UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14C

 

INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

(Amendment No.      )

 

Check the appropriate box:

 

þ     Preliminary Information Statement

 

o     Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d))

 

o     Definitive Information Statement

 

HARBINGER GROUP INC.

 

(Name of Registrant as specified in its charter)

 

Payment of Filing Fee (Check the appropriate box):

 

o     No fee required.

 

 

 

Common stock, $0.01 par value per share, of Spectrum Brands Holdings, Inc. (“SB Holdings”)

 

 

27,756,905 (shares of SB Holdings common stock to be contributed by Harbinger Capital Partners Master Fund I, Ltd., Harbinger Capital Partners Special Situations Fund, L.P. and Global Opportunities Breakaway Ltd. to Harbinger Group Inc.)

 

 

$27.37 (computed pursuant to Exchange Act Rule 0-11(c)(1) and 0-11(a)(4), the average of the high and low prices per share of SB Holdings common stock on the New York Stock Exchange as of October 1, 2010)

 

 

$759,706,490 (the maximum aggregate value was determined based upon the product of (i) 27,756,905 shares of SB Holdings common stock and (ii) $27.37)

 

 

$54,167 (computed in accordance with Exchange Act Rule 0-11(c)(1) and Section 14(g) of the Exchange Act by multiplying the proposed maximum aggregate value of the transaction by 0.0000713)

 

 

o     Fee paid previously with preliminary materials.

 

 

 

 

 

 

HARBINGER GROUP INC.
450 PARK AVENUE, 27^th FLOOR
NEW YORK, NEW YORK 10022
(212) 906-8555

 

 

NOTICE OF STOCKHOLDER ACTION BY WRITTEN CONSENT

 

 

              , 2010

 

To Stockholders of Harbinger Group Inc.:

 

The purpose of this letter is to inform you of the following corporate actions:

 

 

The Harbinger Parties currently own 9,950,061 shares of our common stock, or approximately 51.6% of our outstanding common stock. The Harbinger Parties currently also own 34,256,905 shares of SB Holdings common stock, $0.01 par value per share (“SB Holdings common stock”), or approximately 67.1% of the outstanding SB Holdings common stock. Pursuant to the Exchange Agreement, the Harbinger Parties will contribute 27,756,905 of their shares of SB Holdings common stock, or approximately 54.4% of the outstanding SB Holdings common stock, to us in exchange for 119,909,830 newly issued shares of our common stock. The exchange ratio of 4.32 to 1.00 was based on the respective volume weighted average trading prices of our common stock and SB Holdings common stock on the New York Stock Exchange (the “NYSE”) for the 30 trading days from and including July 2, 2010 to and including August 13, 2010, the day we received the Harbinger Parties’ proposal for the Spectrum Brands Acquisition. On September 9, 2010, the last full trading day before the Exchange Agreement was approved, the closing sales prices of our common stock and SB Holdings common stock were $5.98 per share and $26.09 per share, respectively.

 

The consummation of the Spectrum Brands Acquisition will result in the following:

 

 

 

A special committee of our board of directors (the “Committee”), consisting solely of directors who have been determined by our board of directors to be independent under the NYSE rules, unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and our stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our board of directors approve the Exchange Agreement and our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. Our board of directors (based in part on the unanimous approval and recommendation of the Committee) unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and our stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. The Harbinger Parties, holding a majority of the issued and outstanding shares of our common stock as of September 10, 2010, approved the issuance of our common stock pursuant to the Exchange Agreement by written consent without a meeting. The Spectrum Brands Acquisition is conditioned upon the satisfaction of the rules of Regulation 14C promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), receipt of applicable regulatory approvals and other conditions described in the enclosed information statement.

 

The enclosed information statement describes the Spectrum Brands Acquisition, the Exchange Agreement, the transactions contemplated by the Exchange Agreement and other documents related to the Spectrum Brands Acquisition, and other related matters that may be of interest to our stockholders. Please carefully read the entire information statement as it contains important information, including the section captioned “Risk Factors” beginning on page 92, for a discussion of the risks relating to the Spectrum Brands Acquisition. You can obtain additional information about HGI, SB Holdings and Spectrum Brands, Inc., a wholly owned operating subsidiary of SB Holdings, from documents we and they have filed with the Securities and Exchange Commission (the “SEC”). See “Where You Can Find More Information” for instructions on how to obtain that information.

 

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

NO ACTION IN CONNECTION WITH THIS INFORMATION STATEMENT IS REQUIRED BY YOU.

 

This notice and the enclosed information statement shall constitute notice to you of the action by written consent required by Section 228 of the DGCL.

 

The enclosed information statement is intended to provide certain information, pursuant to Section 14(c) of the Exchange Act and the rules and regulations prescribed thereunder, regarding the Spectrum Brands Acquisition to our stockholders who have not given their written consent to the Exchange Agreement. In accordance with Rule 14c-2 under the Exchange Act, we will not consummate the Spectrum Brands Acquisition until at least 20 calendar days have elapsed from the date we first mail this information statement to our stockholders.

 

Sincerely yours,

 

Philip A. Falcone, Chairman of the Board,

Chief Executive Officer and President

 

Neither the SEC nor any state securities regulatory agency has approved or disapproved the Exchange Agreement or the Spectrum Brands Acquisition, passed upon the merits or fairness thereof or passed upon the adequacy or accuracy of the disclosure in this notice or the information statement. Any representation to the contrary is a criminal offense.

 

The enclosed information statement is dated           , 2010 and

is first being mailed to our stockholders on or about           , 2010

 

TABLE OF CONTENTS

 

 

LIST OF ANNEXES

 

HARBINGER GROUP INC.
450 PARK AVENUE, 27^th FLOOR
NEW YORK, NEW YORK 10022
(212) 906-8555

 

 

INFORMATION STATEMENT

 

 

               , 2010

 

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY

 

This information statement is being mailed to the stockholders of Harbinger Group Inc., a Delaware corporation (“we,” “us” or “our”), on or about                , 2010, in connection with the Exchange Agreement and Spectrum Brands Acquisition (each term as defined below) described below. On September 10, 2010, a special committee of our board of directors and our board of directors (based in part on the unanimous approval and recommendation of the committee) unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our stockholders (other than the Harbinger Parties (as defined below)), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. On September 10, 2010, the Harbinger Parties, who on that date held a majority of the issued and outstanding shares of our common stock, $0.01 par value per share (our “common stock”), approved the issuance of our common stock pursuant to the Exchange Agreement by written consent without a meeting.

 

Accordingly, this information statement is furnished solely for the purpose of informing our stockholders of the Spectrum Brands Acquisition, in the manner required under Regulation 14C of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the General Corporation Law of the State of Delaware (the “DGCL”). No other stockholder approval of the Exchange Agreement is required. The record date for determining stockholders entitled to receive this information statement is 5:00 p.m., prevailing Eastern Time, on              , 2010 (the “Record Date”).

 

CORPORATE ACTION

 

Section 228 of the DGCL and our Bylaws permit the holders of a majority of our outstanding common stock to approve and authorize actions by written consent as if the actions were undertaken at a duly constituted meeting of our stockholders. On September 10, 2010, the Harbinger Parties, which held approximately 51.6% of our outstanding common stock on that date, approved the issuance of our common stock pursuant to the Exchange Agreement by written consent without a meeting. As a result, no further vote of our stockholders is needed to approve the issuance of our common stock pursuant to the Exchange Agreement. As of September 10, 2010 and as of the Record Date, there were 19,286,290 shares of our common stock issued and outstanding.

 

A special committee of our board of directors and our board of directors (based in part on the unanimous approval and recommendation of the committee) have unanimously approved the Contribution and Exchange Agreement, dated as of September 10, 2010 (the “Exchange Agreement”), by and among us, Harbinger Capital Partners Master Fund I, Ltd., Harbinger Capital Partners Special Situations Fund, L.P. and Global Opportunities Breakaway Ltd. (collectively, the “Harbinger Parties”), funds affiliated with Harbinger Capital Partners LLC (“Harbinger Capital” and together with its affiliates, including the Harbinger Parties, “Harbinger”), in the form of Annex A attached to this information statement, pursuant to which we will issue 119,909,830 shares of our common stock to the Harbinger Parties in exchange for an aggregate of 27,756,905 shares of common stock, $0.01 par value per share (the “SB Holdings common stock”) of Spectrum Brands Holdings, Inc., a Delaware corporation (“SB Holdings”), owned by the Harbinger Parties (the “Spectrum Brands Acquisition”).

The Harbinger Parties currently own 9,950,061 shares of our common stock, or approximately 51.6% of our outstanding common stock. The Harbinger Parties currently also own 34,169,285 shares of SB Holdings common stock, or approximately 67.1% of the outstanding SB Holdings common stock. Pursuant to the Exchange Agreement, the Harbinger Parties will contribute 27,756,905 of their shares of SB Holdings common stock, or approximately 54.1% of the outstanding SB Holdings common stock calculated on a fully diluted basis, to us in exchange for 119,909,830 newly issued shares of our common stock. The exchange ratio of 4.32 to 1.00 was based on the respective volume weighted average trading prices of our common stock ($6.33) and SB Holdings common stock ($27.36) on the New York Stock Exchange (the “NYSE”) for the 30 trading days from and including July 2, 2010 to and including August 13, 2010, the day we received the Harbinger Parties’ proposal for the Spectrum Brands Acquisition. On September 9, 2010, the last full trading day before the Exchange Agreement was approved, the closing sales prices of our common stock and SB Holdings common stock were $5.98 per share and $26.09 per share, respectively.

 

After giving effect to the Spectrum Brands Acquisition, the Harbinger Parties will own approximately 93.3% of our outstanding common stock.

 

The consummation of the Spectrum Brands Acquisition will result in the following:

 

 

We will pay the expenses of furnishing this information statement, including the cost of preparing, assembling and mailing this information statement.

 

We expect to consummate the Spectrum Brands Acquisition on                , 2010, which date is 20 calendar days after we first mail this information statement to our stockholders, or as soon as practicable thereafter, subject to obtaining all regulatory approvals and satisfaction or waiver of the closing conditions set forth in the Exchange Agreement.

 

Following are questions and related answers that address some of the questions you may have regarding the pending Spectrum Brands Acquisition and related matters. These questions and answers may not contain all of the information relevant to you, do not purport to summarize all material information relating to the Exchange Agreement or any of the other matters discussed in this information statement, and are subject to, and are qualified in their entirety by, the more detailed information contained in or attached to this information statement. Therefore, you should read carefully this entire information statement, including the attached annexes and materials we refer you to fully understand the Exchange Agreement and the transactions contemplated thereby.

 

Unless otherwise indicated in this information statement or the context otherwise requires, throughout this information statement we refer to Harbinger Group Inc. as “we,” “us,” “our,” “our company” or “HGI,” to Spectrum Brands Holdings, Inc., a recently formed holding company, and, where applicable, its subsidiaries (including Spectrum Brands and Russell Hobbs), as “SB Holdings,” to Spectrum Brands, Inc. and, where applicable, its subsidiaries, as “Spectrum Brands,” to Russell Hobbs, Inc. and, where applicable, its subsidiaries, as “Russell Hobbs,” to Harbinger Capital Partners Master Fund I, Ltd., as “Master Fund,” to Harbinger Capital Partners Special Situations Fund, L.P., as “Special Situations Fund,” to Global Opportunities Breakaway Ltd., as “Global Fund,” to Master Fund, Special Situations Fund and Global Fund, collectively, as the “Harbinger Parties,” to Harbinger Capital Partners, LLC, as “Harbinger Capital”, to Harbinger Capital and its affiliates, including the Harbinger Parties, as “Harbinger”, and to the Contribution and Exchange Agreement, dated as of September 10, 2010, by and among us and the Harbinger Parties, as the “Exchange Agreement”. SB Holdings was created in connection with the combination of Spectrum Brands and Russell Hobbs (the “SB/RH Merger”). We use the term “Spectrum Brands” to refer to both Spectrum Brands and its subsidiaries prior to the SB/RH Merger and to SB Holdings and its subsidiaries subsequent to the SB/RH Merger.

 

 

 

Harbinger Group Inc.
Attention: Investor Relations
450 Park Avenue, 27^th Floor
New York, New York 10022
Telephone: (212) 906-8560

 

 

SUMMARY OF THE INFORMATION STATEMENT

	•	the representations and warranties made by each Harbinger Party and our company in the Exchange Agreement being true and correct as of the Closing Date as if made at and as of such time (other than representations and warranties that by their terms address matters only as of another specified time, which must be true only as of such time);

	•	the performance in all material respects by each Harbinger Party and our company of their respective obligations under the Exchange Agreement required to be performed by the respective party prior to the Closing Date;
	•	since the date of the Exchange Agreement, there not having occurred any event, change, effect or circumstance that has had, or would be reasonably likely to have, a material adverse effect on SB Holdings or our company, as applicable;
	•	the Harbinger Parties shall have delivered to us certain a certain lock-up letter;
	•	approval for the listing on the NYSE of our shares of common stock to be issued under the Exchange Agreement;
	•	the HGI Registration Rights Agreement and the SB Holdings Stockholder Agreement, as joined by us (each as discussed below), remaining in full force and effect;
	•	all filings, consents, approvals and authorizations of any governmental authority required to consummate the Spectrum Brands Acquisition;
	•	no law or other legal restraint or prohibition is in effect that prohibits, makes illegal, or enjoins the consummation of the Spectrum Brands Acquisition;
	•	at least 20 calendar days shall have elapsed from the mailing of this information statement in accordance with Rule 14c-2(b) under the Exchange Act;
	•	the aggregate number of SB Holdings Contributed Shares shall represent at least 52.0% of SB Holdings outstanding common stock as of the Closing calculated on a fully diluted basis; and
	•	delivery of a certificate by each Harbinger Party with respect to the tax treatment of the Spectrum Brands Acquisition applicable to the Harbinger Parties.

	•	in any transaction or series of related transactions which would result in the issuance of shares of common stock, or securities convertible into shares of common stock, having 20% or more of the voting power of the company before such issuance, or
	•	in any transaction or series of related transactions to a director, officer or “substantial security holder” of the company if the number of shares of common stock, or the number of shares of common stock into which the securities may be converted, exceeds one percent of the voting power of the company before such issuance.

	•	by the mutual written consent of our company (acting upon unanimous recommendation of the Committee) and the Harbinger Parties;
	•	by either our company or the Harbinger Parties if:

	ο	the Closing has not occurred on or before January 31, 2011 (subject to an extension to March 31, 2011, if the SEC has not finished its review of this information statement on or before December 31, 2010), unless a breach of the Exchange Agreement by the party seeking to exercise such termination right caused, or resulted in, the failure of the transaction to be consummated on or before such date;
	ο	a governmental authority of competent jurisdiction shall have issued an order, or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Spectrum Brands Acquisition, which order or other action is final and nonappealable (except that this right to terminate the Exchange Agreement will not be available to any party which failed to comply with its obligations to use its best efforts to obtain the government approvals);

	•	by our company (acting upon the recommendation of the Committee) (i) upon the occurrence of any event that has had, or would be reasonably likely to have, a material adverse effect on SB Holdings or (ii) if the Harbinger Parties breach any of their covenants or agreements or any of their representations and warranties set forth in the Exchange Agreement which breach would result in the failure to satisfy our closing conditions and which breach is not cured within the permitted time; and
	•	by the Harbinger Parties (i) upon the occurrence of any event that has had, or would be reasonably likely to have, a material adverse effect on our company or (ii) if we breach any of our covenants or agreements or any of our representations and warranties set forth in the Exchange Agreement which breach would result in the failure to satisfy the Harbinger Parties’ closing conditions and which breach is not cured within the permitted time.

	•	SB Holdings will maintain (i) a special nominating committee of its board of directors (the “Special Nominating Committee”) consisting of three Independent Directors (as defined in the SB Holdings Stockholder Agreement), (ii) a nominating and corporate governance committee of its board of directors (the “Nominating and Corporate Governance Committee”) and (iii) an Audit Committee in accordance with the NYSE rules;
	•	for so long as we (together with our affiliates, including the Harbinger Parties) own 40% or more of SB Holdings’ outstanding voting securities, we will vote our shares of SB Holdings common stock to effect the structure of SB Holdings’ board of directors described in the SB Holdings Stockholder Agreement and to ensure that SB Holdings’ Chief Executive Officer is elected to its board of directors;
	•	neither SB Holdings nor any of its subsidiaries will be permitted to pay any monitoring or similar fee to us or our affiliates, including the Harbinger Parties;

	•	we will not effect any transfer of SB Holdings’ equity securities to any person that would result in such person and its affiliates owning 40% or more of SB Holdings’ outstanding voting securities, unless (i) such person agrees to be bound by the terms of the SB Holdings Stockholder Agreement, (ii) the transfer is pursuant to a bona fide acquisition of SB Holdings approved by SB Holdings’ board of directors and a majority of the members of the Special Nominating Committee, (iii) the transfer is otherwise specifically approved by SB Holdings’ board of directors and a majority of the Special Nominating Committee, or (iv) the transfer is of 5% or less of SB Holdings’ outstanding voting securities;
	•	before June 16, 2011, we will not (and we will not permit any of our affiliates, including the Harbinger Parties, to) make any public announcement with respect to, or submit a proposal for, or offer in respect of, a Going-Private Transaction (as defined in the SB Holdings Stockholder Agreement) of SB Holdings unless such action is specifically requested in writing by the board of directors of SB Holdings with the approval of a majority of the members of the Special Nominating Committee. In addition, under SB Holdings’ certificate of incorporation, no stockholder that (together with its affiliates) owns 40% or more of the outstanding voting securities of SB Holdings (the “40% Stockholder”) shall, or shall permit any of its affiliates or any group which such 40% Stockholder or any person directly or indirectly controlling or controlled by such 40% Stockholder is a member (together with the 40% Stockholder, a “Restricted Group”) of, engage in any transactions that would constitute a Going-Private Transaction, unless such transaction satisfies certain requirements. See the section captioned “Description of SB Holdings Capital Stock and Related Matters — Restrictions on Going-Private Transactions” below;
	•	we will have certain inspection rights so long as we and our affiliates, including the Harbinger Parties, own, in the aggregate, at least 15% of the outstanding SB Holdings’ voting securities; and
	•	we will have certain rights to obtain Spectrum Brands information, at our expense, for so long as we own at least 10% of the outstanding SB Holdings’ voting securities.

 

Harbinger Group Inc.

