareholders of
the Company referred to therein.
4.9* Specimen certificate representing the Common Stock.
10.1** Management Agreement, dated as of September 12, 1996, by and
between the Company and Thomas H. Lee Company.
10.2** Confidentiality, Non-Competition and No-Hire Agreement, dated as
of September 12, 1996, by and between the Company and Thomas
F. Pyle.
10.3++ Amended and Restated Employment Agreement, dated as of April
27, 1998, by and between the Company and David A. Jones.
10.4++ Employment Agreement, dated as of April 27, 1998, by and between
the Company and Kent J. Hussey.
10.5++++ Amendment to Employment Agreement, dated as of October 1,
1998, by and between the Company and Kent J. Hussey.
10.6++++ Severance Agreement by and between the Company and Randall J.
Steward.
10.7++++ Severance Agreement by and between the Company and Roger F.
Warren.
10.8++++ Severance Agreement by and between the Company and Stephen P.
Shanesy.
10.9++++ Severance Agreement by and between the Company and Merrell M.
Tomlin.
2
10.10** Technology, License and Service Agreement between
Battery Technologies (International) Limited and the
Company, dated June 1, 1991, as amended April 19, 1993
and December 31, 1995.
10.11** Building Lease between the Company and SPG Partners,
dated May 14, 1985, as amended June 24, 1986 and June
10, 1987.
10.12 Amendment, dated December 31, 1998, between the Company and
SPG Partners, to the Building Lease between the Company and SPG
Partners, dated May 14, 1985.
10.13*** Rayovac Corporation 1996 Stock Option Plan.
10.14*** Rayovac Corporation 1997 Stock Option Plan.
10.15* 1997 Rayovac Incentive Plan.
10.16* Rayovac Profit Sharing and Savings Plan.
10.17+++ Technical Collaboration, Sale and Supply Agreement, dated as of
March 5, 1998, by and among the Company, Matsushita Battery
Industrial Co., Ltd. and Matsushita Electric Industrial Co., Ltd.
27 Financial Data Schedule
* Incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-35181) filed with the Commission.
** Incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-17895) filed with the Commission.
*** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 29, 1997 filed with the Commission on
August 13, 1997.
**** Incorporated by reference to the Company's Registration Statement on Form
S-3 (Registration No. 333-49281) filed with the Commission.
3
+ Incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 filed with the Commission on
December 23, 1997.
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 27, 1998 filed with the Commission on
August 4, 1998.
+++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 28, 1998 filed with the Commission on
May 5, 1998.
++++ Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1998 filed with the Commission on
December 24, 1998.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during
the Company's quarterly period ended January 3, 1999.
4
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: February 17, 1999
RAYOVAC CORPORATION
By: /s/ Randall J. Steward
---------------------------------------------
Randall J. Steward
Senior Vice President of Finance
and Chief Financial Officer
By: /s/ James A. Broderick
---------------------------------------------
James A. Broderick
Vice President, General Counsel and Secretary
5
AMENDMENT NO. 2 TO SHAREHOLDERS AGREEMENT
AMENDMENT NO. 2, dated as of January 8, 1999, to the Shareholders
Agreement, dated as of September 12, 1996, by and among Rayovac Corporation, a
Wisconsin corporation (the "Company"), and the shareholders of the Company
referred to therein, as amended by an amendment agreement, dated as of August 1,
1997 (the "Shareholders Agreement"). Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the
Shareholders Agreement.
WHEREAS, pursuant to Section 4.2 of the Shareholders Agreement, the
Shareholders Agreement may be amended by a written instrument duly executed by a
majority in interest of the Shareholders and, if the Lee Group Shareholders, the
Management Shareholders or the Non-Management Shareholders are adversely
affected by such amendment, by a majority in interest of each such adversely
affected group; and
WHEREAS, the signatories hereto represent a majority in interest of
the Stockholders and a majority in interest of each of the Lee Group
Shareholders and the Management Shareholders.
NOW THEREFORE, in consideration of the foregoing, the Shareholders
Agreement is hereby amended as follows:
1. Clause (iii) of Section 2.1 is amended to read as follows:
"(iii) for any Lee Group Shareholder or Management Shareholder, made
after a Public Offering, pursuant to a Rule 144 Transaction; provided
that no Management Shareholder shall so Transfer Shares if it would
result in the fraction W divided by X being greater than the fraction
Y divided by Z, where "W" equals the aggregate number of Shares
previously Transferred by such Management Shareholder (including its
Permitted Transferees) pursuant to one or more Rule 144 Transactions
or Public Offerings plus the aggregate number of Shares being so
Transferred, "X" equals the maximum number of Shares beneficially
owned by such Management Shareholder at any time since September 12,
1996 (including Shares owned by its Permitted Transferees and Shares
subject to options, to the extent exercisable),
"Y" equals the aggregate number of Shares previously Transferred
(without duplication) by the Lee Group Shareholders other than
pursuant to a Permitted Transfer, and "Z" equals the maximum number of
Shares beneficially owned by the Lee Group Shareholders at any time
since September 12, 1996, in each case such number of Shares being
equitably adjusted to account for stock dividends, stock splits,
reverse stock splits or other similar reclassifications;"
2. Section 2.1 is amended to delete the following sentence therefrom:
"For purposes of this Section 2.1, "Proportionate Equity Interest"
shall mean the number of Shares set forth on the Schedule opposite the
Management Shareholder's name plus the number of Shares underlying
options granted to such Management Shareholder on the date hereof (to
the extent exercisable) divided by the aggregate number of Shares set
forth on the Schedule opposite the names of the Lee Group
Shareholders, in each case as equitably adjusted to account for stock
dividends, stock splits, reverse stock splits or other similar
reclassifications."