450 Park Avenue, 27^th Floor

New York, New York 10022

Telephone: (212) 906-8555

 

General. We are a Delaware corporation and a holding company with approximately $144.8 million in consolidated cash, cash equivalents and investments at June 30, 2010. We currently own approximately 98% of Zap.Com, a public shell company. Our principal executive offices are located at 450 Park Avenue, 27^th Floor, New York, New York 10022. In December 2006, we completed the disposition of our 57% ownership interest in common stock of Omega Protein Corporation. Since that time, we have held substantially all of our assets in cash, cash equivalents and investments in U.S. Government Agency or Treasury securities, and have held no “investment securities” as defined by the Investment Company Act. In addition, we have not held, and do not hold, ourselves out as an investment company. During this time, we have conducted a good faith search for an acquisition or business combination candidate, and have repeatedly and publicly disclosed our intention to acquire or combine with such a business. Based on the foregoing, we believe that we are not an investment company under the Investment Company Act.

 

The Harbinger Parties. On July 9, 2009, the Harbinger Parties purchased 9,937,962 shares, or approximately 51.6%, of our common stock on that date. The Harbinger Parties subsequently purchased 12,099 additional shares of our common stock. The Harbinger Parties continue to own a majority of our outstanding common stock, and following the consummation of the Spectrum Brands Acquisition the Harbinger Parties are expected to own more than 93.0% of our outstanding common stock.

 

The Harbinger Parties are investment funds affiliated with Harbinger Capital, a private investment fund based in New York. The firm was founded in 2001 and employs a fundamental approach to deep value and distressed credit investing. Harbinger Capital is led by Philip A. Falcone, its Chief Executive Officer. Mr. Falcone is also our Chief Executive Officer and Peter Jenson, Harbinger Capital’s Chief Operating Officer, is also our Chief Operating Officer. Messrs. Falcone and Jenson and two other senior Harbinger Capital officers constitute a majority of our board of directors. Harbinger Capital views HGI as an efficient, long-term capital market vehicle, principally for investment in controlled companies.

 

Business Strategy. Our principal focus is to identify and evaluate acquisitions of operating businesses. We plan to become a diversified holding company with interests in a variety of industries and market sectors. We expect our operating company portfolio to include principally wholly-owned and majority-owned companies, which may include additional companies, such as SB Holdings, that will remain stand-alone publicly traded companies. We may also acquire minority interests in companies, provided such investments will not result in our being deemed an investment company under the Investment Company Act.

 

We anticipate that our affiliation with the Harbinger Parties will continue to give us access to new acquisition and business combination opportunities, such as Spectrum Brands, and which may include other businesses which are controlled by, affiliated with or otherwise known to the Harbinger Parties. As of March 1, 2010, we entered into a Management and Advisory Services Agreement with Harbinger Capital which provides, among other things, that Harbinger Capital and its affiliates will assist us in investigating, analyzing and selecting possible investments and may conduct negotiations and due diligence (directly and through third party advisors) on our behalf. We have agreed to reimburse Harbinger Capital for its out-of-pocket expenses and certain services performed by its legal and accounting personnel. We will continue to review acquisition and business combination proposals known to or affiliated with Harbinger, those presented by third parties and those sought out by us. There can be no assurance that any of these discussions will result in a definitive agreement and, if they do, what the terms or timing of any agreement would be.

 

We have not focused and do not intend to focus our acquisition efforts solely on any particular industry. At any time, we may be engaged in ongoing discussions with respect to possible acquisitions or business

combinations of widely varying sizes and in disparate industries. While we generally focus our attention in the United States, we will continue to investigate acquisition opportunities outside of the United States when we believe that such opportunities might be attractive.

 

We may pay acquisition consideration in the form of cash, our debt or equity securities or a combination thereof. In addition, as a part of our acquisition strategy we will consider raising additional capital through the issuance of equity or debt securities, including the issuance of preferred stock. We believe that our status as a public entity and potential access to the public equity markets may give us a competitive advantage over privately-held entities with a similar business objective to acquire certain target businesses on favorable terms.

 

In identifying, evaluating and selecting a target business, we may encounter intense competition from other entities having similar business objectives such as strategic investors, private equity groups and special purpose acquisition corporations. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than us, and our financial resources will be relatively limited when contrasted with many of these competitors. Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination.

 

The Harbinger Parties and their affiliates include other vehicles that actively are seeking investment opportunities, and any one of those vehicles may at any time be seeking investment opportunities similar to those targeted by us. Our directors and officers who are affiliated with Harbinger may consider, among other things, asset type and investment time horizon in evaluating opportunities for us. In recognition of the potential conflicts that these persons and our other directors may have with respect to corporate opportunities, our amended and restated certificate of incorporation permits our board of directors from time to time to assert or renounce our interests and expectancies in one or more specific industries. In accordance with this provision, our board of directors renounced our interests and expectancies in the wireless communications industry. However, a renunciation of interests and expectancies in specific industries does not preclude us from seeking business acquisitions in those industries. We have had discussions regarding potential investments in various industries, including wireless communications.

 

Employees. At June 30, 2010, we employed 8 persons. In the normal course of business, we use contract personnel to supplement our employee base to meet our business needs. We believe that our employee relations are generally satisfactory. We expect we will need to hire additional employees as a result of our ownership of a majority interest in SB Holdings and the increasing complexity of our business.

 

Recent Developments. An affiliate of Harbinger Capital has offered to assign to us its rights to acquire Old Mutual U.S. Life Holdings, Inc. (“U.S. Life”) and to transfer to us its interest in Front Street Re, Ltd. (“Front Street”), a Bermuda reinsurance company recently formed by Harbinger (together, the “Insurance Transaction”).

 

U.S. Life is a leading provider of annuity and life insurance products to the middle and upper-middle income markets in the U.S. Through its subsidiaries, U.S. Life offers a targeted suite of products, including fixed deferred, indexed and payout annuities, as well as indexed universal life insurance, through a network of 250 independent marketing organizations representing 30,000 agents. U.S. Life has over 800,000 policyholders nationwide and distributes insurance products in all states and the District of Columbia. U.S. Life had approximately $16 billion annuity assets under management and $104 billion life insurance in force at June 30, 2010.

 

The purchase price for U.S. Life is $350 million, subject to adjustment, including with respect to minimum levels of statutory capital and risk based capital ratios at closing ($818.6 million and 300%, respectively). The U.S. Life acquisition is subject to customary closing conditions for similar transactions, including approval by the Maryland and New York insurance departments of the purchase of U.S. Life by an affiliate of Harbinger Capital or us. The acquisition is also subject to a reinsurance transaction between Front Street and U.S. Life as described below. The acquisition is expected to close in the first quarter of 2011 and payment of the purchase price is guaranteed by the Master Fund.

Upon closing of the U.S. Life acquisition, HGI will capitalize Front Street, which will reinsure a portion of U.S. Life’s annuity business and will enter into an investment management agreement with Harbinger Capital to manage a portion of Front Street’s investments, expected to be approximately $1 billion. We will capitalize Front Street at closing in an amount that we currently estimate to be $80 million. In addition, if the U.S. Life acquisition is consummated, U.S. Life will recapture certain life insurance business previously reinsured by an affiliate of U.S. Life’s former owner.

 

We are in the process of negotiating with the Master Fund a transfer agreement with respect to the Insurance Transaction and have had preliminary discussions with respect to financing the U.S. Life acquisition; such financing may include a high-yield securities offering, bank financing and/or the issuance of convertible preferred stock or other equity securities, and may include a bridge financing. There can be no assurance that we will be able to negotiate a definitive agreement with Harbinger Capital with respect to the Insurance Transaction or, if we do, that we will be able to obtain financing for the transaction on reasonable terms or at all. We expect that any definitive agreement with respect to the Insurance Transaction will include our agreement to indemnify the Master Fund for any losses incurred by it or its representatives in connection with the Master Fund’s guaranty of the U.S. Life acquisition purchase price and that, pursuant to our management and advisory services agreement with Harbinger Capital, we will reimburse Harbinger Capital for its out-of-pocket expenses incurred and certain services performed in connection with the Insurance Transaction.

 

See Annex H for U.S. Life’s audited consolidated financial statements for the fiscal years ended December 31, 2009 and 2008 and unaudited consolidated financial statements for the six months ended June 30, 2010 and 2009. Also included in Annex H are HGI’s unaudited pro forma condensed combined financial statements for the fiscal year ended December 31, 2009 and for the six month period ended June 30, 2010 that give effect to the Spectrum Brands Acquisition and the contemplated Insurance Transaction.

 

 

Spectrum Brands Holdings, Inc.

601 Rayovac Drive

Madison, Wisconsin 53711

Telephone: (608) 275-3340

 

The Harbinger Parties hold the controlling financial interests in both HGI and SB Holdings. Based on the accounting guidance for transactions between entities under common control as described in the section captioned “The Spectrum Brands Acquisition — Accounting Treatment,” HGI’s financial statements will be retrospectively adjusted to reflect as its historic financial statements those of SB Holdings and Spectrum Brands. Although HGI is the issuer of shares in the Spectrum Brands Acquisition, during the historical periods presented SB Holdings was an operating business and HGI was not. Therefore, SB Holdings will be reflected as the predecessor and receiving entity in HGI’s financial statements to provide a more meaningful presentation of the transaction to HGI’s stockholders. As Spectrum Brands was the accounting acquirer in the SB/RH Merger, the financial statements of Spectrum Brands will be included as the predecessor entity for periods preceding the SB/RH Merger.

 

Overview of Spectrum Brands’ Business

 

SB Holdings, a Delaware corporation, is a global branded consumer products company operating in seven major product categories: consumer batteries, pet supplies, home and garden control, electric shaving and grooming, electric personal care, portable lighting products and small household, created in connection with the combination of Spectrum Brands, a global branded consumer products company, and Russell Hobbs, a small appliance brand company, to form SB Holdings, a new combined company. The SB/RH Merger was consummated on June 16, 2010. As a result of the SB/RH Merger, both Spectrum Brands and Russell Hobbs are wholly-owned subsidiaries of SB Holdings. SB Holdings trades on the New York Stock Exchange under the symbol “SPB.”

In connection with the SB/RH Merger, Spectrum Brands refinanced its then existing senior debt and a portion of Russell Hobbs’ then existing senior debt through a combination of a new $750,000,000 Term Loan due June 16, 2016, $750,000,000 of new 9.5% Senior Secured Notes maturing June 15, 2018 and a new $300,000,000 ABL revolving facility due June 16, 2014. For a more complete discussion of Spectrum Brands’ outstanding debt, see Note 8, Debt, to SB Holdings unaudited consolidated financial statements, included elsewhere in this information statement.

 

On February 3, 2009, Spectrum Brands, at the time a Wisconsin corporation, and each of its wholly-owned U.S. subsidiaries (collectively, the “Debtors”) filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”), in the U.S. Bankruptcy Court for the Western District of Texas (the “Bankruptcy Court”). On August 28, 2009 (the “Effective Date”), the Debtors emerged from Chapter 11 of the Bankruptcy Code. As of the Effective Date and pursuant to the Debtors’ confirmed plan of reorganization, Spectrum Brands converted from a Wisconsin corporation to a Delaware corporation. The term “Predecessor Company” refers only to Spectrum Brands prior to the Effective Date and the term “Successor Company” refers to Spectrum Brands subsequent to the Effective Date. SB Holdings’ fiscal year ends September 30. The term “Fiscal” refers to SB Holdings’ fiscal year ended September 30 of any year.

 

Prior to and including August 30, 2009, all operations of the business of Spectrum Brands resulted from the operations of the Predecessor Company. In accordance with ASC Topic 852: “Reorganizations,” Spectrum Brands determined that all conditions required for the adoption of fresh-start reporting were met upon emergence from Chapter 11 of the Bankruptcy Code on the Effective Date. However, in light of the proximity of that date to Spectrum Brands’ August accounting period close, which was August 30, 2009, Spectrum Brands elected to adopt a convenience date of August 30, 2009 (the “Fresh-Start Adoption Date”), for recording fresh-start reporting. Spectrum Brands analyzed the transactions that occurred during the two-day period from August 29, 2009, the day after the Effective Date, and August 30, 2009, the Fresh-Start Adoption Date, and concluded that such transactions represented less than one percent of the total net sales during Fiscal 2009. As a result, Spectrum Brands determined that August 30, 2009 would be an appropriate Fresh-Start Adoption Date to coincide with Spectrum Brands’ normal financial period close for the month of August 2009. As a result, the fair value of the Predecessor Company’s assets and liabilities became the new basis for the Successor Company’s Consolidated Statement of Financial Position as of the Fresh-Start Adoption Date, and all operations beginning August 31, 2009 are related to the Successor Company. Financial information in Spectrum Brands’ financial statements prepared for the Predecessor Company will not be comparable to financial information for the Successor Company.

 

Spectrum Brands manages its business in four reportable segments: (i) Global Batteries & Personal Care, which consists of Spectrum Brands’ worldwide battery, shaving and grooming, personal care and portable lighting business (“Global Batteries & Personal Care”), (ii) Global Pet Supplies, which consists of Spectrum Brands’ worldwide pet supplies business (“Global Pet Supplies”), (iii) Home and Garden Business, which consists of Spectrum Brands’ lawn and garden and insect control businesses (the “Home and Garden Business”) and (iv) Small Appliances, which resulted from the acquisition of Russell Hobbs and consists of small electrical appliances primarily in the kitchen and home product categories (“Small Appliances”).

 

Spectrum Brands’ operations include the worldwide manufacturing and marketing of alkaline, zinc carbon and hearing aid batteries, as well as aquariums and aquatic health supplies and the designing and marketing of rechargeable batteries, battery-powered lighting products, electric shavers and accessories, grooming products and hair care appliances. Spectrum Brands’ operations also include the manufacturing and marketing of specialty pet supplies. Spectrum Brands also manufactures and markets herbicides, insecticides and repellents in North America. With the addition of Russell Hobbs, Spectrum Brands designs, markets and distributes a broad range of branded small appliances and personal care products. Spectrum Brands’ operations utilize manufacturing and product development facilities located in the U.S., Europe, Asia and Latin America.

 

SB Holdings sells its products in approximately 120 countries through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors, global online partners, internal e-commerce and original equipment manufacturers, and enjoys name recognition in its markets under the Rayovac, VARTA and Remington brands, each of which has been in existence for more

than 80 years, and under the Tetra, 8-in-1, Spectracide, Cutter, Black & Decker, George Foreman, Russell Hobbs, Farberware and various other brands.

 

Spectrum Brands’ strategy is to provide quality and value to retailers and consumers worldwide. Most of its products are marketed on the basis of providing the same performance as Spectrum Brands’ competitors for a lower price or better performance for the same price. Spectrum Brands’ goal is to provide the highest returns to its customers and retailers, and to offer superior merchandising and category management. Its promotional spending focus is on winning at the point of sale, rather than incurring significant advertising expenses. Spectrum Brands operates in several business categories in which it believes there are high barriers to entry and it strives to achieve a low cost structure with a global shared services administrative structure, helping it to maintain attractive margins. This operating model, which it refers to as the Spectrum value model, is what Spectrum Brands believes will drive returns for its investors and its customers.

 

Voluntary Reorganization Under Chapter 11

 

On February 3, 2009, the Predecessor Company announced that it had reached agreements with certain noteholders, representing, in the aggregate, approximately 70% of the face value of its then outstanding senior subordinated notes, to pursue a refinancing that, if implemented as proposed, would significantly reduce the Predecessor Company’s outstanding debt. On the same day, the Debtors filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court and filed with the Bankruptcy Court a proposed plan of reorganization that detailed the Debtors’ proposed terms for the refinancing. The Chapter 11 cases were jointly administered by the Bankruptcy Court as Case No. 09-50455.

 

The Bankruptcy Court entered a written order on July 15, 2009 confirming the proposed plan (as so confirmed, the “Plan”).

 

On the Effective Date the Plan became effective, and the Debtors emerged from Chapter 11 of the Bankruptcy Code. Pursuant to and by operation of the Plan, on the Effective Date, all of the Predecessor Company’s existing equity securities, including the existing common stock and stock options, were extinguished and deemed cancelled. The Successor Company filed a certificate of incorporation authorizing new shares of common stock. Pursuant to and in accordance with the Plan, on the Effective Date, the Successor Company issued a total of 27,030,000 shares of common stock and $218,076,405 of 12% Senior Subordinated Toggle Notes due 2019 (the “12% Notes”) to holders of allowed claims with respect to the Predecessor Company’s 81/2% Senior Subordinated Notes due 2013, 73/8% Senior Subordinated Notes due 2015 and Variable Rate Toggle Senior Subordinated Notes due 2013. For a more complete discussion of the 12% Notes, see Note 8, Debt, to SB Holdings unaudited consolidated financial statements, included elsewhere in this information statement. Also on the Effective Date, the Successor Company issued a total of 2,970,000 shares of common stock to supplemental and sub-supplemental debtor-in-possession facility participants in respect of the equity fee earned under the Debtors’ debtor-in-possession credit facility.

 

Products

 

Spectrum Brands competes in seven major product categories: consumer batteries, small appliances, pet supplies, electric shaving and grooming, electric personal care products, home and garden control products, and portable lighting. Its broad line of products includes:

 

 

 

Net sales of each product category sold by Spectrum Brands (excluding Russell Hobbs), as a percentage of net sales of its consolidated operations (excluding the operations of Russell Hobbs), is set forth below. Since June 16, 2010, the date of the consummation of the SB/RH Merger, sales by Russell Hobbs have accounted for 28.3% of the net sales of Spectrum Brands’ consolidated operations.

 

 

Segment information as to revenues, profits and total assets as well as information concerning Spectrum Brands’ revenues and long lived assets by geographic location for the last three fiscal years is set forth in Note 11, Segment Results, in the notes to Spectrum Brands’ consolidated financial statements included elsewhere in this information statement.

 

Consumer Batteries

 

Spectrum Brands manufactures, markets and sells a full line of alkaline batteries (AA, AAA, C, D and 9-volt sizes) and zinc carbon batteries to retail and industrial customers. Its batteries are marketed and sold under the Rayovac (primarily in North America and Latin America) and VARTA (primarily in Europe) brands. Spectrum Brands also manufactures alkaline batteries for third parties who sell the batteries under their own private labels.

 

Spectrum Brands believes that it is currently the largest worldwide marketer and distributor of hearing aid batteries under several brand names and private labels, including Beltone, Miracle Ear and Starkey. Spectrum Brands also sells nickel metal hydride rechargeable batteries, battery chargers and other specialty battery products including camera batteries, lithium batteries, silver oxide batteries, keyless entry batteries and coin cells for use in watches, cameras, calculators, communications equipment and medical instruments.

 

Small Appliances

 

In the small appliances category, Russell Hobbs markets and sells a broad range of products in three major product categories: branded small household appliances, pet and pest products, and personal care products.

 

Russell Hobbs markets a broad line of small kitchen appliances under the George Foreman, Black & Decker, Russell Hobbs, Farberware, Juiceman, Breadman and Toastmaster brands, including grills, bread makers, sandwich makers, kettles, toaster ovens, toasters, blenders, juicers, can openers, coffee grinders, coffee makers, electric knives, deep fryers, food choppers, food processors, hand mixers, rice cookers and steamers.

 

Russell Hobbs also markets small home product appliances, including hand-held irons, vacuum cleaners, air purifiers, clothes shavers and heaters, primarily under the Black & Decker and Russell Hobbs brands.

 

Pet products include cat litter boxes sold under the LitterMaid brand. The consumable accessories, including privacy tents, litter carpets, crystal litter cartridges, charcoal filters, corn-based litter and replaceable

waste receptacles. The pest control products include pest control and repelling devices that use ultra-sonic sound waves to control insects and rodents, primarily in homes.

 

Russell Hobbs’ personal care products in the small appliances category include hand-held dryers, curling irons, straightening irons, brush irons, air brushes, hair setters, facial brushes, skin appliances and electric toothbrushes, which are primarily marketed under the Russell Hobbs, Carmen and Andrew Collinge brands.

 

Pet Supplies

 

In the pet supplies product category, Spectrum Brands markets and sells a variety of leading branded pet supplies for fish, dogs, cats, birds and other small domestic animals. Spectrum Brands has a broad line of consumer and commercial aquatics products, including integrated aquarium kits, standalone tanks and stands, filtration systems, heaters, pumps, and other equipment, fish food and water treatment products. Spectrum Brands’ largest aquatics brands are Tetra, Marineland, Whisper and Instant Ocean. Spectrum Brands also sells a variety of specialty pet products, including dog and cat treats, small animal food and treats, clean up and training aid products, health and grooming aids, and bedding products. Spectrum Brands’ largest specialty pet brands include 8-in-1, Dingo, Nature’s Miracle and Wild Harvest.

 

Home and Garden Control Products

 

In the home and garden category, Spectrum Brands markets and sells several leading home and garden care products, including household insecticides, insect repellent, herbicides, garden and indoor plant foods and plant care treatments. Spectrum Brands markets a wide array of outdoor pest control products under the Spectracide and Garden Safe brands, including lawn and garden insect killers, disease control sprays, termite control and detection products, and herbicides. Its Hot Shot, Rid-a-Bug and Real-Kill brands offer complete indoor insect control with products such as roach and ant killers, flying insect killers, indoor foggers, wasp and hornet killers, bedbug and flea control products, rodenticides, and roach and ant baits. Spectrum Brands also markets the complete lines of Cutter and Repel insect repellents, including personal “spray on” mosquito repellents as well as area repellents, such as yard sprays, and citronella candles. Spectrum Brands has positioned its brands as the value alternative for consumers who want results comparable to those of premium-priced brands.

 

Electric Shaving and Grooming

 

Spectrum Brands markets and sells a broad line of electric shaving and grooming products under the Remington brand name, including men’s rotary and foil shavers, beard and mustache trimmers, body trimmers and nose and ear trimmers, women’s shavers and haircut kits. Remington has strong brand name recognition with an 80 year history.

 

Electric Personal Care Products

 

Spectrum Brands’ electric personal care products, marketed and sold under the Remington brand name, include hair dryers, straightening irons, styling irons and hair setters.

 

Portable Lighting

 

Spectrum Brands offers a broad line of battery-powered, portable lighting products, including flashlights and lanterns for both retail and industrial markets. Spectrum Brands sells its portable lighting products under the Rayovac and VARTA brand names, under other proprietary brand names and pursuant to licensing arrangements with third parties.

 

Sales and Distribution

 

Spectrum Brands sells its products through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors, original equipment manufacturers (each, an “OEM”), catalogers, warehouse clubs, drug and grocery stores, department stores, television shopping

channels, pet supply retailers, and independent distributors, as well as through e-commerce websites. Its sales generally are made through the use of individual purchase orders, consistent with industry practice. Retail sales of the consumer products Spectrum Brands markets have been increasingly consolidated into a small number of regional and national mass merchandisers. This trend towards consolidation is occurring on a worldwide basis. As a result of this consolidation, a significant percentage of Spectrum Brands’ sales are attributable to a very limited group of retailer customers, including, without limitation, Wal-Mart, The Home Depot, Carrefour, Target, Lowe’s, PetSmart, Canadian Tire, PETCO and Gigante. Spectrum Brands’ sales to Wal-Mart Stores, Inc. represented approximately 23% of its consolidated net sales for Fiscal 2009. No other customer accounted for more than 10% of Spectrum Brands’ consolidated net sales in Fiscal 2009.

 

Spectrum Brands provides promotional support for its products with the aid of various media, including television and print advertising, cooperative advertising with retailers and in-store displays and product demonstrations. Spectrum Brands believes that these promotional activities are important to strengthening its brand name recognition. The level of promotional effort targeted toward sales velocity and brand building is determined by the profitability of the category, the strategic importance of the brand and retailer plans.

 

Global Batteries & Personal Care

 

Spectrum Brands manages its Global Batteries & Personal Care sales force by geographic region and product group. Its sales team is divided into three major geographic territories, North America, Latin America and Europe and the rest of the world (“Europe/ROW”). Within each major geographic territory, it has additional subdivisions designed to meet its customers’ needs.

 

Spectrum Brands manages its sales force in North America by distribution channel. It maintains separate sales groups to service (i) its retail sales and distribution channel, (ii) its hearing aid professionals channel and (iii) its industrial distributors and OEM sales and distribution channel. In addition, Spectrum Brands utilizes a network of independent brokers to service participants in selected distribution channels.

 

Spectrum Brands manages its sales force in Latin America by distribution channel and geographic territory. It sells primarily to large retailers, wholesalers, distributors, food and drug chains and retail outlets. In countries where it does not maintain a sales force, it sells to distributors who market its products through all channels in the market.

 

The sales force serving Spectrum Brands’ customers in Europe/ROW is supplemented by an international network of distributors to promote the sale of its products. Spectrum Brands’ sales operations throughout Europe/ROW are organized by geographic territory and the following sales channels: (i) food/retail, which includes mass merchandisers, discounters and drug and food stores; (ii) specialty trade, which includes clubs, consumer electronics stores, department stores, photography stores and wholesalers/distributors; and (iii) industrial, government, hearing aid professionals and OEMs.

 

Small Appliances

 

In the small appliances category, Russell Hobbs’ products are sold principally by an internal sales staff located in North America, Latin America, Europe, Australia and New Zealand. Russell Hobbs also uses independent sales representatives, primarily in Central America and the Caribbean. Russell Hobbs distributes most of its small appliance products to retailers, including mass merchandisers, department stores, home improvement stores, warehouse clubs, drug chains, catalog stores and discount and variety stores. In addition to directing its marketing efforts toward retailers, Russell Hobbs sells certain of its products directly to consumers through infomercials and its Internet websites.

 

Global Pet Supplies

 

Spectrum Brands’ Global Pet Supplies sales force is aligned by customer, geographic region and product group. Spectrum Brands sells pet supply products to mass merchandisers, grocery and drug chains, pet superstores, independent pet stores and other retailers.

Home and Garden Business

 

The sales force of the Home and Garden Business is aligned by customer. It sells primarily to home improvement centers, mass merchandisers, hardware stores, lawn and garden distributors, and food and drug retailers in the U.S.

 

Manufacturing, Raw Materials and Suppliers

 

The principal raw materials used in manufacturing Spectrum Brands’ products — zinc powder, electrolytic manganese dioxide powder and steel — are sourced either on a global or regional basis. The prices of these raw materials are susceptible to price fluctuations due to supply and demand trends, energy costs, transportation costs, government regulations and tariffs, changes in currency exchange rates, price controls, general economic conditions and other unforeseen circumstances. Spectrum Brands has regularly engaged in forward purchase and hedging derivative transactions specifically related to zinc in an attempt to effectively manage the raw material costs related to zinc that it expects to incur over the next 12 to 24 months. Spectrum Brands was also exposed to fluctuating prices of raw materials used in its manufacturing processes in the growing product portion of the Home and Garden Business, specifically, granular urea and diammonium phosphate (“DAP”). Spectrum Brands discontinued the use of granular urea and DAP during the second quarter of Fiscal 2009 as a result of the shutdown of the growing products portion of the Home and Garden Business.

 

Substantially all of Spectrum Brands’ rechargeable batteries and chargers, small appliances, portable lighting products, hair care and other personal care products and its electric shaving and grooming products are manufactured by a limited number of third party suppliers that are primarily located in the Asia/Pacific region. Spectrum Brands maintains ownership of the tooling and molds used by most of its suppliers. Within its Small Appliances segment, Russell Hobbs maintains supply contracts with terms of one to three years with certain of its third party suppliers, which include standard terms for production, delivery, quality and indemnification for product liability claims. Specific production amounts are ordered by separate purchase orders.

 

Spectrum Brands continually evaluates its manufacturing facilities’ capacity and related utilization. As a result of such analyses, it has closed a number of manufacturing facilities during the past five years. In general, Spectrum Brands believes its existing facilities are adequate for its present and foreseeable needs.

 

Research and Development

 

Spectrum Brands’ research and development strategy is focused on new product development and performance enhancements of its existing products. Spectrum Brands plans to continue to use its strong brand names, established customer relationships and significant research and development efforts to introduce innovative products that offer enhanced value to consumers through new designs and improved functionality.

 

Spectrum Brands also works closely with both retailers and suppliers to identify consumer needs and preferences and to generate new product ideas. Spectrum Brands evaluates new ideas and seeks to develop and acquire new products and improve existing products to satisfy marketplace requirements and changing consumer preferences. Spectrum Brands designs the style, features and functionality of its products to meet customer requirements for quality, performance, product mix and pricing.

 

In Fiscal 2009, 2008 and 2007, Spectrum Brands (excluding Russell Hobbs) invested $24.4 million, $25.3 million and $26.8 million, respectively, in product research and development.

 

Patents and Trademarks

 

Spectrum Brands owns or licenses from third parties a significant number of patents and patent applications throughout the world relating to products it sells and manufacturing equipment it uses. Spectrum Brands holds a license that expires in March 2022 for certain alkaline battery designs, technology and manufacturing equipment from Matsushita, to whom it pays a royalty.

Spectrum Brands also uses and maintains a number of trademarks in its business, including Dingo, JungleTalk, Marineland, Rayovac, Remington, Tetra, Varta, 8-in-1, Cutter, Hot Shot, Garden Safe, Nature’s Miracle, Repel, Spectracide, Spectracide Terminate, George Foreman, Russell Hobbs, Juiceman, Breadman, Littermaid, Orva, Farberware and Toastmaster. Spectrum Brands seeks trademark protection in the U.S. and in foreign countries, including by registration where it deems appropriate.

 

As a result of the October 2002 sale by VARTA AG of substantially all of its consumer battery business to Spectrum Brands and VARTA AG’s subsequent sale of its automotive battery business to Johnson Controls, Inc. (“Johnson Controls”), Spectrum Brands acquired rights to the VARTA trademark in the consumer battery category and Johnson Controls acquired rights to the trademark in the automotive battery category. VARTA AG continues to have rights to use the trademark with travel guides and industrial batteries and VARTA Microbattery GmbH has the right to use the trademark with micro batteries. Spectrum Brands is party to a Trademark and Domain Names Protection and Delimitation Agreement that governs ownership and usage rights and obligations of the parties relative to the VARTA trademark.

 

As a result of the common origins of the Remington Products business Spectrum Brands acquired in September 2003 and the Remington Arms Company, Inc. (“Remington Arms”), the Remington trademark is owned by Spectrum Brands and by Remington Arms each with respect to its principal products as well as associated products. Accordingly, Spectrum Brands owns the rights to use the Remington trademark for electric shavers, shaver accessories, grooming products and personal care products, while Remington Arms owns the rights to use the trademark for firearms, sporting goods and products for industrial use, including industrial hand tools. In addition, the terms of a 1986 agreement between Remington Products and Remington Arms provides for the shared rights to use the Remington trademark on products that are not considered “principal products of interest” for either company. Spectrum Brands owns the Remington trademark for nearly all products which it believes can benefit from the use of the brand name in its distribution channels.

 

Russell Hobbs licenses the Black & Decker brand in North America, Latin America (excluding Brazil) and the Caribbean for four core categories of household appliances: beverage products, food preparation products, garment care products and cooking products. Russell Hobbs has licensed the Black & Decker brand since 1998 for use in marketing various household small appliances. In December 2007, Russell Hobbs and The Black & Decker Corporation (“BDC”) extended the trademark license agreement for a third time through December 2012, with an automatic extension through December 2014 if certain milestones are met regarding sales volume and product return. Under the agreement as extended, Russell Hobbs agreed to pay BDC royalties based on a percentage of sales, with minimum annual royalty payments as follows:

 

 

The agreement also requires Russell Hobbs to comply with maximum annual return rates for products.

 

If BDC does not agree to renew the license agreement, Russell Hobbs has 18 months to transition out of the brand name. No minimum royalty payments will be due during such transition period. BDC has agreed not to compete in the four core product categories for a period of five years after the termination of the license agreement. Upon request, BDC may elect to extend the license to use the Black & Decker brand to certain additional product categories. BDC has approved several extensions of the license to additional categories and geographies.

 

Competition

 

In Spectrum Brands’ retail markets, it competes for limited shelf space and consumer acceptance. Factors influencing product sales include brand name recognition, perceived quality, price, performance, product packaging, design innovation, and consumer confidence and preferences as well as creative marketing, promotion and distribution strategies.

The battery product category is highly competitive. Most consumer batteries manufactured throughout the world are sold by one of four global companies: Spectrum Brands (manufacturer/seller of Rayovac and VARTA brands); Energizer Holdings, Inc. (“Energizer”) (manufacturer/seller of the Energizer brand); Procter & Gamble (manufacturer/seller of the Duracell brand); and Matsushita (manufacturer/seller of the Panasonic brand). Spectrum Brands also faces competition from the private label brands of major retailers, particularly in Europe. The offering of private-label batteries by retailers may create pricing pressure in the consumer battery market. Typically, private-label brands are not supported by advertising or promotion, and retailers sell these private label offerings at prices below competing name-brands. The main barriers to entry for new competitors are investment in technology research, cost of building manufacturing capacity and the expense of building retail distribution channels and consumer brands.

 

In the U.S. alkaline battery category, the Rayovac brand is positioned as a value brand, which is typically defined as a product that offers comparable performance at a lower price. In Europe, the VARTA brand is competitively priced with other premium brands. In Latin America, where zinc carbon batteries outsell alkaline batteries, the Rayovac brand is competitively priced.

 

Primary competitive brands in the small appliance category include Hamilton Beach, Proctor Silex, Sunbeam, Mr. Coffee, Oster, General Electric, Rowenta, DeLonghi, Kitchen Aid, Cuisinart, Krups, Braun, Rival, Europro, Kenwood, Philips, Morphy Richards, Breville and Tefal. The key competitors of Russell Hobbs in this market in the U.S. and Canada include Jarden Corporation, DeLonghi America, Euro-Pro Operating LLC, Metro Thebe, Inc., d/b/a HWI Breville, NACCO Industries, Inc. (Hamilton Beach) and SEB S.A. In addition, Russell Hobbs competes with retailers who use their own private label brands for household appliances (for example, Wal-Mart).

 

The pet supply product category is highly fragmented with over 500 manufacturers in the U.S. alone, consisting primarily of small companies with limited product lines. Spectrum Brands’ largest competitors in this product category are Mars, Hartz and Central Garden & Pet. Both Hartz and Central Garden & Pet sell a comprehensive line of pet supplies and compete with a majority of the products Spectrum Brands offers. Mars sells primarily aquatics products.

 

Spectrum Brands’ primary competitors in the electric shaving and grooming product category are Norelco, a division of Philips, which sells and markets rotary shavers, and Braun, a division of Procter & Gamble, which sells and markets foil shavers. Spectrum Brands sells both Remington foil and rotary shavers.

 

Spectrum Brands’ major competitors in the electric personal care product category are Conair Corporation, Wahl Clipper Corporation and Helen of Troy.

 

Spectrum Brands’ primary competitors in the portable lighting product category are Energizer and Mag Instrument, Inc.

 

Products Spectrum Brands sells in the lawn and garden product category through the Home and Garden Business face competition from Scotts Company, which markets lawn and garden products under the Scotts, Ortho, Roundup and Miracle-Gro brand names; Central Garden & Pet, which markets garden products under the AMDRO and Sevin brand names; and Bayer A.G., which markets lawn and garden products under the Bayer Advanced brand name.

 

Products Spectrum Brands sells in the household insect control product category through the Home and Garden Business face competition from S.C. Johnson, which markets insecticide and repellent products under the Raid and OFF! brands; Scotts Company, which markets household insect control products under the Ortho brand; and Henkel KGaA, which markets insect control products under the Combat brand.

 

Some of Spectrum Brands’ major competitors have greater resources and greater overall market share than Spectrum Brands does. They have committed significant resources to protect their market shares or to capture market share from Spectrum Brands in the past and may continue to do so in the future. In some key product lines, Spectrum Brands’ competitors may have lower production costs and higher profit margins than Spectrum Brands does, which may enable them to compete more aggressively in advertising and in offering

retail discounts and other promotional incentives to retailers, distributors, wholesalers and, ultimately, consumers.

 

Seasonality

 

On a consolidated basis, Spectrum Brands’ financial results are approximately equally weighted between quarters; however, sales of certain product categories tend to be seasonal. Sales in the consumer battery, electric shaving and grooming and electric personal care product categories, particularly in North America, tend to be concentrated in the December holiday season (Spectrum Brands’ first fiscal quarter). Sales in the small appliances product category tend to be higher in the second half of the calendar year (Spectrum Brands’ fourth and first fiscal quarters), primarily due to increased demand by customers in late summer for “back-to-school” sales and in the fall for the holiday season. Demand for pet supplies products remains fairly constant throughout the year. Demand for home and garden control products sold though the Home and Garden Business typically peaks during the first six months of the calendar year (Spectrum Brands’ second and third fiscal quarters). For a more detailed discussion of the seasonality of Spectrum Brands’ product sales, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SB Holdings and Spectrum Brands — Introduction — Seasonal Product Sales” appearing elsewhere in this information statement.