3. Section 3.2(b) is hereby amended to read as follows:
"If, pursuant to Section 3.3, the total amount of securities that all
Holders and all other holders of securities which have applicable
registration rights request to be included in an offering made
pursuant to this Section 3.2 exceeds the amount of securities that the
underwriters reasonably believe compatible with the success of the
offering, then the Company will include in such registration only the
number of securities which, in the good faith opinion of such
underwriters, can be sold. The securities to be included in the
registration shall be determined in accordance with Section 3.3."
4. The second and third sentence of Section 3.3 are amended to read as
follows:
"Upon the written request of any Holder received by the Company within
five (5) days after the giving of any such notice by the Company, the
Company shall use its best efforts to cause to be registered
2
under the 1933 Act all of the Registrable Shares of each Holder that
such Holder has requested be registered, provided that no Management
Shareholder (or its Permitted Transferees) may sell pursuant to such
registration an aggregate number of Shares if such sale would result
in the fraction W divided by X being greater than the fraction Y
divided by Z, where "W" equals the aggregate number of all Shares
previously Transferred by such Management Shareholder (or its
Permitted Transferees) pursuant to one or more Rule 144 Transactions
and Public Offerings plus the aggregate number of Shares of the
Management Shareholder (including its Permitted Transferees) being
sold pursuant to such registration, "X" equals the maximum number of
Shares beneficially owned by such Management Shareholder at any time
since September 16, 1996 (including Shares held by its Permitted
Transferees and Shares subject to options to the extent exercisable),
"Y" equals the aggregate number of Shares previously Transferred by
the Lee Group Shareholders other than pursuant to a Permitted Transfer
plus the aggregate number of Shares of the Lee Group Shareholders
being sold pursuant to such registration and "Z" equals the maximum
number of Shares beneficially owned by the Lee Group Shareholders at
any time since September 16, 1996, in each case such number of Shares
being equitably adjusted to account for stock dividends, stock splits,
reverse stock splits or other similar reclassifications. Subject to
the foregoing, if the total amount of securities that are to be
included by the Company (or other person (including any Shareholder)
for whose account the registration is made) for its own account and at
the request of Holders pursuant to this Section 3.3 and all other
holders of securities which have applicable registration rights
exceeds the amount of securities that the underwriters reasonably
believe compatible with the success of the offering, then the Company
will include in such registration only the number of securities which
in the opinion of such underwriters can be sold, selected from the
securities requested to be included by all Holders and all such other
holders, to the extent such Shares are permitted to be sold pursuant
to the foregoing sentence, pro rata based on the number of securities
(including for any Management Shareholder securities underlying
outstanding options granted to such Management Shareholder to the
extent exercisable) which each of them owns."
3
This Amendment No. 2 may be signed in one or more counterparts, each
of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
4
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2
to the Shareholders Agreement as of the date first written above.