 

Governmental Regulations and Environmental Matters

 

Spectrum Brands and its facilities are subject to a broad range of federal, state, local and foreign legal and regulatory provisions relating to the environment, including those regulating the discharge of materials into the environment, the handling and disposal of solid and hazardous substances and wastes and the remediation of contamination associated with the releases of hazardous substances at its facilities. Spectrum Brands believes that compliance with the federal, state, local and foreign laws and regulations to which it is subject will not have a material effect upon its capital expenditures, financial condition, earnings or competitive position.

 

From time to time, Spectrum Brands has been required to address the effect of historic activities on the environmental condition of its properties. It has not conducted invasive testing at all facilities to identify all potential environmental liability risks. Given the age of its facilities and the nature of its operations, it is possible that material liabilities may arise in the future in connection with its current or former facilities. If previously unknown contamination of property underlying or in the vicinity of its manufacturing facilities is discovered, Spectrum Brands may incur material unforeseen expenses, which could have a material adverse effect on its business, financial condition and results of operations. Spectrum Brands is currently engaged in investigative or remedial projects at a few of its facilities and any liabilities arising from such investigative or remedial projects at such facilities may have a material adverse effect on its business, financial condition and results of operations.

 

Spectrum Brands has been, and in the future may be, subject to proceedings related to its disposal of industrial and hazardous material at off-site disposal locations or similar disposals made by other parties for which it is held responsible as a result of its relationships with such other parties. In the U.S., these proceedings are under the CERCLA or similar state laws that hold persons who “arranged for” the disposal or treatment of such substances strictly liable for costs incurred in responding to the release or threatened release of hazardous substances from such sites, regardless of fault or the lawfulness of the original disposal. Liability under CERCLA is typically joint and several, meaning that a liable party may be responsible for all costs incurred in investigating and remediating contamination at a site. As a practical matter, liability at CERCLA sites is often shared by all of the viable responsible parties. Spectrum Brands occasionally is identified by federal or state governmental agencies as being a potentially responsible party for response actions contemplated at an off-site facility. At the existing sites where Spectrum Brands has been notified of its status as a potentially responsible party, it is either premature to determine whether its potential liability, if any, will be material or it does not believe that its liability, if any, will be material. Spectrum Brands may be named as a potentially responsible party under CERCLA or similar state laws for other sites not currently known to it, and the costs and liabilities associated with these sites may be material.

It is difficult to quantify with certainty the potential financial impact of actions regarding expenditures for environmental matters, particularly remediation, and future capital expenditures for environmental control equipment. Nevertheless, based upon the information currently available, Spectrum Brands believes that its ultimate liability arising from such environmental matters, taking into account established accruals of $9.6 million for estimated liabilities at July 4, 2010 should not be material to its business or financial condition.

 

Electronic and electrical products that Spectrum Brands sells in Europe, particularly products sold under the Remington brand name, VARTA battery chargers, certain portable lighting and all of its batteries, are subject to regulation in EU markets under three key EU directives. The first directive is the Restriction of the Use of Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) which took effect in EU member states beginning July 1, 2006. RoHS prohibits companies from selling products which contain certain specified hazardous materials in EU member states. Spectrum Brands believes that compliance with RoHS will not have a material effect on its capital expenditures, financial condition, earnings or competitive position. The second directive is entitled the Waste of Electrical and Electronic Equipment (“WEEE”). WEEE makes producers or importers of particular classes of electrical goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. WEEE assigns levels of responsibility to companies doing business in EU markets based on their relative market share. WEEE calls on each EU member state to enact enabling legislation to implement the directive. To comply with WEEE requirements, Spectrum Brands has partnered with other companies to create a comprehensive collection, treatment, disposal and recycling program. As EU member states pass enabling legislation Spectrum Brands’ compliance system should be sufficient to meet such requirements. Spectrum Brands’ current estimated costs associated with compliance with WEEE are not significant based on its current market share. However, Spectrum Brands continues to evaluate the impact of the WEEE legislation as EU member states implement guidance and as its market share changes, and, as a result, actual costs to Spectrum Brands could differ from its current estimates. The third directive is the Directive on Batteries and Accumulators and Waste Batteries, which was adopted in September 2006 and went into effect in September 2008 (the “Battery Directive”). The Battery Directive bans heavy metals in batteries by establishing maximum quantities of those heavy metals in batteries and mandates waste management of batteries, including collection, recycling and disposal systems. The Battery Directive places the costs of such waste management systems on producers and importers of batteries. The Battery Directive calls on each EU member state to enact enabling legislation to implement the directive. Spectrum Brands currently believes that compliance with the Battery Directive will not have a material effect on its capital expenditures, financial condition, earnings or competitive position. However, until such time as the EU member states adopt enabling legislation, a full evaluation of these costs cannot be completed. Spectrum Brands will continue to evaluate the impact of the Battery Directive and its enabling legislation as EU member states implement guidance.

 

Throughout the world, most federal, state, provincial and local authorities require safety regulation certification prior to marketing electrical appliances in those jurisdictions. Within the U.S., UL is the most widely recognized certification body for electrical appliances. UL is an independent, not-for-profit corporation engaged in the testing of products for compliance with certain public safety standards. Spectrum Brands also uses the ETL SEMKO division of Intertek for certification and testing of compliance with UL standards, as well as other national and industry-specific standards.

 

Certain of Spectrum Brands’ products and facilities in each of its business segments are regulated by the EPA and the FDA or other federal consumer protection and product safety agencies and are subject to the regulations such agencies enforce, as well as by similar state, foreign and multinational agencies and regulations. For example, in the U.S., all products containing pesticides must be registered with the EPA and, in many cases, similar state and foreign agencies before they can be manufactured or sold. Spectrum Brands’ inability to obtain or the cancellation of any registration could have an adverse effect on its business, financial condition and results of operations. The severity of the effect would depend on which products were involved, whether another product could be substituted and whether its competitors were similarly affected. Spectrum Brands attempts to anticipate regulatory developments and maintain registrations of, and access to, substitute chemicals and other ingredients. Spectrum Brands may not always be able to avoid or minimize these risks.

The FQPA established a standard for food-use pesticides, which is that a reasonable certainty of no harm will result from the cumulative effect of pesticide exposures. Under the FQPA, the EPA is evaluating the cumulative effects from dietary and non-dietary exposures to pesticides. The pesticides in certain of its products continue to be evaluated by the EPA as part of this program. It is possible that the EPA or a third party active ingredient registrant may decide that a pesticide Spectrum Brands uses in its products will be limited or made unavailable to it. Spectrum Brands cannot predict the outcome or the severity of the effect of the EPA’s continuing evaluations of active ingredients used in its products.

 

Certain of Spectrum Brands’ products and packaging materials are subject to regulations administered by the FDA. Among other things, the FDA enforces statutory prohibitions against misbranded and adulterated products, establishes ingredients and manufacturing procedures for certain products, establishes standards of identity for certain products, determines the safety of products and establishes labeling standards and requirements. Certain of the products sold by Spectrum Brands in the U.S. are also subject to the Fair Packaging and Labeling Act. Spectrum Brands believes that in addition to complying with the Fair Packaging and Labeling Act, Spectrum Brands complies with the applicable rules and regulations of the Federal Trade Commission and other federal and state agencies with respect to the content of advertising and other trade practices. In addition, various states regulate these products by enforcing federal and state standards of identity for selected products, grading products, inspecting production facilities and imposing their own labeling requirements.

 

As a marketer and distributor of consumer products in the U.S., Spectrum Brands is subject to the Consumer Product Safety Act, which empowers the Consumer Product Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the Consumer Product Safety Commission could require Spectrum Brands to repurchase or recall one or more of its products.

 

Employees

 

Spectrum Brands had approximately 6,150 full-time employees worldwide as of July 4, 2010. Approximately 20% of its total labor force is covered by collective bargaining agreements. One of these agreements, which covers approximately 35% of the labor force under collective bargaining agreements, or approximately 7% of Spectrum Brands’ total labor force, is scheduled to expire on September 30, 2010. Spectrum Brands believes that its overall relationship with its employees is good.

 

Backlog

 

Spectrum Brands’ backlog consists of commitments to order and orders for its products, which typically are subject to change and cancellation until shipment. Customer order patterns vary from year to year, largely because of differences in consumer acceptances of product lines, product availability, marketing strategies, inventory levels of retailers and overall economic conditions. As a result, comparisons of backlog between periods are not necessarily indicative of sales for that period.

 

Accordingly, Spectrum Brands does not believe that the amount of backlog orders is a significant predictor of Spectrum Brands’ business.

 

Litigation

 

In December 2009, San Francisco Technology, Inc. filed an action in the Federal District Court for the Northern District of California against Spectrum Brands, as well as a number of unaffiliated defendants, claiming that each of the defendants had falsely marked patents on certain of its products in violation of Article 35, Section 292 of the U.S. Code and seeking to have civil fines imposed on each of the defendants for such claimed violations. This matter is currently stayed pending resolution of a similar case in which Spectrum Brands is not a party. Spectrum Brands is reviewing the claims and intends to vigorously defend this matter but is unable to estimate any possible losses at this time.

In May 2010, Herengrucht Group, LLC filed an action in the U.S. District Court for the Southern District of California against Spectrum Brands, claiming that Spectrum Brands had falsely marked patents on certain of its products in violation of Article 35, Section 292 of the U.S. Code and seeking to have civil fines imposed on each of the defendants for such claimed violations. This action has been voluntarily dismissed by the plaintiffs.

 

A subsidiary of Spectrum Brands is a defendant in NACCO Industries, Inc. et al. v. Applica Incorporated et al., Case No. C.A. 2541-VCL, which was filed in the Court of Chancery of the State of Delaware in November 2006. The original complaint in this action alleged a claim for, among other things, breach of contract against Applica and a number of tort claims against certain entities affiliated with the Harbinger Parties. The claims against Applica related to the alleged breach of the merger agreement between Applica and NACCO Industries, Inc. (“NACCO”) and one of its affiliates, which agreement was terminated following Applica’s receipt of a superior merger offer from the HCP Funds. On October 22, 2007, the plaintiffs filed an amended complaint asserting claims against Applica for, among other things, breach of contract and breach of the implied covenant of good faith relating to the termination of the NACCO merger agreement and asserting various tort claims against Applica and the Master Fund and Special Situations Fund (collectively, the “HCP Funds”). The original complaint was filed in conjunction with a motion preliminarily to enjoin the HCP Funds’ acquisition of Applica. On December 1, 2006, plaintiffs withdrew their motion for a preliminary injunction. In light of the consummation of Applica’s merger with affiliates of the HCP Funds in January 2007 (Applica is currently a subsidiary of Russell Hobbs), Spectrum Brands believes that any claim for specific performance is moot. Applica filed a motion to dismiss the amended complaint in December 2007.

 

Rather than respond to the motion to dismiss the amended complaint, NACCO filed a motion for leave to file a second amended complaint, which was granted in May 2008. Applica moved to dismiss the second amended complaint, which motion was granted in part and denied in part in December 2009. The trial is currently scheduled for February 2011. Spectrum Brands intends to vigorously defend the action, but may be unable to resolve the disputes successfully or without incurring significant costs and expenses. As a result, Russell Hobbs and Master Fund have entered into an indemnification agreement, dated as of February 9, 2010, by which Harbinger Master Fund has agreed, effective upon the consummation of the SB/RH Merger, to indemnify Russell Hobbs, its subsidiaries and any entity that owns all of the outstanding voting stock of Russell Hobbs against any out-of-pocket losses, costs, expenses, judgments, penalties, fines and other damages in excess of $3 million incurred with respect to this litigation and any future litigation or legal action against the indemnified parties arising out of or relating to the matters which form the basis of this litigation.

 

Applica Consumer Products, Inc. (“ACP”), a subsidiary of Spectrum Brands, is a defendant in three asbestos lawsuits in which the plaintiffs have alleged injury as the result of exposure to asbestos in hair dryers distributed by that subsidiary over 20 years ago. Although ACP never manufactured such products, asbestos was used in certain hair dryers distributed by it prior to 1979. Russell Hobbs, another subsidiary, is a defendant in one asbestos lawsuit in which the plaintiff has alleged injury as the result of exposure to asbestos in toasters and/or toaster ovens. There are numerous defendants named in these lawsuits, many of whom, unlike Russell Hobbs or ACP, actually manufactured asbestos containing products. Spectrum Brands believes that these actions are without merit and intends to vigorously defend the action, but may be unable to resolve the disputes successfully without incurring significant expenses. At this time, Spectrum Brands does not believe it has coverage under its insurance policies for the asbestos lawsuits.

 

Spectrum Brands is a defendant in various matters of litigation generally arising out of the ordinary course of business.

Properties

 

The following table lists Spectrum Brands’ principal owned or leased manufacturing, packaging and distribution facilities at July 4, 2010:

 

 

 

Spectrum Brands also owns, operates or contracts with third parties to operate distribution centers, sales offices and administrative offices throughout the world in support of its business. Spectrum Brands leases its headquarters and its primary research and development facility located in Madison, Wisconsin.

 

Spectrum Brands believes that its existing facilities are suitable and adequate for its present purposes and that the productive capacity in such facilities is substantially being utilized or it has plans to utilize it.

 

Our rights and obligations as a stockholder of SB Holdings will be governed by the DGCL, SB Holdings’ certificate of incorporation (“SB Holdings Certificate”) and bylaws (“SB Holdings Bylaws”) and by the SB Holdings Stockholder Agreement. The following discussion summarizes material provisions of the SB Holdings Certificate, the SB Holdings Bylaws and the SB Holdings Stockholder Agreement. A copy of SB Holdings Stockholder Agreement is included as an exhibit to a Current Report on Form 8-K filed by HGI with the SEC on           , 2010. Copies of the SB Holdings Certificate and SB Holdings Bylaws are included as exhibits to SB Holdings’ Registration Statement on Form S-8 (File No. 333-167569) filed with the SEC on June 16, 2010. For information as to how you can review and/or obtain copies of these documents, see “Where You Can Find More Information”. The rights and obligations of the stockholders of SB Holdings under the SB Holdings Certificate and SB Holdings Bylaws, and the rights of the respective parties to the SB Holdings Stockholder Agreement, are governed by the express terms and conditions of those documents and not by this summary or any other information contained in this document. Each of the SB Holdings Certificate, SB Holdings Bylaws and SB Holdings Stockholder Agreement should be read carefully in their entirety, as well as this information statement.

 

Capital Stock

 

Under the SB Holdings Certificate, SB Holdings is authorized to issue a total of 300,000,000 shares of stock, of which 200,000,000 shares are common stock and 100,000,000 shares are preferred stock, each with a par value of $0.01 per share.

 

Board of Directors; Special Nominating Committee

 

Under the SB Holdings Certificate and SB Holdings Bylaws, the board of directors, subject to any rights of holders of any series of SB Holdings preferred stock, must initially consist of ten directors, divided into three classes: Class I (initially 4 members, one of whom is the Chief Executive Officer of SB Holdings), Class II (initially 3 members) and Class III (initially 3 members). The term of office of each class is three years and expires in successive years at the time of the annual meeting of stockholders. The directors first appointed to Class I will initially hold office until the 2011 annual meeting of stockholders; the directors first appointed to Class II will initially hold office until the 2012 annual meeting of stockholders; and the directors first appointed to Class III will initially hold office until the 2013 annual meeting of stockholders. At each annual meeting of stockholders, the newly elected directors will have terms expiring at the third succeeding annual meeting.

 

At least three of the directors are to be Independent Directors (as defined below) nominated by the Special Nominating Committee of the SB Holdings board of directors and the remaining seven directors are to be nominated by the Nominating and Corporate Governance Committee of the SB Holdings board of directors. The Special Nominating Committee is to consist of three Independent Directors. Pursuant to the SB Holdings Certificate, any vacancy on the Special Nominating Committee is to be filled by an Independent Director that is selected by the remaining members (or member) of the Special Nominating Committee. The Nominating and Governance Committee is to consist of (i) a majority of directors designated for nomination by the 40% Stockholder and (ii) at least one Independent Director. An “Independent Director” is one who qualifies as an “independent director” of SB Holdings under the NYSE rules (or comparable stock exchange rules, if SB Holdings common stock is listed on a different exchange) and is also independent of the 40% Stockholders.

 

Conflicts of Interests; Corporate Opportunity Disclaimer

 

Under the SB Holdings Certificate, the stockholders and directors of SB Holdings have no obligation to present business opportunities to SB Holdings unless such business opportunity was presented to the stockholder or director specifically for SB Holdings’ benefit in his/her capacity as a stockholder or director of SB Holdings.

Furthermore, SB Holdings’ stockholders, their affiliates and the directors elected or appointed to SB Holdings’ board of directors by SB Holdings’ stockholders: (i) may have participated, directly or indirectly, and may continue to participate in businesses that are similar to or compete with the business of SB Holdings; (ii) may have interests in, participate with, aid and maintain seats on the board of directors of other such entities; and (iii) may develop opportunities for such entities. These individuals may encounter business opportunities in such capacities that SB Holdings or its stockholders may desire to pursue. These individuals will have no obligation to SB Holdings to present any such business opportunity to SB Holdings before presenting and/or developing such opportunity with anyone else, other than any such opportunities specifically presented to any such stockholder or director for SB Holdings’ benefit in his or her capacity as a stockholder or director of SB Holdings. In any such case, to the extent a court might hold that the conduct of such activity is a breach of a duty to SB Holdings, SB Holdings has waived any and all claims and causes of action that SB Holdings believes that it may have for such activities.

 

Pre-emptive Rights

 

Under the SB Holdings Certificate, each person who, together with its affiliates, holds 5% or more of SB Holdings’ outstanding voting securities (a “5% Stockholder”), and each affiliate of a 5% Stockholder to which a 5% Stockholder assigns its rights (each 5% Stockholder and such affiliate being a “Rights Holder”), is granted the right to purchase a pro rata share of all or any part of any “New Securities” that SB Holdings or its subsidiaries may issue. “New Securities” include: (i) any debt instruments of SB Holdings or its subsidiaries issued to a 5% Stockholder or other affiliates of SB Holdings; (ii) capital stock; (iii) equity securities of SB Holdings’ subsidiaries; (iv) rights, options or warrants to purchase capital stock, equity securities or debt instruments; and (v) securities of any type that are, or may become convertible into, capital stock, equity securities or debt instruments. “New Securities” do not include, among others, securities issued (a) pursuant to an equity incentive or stock purchase plan, (b) in connection with a stock split, dividend or distribution, (c) pursuant to a registration statement required under the Securities Act of 1933 or pursuant to a Rule 144A offering or (d) as consideration for an acquisition of another person.

 

Rights Holders who elect to purchase their pro rata share of New Securities will also have the opportunity to purchase their pro rata portion of New Securities not purchased by other Rights Holders.

 

New Securities may be issued by SB Holdings and purchased by the Rights Holders without complying with the pre-emptive rights procedures if, promptly after such purchase, each Rights Holder purchasing New Securities offers the non-purchasing Rights Holders the right to purchase their pro rata share of such New Securities on the same terms.

 

Restrictions on Going-Private Transactions

 

Under the SB Holdings Certificate, no 40% Stockholder or a Restricted Group may, or permit any of their affiliates to, engage in any transactions that would constitute a Going-Private Transaction, unless such Going-Private Transaction:

 

 

These Going-Private Transaction restrictions do not restrict the Harbinger Parties from contributing the SB Holdings Contributed Shares to us pursuant to the Exchange Agreement.

 

A “Going-Private Transaction” transaction means either (a) a Rule 13e-3 transaction, as such term is defined in Rule 13e-3 of the Exchange Act as in effect on the date of SB Holdings Certificate was adopted, with respect to the corporation to which such Rule 13e-3 applies or (b) regardless of whether Rule 13e-3 applies to a transaction, any transaction or series of transactions involving (i) a “purchase” (as such term is defined in Rule 13e-3 of the Exchange Act) of any Equity Security (as such term is defined in SB Holdings Certificate) by a Significant Stockholder (as such term is defined in SB Holdings Certificate) or a member of the Restricted Group, (ii) a tender offer for or request or invitation for tenders of an Equity Security by a Significant Stockholder or a member of the Restricted Group, or (iii) a solicitation subject to Regulation 14A by a Significant Stockholder or a member of the Restricted Group of the Exchange Act of any proxy, consent or authorization of, or a distribution subject to Regulation 14C of the Exchange Act of information statements to, any equity security holder of SB Holdings by a Significant Stockholder or a member of the Restricted Group in connection with (x) a merger, consolidation, reclassification, recapitalization, reorganization or similar corporate transaction of SB Holdings or between SB Holdings (or its subsidiaries) and a Significant Stockholder or a member of the Restricted Group, (y) a sale of substantially all of the assets of SB Holdings to a Significant Stockholder or a member of the Restricted Group (or a group in which one of such persons is a member), or (z) a reverse stock split of any class of Equity Securities involving the purchase of fractional interests, which in the case of such clause (i), (ii) or (iii), has either a reasonable likelihood or a purpose of the Significant Stockholder (together with any other member of the Restricted Group) obtaining beneficial ownership of 85% or more of the Outstanding Voting Securities (as such term is defined in SB Holdings Certificate). Notwithstanding any of the foregoing, any and all purchases of Equity Securities by a Significant Stockholder or any member of the Restricted Group in connection with such Significant Stockholder’s or member’s exercise of its Purchase Rights (as such term is defined in SB Holdings Certificate) under Article 11 of SB Holdings Certificate shall be deemed not to constitute a Going-Private Transaction.

 

Reporting Company Requirement

 

Under the SB Holdings Certificate, SB Holdings must take all actions necessary so that it will not cease to be a reporting company under the Exchange Act unless 85% or more of the outstanding SB Holdings’ voting securities become beneficially owned by a person and its affiliates.

 

Related Party Transactions

 

Subject to certain exceptions set forth in the SB Holdings Certificate, transactions involving aggregate consideration in excess of $1 million between SB Holdings or any of its subsidiaries (including Spectrum Brands and Russell Hobbs) and a 40% Stockholder (or for the benefit of a 40% Stockholder), are prohibited unless the transaction receives the prior approval of the SB Holdings board of directors with the approval or recommendation of a majority of the members of the Special Nominating Committee.

 

Tag-Along Rights

 

The Spectrum Bylaws provide tag-along rights for the benefit of SB Holdings’ minority stockholders. Specifically, until the earlier of (i) June 16, 2012 and (ii) the date on which persons who beneficially own 5% or more of the outstanding SB Holdings voting securities no longer collectively beneficially own 65% or more of the outstanding SB Holdings voting securities, no stockholder, together with its affiliates (a “Selling Stockholder”), is permitted to transfer 50% or more of the then-outstanding SB Holdings’ voting securities unless, prior to the consummation of such transaction, the person acquiring the shares offers each other stockholder the opportunity to transfer all the SB Holdings voting securities held by such stockholder at the same price and terms no less favorable than those being offered to the Seller Stockholder.

 

These tag-along rights do not restrict the Harbinger Parties from contributing the SB Holdings Contributed Shares to us pursuant to the Exchange Agreement.

Amendments to SB Holdings Certificate

 

SB Holdings generally has the right to amend or repeal any provision contained in the SB Holdings Certificate. However, the approval of a majority of the board of directors with the approval or recommendation of a majority of the members of the Special Nominating Committee is required to repeal or amend the provisions in the SB Holdings Certificate pertaining to (i) the required committees of the board of directors, (ii) pre-emptive rights, (iii) Going-Private Transactions, (iv) conflicts of interests, (v) reporting company requirements, (vi) affiliate transactions and (vii) amendments.

 

Amendments to the SB Holdings Bylaws

 

Under the SB Holdings Certificate and the SB Holdings Bylaws, the board of directors of SB Holdings generally is authorized to adopt, amend or repeal the SB Holdings Bylaws. However, the approval of a majority of the board of directors with the approval or recommendation of a majority of the members of the Special Nominating Committee is required to repeal or amend the provisions in the SB Holdings Bylaws pertaining to (i) procedure to call special meetings, (ii) the size of the board of directors and the directors’ terms of office, (iii) director nomination procedures, (iv) SB Holdings Bylaws amendments, (v) the required committees of the board and (vi) tag-along rights.

 

In addition, pursuant to the SB Holdings Certificate, amendments by the SB Holdings stockholders to the following provisions in the SB Holdings Bylaws are permitted only by a majority of the outstanding voting securities and a majority of the outstanding voting securities not held by a 40% Stockholder or any member of its Restricted Group: (i) the size of the board of directors and the directors’ terms of office, (ii) classified board requirement, (iii) director nomination procedures and (iv) tag-along rights.

 

In connection with the Spectrum Brands Acquisition, we will become a party to the existing SB Holdings Stockholder Agreement. Pursuant to that agreement, we will not, without approval of a majority of the members of the Special Nominating Committee, vote our SB Holdings’ voting securities in a manner inconsistent with the terms of the SB Holdings Stockholder Agreement or to amend or repeal certain provisions of the SB Holdings Certificate or SB Holdings Bylaws relating to the size and classification of SB Holdings’ board of directors, the director nomination procedure, committees of SB Holdings’ board of directors, pre-emptive rights, tag-along rights, SB Holdings’ continued status as a reporting company and amendments to SB Holdings Certificate or SB Holdings Bylaws.

 

The following discussion summarizes the material provisions of the SB Holdings Stockholder Agreement.

 

Board and Committee Requirements

 

SB Holdings will maintain (i) a Special Nominating Committee consisting of three independent directors, (ii) a Nominating and Corporate Governance Committee and (iii) an Audit Committee in accordance with the NYSE rules. See “– Board of Directors; Special Nominating Committee” above.

 

For so long as we (together with our affiliate, including the Harbinger Parties) own 40% or more of the outstanding SB Holdings’ voting securities, we will vote our shares of SB Holdings common stock to effect the structure of SB Holdings’ board of directors described in the SB Holdings Stockholder Agreement: specifically, the SB Holdings’ board of directors will consist of 10 directors, of which at least three directors shall be independent directors nominated by the Special Nominating Committee and one director shall be the Chief Executive Officer of SB Holdings. Furthermore, so long as we (together with our affiliates, including the Harbinger Parties) own 40% or more of the outstanding SB Holdings’ voting securities, the Special Nominating Committee of SB Holdings will nominate, for each class of directors being elected at the annual meeting, the same number of directors as there were members of the Special Nominating Committee in such class prior to the election, and HGI will nominate the remaining directors in such class.

 

The board of directors of SB Holdings and all the committees thereof will operate to permit SB Holdings to maintain its listing on the NYSE, and if SB Holdings ceases to qualify as a “controlled company” for

purposes of the rules of NYSE, HGI has the right to increase the size of SB Holdings’ board of directors to add such members as may be required to maintain SB Holdings’ listing on the NYSE and nominate such directors for those newly created vacancies through the Nominating and Corporate Governance Committee.

 

Restriction on Affiliate Transactions

 

Neither SB Holdings nor any of its subsidiaries will be permitted to pay any monitoring or similar fee to HGI or any of its affiliates, including the Harbinger Parties. The SB Holdings Certificate also contains provisions restricting other related party transactions. See “— Related Party Transactions” above.

 

Transfer Restriction

 

We will not be permitted to effect any transfer of SB Holdings’ equity securities to any person that would result in such person and its affiliates owning 40% or more of SB Holdings’ outstanding voting securities, unless (i) such person agrees to be bound by the terms of the SB Holdings Stockholder Agreement, (ii) the transfer is pursuant to a bona fide acquisition of SB Holdings approved by the board of directors and a majority of the members of the Special Nominating Committee, (iii) the transfer is otherwise specifically approved by the board of directors and a majority of the Special Nominating Committee, or (iv) the transfer is of 5% or less of SB Holdings’ outstanding voting securities.

 

Going–Private Restriction

 

Before June 16, 2011, we will not (and we will not permit any of our affiliates, including the Harbinger Parties, to) make any public announcement with respect to, or submit a proposal for, or offer in respect of, a Going-Private Transaction of SB Holdings, unless such action is specifically requested in writing by SB Holdings’ board of directors with the approval of a majority of the members of the Special Nominating Committee.

 

Inspection and Information Rights

 

We will have certain inspection rights so long as we and our affiliates (including the Harbinger Parties) own, in the aggregate, at least 15% of the SB Holdings’ outstanding voting securities, which will permit us, at our own expense, to visit and inspect any of the properties of SB Holdings and its subsidiaries, examine their respective books and records and discuss the affairs, finances and accounts with SB Holdings and its subsidiaries’ respective officers, employees and public accountants.

 

We will also have certain information rights for so long as we own at least 10% of the SB Holdings’ outstanding voting securities that grant us (i) the ability, at our own expense, to obtain from SB Holdings information concerning its, and its subsidiaries’, business and properties, including financial information, necessary to permit us to comply with any applicable securities laws; (ii) the cooperation of SB Holdings’ officers, employees, counsel and public accountants in connection with our compliance with securities laws; and (iii) the permission to disclose in our filings any information required to be disclosed under applicable law or the rules of any applicable stock exchange.

 

Termination of SB Holdings Stockholder Agreement

 

The provisions of the SB Holdings Stockholder Agreement (other than with respect to information and investigation rights) will terminate on the date we and our affiliates (including the Harbinger Parties) no longer beneficially own 40% of outstanding SB Holdings’ voting securities. The SB Holdings Stockholder Agreement terminates when any person or group owns 90% or more of outstanding voting securities. The SB Holdings Stockholder Agreement cannot be amended without the approval of the parties thereto and cannot be waived without the approval of the party against whom the waiver is to be effective; provided that no such amendment or waiver will be effective without the approval of a majority of the members of the Special Nominating Committee.

 

On September 10, 2010, the Committee unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and our stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our board of directors approve the Exchange Agreement and our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. On September 10, 2010, our board of directors (based in part on the unanimous approval and recommendation of the Committee) unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and our stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. On September 10, 2010, the Harbinger Parties, which collectively held approximately 51.6% of our outstanding common stock on that date, executed a written consent to approve the issuance of our common stock pursuant to the Exchange Agreement. The 119,909,830 shares of our common stock to be issued to the Harbinger Parties under the Exchange Agreement will be issued in an unregistered private offering that is exempt from registration under Section 4(2) of the Securities Act and Regulation D thereunder.

 

For a brief description of our company and SB Holdings, please see the section captioned “Summary of the Information Statement — The Companies”, above. For a detailed description of the business of our company and SB Holdings, please see the section captioned “Information about HGI and Spectrum Brands”, above.

 

The Harbinger Parties are investment funds affiliated with Harbinger Capital. Harbinger Capital or an affiliate is the investment manager of each of the Harbinger Parties. As of the date of this information statement, the Harbinger Parties collectively held approximately 51.6% of our outstanding common stock, substantially all of which they acquired on July 9, 2009. As of the date of this information statement, the Harbinger Parties collectively held approximately 67.1% of the outstanding SB Holdings common stock.

 

Because our common stock is listed on the NYSE, we are subject to NYSE rules and regulations. Among other things, NYSE rules (specifically, NYSE Listed Company Manual Section 312.03(c)) require stockholder approval prior to the issuance or sale of shares of our common stock in any transaction or series of transactions if (i) the shares of common stock will have upon issuance voting power equal to 20% or more of the voting power outstanding before the issuance of the shares or (ii) the number of shares of common stock to be issued will upon issuance equal 20% or more of the number of shares of common stock outstanding before the issuance of the shares. In addition, NYSE Listed Company Manual Section 312.03(b) requires stockholder approval prior to the issuance or sale of securities in any transaction or series of related transactions to a director, officer or “substantial security holder” of the company if the number of shares of common stock, or the number of shares of common stock into which the securities may be converted, exceeds one percent of the voting power of the company before such issuance.

 

The 119,909,830 shares of our common stock to be issued by us to the Harbinger Parties pursuant to the Exchange Agreement will exceed the 20% threshold, described above, and such issuance will be made to a “substantial security holder” of our common stock and will exceed one percent of our voting power before such issuance. Accordingly, we are required to obtain approval prior to issuance of the shares of our common stock pursuant to the Exchange Agreement.

 

On June 16, 2010, SB Holdings completed the SB/RH Merger pursuant to the Agreement and Plan of Merger, dated as of February 9, 2010, as amended, by and among the SB Holdings, Russell Hobbs, Spectrum Brands, Battery Merger Corp., and Grill Merger Corp. (the “Merger Agreement”). As a result of the SB/RH

Merger, Russell Hobbs became a wholly owned subsidiary of Spectrum Brands, Spectrum Brands became a wholly owned subsidiary of SB Holdings and the stockholders of Spectrum Brands immediately prior to the consummation of the SB/RH Merger received SB Holdings common stock in exchange for their shares of Spectrum Brands common stock. Immediately prior to the SB/RH Merger, the Harbinger Parties owned 40.6% of the outstanding Spectrum Brands common stock and 100% of the outstanding capital stock of Russell Hobbs and had an outstanding term loan to Russell Hobbs. Upon the completion of the SB/RH Merger, the stockholders of Spectrum Brands (other than the Harbinger Parties) owned approximately 36% of the outstanding SB Holdings common stock and the Harbinger Parties owned approximately 64% of the outstanding SB Holdings common stock. The Spectrum Brands common stock was delisted from the NYSE and shares of SB Holdings common stock were listed on the NYSE under the ticker symbol “SPB”.

 

On August 13, 2010, the Committee received a letter submitting a non-binding proposal from the Harbinger Parties to exchange shares of SB Holdings common stock for shares of HGI common stock at an exchange ratio to be determined by using each company’s respective volume weighted average price for the 30-day trading period ending as of August 13, 2010. According to the non-binding proposal, SB Holdings common stock that the Harbinger Parties would contribute to HGI would represent a majority of the outstanding shares of SB Holdings common stock.

 

On September 10, 2010, the Committee unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and our stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our board of directors approve the Exchange Agreement and our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. On September 10, 2010, our board of directors (based in part on the unanimous approval and recommendation of the Committee) unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and our stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. On September 10, 2010, the Harbinger Parties, holding a majority of the issued and outstanding shares of our common stock as of that date, approved the issuance of our common stock pursuant to the Exchange Agreement by written consent without a meeting.

 

On September 10, 2010, we and the Harbinger Parties entered into the Exchange Agreement. Pursuant to the Exchange Agreement, the Harbinger Parties agreed to contribute the SB Holdings Contributed Shares, or approximately 54.4% of the outstanding SB Holdings common stock, to us in exchange for 119,909,830 newly issued shares of our common stock. This exchange ratio of 4.32 to 1.00 was based on the respective volume weighted average trading prices of our common stock ($6.33) and SB Holdings common stock ($27.36) on the NYSE for the 30 trading days from and including July 2, 2010 to and including August 13, 2010, the day we received the Harbinger Parties’ proposal for the Spectrum Brands Acquisition.

 

After giving effect to the Spectrum Brands Acquisition, the Harbinger Parties will own approximately 93.3% of our outstanding common stock and Harbinger will directly own approximately 12.7% of the outstanding SB Holdings common stock. If the Harbinger Parties elect to contribute to us all of the SB Holdings common stock held by them at September 10, 2010, as permitted by the Exchange Agreement, they would own at the Closing approximately 94.4% of our outstanding common stock.

 

On September 9, 2010, the last full trading day prior to the date the Exchange Agreement was approved, the closing sales prices of our common stock and SB Holdings common stock were $5.98 per share and $26.09 per share, respectively.

 

We are not asking you for a proxy and you are requested not to send us a proxy. As a result of the action of the Harbinger Parties by written consent, no action by in connection with this information statement is required by you.

 

The Exchange Agreement is attached as Annex A to this information statement and is incorporated by reference herein in its entirety. We encourage our stockholders to read the Exchange Agreement carefully and

in its entirety, as the Exchange Agreement is the principal legal document governing the Spectrum Brands Acquisition. We expect to consummate the Spectrum Brands Acquisition on              , 2010, which date is 20 calendar days after we first mail this information statement to our stockholders, or as soon as practicable thereafter, subject to obtaining all regulatory approvals and satisfaction or waiver of the closing conditions set forth in the Exchange Agreement.