RAYOVAC CORPORATION
By /s/ David A. Jones
-----------------------------------------------
David A. Jones
Chief Executive Officer
5
Lee Group Shareholders:
THOMAS H. LEE EQUITY FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
By: THL Equity Trust III,
as General Partner
By /s/ Scott A. Schoen
----------------------------------------------
Name: Scott A. Schoen
Title: Trustee
THOMAS H. LEE FOREIGN FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
By: THL Equity Trust III,
as General Partner
By /s/ Scott A. Schoen
----------------------------------------------
Name: Scott A. Schoen
Title: Trustee
THL-CCI LIMITED PARTNERSHIP
By: THL Investment Management Corp.,
as General Partner
By /s/ T. H. Lee
----------------------------------------------
Name: Thomas H. Lee
Title: Sole Director
6
Management Shareholders:
/s/ David A. Jones /s/ Dale R. Tetzlaff
- ------------------------------- ----------------------------------
David A. Jones Dale R. Tetzlaff
/s/ Roger F. Warren /s/ Trygve Lonnebotn
- ------------------------------- ----------------------------------
Roger F. Warren Trygve Lonnebotn
/s/ Raymond L. Balfour /s/ James A. Broderick
- ------------------------------- ----------------------------------
Raymond L. Balfour James A. Broderick
/s/ Kenneth V. Biller /s/ Kent J. Hussey
- ------------------------------- ----------------------------------
Kenneth V. Biller Kent J. Hussey
/s/ Merrell M. Tomlin /s/ Stephen P. Shanesy
- ------------------------------- ----------------------------------
Merrell M. Tomlin Stephen P. Shanesy
FOURTH AMENDMENT
TO AGREEMENT OF LEASE
---------------------
This Fourth Amendment to Agreement of Lease made as of the ______ day of
November, 1998 by and between SPG Partners, a Wisconsin general partnership
("Landlord") and Rayovac Corporation, a Wisconsin corporation ("Tenant")
W I T N E S S E T H:
WHEREAS, Landlord and Tenant have entered into an agreement of lease dated
May 14, 1985, as amended by First Amendment to Agreement of Lease dated as of
June 24, 1986, Second Amendment to Agreement of Lease dated as of June 10, 1987
and Third Amendment to Agreement of Lease dated as of October 1, 1997 covering
certain property located in the City of Madison, Dane County, Wisconsin, all as
more particularly described therein (the "Lease");
WHEREAS, the parties hereto desire to amend the Lease effective as of
December 31, 1998 in accordance with the terms hereof,
NOW, THEREFORE, for good and value consideration, the receipt in
sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as
follows:
1. Article IV of the Lease is hereby deleted and restated in its entirety
to read as follows:
ARTICLE IV
RENT, ESCROW DEPOSIT
--------------------
4.01. Tenant covenants and agrees to pay to Landlord (or to any other
person designated herein) as rent for the Demised Premises the following
(a) Fixed Rent amounting to $2,600,000.00 per annum, which amount
shall be subject to adjustment based upon changes in the Consumer
Price Index (the "CPI Adjustments") as provided in Section 4.02
(herein referred to as "Fixed Rent"); and
(b) Additional Rent consisting of all other sums of whatsoever
nature which shall become due and payable by Tenant hereunder, and for
default in the payment of which Landlord shall have the same remedies
as for a default in the payment of Fixed Rent (herein referred to as
"Additional Rent").
4.02. CPI Adjustments to the Fixed Rent shall be made on the seventh
(7th), fourteenth (14th), eighteenth (18th) and twenty-fifth (25th)
anniversaries of the Commencement Date and at such other times as are
described in Article XXII of this lease (the "CPI Adjustment Dates"). CPI
adjustments to the Fixed Rent shall be based upon changes in the "Consumer
Price Index for all Urban Consumers, Milwaukee, Wisconsin" as that number
is issued by the Bureau of Labor Statistics of the United States Department
of Labor (the "CPI"). The CPI in effect for the month immediately
prior to the month in which the Commencement Date occurs shall be called
the "Beginning Index". The CPI published for the month immediately
preceding the CPI Adjustment Date in question shall be called the
"Adjustment CPI".
The seventh anniversary of the Commencement Date shall be the First CPI
Adjustment Date. On that date, the Fixed Rent shall be adjusted to equal
$2,600,000 per annum X [1+.6 X (First Adjustment CPI - 1)]
--------------------
Beginning CPI
The fourteenth anniversary of the Commencement Date shall be the Second CPI
Adjustment Date. On that date, the Fixed Rent shall be adjusted to equal
$2,600,000 per annum X [1+.6 X (Second Adjustment CPI - 1)]
---------------------
Beginning CPI
The eighteenth anniversary of the Commencement Date shall be the Third CPI
Adjustment Date. On that date, the Fixed Rent shall be adjusted to equal
$2,600,000 per annum X (Third Adjustment CPI)
----------------------
Beginning CPI
The twenty-fifth anniversary of the Commencement Date shall be the Fourth
CPI Adjustment Date. On that date, the Fixed Rent shall be adjusted to
equal
Fixed Rent as of the Third CPI Adjustment Date [1+.6 X (Fourth Adjustment CPI - 1)]
---------------------
Third Adjustment CPI
Notwithstanding anything herein to the contrary, the Fixed Rent during the
first 25 years of the Lease shall never be less than $2,600,000 per annum.
4.03. Landlord shall, promptly after each CPI Adjustment Date, deliver
to Tenant a statement setting forth the amount of the CPI Adjustment and
the basis for such computation. Until Tenant has received such statement
from Landlord, the Fixed Rent shall be paid in an amount equal to the Fixed
Rent in effect prior to such CPI Adjustment Date. On the first day of the
month following receipt of the statement of the CPI Adjustment, Tenant
shall pay, in addition to the adjustment Fixed Rent for such month, an
amount equal to the difference between the amount paid by Tenant from the
applicable CPI Adjustment Date and the amount Tenant should have paid using
the adjusted Fixed Rent.