 

Exchange Agreement

 

On September 10, 2010, we entered into the Exchange Agreement with the Harbinger Parties. Pursuant to the Exchange Agreement, (i) the Harbinger Parties will contribute the SB Holdings Contributed Shares to us, which represent approximately 54.4% of the outstanding SB Holdings common stock, or 54.1% of the fully diluted shares, and (ii) in exchange for such contribution, we will issue to the Harbinger Parties 119,909,830 newly issued shares of our common stock.

 

Relationships Among the Harbinger Parties, HGI, SB Holdings and Russell Hobbs

 

The Harbinger Parties own approximately 51.6% of our outstanding common stock. The Harbinger Parties also own approximately 67.1% of the outstanding SB Holdings common stock and they will contribute approximately 54.4% of the outstanding SB Holdings common stock to us pursuant to the Exchange Agreement. The Harbinger Parties acquired substantially all of their SB Holdings common stock in connection with the SB/RH Merger. See “— General Description of the Spectrum Brands Acquisition.”

 

After giving effect to the Spectrum Brands Acquisition, the Harbinger Parties will own approximately 93.3% of our outstanding common stock and Harbinger will directly own approximately 12.7% of the outstanding SB Holdings common stock. The Harbinger Parties may have interests that differ from, and/or are in addition to, those of our other stockholders. For additional information, see the sections captioned “— Interests of Certain HGI Stockholders, Directors and Officers in the Spectrum Brands Acquisition” and “Principal Stockholders of HGI Before and After the Spectrum Brands Acquisition.”

 

Background of the Spectrum Brands Acquisition; Formation of the Special Committee

 

In December 2006 we completed a disposition of our 57% ownership interest in Omega Protein Corporation. Since that time we have held cash, cash equivalents and short-term investments in U.S. Government Agency or Treasury securities while we have pursued a good faith search for an acquisition or business combination candidate.

 

In December 2009 we were approached by the Harbinger Parties with respect to the potential acquisition by us of shares of Russell Hobbs, then owned by the Harbinger Parties (the “Potential Russell Hobbs Transaction”). In response, our board of directors formed the Committee, which consists of Lap W. Chan, Thomas Hudgins and Robert V. Leffler, Jr., the three independent members of our board of directors. To the fullest extent permitted by law, the Committee was delegated the exclusive power and authority of our board of directors to evaluate and negotiate the Potential Russell Hobbs Transaction.

 

The Committee engaged Houlihan Lokey to assist it in connection with their review of certain tax and accounting materials related to Russell Hobbs, Perella Weinberg Partners to analyze the fairness of the Potential Russell Hobbs Transaction, and a law firm with significant experience in advising special committees of boards of directors to act as legal advisor to the Committee. We and the Committee also engaged our regular corporate and securities legal advisor, Kaye Scholer LLP, to conduct legal due diligence and advise us with respect to various reporting issues under applicable securities laws.

 

The Committee and we conducted significant due diligence with respect to the financial and operational condition of Russell Hobbs, including its material assets, licenses, contracts, potential liabilities and other key matters.

During December 2009 and January 2010, we and the Harbinger Parties conducted a series of communications, including in person meetings, e-mail correspondence and telephone calls between the Committee and its advisors and the Harbinger Parties and their advisors. On January 21, 2010, the Committee delivered a non-binding indication of interest to the Harbinger Parties with respect to the Potential Russell Hobbs Transaction.

 

Before the Committee could reach an agreement in principle with the Harbinger Parties with respect to the Potential Russell Hobbs Transaction, negotiations to combine Russell Hobbs and Spectrum that had been undertaken by the Harbinger Parties prior to their negotiations with us were re-commenced and we were advised by the Harbinger Parties that they would no longer be pursuing the Potential Russell Hobbs Transaction with us.

 

In May 2010, the Harbinger Parties approached us and members of the Committee, as well as our regular legal counsel, to advise us that the Harbinger Parties were contemplating making one or more offers to us that would include the purchase by us of one or more investments currently held or identified by the Harbinger Parties. During May 2010, we took steps to prepare ourselves for potential transactions, including to discuss with Houlihan Lokey and Perella Weinberg the possibility of serving as financial advisor to the Committee with respect to one or more transactions. On June 3, 2010, the Committee met in person with representatives of Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) and with another law firm to discuss possible legal representation of the Committee. The Committee subsequently retained WilmerHale based on its qualifications and expertise in providing legal advice to special committees in transactions similar to those we were considering.

 

During June 2010, the Committee met on several occasions to discuss one of the transactions the Harbinger Parties had informed HGI they might propose. To date, the Committee has not received a formal offer from the Harbinger Parties with respect to this transaction.

 

On July 9, 2010, after being informed by HGI management that the Harbinger Parties were considering a proposal to contribute their interest in SB Holdings to HGI, the Committee met telephonically to discuss this potential transaction.

 

On July 16, 2010, the Committee met telephonically with representatives of Houlihan Lokey to discuss the possible engagement of Houlihan Lokey to provide financial advisory services in connection with our review of the potential Spectrum Brands transaction. At the end of the meeting, based on Houlihan Lokey’s qualifications and expertise in providing financial and strategic advice to companies similar to ours, the Committee resolved to engage Houlihan Lokey to assist it in its review of certain tax and accounting materials related to such transaction and to render an opinion to the Committee as to the fairness, from a financial point of view, to HGI, of the consideration in any proposed transaction involving SB Holdings. Houlihan Lokey was so engaged as of July 20, 2010.

 

In July 2010, at our request, Kaye Scholer commenced a legal due diligence review of SB Holdings and Spectrum Brands, including its recently acquired Russell Hobbs division, and their assets, material contracts and other legal documents as Kaye Scholer deemed appropriate.

 

Over the course of the following week, representatives of WilmerHale held discussions with representatives of Kaye Scholer regarding the status of the transaction, including the proposed timeline for the completion of the Spectrum Brands Acquisition. While the Harbinger Parties had not yet made a proposal, our management had been informed by the Harbinger Parties that they were considering doing so.

 

On August 13, 2010, the Committee met telephonically with representatives of Houlihan Lokey to discuss the status of the proposed Spectrum Brands Acquisition.

 

On August 13, 2010, the Committee received a letter submitting a non-binding proposal from the Harbinger Parties to exchange shares of SB Holdings common stock for shares of HGI common stock at an exchange ratio to be determined by using each company’s respective volume weighted average price for the 30-day trading period ending as of August 13, 2010. According to the non-binding proposal, the SB Holdings

common stock that the Harbinger Parties would contribute to HGI would represent a majority of the outstanding shares of SB Holdings common stock.

 

On August 15, 2010, Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”), counsel to the Harbinger Parties, delivered drafts of the Exchange Agreement and HGI Registration Rights Agreement to our counsel.

 

On August 16, 2010, at a telephonic Committee meeting, representatives of Houlihan Lokey provided an overview of the financial terms of the draft of the Exchange Agreement that had been received from the Harbinger Parties. At the same meeting, representatives of WilmerHale provided an overview of the Exchange Agreement and other draft agreements received earlier that day from the Harbinger Parties.

 

On August 19, 2010, representatives of Kaye Scholer, WilmerHale, Paul Weiss and the Harbinger Parties held discussions regarding the Exchange Agreement and the HGI Registration Rights Agreement. WilmerHale and Kaye Scholer discussed their request on behalf of HGI to include in the Exchange Agreement an indemnity provision in the Exchange Agreement in favor of HGI, more extensive representations and warranties from the Harbinger Parties, and various other items. The parties also discussed issues that were raised as a result of the Harbinger Parties proposal to contribute less than their entire stake in SB Holdings common stock.

 

On August 22, 2010, representatives of Kaye Scholer discussed the drafts of the Exchange Agreement and the HGI Registration Rights Agreement with representatives of WilmerHale. Later that day, Kaye Scholer delivered revised drafts of the Exchange Agreement and the HGI Registration Rights Agreement to Paul Weiss.

 

On August 23, 2010, the Committee met telephonically with representatives of Houlihan Lokey and WilmerHale to discuss the status of the proposed Spectrum Brands Acquisition.

 

On August 25, 2010, HGI received from the Harbinger Parties a non-binding indication of interest relating to another potential transaction. Discussions on this transaction have occurred, but to date the Committee has not received a formal offer from the Harbinger Parties with respect to this transaction.

 

On August 26, 2010, the Committee met in New York at the offices of WilmerHale with representatives of Houlihan Lokey, WilmerHale and Kaye Scholer to discuss the status of Houlihan Lokey’s review in respect of the proposed Spectrum Brands Acquisition. At the same meeting, Kaye Scholer gave a presentation concerning its legal due diligence and representatives of WilmerHale gave a detailed presentation as to the draft agreements and discussions with Paul Weiss regarding the draft agreements.

 

On September 2, 2010, Paul Weiss delivered drafts of the joinders to the SB Holdings Stockholder Agreement and the SB Holdings Registration Rights Agreement. Later that day, Kaye Scholer delivered revised drafts of such agreements containing HGI’s and the Committee’s comments to Paul Weiss.

 

On September 3, 2010, representatives of each of Kaye Scholer and WilmerHale discussed the drafts of the Exchange Agreement and the HGI Registration Rights Agreement with representatives of Paul Weiss, which drafts were distributed by Paul Weiss on August 31, 2010. Among other things, certain terms of the Exchange Agreement were negotiated on behalf of HGI and the Harbinger Parties and certain terms were agreed to in principle, including the inclusion of an indemnification obligation of the Harbinger Parties in favor of HGI and the provision of more extensive representations and warranties by the Harbinger Parties. The attorneys also discussed issues relating to the number of shares the Harbinger Parties intended to contribute.

 

On September 5, 2010, after discussing the draft Exchange Agreement with WilmerHale, Kaye Scholer delivered a revised draft of the Exchange Agreement containing HGI’s and the Committee’s comments to Paul Weiss.

 

On September 7, 2010, Paul Weiss delivered a revised draft of the Exchange Agreement to Kaye Scholer and WilmerHale.

On September 8, 2010, representatives of each of WilmerHale and Kaye Scholer discussed the draft Exchange Agreement. Also on that day, WilmerHale delivered to the Committee a set of documents and materials in preparation for the meeting of the Committee held on September 10, 2010.

 

On September 9, 2010, representatives of each of Paul Weiss, WilmerHale, Kaye Scholer and the Harbinger Parties discussed the draft Exchange Agreement.

 

On September 10, 2010, the Committee met in New York, New York with representatives of Houlihan Lokey and WilmerHale. At the meeting, the Committee reviewed the process undertaken by the Committee and WilmerHale, the negotiations with the Harbinger Parties and the terms of the draft Exchange Agreement. Houlihan Lokey rendered an oral opinion to the Committee (which was confirmed in writing by delivery of Houlihan Lokey’s written opinion dated September 10, 2010), as to whether, as of September 10, 2010, the Exchange Ratio provided for in the Spectrum Brands Acquisition pursuant to the Exchange Agreement was fair to HGI from a financial point of view, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion.

 

Thereafter, the Committee unanimously resolved that the Exchange Agreement and the Spectrum Brands Acquisition were advisable to, and in the best interests of, HGI and HGI’s stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended to the full board of directors of HGI that it approve the Exchange Agreement and recommended to HGI’s stockholders the approval of the issuance of HGI common stock pursuant to the Exchange Agreement.

 

Consideration of the Spectrum Brands Acquisition

 

The Committee reported to our board of directors its considerations of the Exchange Agreement as described above. Subsequently, the Committee unanimously made the following conclusions:

 

 

Our board of directors, based in part on the unanimous approval and recommendation of the Committee, unanimously:

 

 

Following the Committee and board meetings, on September 10, 2010, we entered into the Exchange Agreement with the Harbinger Parties and related documents. On September 10, 2010, the Harbinger Parties, which collectively held approximately 51.6% of our outstanding common stock on that date, executed a written consent to approve the issuance of our common stock pursuant to the Exchange Agreement by written consent without a meeting.

 

The parties issued a joint press release announcing the execution of the Exchange Agreement on September 13, 2010.

 

The Committee

 

Effective July 9, 2010, pursuant to Section 141(c)(2) of the DGCL and our Bylaws, our board of directors, to the fullest extent permitted by law, delegated to the Committee the exclusive power and authority of our board of directors, among other things, to: (1) establish, approve, modify, monitor and direct the process and procedures related to the review and evaluation of the Spectrum Brands Acquisition, including the authority to determine not to proceed with any such process, procedures, review or evaluation, (2) respond to any communications, inquiries or proposals regarding the Spectrum Brands Acquisition, (3) review, evaluate, investigate, pursue and negotiate the terms and conditions of the Spectrum Brands Acquisition, (4) determine on behalf of our board of directors and our company whether the Spectrum Brands Acquisition is advisable to, and in the best interests of, our company and our stockholders (or any subset of the stockholders of our company that the Committee determines to be appropriate), (5) reject or approve the Spectrum Brands Acquisition, or recommend such rejection or approval to our board of directors, (6) effect or recommend to our board of directors the consummation of the Spectrum Brands Acquisition, (7) review, analyze, evaluate and monitor all proceedings and activities of our company related to the Spectrum Brands Acquisition, (8) take such actions as the Committee may deem to be necessary or appropriate in connection with anti-takeover provisions in connection with the Spectrum Brands Acquisition, (9) investigate SB Holdings, the Spectrum Brands Acquisition and matters related thereto as it deems appropriate, and (10) take such other actions as the Committee may deem to be necessary or appropriate for the Committee to discharge its duties. None of the members of the Committee is employed by or otherwise affiliated with us, the Harbinger Parties, SB Holdings or any of their respective affiliates. The Committee was authorized to review the possible transaction and any alternative transaction and evaluate and, if applicable, negotiate and approve and recommend to our board of directors and our stockholders in connection with the possible transaction or any alternative, and to continue to exist until the Committee decided to discontinue its existence. No limitations were placed on the Committee’s authority.

 

The Committee, with the advice and assistance of its independent legal and financial advisors, evaluated and negotiated the Spectrum Brands Acquisition, including the terms and conditions of the Exchange Agreement and the related agreements, with the Harbinger Parties. Following the negotiations, the Committee unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and our stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our board of directors approve the Exchange Agreement and our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement.

 

In the course of reaching its determination and making the recommendation described above, the Committee considered a number of factors and a review of a substantial amount of information, including at seven committee meetings, and substantial additional discussions in between such meetings. The principal factors and benefits that the Committee believes support its conclusion are set forth below:

 

 

 

 

 

The Committee also considered a variety of risks and other potentially negative factors concerning the Exchange Agreement and the Spectrum Brands Acquisition. These factors included:

 

 

 

 

 

The Committee believes that sufficient safeguards were and are present to ensure the procedural fairness of the Spectrum Brands Acquisition and to permit the Committee to represent effectively the interests of HGI stockholders, other than the Harbinger Parties. These procedural safeguards include the following:

 

 

This discussion of the information and factors considered by the Committee in reaching its conclusions and recommendation includes a substantial portion of the material factors considered by the Committee, but is not intended to be exhaustive. In view of the wide variety of factors the Committee considered in evaluating the Exchange Agreement and the Spectrum Brands Acquisition and the complexity of these matters, the Committee did not find it practicable, and did not attempt, to quantify, rank or otherwise assign relative weight

to such factors. In addition, different members of the Committee may have given different weight to different factors.

 

Board of Directors

 

Our board of directors met on September 10, 2010 to consider the Exchange Agreement and the transactions contemplated thereby, including the Spectrum Brands Acquisition. Based in part on the Committee’s unanimous approval and recommendation and the other factors described below, the board, among other things, unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and all of our stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. See “Background of the Spectrum Brands Acquisition — Consideration of the Spectrum Brands Acquisition.”

 

In determining that the Exchange Agreement and the share issuance to the Harbinger Parties are advisable to, and in the best interests of, our company and our stockholders (other than the Harbinger Parties), our board of directors considered:

 

 

The foregoing discussion of the information and factors considered by our board of directors includes all of the material factors considered by the board, but is not intended to be exhaustive. In view of the wide variety of factors considered by our board of directors in evaluating the Exchange Agreement and the transactions contemplated thereby, including the Spectrum Brands Acquisition, and the complexity of these matters, the directors did not find it practicable, and did not attempt, to quantify, rank or otherwise assign relative weight to such factors. In addition, different members of the board may have given different weight to different factors.

 

Certain of our directors who are affiliated with Harbinger may have interests in the Spectrum Brands Acquisition that may be different from, or in addition to, your interest as our stockholder, including the interests of Mr. Falcone, our Chairman of the Board, Chief Executive Officer and President. See “The Spectrum Brands Acquisition — Interests of Certain HGI Stockholders, Directors and Officers in the Spectrum Brands Acquisition.”

 

On September 10, 2010, Houlihan Lokey rendered an oral opinion to the Committee (which was confirmed in writing by delivery of Houlihan Lokey’s written opinion dated September 10, 2010), to the effect that, as of September 10, 2010, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion, the Exchange Ratio provided for in the Spectrum Brands Acquisition pursuant to the Exchange Agreement was fair to HGI from a financial point of view.

 

Houlihan Lokey’s opinion was directed to the Committee and only addressed the fairness from a financial point of view to HGI of the Exchange Ratio and does not address any other aspect or implication of the Spectrum Brands Acquisition. The summary of Houlihan Lokey’s opinion in this information statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex C to this information statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan

Lokey in preparing its opinion. We encourage our stockholders to carefully read the full text of Houlihan Lokey’s written opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this information statement are intended to be, and do not constitute, advice or a recommendation to the Committee or any stockholder as to how to act or vote with respect to the Spectrum Brands Acquisition or related matters.

 

In arriving at its opinion, Houlihan Lokey, among other things,

 

 

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to them, discussed with or reviewed by them, or publicly available, and did not assume any responsibility with respect to this data, material and other information. In addition, the Committee directed Houlihan Lokey to use the SB Holdings Forecasts for purposes of its analysis in connection with its opinion. With the Committee’s consent, Houlihan Lokey assumed that the SB Holdings Forecasts have been reasonably prepared in good faith and reflect the best currently available estimates and judgments of HGI’s management as to the future financial results and condition of SB Holdings, and Houlihan Lokey expresses no opinion with respect to these SB Holdings Forecasts or any other budgets, projections or estimates, or the assumptions on which they are based. Houlihan Lokey relied upon and assumed, without independent verification, that there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of HGI or SB Holdings since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would have been material to its analyses or the opinion, and that

there is no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading.