4.04. Landlord shall not be required to make any adjustments or
recomputations, retroactive or otherwise, by reason of any revision which
may later be made in the figure of the Index first published for any month.
2
4.05. If the Index ceases to use the 1967 average equaling 100 as the
basis of calculation, or if a change is made in the term or number of items
contained in the Index, or if the Index is altered, modified, converted or
revised in any other way, then the Index shall be adjusted to the figure
that would have been arrived at had the change in the manner of computing
the Index in effect upon the Commencement Date of this Lease not been made.
If such Index (or a successor or substitute index similarly adjusted) is
not available, a reliable governmental or other reputable publication
selected by Landlord and evaluating the information theretofore used in
determining the Index shall be used.
4.06. The Fixed Rent shall be payable without demand in equal monthly
installments, in advance, on the first day of each and every calendar month
during the term of this lease (except that the first monthly installment or
pro rata portion thereof shall be due and payable as provided in Section
2.01(d)).
4.07. Tenant shall pay the Fixed Rent by good and sufficient
check-(subject to collection) drawn on a bank which is a member of the
Federal Reserve System to Landlord at the address aforesaid or a such other
place as Landlord may designate by notice.
4.08. Tenant shall pay to Landlord, through the term of this lease,
the Fixed Rent and Additional Rent (except with respect to those items of
Additional Rent which are due and payable to persons other than Landlord),
free of any charges, assessments, impositions or deductions of any kind,
and without abatement or setoff except as hereinafter otherwise expressly
provided. Tenant's obligations hereunder shall survive the expiration or
earlier termination of the term of this lease.
4.09. Prior to the Commencement Date of the Permanent Loan as that
term is defined in the Promissory Note dated February 8, 1985, executed by
Landlord as Obligor to Northwestern Mutual Life Insurance Company ("NML")
(NML or any replacement lender being hereinafter referred to as the
"Lender") and amended by Amendment of Terms of Note dated May 1, 1986 (as
amended the "Note") which Note is secured by a mortgage to NML hearing the
same date (the "NML Mortgage"), Tenant shall deposit the sum of $1,000,000
into an escrow account held by an escrow agent which is acceptable to the
Lender. Tenant shall have the exclusive right to direct the investment
(including reinvestment) of the funds deposited, Subject to limitations as
to the categories of permissible investments and as to the liquidity of
such investments. In the event of Tenant's default beyond any applicable
grace period in the payment of Fixed Rent or Additional Rent due and
payable pursuant to this Lease, the deposit, together with all interest or
other income then on deposit together with all interest or other income
than on deposit in the escrow account, shall be made available to Landlord
in such amounts as are necessary to cure Tenant's default. If at the time
of such default by Tenant, either (a) Landlord is simultaneously in default
beyond any applicable grace period under the Note and NML Mortgage or under
any replacement mortgage loan and Lender has accelerated the balance due
under its note, or (b) the Note is at maturity and Landlord is ii-i default
in its payment of the outstanding principal balance then due and owing,
then the entire deposit, including all interest or other income then on
deposit in the escrow account, shall be made available to Lender in
reduction of the outstanding principal balance payable by
3
Landlord to Lender. Tenant shall be entitled to withdraw from the escrow
account, within thirty (30) days after June 30 of each year, an amount
equal to the amount of income (interest, dividends and the like) and the
net gain (the aggregate of gains over losses) realized upon the investments
held in the escrow account if, and only if, there is at the time of such
withdrawal no default by Tenant in the payment of Fixed Rent or Additional
Rent due under this Lease and the balance remaining in the escrow account
is not less than $1,000,000. In the event NML at any time subsequent hereto
consents to, or in the event replacement financing obtained from a lender
other than NML permits the escrow account balance to be less than the
escrow account balance presently required under the NML Mortgage and this
Section 4.09, Tenant shall be permitted on the effective date of such
consent or refinancing, to reduce the escrow account balance to such lesser
amount, but in no event at any time shall the escrow account balance be
less than $750,000.
All of the above terms shall be incorporated in an Escrow Agreement
which shall be acceptable to Lender and which shall be substantially in the
form of Exhibit F annexed hereto and which replaces the Exhibit F
originally annexed to this Lease. In the event that the escrow account is,
at some time subsequent hereto, not required by NML or is not required
under the terms of replacement financing obtained from a lender other than
NML, Tenant shall then be required to maintain a security deposit of
$750,000 to be held by an escrow agent chosen by the Landlord and
reasonably acceptable to Tenant pursuant to an Escrow Agreement, which
shall be substantially the same as the form of Exhibit F annexed hereto,
excepting that all provisions relating to or in favor of a Lender, which
include, but may not be limited to, paragraph 2.6, and that portion of
paragraph 7 relating to foreclosure, shall be removed from such Escrow
Agreement.
4.10 In consideration of Tenant's performance of the obligations set
forth in Articles VI, IX and X herein, Tenant shall receive an annual
credit against Fixed Rent (the "Expense Credit") of $1,176,400.00. The
Expense Credit shall be given to Tenant in equal monthly installments as an
offset to the monthly installments of Base Rent, provided that Tenant is
not in default hereunder. The Expense Credit shall remain constant through
the term of, this Lease and shall not be increased or decreased on the
basis of any change in actual expenses or changes in the CPI. The Expense
Credit shall not be included in calculating the CPI adjustment to the Rent
Credit set forth in Section 4.12.
4.11. Tenant shall pay Landlord a Special Rental Supplement to reflect
the fact that Landlord has elected to pass through to Tenant, as provided
in Section 48(d) of the Internal Revenue Code of 1986 and in Section 32.05
of this lease, the investment tax credit for personal property placed in
service by Landlord in the Demised Premises during the Tenant's fiscal year
ending June 30, 1986. Such Special Rental Supplement shall equal a total of
$120,000 payable $60,000 on or before May 31, 1987 and $60,000 on or before
June 30, 1987.
4.12. The rent otherwise to be paid hereunder by Tenant for the period
from October 1, 1997, through December 31, 1997, shall be reduced by
$56,250. Beginning on January 1, 1998, and for each year thereafter that
this Lease or any extension
4
hereof shall be effective, the rent that Tenant shall otherwise be required
to pay hereunder shall be reduced by the following amount (the "Rent
Credit"):
$225,000 per annum, which amount shall be increased or decreased
oi-i each CPI Adjustment Date by the same percentage as the Fixed Rent
is adjusted on such CPI Adjustment Date, as provided in Section 4.02.
Thus, by way of example, if the Fixed Rent, as adjusted on a CPI
Adjustment Date, is 2% higher than the Fixed Rent immediately prior to
such CPI Adjustment Date, then the Rent Credit, as in effect
immediately prior to the CPI Adjustment Date, shall be increased by 2%
on that CPI Adjustment Date.
2. Article VI of the Lease is hereby deleted and restated in its entirety
to read as follows:
ARTICLE VI
OBLIGATION TO MAINTAIN AND REPAIR
---------------------------------
6.01. Tenant, at its expense, shall promptly make all necessary
interior, exterior, structural and non-structural repairs to the Demised
Premises and the fixtures, building systems including all appurtenances and
installations therein.
6.02 Tenant shall maintain the Demised Premises in good working order
and repair consistent with the standards prevailing in first class
commercial office projects in Madison, Wisconsin. Without limiting its
obligations, Tenant, among other things shall regularly maintain, service
and repair plumbing, heating, ventilation, air conditioning, sprinkler,
electrical and all other mechanical systems and all equipment, machinery,
fixtures and appurtenances thereto ("Mechanical Systems"); make all
structural repairs when required; maintain and repair the parking lot
(including any necessary repaving), vaults (if any), signs, railings, roof
of the Building, exterior lighting fixtures, exterior electrical work,
pipes and mains (unless owned by the utility company), curbs and utility
connections; maintain and repair all sidewalks, driveways and plaza
abutting the Building and on the Demised Premises; keep the Demised
Premises painted and landscaped in a manner consistent with the standards
prevailing in first class commercial office projects in Madison, Wisconsin;
keep the Demised Premises clean and free of debris, snow and ice; and
repair all broken glass. Landlord shall have no responsibility to repair or
maintain the Demised Premises during the term of this Lease.
6.02. Tenant shall arrange for rubbish removal and shall provide
cleaning services for the Building.
6.03. Tenant warrants to discharge any liens filed against the Demised
Premises arising in connection with any work provided pursuant to this
Article VI promptly after receipt of notice thereof and to pay all monies
due and payable by Tenant in connection therewith.
3. Article Section 7.01(c) of the Lease is hereby modified to read as
follows:
5
7.01. (e) Prior to commencing the alterations, Tenant or its
contractors shall procure and shall thereafter maintain at all times when
any work is in progress, workmen's compensation insurance, general
liability insurance and standard form of fire and extended coverage
insurance (with Builder's Risk endorsement, if appropriate), appropriate in
coverage and amount.
Notwithstanding the foregoing, alterations that (i) are likely to
materially increase the maintenance, repair or cleaning costs or (ii)
change the exterior appearance of the Demised Premises, or (iii) impact
adversely upon the structural integrity of the Building or (iv) detract
from or diminish the vale of the Demised Premises as a commercial office
project, shall be made only with the prior written consent of Landlord.
4. Article IX of the Lease is hereby deleted and restated in its entirety
to read as follows:
ARTICLE IX
PAYMENT OF IMPOSITIONS-, SEPARATE TAX LOT
-----------------------------------------
9.01. Tenant shall be responsible for the payment of all Impositions.
Throughout the term of this lease, Tenant shall pay to Landlord as
Additional Rent, within ten (10) days of receipt of Landlord's statement
clearly setting forth the amount payable by Tenant, or at lease 30 days
prior to the date that payments are due to the taxing authorities or any
superior mortgagee whichever date is later, all Impositions for any Tax
Year occurring entirely during the term of this lease. Tenant shall pay
such Additional Rent notwithstanding the pendency of a contest or
proceeding brought by either Landlord or Tenant.