 

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the Exchange Agreement and all other related documents and instruments that are referred to in the Exchange Agreement were true and correct, (b) each party to the Exchange Agreement and any related documents and instruments would fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the Spectrum Brands Acquisition would be satisfied without waiver thereof, and (d) the Spectrum Brands Acquisition would be consummated in a timely manner in accordance with the terms described in the Exchange Agreement and any other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey also assumed, with the Committee’s consent, that the Spectrum Brands Acquisition would be treated as a tax-free transaction. Houlihan Lokey also relied upon and assumed, without independent verification, that (i) the Spectrum Brands Acquisition would be consummated in a manner that complies in all respects with all applicable international, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Spectrum Brands Acquisition would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would result in the disposition of any assets of HGI or SB Holdings, or otherwise have an effect on HGI or SB Holdings or any expected benefits of the Spectrum Brands Acquisition that would be material to Houlihan Lokey’s analyses or its opinion. Houlihan Lokey also assumed, at the direction of HGI, that any adjustments to the Exchange Ratio pursuant to the Exchange Agreement will not in any way be material to Houlihan Lokey’s analyses or its opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final forms of any draft documents identified above would not differ in any material respect from the drafts of said documents reviewed by Houlihan Lokey or in any respect material to their opinion.

 

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and did not make, any physical inspection or independent appraisal of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of HGI, SB Holdings or any other party, nor was it provided with any such appraisal. Houlihan Lokey did not undertake any independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which HGI or SB Holdings is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which HGI or SB Holdings is or may be a party or is or may be subject.

 

Houlihan Lokey was not requested to, and did not, (a) negotiate the terms of the Spectrum Brands Acquisition, or (b) advise the Committee, HGI’s board of directors or any other party with respect to alternatives to the Spectrum Brands Acquisition. Houlihan Lokey’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Houlihan Lokey as of September 10, 2010. Houlihan Lokey has not, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to Houlihan Lokey’s attention after the date of the opinion. Houlihan Lokey is not expressing any opinion as to what the value of HGI common stock or SB Holdings common stock actually will be when issued or contributed, as the case may be, pursuant to the Spectrum Brands Acquisition or the price or range of prices at which HGI common stock or the SB Holdings common stock may be purchased or sold at any time.

 

Houlihan Lokey’s opinion was furnished for the use and benefit of the Committee (solely in that capacity) in connection with its consideration of the Spectrum Brands Acquisition and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey’s opinion should not be construed as creating any fiduciary duty on Houlihan Lokey’s part to any party. The opinion was not intended to be, and does not constitute, a recommendation to the Committee, HGI’s board of directors, any security holder or any other person as to how to act or vote with respect to any matter relating to the Spectrum Brands Acquisition.

 

Houlihan Lokey was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Committee, HGI’s board of

directors, HGI, its stockholders or any other party to proceed with or effect the Spectrum Brands Acquisition, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the Spectrum Brands Acquisition or otherwise (other than the Exchange Ratio to the extent expressly specified herein), (iii) the fairness of any portion or aspect of the Spectrum Brands Acquisition to the holders of any class of securities, creditors or other constituencies of HGI, or to any other party, except if and only to the extent expressly set forth in the last sentence of the opinion, (iv) the relative merits of the Spectrum Brands Acquisition as compared to any alternative business strategies that might exist for HGI or any other party or the effect of any other transaction in which HGI or any other party might engage, (v) the fairness of any portion or aspect of the Spectrum Brands Acquisition to any one class or group of HGI’s or any other party’s security holders vis-à-vis any other class or group of HGI’s or such other party’s security holders (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders), (vi) the solvency, creditworthiness or fair value of HGI, SB Holdings or any other participant in the Spectrum Brands Acquisition, or any of their respective assets or whether or not HGI, any of the Harbinger Parties, any of their respective security holders or any other party is receiving or paying reasonably equivalent value in the Spectrum Brands Acquisition, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (vii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Spectrum Brands Acquisition, any class of such persons or any other party, relative to the Exchange Ratio or otherwise. Furthermore, no opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It was assumed that such opinions, counsel or interpretations were or would be obtained from the appropriate professional sources. The issuance of Houlihan Lokey’s opinion was approved by a committee authorized to approve opinions of this nature.

 

In preparing its opinion for the Committee, Houlihan Lokey performed a variety of analyses, including those described below. The summary of Houlihan Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses is readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors or focusing on information presented in tabular format, without considering all analyses, methodologies and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques.

 

In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of the opinion. Houlihan Lokey’s analyses involved judgments and assumptions with regard to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which are beyond the control of HGI, such as the impact of competition on the business of HGI and on the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of HGI or the industry or in the markets generally. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to HGI or the proposed Spectrum Brands Acquisition and an evaluation of the results of those analyses is not entirely mathematical. Houlihan Lokey believes that mathematical derivations (such as determining average and median) of financial data are not by themselves meaningful and should be considered together with qualities, judgments and informed assumptions. The estimates contained in HGI’s and SB Holdings’ analyses and the implied reference range values indicated by Houlihan Lokey’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition,

any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of HGI. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

 

Houlihan Lokey’s opinion was provided to the Committee in connection with its consideration of the proposed Spectrum Brands Acquisition and was only one of many factors considered by the Committee in evaluating the proposed Spectrum Brands Acquisition. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the Exchange Ratio or of the views of the Committee or HGI’s management with respect to the Spectrum Brands Acquisition or the Exchange Ratio. The type and amount of consideration payable in the Spectrum Brands Acquisition were determined through negotiation between HGI and SB Holdings, and the decision to enter into the Spectrum Brands Acquisition was solely that of the Committee.

 

The following is a summary of the material analyses reviewed by Houlihan Lokey with the Committee in connection with Houlihan Lokey’s opinion rendered on September 10, 2010. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Houlihan Lokey’s analyses.

 

For purposes of its analyses, Houlihan Lokey reviewed a number of financial metrics, including:

 

 

Unless the context indicates otherwise, enterprise values and equity values derived from the selected companies analysis described below were calculated using the closing price of HGI common stock and the common stock of the selected companies listed below as of September 8, 2010, and transaction values for the target companies derived from the selected transactions analysis described below were calculated as of the announcement date of the relevant transaction based on the estimated purchase prices paid in the selected transactions. Accordingly, this information may not reflect current or future market conditions. Estimates of adjusted EBITDA for SB Holdings were based on the SB Holdings Forecasts. Estimates of adjusted EBITDA for the selected companies listed below were based on certain publicly available research analyst estimates for those companies.

 

At HGI’s direction, Houlihan Lokey assumed for purposes of its analyses and opinion that (i) the number of shares of SB Holdings common stock to be transferred by the Harbinger Parties to HGI pursuant to the Spectrum Brands Acquisition equals 54.4% of the outstanding SB Holdings common stock on a fully diluted basis and (ii) the number of shares of HGI common stock to be issued to the Harbinger Parties pursuant to the Exchange Agreement equals 86.1% of the outstanding HGI common stock on a fully diluted basis following consummation of the Spectrum Brands Acquisition.

 

HGI Balance Sheet Analysis. Houlihan Lokey conducted a balance sheet-based analysis of HGI in order to develop a range of implied per share equity values for HGI. This analysis reflected various assumptions regarding the estimated percent of HGI’s assets’ book value that would be recoverable in a liquidation/sale scenario, and estimated professional fees that would be incurred by us in a liquidation scenario. Additionally, this analysis considered advisory fees owed by HGI to a strategic advisor, potential contingent liabilities of HGI, and estimated net operating loss carry forward benefits realizable by HGI, in each case as estimated by

HGI’s management. The analysis indicated an implied per share equity value reference range of $6.53 to $7.20 for HGI common stock (the “HGI Reference Range”).

 

Selected Companies Analysis. Houlihan Lokey calculated multiples of enterprise value based on certain financial data for SB Holdings and the following comparable companies:

 

 

The calculated multiples included:

 

 

Houlihan Lokey applied the following selected multiple ranges derived from the selected companies to adjusted EBITDA for SB Holdings for the year ended July 4, 2010 and estimated adjusted EBITDA for SB Holdings for the years ended September 30, 2010 and 2011, as applicable:

 

 

The selected companies analysis indicated the following implied per share equity value reference ranges for shares of SB Holdings common stock:

 

Based on the calculations reflected in the table above and the HGI Reference Range, Houlihan Lokey then calculated the following implied ranges of exchange ratios of HGI common stock to SB Holdings common stock:

 

 

⁽¹⁾ For purposes of calculating the ranges of exchange ratios, with respect to each multiple, (a) the low end of the range was calculated using the lowest implied SB Holdings common stock per share value divided by the highest implied per share value in the HGI Reference Range, and (b) the high end of the range was calculated using the highest implied SB Holdings common stock per share value divided by the lowest implied per share value in the HGI Reference Range.

 

Houlihan Lokey noted that the Exchange Ratio provided for in the Spectrum Brands Acquisition was within each of the three ranges set forth in the table above.

 

Selected Transactions Analysis. Houlihan Lokey calculated multiples of enterprise value based on the estimated purchase prices paid in the following selected publicly announced transactions that have closed as of September 8, 2010:

 

 

The calculated multiples included enterprise value as a multiple of the most recent twelve month period prior to the announcement of the transaction, or LTM Adjusted EBITDA.

 

Houlihan Lokey applied the following selected multiple range derived from the selected transactions to adjusted EBITDA for SB Holdings for the year ended July 4, 2010:

 

The selected transactions analysis indicated the following implied per share equity value reference range for shares of SB Holdings common stock:

 

 

Based on the calculations reflected in the table above and the HGI Reference Range, Houlihan Lokey then calculated the following implied range of exchange ratios of HGI common stock to SB Holdings common stock:

 

 

⁽¹⁾ For purposes of calculating the range of exchange ratios (a) the low end of the range was calculated using the lowest implied SB Holdings common stock per share value divided by the highest implied per share value in the HGI Reference Range and (b) the high end of the range was calculated using the highest implied SB Holdings common stock per share value divided by the lowest implied per share value in the HGI Reference Range.

 

Houlihan Lokey noted that the Exchange Ratio provided for in the Spectrum Brands Acquisition was below the range set forth in the table above.

 

Discounted Cash Flow Analysis. Houlihan Lokey also calculated the net present value of SB Holdings’ unlevered, after-tax cash flows based on the SB Holdings Forecasts. In performing this analysis, Houlihan Lokey used discount rates ranging from 8.0% to 10.0% taking into account SB Holdings’ estimated weighted average cost of capital, and terminal value multiples ranging from 7.0x to 8.0x. The discounted cash flow analysis indicated an implied per share equity value reference range for shares of SB Holdings common stock of $32.90 to $44.86. Based on the foregoing and the HGI Reference Range, Houlihan Lokey then calculated the following implied range of exchange ratios of HGI common stock to SB Holdings common stock:

 

 

⁽¹⁾ For purposes of calculating the range of exchange ratios (a) the low end of the range was calculated using the lowest implied SB Holdings common stock per share value divided by the highest implied per share value in the HGI Reference Range and (b) the high end of the range was calculated using the highest implied SB Holdings common stock per share value divided by the lowest implied per share value in the HGI Reference Range.

 

Houlihan Lokey noted that the Exchange Ratio provided for in the Spectrum Brands Acquisition was below the range set forth in the table above.

 

Houlihan Lokey was engaged by the Committee to provide an opinion to the committee as to whether, as of September 10, 2010, the Exchange Ratio provided for in the Spectrum Brands Acquisition pursuant to the Exchange Agreement was fair to HGI from a financial point of view. The special committee engaged Houlihan Lokey based on Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to render financial opinions in connection with mergers, acquisitions, divestitures, leveraged buyouts, recapitalizations, and for other purposes. Pursuant to Houlihan Lokey’s engagement letter, HGI will pay Houlihan Lokey a customary fee for its services, a portion of which became payable upon the execution of Houlihan Lokey’s engagement letter and another portion of which became payable upon the delivery of Houlihan Lokey’s opinion, regardless of the conclusion reached therein. No portion of Houlihan Lokey’s fee is contingent upon

the successful completion of the Spectrum Brands Acquisition. Houlihan Lokey has also assisted the Committee and HGI with their review of certain tax and accounting materials related to the Spectrum Brands Acquisition and will receive a fee for such services. HGI has also agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates and certain related parties against certain liabilities and expenses, including certain liabilities under the federal securities laws arising out of or relating to Houlihan Lokey’s engagement.

 

In the ordinary course of business, certain of Houlihan Lokey’s affiliates, as well as investment funds in which they may have financial interests, may acquire, hold or sell, long or short positions, or trade or otherwise effect transactions, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, HGI or SB Holdings or any other party that may be involved in the Spectrum Brands Acquisition and their respective affiliates or any currency or commodity that may be involved in the Spectrum Brands Acquisition. ORIX Finance Corp., an affiliate of Houlihan Lokey, is a holder of a portion of SB Holdings’ U.S. $750 million term loan due June 16, 2016.

 

Houlihan Lokey and certain of its affiliates have in the past provided and are currently providing investment banking, financial advisory and other financial services to HGI, SB Holdings, the Harbinger Parties, and Harbinger Capital, an affiliate of HGI, SB Holdings and the Harbinger Parties, and/or certain of their respective affiliates and/or portfolio companies, for which Houlihan Lokey and these affiliates have received, and may receive, compensation, including, among other things, (a) having been engaged by the Committee to assist the committee and HGI in connection with their prior review of certain tax and accounting materials in connection with the potential acquisition of Russell Hobbs, which is currently a wholly-owned subsidiary of SB Holdings, (b) having acted as financial advisor to Master Fund and Special Situations Fund in connection with a restructuring transaction involving Finlay Enterprises, Inc., which transaction closed in 2008, (c) having acted as financial advisor to Master Fund and Special Situations Fund in connection with the liquidation of Friedman’s, Inc., which liquidation was completed in 2008, and (d) having rendered restructuring, valuation and other financial advice to Salton (currently known as Russell Hobbs) and Applica prior to, in connection with, and after the acquisition of Salton by Harbinger Capital, and the merger of Applica and Salton, which transactions were consummated in 2007. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and other financial services to HGI, the Harbinger Parties, Harbinger Capital, SB Holdings, other participants in the Spectrum Brands Acquisition and/or certain of HGI’s and their respective affiliates and/or portfolio companies in the future, for which Houlihan Lokey and such affiliates may receive compensation. In addition, Houlihan Lokey and certain of its affiliates and certain of HGI’s and their respective employees may have committed to invest in private equity or other investment funds managed or advised by Harbinger Capital, other participants in the Spectrum Brands Acquisition or certain of their respective affiliates, and in portfolio companies of the Harbinger Parties and affiliates thereof, and may have co-invested with the Harbinger Parties, other participants in the Spectrum Brands Acquisition or certain of their respective affiliates, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, and similar matters, Houlihan Lokey and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, HGI, the Harbinger Parties, Harbinger Capital, SB Holdings, other participants in the Spectrum Brands Acquisition or certain of their respective affiliates, for which advice and services Houlihan Lokey and such affiliates have received and may receive compensation.

 

 

Approval of the issuance of our common stock pursuant to the Exchange Agreement requires the affirmative votes of the holders of a majority of our outstanding common stock entitled to vote thereon (including the shares held by the Harbinger Parties). On September 10, 2010, the Harbinger Parties approved the issuance of our common stock pursuant to the Exchange Agreement by written consent without a meeting.

 

In reviewing this information statement and considering that the Harbinger Parties have approved by written consent the issuance of our common stock pursuant to the Exchange Agreement, our stockholders should be aware that the Harbinger Parties and certain of our directors and officers who are affiliated with Harbinger have interests in the Spectrum Brands Acquisition that may differ from, or be in addition to, the interests of our other stockholders. These interests create a potential conflict of interest. Our board of directors and the Committee were aware of these potential conflicts of interest during their deliberations on the merits of the Spectrum Brands Acquisition and in making its decision to approve the Exchange Agreement and the transactions contemplated thereby.

 

Security Ownership of Our Common Stock and Interests of Our Management in the Spectrum Brands Acquisition

 

Except as set forth herein, none of our directors or officers own shares of our common stock or have been granted equity-based incentive awards. Robert V. Leffler, Jr., a member of our board of directors, holds 8,000 vested options issued under our 1996 Long-Term Incentive Plan (our “1996 LTIP”) that are exercisable for shares of our common stock. In addition, Francis T. McCarron, our Executive Vice President and Chief Financial Officer, holds options issued under our 1996 LTIP to purchase 125,000 shares of our common stock. These options vest in three substantially equal annual installments, subject to Mr. McCarron’s continued employment with us on each annual vesting date, and have an exercise price equal to the fair market value of a share of common stock on the date of grant. The options outstanding under our 1996 LTIP will not be adjusted or otherwise changed as a result of the Spectrum Brands Acquisition. None of our directors or officers will be granted any shares of our common stock or equity-based incentive awards in connection with the Spectrum Brands Acquisition.

 

Mr. Falcone, our Chairman of the Board, President and Chief Executive Officer, is the managing member of Harbinger Holdings, LLC which is the managing member of Harbinger Capital, and is the portfolio manager of each of the Harbinger Parties. As a result, as of September 10, 2010, Mr. Falcone may be deemed to be an indirect beneficial owner of our common stock held by the Harbinger Parties, constituting approximately 51.6% of our outstanding common stock on that date, and has shared voting and dispositive power over such shares. Mr. Falcone has disclaimed beneficial ownership of these shares, except with respect to his pecuniary interest therein. As a result of the Spectrum Brands Acquisition, Mr. Falcone may be deemed to be an indirect beneficial owner of the additional shares of our common stock issued to the Harbinger Parties under the Exchange Agreement. Mr. Falcone and the Harbinger Parties have interests that may differ from and/or are in addition to those of our other stockholders due to the Harbinger Parties’ 51.6% ownership of our company and 67.1% ownership of SB Holdings. As a result of the Spectrum Brands Acquisition, Harbinger’s ownership of SB Holdings will be reduced to 12.7% of the outstanding SB Holdings common stock, and they will increase their ownership of our company from approximately 51.6% to approximately 93.3%. For a more detailed discussion of the Harbinger Parties’ interests in the Spectrum Brands Acquisition, see the section captioned “— The Harbinger Parties” below.

 

Additionally, Lawrence M. Clark, Jr., a Managing Director and Director of Investments of Harbinger, Peter A. Jenson, a Managing Director and the Chief Operating Officer of Harbinger, and Keith M. Hladek, a director of our subsidiary, Zap.Com, and the Chief Financial Officer of Harbinger, each of whom is a member of our board of directors, may have an indirect interest in the Spectrum Brands Acquisition as a result of their positions with Harbinger.