9.02. All Impositions for the Tax Year in which the Commencement Date
occurs and all Impositions for the Tax Year in which the expiration or
earlier termination of the term of this lease (but not as the result of
Tenant's default) occurs shall be apportioned between Landlord and Tenant
on a basis consistent with the principles underlying the provisions of this
Article IX, taking into consideration the portion of such Tax Year which
shall have elapsed after the Commencement Date and prior to the expiration
or earlier termination of the term of this lease.
9.03. In the event that Tenant shall fall to pay such Impositions,
Landlord may, at its election, pay the same in accordance with the
provisions of Article XIX hereof.
9.04. Landlord shall at all times have the night, but not the
obligations, to contest any such Impositions in any manner permitted by law
an/or to endeavor, through proceedings or otherwise, to obtain a lowering
of the assessed valuations of the Demised Premises for the purpose of
reducing the Impositions, Any such contest or proceeding may include prompt
appeals from any judgments, decrees or orders until a determination is made
by a court having final jurisdiction in the matter. All actions taken by
Landlord to commence, prosecute and settle contests or proceedings shall be
performed at the expense of Tenant, and Tenant shall reimburse Landlord
within fifteen (15) days after
6
Landlord furnishes a statement specifying the costs and expenses (including
reasonable attorneys' fees and expenses) incurred by Landlord.
9.05 Upon obtaining the consent of Landlord, which consent shall not
be unreasonably withheld, Tenant may diligently bring any contest or
proceeding described in Section 9.04 at it own expense and in its own name,
or, whenever required by law or any rule or regulation in order to make
such action or proceeding effective, in Landlord's name.
Landlord agrees, at the request of Tenant, to cooperate with Tenant in
effecting such contest or proceeding, including, without limitation,
executing any and all documents reasonably necessary in connection with
such contest or proceeding, but without expense or liability to Landlord.
Tenant hereby agrees to indemnify and hold Landlord harmless from all
costs, expenses (including reasonable attorneys' fees and disbursements),
claims, loss, liability and damage by reason of, or in connection with, any
such contest or proceeding. Tenant shall keep Landlord advised as to the
status of such contest or proceeding.
9.06. Landlord and Tenant agree that no settlement of any proceeding
by Landlord or Tenant, as the case may be, shall result in an assessed
valuation of the Demised Premises for such tax year greater than the
assessed valuation of the Demised Premises for Such tax year as originally
imposed, unless the other party reasonably consents thereto.
9.07. If, by reason of any contest or proceeding, all or any part of
the amount of any Imposition shall be refunded or returned to Landlord,
then Landlord shall promptly pay to Tenant the entire portion of the refund
to the extent such amount is attributable to an Imposition paid by Tenant,
less the reasonable costs incurred by Landlord in obtaining such refund.
9.08 Notwithstanding anything to the contrary in this Article IX,
neither Landlord nor Tenant shall bring any contest or proceeding which
would violate the terms of the Waiver of Objection to Assessed Valuation,
executed by Landlord on January 15, 1985, a copy of which is annexed hereto
as Exhibit H.
5. Article 10 of the Lease is hereby deleted and restated in its entirety
to read as follows:
ARTICLE X
UTILITIES
---------
10.01. From and after the Commencement Date, Tenant shall pay when due
all charges for water, sewer, gas, electricity, and fuel used on or about
the Demised Premises. Tenant shall promptly make such payments directly to
the utility company or billing authority. In the event the utility bill
cannot be directly rendered to and for the account of Tenant, Landlord may
require Tenant to pay to Landlord any such amount billed by Landlord as
Additional Rent within ten (10) days of receipt of Landlord's
7
statement clearly setting forth the amount payable by Tenant. Appropriate
pro rata adjustments shall be made to determine the sums payable by Tenant
pursuant to this Section 10.01 in the event of a Partial Lease Year.
10.02. In no event shall Tenant's use of electric current in the
Demised Premises exceed the capacity of any of the electrical conductors or
other equipment in or otherwise servicing the Demised Premises.
6. Article II of the Lease is hereby deleted and restated in its entirety
to read as follows:
ARTICLE XI
COMPLIANCE WITH LAWS
--------------------
11.01. Subsequent to the Commencement Date, Tenant at its expense,
shall diligently comply with all laws of public authorities applicable to
the Demised Premises.
11.02. Tenant may, at its expense, (and, if necessary, in the name of
but without expense to Landlord) contest, by appropriate proceedings
prosecuted diligently and in good faith, the validity or applicability to
the Demised Premises of any law of public authority, and Landlord shall
cooperate with Tenant ii-i such proceedings, and shall execute any
documents or pleadings reasonably required by Tenant for such purpose,
provided that Landlord shall not be subject to the risk of criminal
prosecution or penalty or the risk of material civil liability, nor shall
the Demised Premises or any Fixed Rent or Additional Rent be in danger of
being forfeited or lost by reason of noncompliance or otherwise by reason
of such contest. Tenant hereby agrees to indemnify and hold Landlord
harmless from all costs, expenses (including reasonable attorneys' fees and
disbursements), claims, loss, liability and damage by reason of or in
connection with any such proceeding unless the proceeding is due to
Landlord's failure to observe or perform its obligations under this lease,
in which latter event Landlord shall be entitled to enter the proceedings
in place of Tenant and shall indemnify and hold Tenant harmless as
aforesaid, Tenant shall keep Landlord advised as to the status of such
proceedings.
[11.03. Notwithstanding any provision of this lease to the contrary,
if, after the Building and Improvements are completed in accordance with
the Plans and Specifications, any future law of public authority applicable
to the Demised Premises requires changes or alterations to be made which
under generally accepted accounting principles would be deemed to be
capital expenditures, then it is agreed that Tenant shall do the work
(subject to Landlord's night to approve the cost thereof and, at its
election, to perform the work at the same or lower estimated cost,
including the reasonable costs of any required architects and/or engineers)
and the cost thereof shall apportioned between Landlord an Tenant on a
straight-line basis over a period of eighteen (18) years; it being agreed,
for the purpose of this lease, that any such expenditure shall be deemed to
have a useful life expectancy of eighteen (18) years. The cost of the
expenditure shall be initially paid in full by Tenant at the time of
performance of the work, but shall ultimately be allocated so that Tenant
shall only be responsible for that portion thereof attributable
8
to the period up to the Expiration Date (as same may be extended in
accordance with the terms of this lease) and Landlord shall be responsible
for that portion attributable to the period after the Expiration Date.
Landlord shall reimburse Tenant on the Expiration Date for that portion of
the cost allocable to Landlord as hereinabove provided, with simple
interest thereon at an annual rate of 10% from the date of Tenant's final
payment for the work.]
7. Section 15.03. of the Lease shall be modified to eliminate any reference
to Sections 31.01., 31.02. and 31.03. by deleting the entire third sentence of
Section 15.03.
8. Article XVII of the Lease is hereby deleted and restated in its entirety
to read as follows:
ARTICLE XVII
INDEMNIFICATION
---------------
17.01. Tenant shall indemnify and save Landlord harmless from and
against all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including reasonable architect's and attorneys' fees,
which may be imposed upon or incurred by or asserted against Landlord by
reason of any of the following occurrences during the time of this lease:
(a) any work or thing done in, on or about the Demised Premises,
or any part thereof, by Tenant or any party other than Landlord or its
agents;
(b) any use, non-use, possession, occupation condition,
operation, maintenance or management of the Demised Premises, or any
part thereof,
(c) any negligence on the part of Tenant or any of its agents,
contractors, servants, employees, subtenants, licensees or invitees;
(d) any accident, injury or damage to any person or property
occurring in, on or about the Demised Premises or any part thereof,
except if arising in connection with Landlord's Work or the breach of
Landlord's maintenance and repair obligations under Article VI hereof
(provided that Tenant gave Landlord prompt notice of any potentially
dangerous condition requiring repair of which Tenant was actually
aware); or
(e) any failure on the part of Tenant to perform or comply with
any of the covenants, agreements, terms, provisions, conditions or
limitations contained in this lease on its part to be performed or
complied with.
In case any action or proceeding is brought against Landlord by reason
of any such claim, Tenant, upon written notice from Landlord, shall at
Tenant's expense resist and defend such action or proceeding by counsel
approved by Landlord in writing, which approval shall not be unreasonably
withheld. The obligations of Tenant under this
9
Section 17.01 arising by reason of any such occurrence taking place during
the ten-n of this lease shall survive the expiration or early termination
of this lease.
17.02. Landlord shall indemnify and save Tenant harmless from and
against all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses (including reasonable architects' and attorneys' fees)
which may be imposed upon or incurred by or asserted against Tenant by
reason of any of the following occurrences:
(a) any negligence on the part of Landlord or any of its agents,
contractors, servants, employees, subtenants, licensees or invitees;
(b) any failure on the part of Landlord to perform or comply with
any of the covenants, agreements, terms, provisions, conditions or
limitations contained in this lease on its part to be performed or
complied with.
In case any action or proceeding is brought against Tenant by reason
of any such claim, Landlord, upon written notice from Tenant, shall at
Landlord's expense resist and defend such action or proceeding. The
obligations of Landlord under this Section 27.02 arising by reason of any
such occurrence taking place prior to or during the term of this lease
shall survive the expiration or early termination of this lease.
9. Article XXII of the Lease is hereby deleted and restated in Its entirety
to read as follows:
ARTICLE XXII
OPTIONS TO EXTEND TERM
----------------------
22.01. Provided that Tenant shall not then be in default with respect
to any material covenant of this lease beyond the expiration of the
applicable grace period, if any, Tenant shall have the option to extend the
term of this lease for an additional period of ten (10) years (the
"Extended Term"); provided, however, that (a) Tenant shall notify Landlord
not earlier than twenty-four (24) months and not later than the date which
is eighteen (18) months prior to the then Expiration Date that Tenant
desires such extension and (b) such extension shall be on the same terms,
covenants and conditions as are contained in this lease, except with
respect to (1) the annual Fixed Rent which shall be determined in the
manner provided for in Section 22.02, (ii) such provisions in this lease
which apply only to the initial term, and (111) the option herein granted
to extend the initial term of this lease.
22.02. (a) Fixed Rent payable by Tenant during the Extended Term of
this lease shall be equal to $2,600,00 per annum, subject to the CPI
Adjustments hereinafter described.
10
(b) If the term is extended pursuant to Section 22.01 hereunder, the
first day of the Extended Term shall be the Fifth CPI Adjustment Date. The
initial fixed rent for the extended term shall be equal to
(Fifth Adjustment CPI)
$2,600,000 per annum X --------------------
Beginning CPI
(c) The seventh anniversary of the commencement date of the Extended
Term shall also be a CPI Adjustment Date (the "Sixth CPI Adjustment Date").
If the CPI for the Sixth CPI Adjustment Date has increased over the CPI for
the Fifth CPI Adjustment Date, then the fixed rent for the remainder of the
Extended Term shall equal
Sixth Adjustment CPI
Fixed Rent as of the Fifth CPI Adjustment Date [1+.6 X ( --------------------- - 1)]
Fifth Adjustment CPI
Notwithstanding anything to the contrary, the Fixed Rent during the Extended
Lease shall never be less than $2,600,000 per annum.
10. Section 29.01 of the Lease is hereby deleted and restated in its
entirety to read as follows:
29.01. Landlord and its authorized representatives shall have the
light, upon reasonable advance notice to Tenant, to enter the Demised
Premises or any part or parts thereof, during Business Hours, accompanied
by a duly authorized representative of Tenant. If Tenant makes such
representative available: (i) to examine the Demised Premises to ascertain
if Tenant has performed its obligations under this lease- (11) to show the
Demised Premises to prospective purchasers or mortgagee; (iii) during the
period commencing eighteen (18) months prior to the end of the term of
this lease (if Tenant shall not have exercised the applicable option to
extent the term pursuant to Article XXII), to show the Demised Premises to
prospective tenants; (iv) for the purpose of making such repairs in or to
the Demised Premises as may be provided for by this lease or as may be
mutually agreed upon by the parties; and (v) to conduct such environmental
and engineering tests and studies as Landlord reasonably deems necessary or
appropriate in connection with a prospectus or actual sale or refinancing
of the property. Landlord shall be allowed to take all materials into the
Demised Premises that may be required for such repairs and actions.
Landlord's rights under this Section 29.01. shall be exercised in such
manner as to cause the least practicable interference with Tenant's use and
occupancy of the Demised Premises.
11. Article XXXI shall be deleted in its entirety.
12. Section 32.06 is hereby deleted and restated in its entirety to read as
follows:
32.06. Landlord or its agents shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain or snow or leaks from any
part of the Building or from pipes, appliances or plumbing works or from
the roof, street or subsurface, or from any other place or by
11
dampness or by any other cause of whatsoever nature, unless caused by or
due to the act or neglect of Landlord, its agents, servants or employees or
caused by or due to Landlord's failure to comply with its obligations under
this lease. Tenant shall give prompt notice to Landlord in case of fire or
other casualty or accidents occurring in the Demised Premises.
13. Except as modified herein, all remaining terms and conditions of the
Lease shall remain in full force and effect.
12
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement as
of the date first written above.
SPG PARTNERS, a Wisconsin (general
partnership ("Landlord")
By: /s/ Lionel N. Sterling
--------------------------------
Lionel N. Sterling
General Partner
By: /s/ Robert B. Goergen
--------------------------------
Robert B. Goergen
General Partner
By: /s/ Tom Pyle
--------------------------------
Tom Pyle
General Partner
RAYOVAC CORPORATION, a Wisconsin
corporation ("Tenant")
By: /s/ James A. Broderick
--------------------------------
13
5
3-MOS
JAN-03-1999
JAN-03-1999
2,742
0
109,635
1,249
56,405
186,078
159,254
86,806
296,660
101,150
153,905
0
0
570
31,002
296,660
160,542
160,542
81,859
81,859
59,207
132
3,656
15,688
5,696
9,992
0
0
0
9,992
0.36
0.34