 

Except to the extent Mr. Falcone may be deemed to be an indirect beneficial owner of the shares of our common stock owned by the Harbinger Parties and to be issued to the Harbinger Parties pursuant to the Exchange Agreement and Messrs. Clark’s, Jenson’s and Hladek’s indirect interests in such shares, if any, as described herein, our directors and officers do not have any material interests in the Spectrum Brands Acquisition.

Treatment of Options and Other Awards

 

One director and one officer of our company hold options under our 1996 LTIP. Our board of directors reviewed whether the Spectrum Brands Acquisition would require any adjustments or other changes to awards made under the 1996 LTIP pursuant to the accompanying stock award agreements as a result of the Spectrum Brands Acquisition, and concluded that the Spectrum Brands Acquisition will not require adjustments or other changes to such awards.

 

Mr. McCarron’s Employment Agreement

 

Mr. McCarron is the only executive officer of HGI who has an employment agreement with us. Our board of directors reviewed the terms of Mr. McCarron’s employment agreement and concluded that the Spectrum Brands Acquisition does not affect Mr. McCarron’s rights under his employment agreement.

 

Management of HGI and SB Holdings Following the Spectrum Brands Acquisition

 

The persons serving as HGI’s or SB Holdings’ executive officers and directors will continue to serve in their respective positions with HGI or SB Holdings after the Spectrum Brands Acquisition.

 

The Harbinger Parties

 

The Harbinger Parties currently own approximately 51.6% of our outstanding common stock and approximately 67.1% of the outstanding SB Holdings common stock. As a result of their common stock ownership in the two companies subject to the exchange, the Harbinger Parties have interests that may differ from, and/or are in addition to, those of our other stockholders. After giving effect to the Spectrum Brands Acquisition, Harbinger’s ownership of SB Holdings will be reduced to 12.7% of the outstanding SB Holdings common stock, and the Harbinger Parties will increase their ownership of our company from approximately 51.6% to approximately 93.3%.

 

In connection with the Exchange Agreement, we entered into the HGI Registration Rights Agreement with the Harbinger Parties which will become effective upon the consummation of the Spectrum Brands Acquisition. Pursuant to the HGI Registration Rights Agreement we will, among other things and subject to the terms and conditions set forth in the agreement, provide the Harbinger Parties with certain demand and piggyback registration rights for the shares of our common stock held by them, including those issued to them pursuant to the Exchange Agreement. See “Ancillary Agreements Entered into in Connection with the Spectrum Brands Acquisition — HGI Registration Rights Agreement”.

 

In addition, in connection with the Spectrum Brands Acquisition, we will become a party to the existing SB Holdings Stockholder Agreement and the SB Holdings Registration Rights Agreement. Pursuant to the SB Holdings Stockholder Agreement, the parties agree that, among other things and subject to the terms and conditions set forth therein, (i) SB Holdings will maintain appropriate committees of its board of directors in accordance with the NYSE rules, (ii) for so long as we and our affiliates (including the Harbinger Parties) own 40% or more of the outstanding SB Holdings’ voting securities, we will vote our shares of SB Holdings common stock to effect the structure of SB Holdings’ board of directors described in the SB Holdings Stockholder Agreement and to ensure that SB Holdings’ Chief Executive Officer is elected to its board of directors, (iii) subject to certain exceptions, we will not effect any transfer of SB Holdings’ equity securities to any person that would result in such person and its affiliates owning 40% or more of SB Holdings’ outstanding voting securities, and (iv) before June 16, 2011, we will not (and we will not permit any of our affiliates to) make any public announcement with respect to, or submit a proposal for, or offer in respect of, or participate in, a going-private transaction of SB Holdings unless such action is specifically requested in writing by the board of directors of SB Holdings with the approval of a majority of the members of the Special Nominating Committee of SB Holdings. Pursuant to the SB Holdings Registration Rights Agreement, we will, among other things and subject to the terms and conditions set forth therein, have certain demand and so-called “piggy back” registration rights with respect our shares of SB Holdings common stock. See “Ancillary Agreements Entered into in Connection with the Spectrum Brands Acquisition — SB Holdings Stockholder Agreement,” and “— SB Holdings Registration Rights Agreement”.

 

HGI — Following the consummation of the Spectrum Brands Acquisition, we will own approximately 54.4% of the outstanding SB Holdings common stock and will continue with our principal strategy of identifying and evaluating other business combinations or acquisitions, and we expect to become a diversified holding company with interests in a variety of industries and market sectors. We anticipate that our affiliation with Harbinger will continue to give us access to other acquisition or business combination opportunities, which may include businesses which are controlled by, affiliated with or otherwise known to Harbinger. We may review acquisition and business combination proposals, including those known to Harbinger, those presented by third parties and those sought out by us. At any time, we may be engaged in ongoing discussions with respect to possible acquisitions or business combinations of widely varying sizes and in disparate industries. There can be no assurance that any of these discussions will result in a definitive agreement and if they do, what the terms or timing of any agreement would be.

 

As of the date of this information statement, except as disclosed herein, we have not entered into any definitive agreement with respect to any other potential acquisition or business combination.

 

SB Holdings — Following the consummation of the Spectrum Brands Acquisition, (i) we will own approximately 54.4% of the outstanding SB Holdings common stock, (ii) SB Holdings will become our majority-owned subsidiary and its results will be consolidated with our results in our financial statements, (iii) the persons serving as SB Holdings’ executive officers and directors will continue to serve in their same respective positions with SB Holdings, (iv) Harbinger will continue to own directly approximately 12.7% of the outstanding SB Holdings common stock and (v) the remaining 32.9% of the outstanding SB Holdings common stock will continue to be owned by the stockholders of SB Holdings who are not affiliated with Harbinger. The SB Holdings common stock will continue to be traded on the NYSE under the symbol “SPB”.

 

Following the Spectrum Brands Acquisition, (i) we will own approximately 54.4% of the outstanding SB Holdings common stock, or 54.1% on a fully diluted basis, and (ii) the Harbinger Parties will own approximately 93.3% of our outstanding common stock and Harbinger will own directly approximately 12.7% of the outstanding SB Holdings common stock.

 

If the Harbinger Parties elect to contribute to us all of the SB Holdings common stock held by them at September 10, 2010, at the closing of the Spectrum Brands Acquisition they will own, in the aggregate, approximately 94.4% of our outstanding common stock.

 

If the Spectrum Brands Acquisition is not consummated for any reason, the Harbinger Parties will not receive any shares of our common stock pursuant to the Exchange Agreement and we will not receive the SB Holdings Contributed Shares. Instead, SB Holdings will remain a majority controlled independent public company and its common stock will continue to be listed on the NYSE.

 

On August 3, 2010, we received notification from the NYSE that we are not in compliance with the NYSE’s listing requirements because we currently have no primary operations and substantially all of our assets are held in cash, cash equivalents and U.S. government securities. As permitted by the NYSE procedures, on August 3, 2010 we submitted our plan of compliance (the “Plan”) to the NYSE to formalize our initiatives and objectives in achieving a return to compliance no later than May 12, 2011, the last date of the period granted by the NYSE to cure our non-compliance. Our Plan has been accepted by the NYSE, and we will be subject to ongoing monitoring to ensure our sustained progress with respect to Plan goals. Our common stock will continue to be listed and traded on the NYSE, subject to our compliance with our Plan and other NYSE continued listing standards. In the Plan we indicated, among other things, that we are committed to identifying appropriate acquisition opportunities and completing one or more business acquisitions in the near term. We advised the NYSE of specific steps we had taken, including current and future acquisition activities, and we advised the NYSE of our preliminary discussions concerning an acquisition of a majority

interest in SB Holdings. If we are not in compliance with the continued listing standards by May 12, 2011, or if we do not make progress toward achieving compliance consistent with our Plan during this period, the NYSE will initiate delisting proceedings.

 

Upon the consummation of the Spectrum Brands Acquisition, there will not be any changes to your rights as a stockholder of our company.

 

Our stockholders are not entitled to dissenters’ rights or to demand appraisal of, or to receive payment for, their shares of our common stock under the DGCL in connection with the Spectrum Brands Acquisition.

 

Consummation of the Spectrum Brands Acquisition is subject to prior receipt of those approvals and consents required to be obtained from applicable governmental and regulatory authorities, including under the HSR Act. We and the Harbinger Parties have agreed to cooperate and use all reasonable best efforts to obtain, or cause our and their applicable affiliates to obtain, all permits, consents, approvals and authorizations from any governmental or regulatory authority necessary to consummate the Spectrum Brands Acquisition as promptly as practicable.

 

We and the Harbinger Parties [have filed notifications of the Spectrum Brands Acquisition under the provisions of the HSR Act with the Antitrust Division of the United States Department of Justice and the United States Federal Trade Commission on [  ], 2010. The applicable waiting period under the HSR Act expired at 11:59 p.m. (Eastern Time) on [     ], 2010.]

 

Except for the HSR Act, we and the Harbinger Parties are not aware of any other governmental approvals that are required for the Spectrum Brands Acquisition to become effective other than filings with the NYSE regarding the listing on the NYSE of our shares of common stock to be issued to the Harbinger Parties under the Exchange Agreement and filing of this information statement with the SEC. We and the Harbinger Parties intend to seek any other approvals required to consummate the Spectrum Brands Acquisition. There can be no assurance, however, that any such approvals will be obtained.

 

The Harbinger Parties (or “Parent”) hold the controlling financial interests in both HGI and SB Holdings. As a result, the Spectrum Brands Acquisition will be considered a transaction between entities under common control under ASC Topic 805 — “Business Combinations”, and should be accounted for similar to the pooling of interest method. In accordance with the guidance in ASC Topic 805, the assets and liabilities transferred between entities under common control should be recorded by the receiving entity based on their carrying amounts (or at the historical cost basis of the Parent, if these amounts differ). Although HGI is the issuer of shares in the Spectrum Brands Acquisition, during the historical periods presented SB Holdings was an operating business and HGI was not. Therefore, SB Holdings will be reflected as the predecessor and receiving entity in HGI’s financial statements to provide a more meaningful presentation of the transaction to HGI’s stockholders. SB Holdings, as the predecessor and under common ownership of the Parent, would record HGI assets and liabilities at the Parents’ basis as of the date that common control was first established (June 16, 2010). SB Holdings was formed and acquired 100% of both Russell Hobbs and Spectrum Brands in exchange for issuing a 65% controlling financial interest to the Harbinger Parties and a 35% non-controlling financial interest to other stockholders (other than the Harbinger Parties) in the SB/RH Merger. As Spectrum Brands was the accounting acquirer in the SB/RH Merger, the financial statements of Spectrum Brands will be included as the predecessor entity for periods preceding the SB/RH Merger.

To effect the Spectrum Brands Acquisition, HGI will issue our common stock to the Parent in exchange for the controlling financial interest in SB Holdings. After this issuance of shares, the Parent is expected to own more than 90% of our outstanding common stock.

 

This discussion is based on the Code and on Treasury regulations, administrative rulings and court decisions in effect as of the date of this information statement, all of which may change at any time, possibly with retroactive effect. This discussion summarizes the material United States federal income tax consequences of the share exchange that are generally applicable to our stockholders solely as a result of our stockholders’ ownership of our common stock. Neither estate and gift nor foreign, state or local tax considerations are addressed. Furthermore, this discussion does not address all United States federal income tax issues that may be important to our stockholders. This discussion does not address the tax consequences of other transactions effectuated prior to or after the Spectrum Brands Acquisition, whether or not such transactions are in connection with the Spectrum Brands Acquisition. In addition, this summary does not address all tax considerations that may be applicable to your particular circumstances or to you if you are subject to special tax rules.

 

We have not sought any ruling from the Internal Revenue Service (the “IRS”) with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.

 

Assuming that the Harbinger Parties will own at least 80% of our common stock, the Spectrum Brands Acquisition should qualify for tax-free treatment under Section 351 of the Code. As a result, our tax basis in the SB Holdings common stock contributed to us should be equal to the tax basis that the Harbinger Parties had in such SB Holdings common stock immediately prior to the Spectrum Brands Acquisition.

 

For our stockholders other than the Harbinger Parties, the Spectrum Brands Acquisition will not have any federal income tax consequences and their tax basis and holding period for our common stock will not be affected.

 

We expect we will incur an aggregate of approximately $[  ] million in expenses in connection with the Spectrum Brands Acquisition, including financial, legal, accounting and tax advisory fees and printing and mailing expenses associated with this information statement. Whether or not the Spectrum Brands Acquisition is consummated, all costs and expenses incurred in connection with the Exchange Agreement and the transactions contemplated thereby will be paid by the party incurring such expense, except as otherwise specifically provided in the Exchange Agreement. The Exchange Agreement provides, among other things, that HGI will reimburse fees and expenses (other than legal fees) incurred by SB Holdings or any of its subsidiaries in connection with the Exchange Agreement or the Spectrum Brands Acquisition (whether or not the Spectrum Brands Acquisition is completed) to the extent required to be paid under the SB Holdings Stockholder Agreement.

 

We expect to consummate the Spectrum Brands Acquisition on              , 2010, which date is 20 calendar days after we first mail this information statement to our stockholders, or as soon as practicable thereafter, subject to obtaining all regulatory approvals and satisfaction or waiver of the closing conditions set forth in the Exchange Agreement.

 

For a discussion summarizing the material provisions of the HGI Registration Rights Agreement, the SB Holdings Stockholder Agreement and the SB Holdings Registration Rights Agreement, see the sections captioned “Ancillary Agreements Entered into in Connection with the Spectrum Brands Acquisition — HGI

Registration Rights Agreement”,“ — SB Holdings Stockholder Agreement”, and “— SB Holdings Registration Rights Agreement”, beginning on page 77.

 

The shares of our common stock to be issued to the Harbinger Parties pursuant to the Exchange Agreement and the SB Holdings Contributed Shares to be contributed to us will not be registered under the Securities Act. These shares will be restricted securities under the Securities Act. We may not be able to sell the SB Holdings Contributed Shares and the Harbinger Parties may not sell their shares of our common stock acquired under the Exchange Agreement, except pursuant to: (i) an effective registration statement under the Securities Act covering the resale of those shares, (ii) Rule 144 under the Securities Act, which requires a specified holding period and limits the manner and volume of sales, or (iii) any other applicable exemption under the Securities Act.

 

In connection with the Exchange Agreement, we and the Harbinger Parties will enter into the HGI Registration Rights Agreement pursuant to which, after the consummation of the Spectrum Brands Acquisition, the Harbinger Parties will have certain demand and so-called “piggy back” registration rights with respect their shares of our common stock. See “Ancillary Agreements Entered into in Connection with the Spectrum Brands Acquisition — HGI Registration Rights Agreement” beginning on page 77.

 

Upon the consummation of the Spectrum Brands Acquisition, we will become a party to the SB Holdings Registration Rights Agreement. Pursuant to the SB Holdings Registration Rights Agreement, we will have certain demand and so-called “piggy back” registration rights with respect the SB Holdings Contributed Shares. See “Ancillary Agreements Entered into in Connection with the Spectrum Brands Acquisition — SB Holdings Registration Rights Agreement” beginning on page 81.

 

This information statement does not cover any resale of shares of our common stock to be received by the Harbinger Parties or the SB Holdings Contributed Shares to be contributed to us by the Harbinger Parties upon consummation of the Spectrum Brands Acquisition, and no person is authorized to make any use of this document in connection with any resale.

 

The following discussion summarizes the material provisions of the Exchange Agreement, a copy of which is attached as Annex A to this information statement and is incorporated by reference into this document. The rights and obligations of the parties to the Exchange Agreement are governed by the express terms and conditions of the Exchange Agreement and not by this summary or any other information contained in this information statement. We urge you to read the Exchange Agreement carefully in its entirety, as well as this information statement.

 

On September 10, 2010, we and the Harbinger Parties entered into the Exchange Agreement pursuant to which the Harbinger Parties will contribute to us the SB Holdings Contributed Shares, representing approximately 54.4% of the outstanding SB Holdings common stock as of that date, in consideration of our issuance to the Harbinger Parties of an aggregate of 119,909,830 newly issued shares of our common stock. At September 10, 2010, we had 19,286,290 shares of our common stock issued and outstanding. After giving effect to the Spectrum Brands Acquisition, the Harbinger Parties will own 93.3% of our outstanding common stock and Harbinger will directly own approximately 12.7% of the outstanding SB Holdings common stock.

 

As part of the delegation by our board of directors to the Committee of the power and authority of our board to evaluate and negotiate the Spectrum Brands Acquisition and the Exchange Agreement, any decisions by us with respect to amendment or termination of the Exchange Agreement will be made by the Committee.

 

The consummation of the Spectrum Brands Acquisition (the “Closing”) will occur at a closing on a date (the “Closing Date”) to be specified by the parties to the Exchange Agreement not later than the second business day after the satisfaction or (to the extent permitted by applicable law) waiver of the closing conditions set forth in the Exchange Agreement, other than those conditions to be satisfied at the consummation of the Spectrum Brands Acquisition, which must be satisfied or (to the extent permitted by applicable law) waived at such time.

 

At the Closing, the Harbinger Parties will contribute to us the SB Holdings Contributed Shares and in exchange for such contribution we will issue to the Harbinger Parties 119,909,830 newly issued shares of our common stock. The exchange ratio of 4.32 to 1.00 was based on the volume weighted average price of our common stock ($6.33) and SB Holdings common stock ($27.36) on the NYSE for the 30 trading days from and including July 2, 2010 to and including August 13, 2010, the day we received the Harbinger Parties’ proposal for the Spectrum Brands Acquisition.

 

The Exchange Agreement permits the Harbinger Parties to contribute additional shares of SB Holdings common stock to us at the Closing at the same exchange ratio of 4.32 to 1.00. If the Harbinger Parties elect to contribute to us all of the SB Holdings common stock held by them at September 10, 2010, at the Closing we would issue an aggregate of 147,989,830 shares of our common stock to them. Unless we state otherwise, the information in this information statement assumes that the Harbinger Parties do not elect to contribute any additional SB Holdings common stock to us.

 

On September 10, 2010, the Committee unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and our stockholders

(other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our board of directors approve the Exchange Agreement and the Spectrum Brands Acquisition and our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. On September 10, 2010, our board of directors (based in part on the unanimous approval and recommendation of the Committee) unanimously determined that the Exchange Agreement and the Spectrum Brands Acquisition are advisable to, and in the best interests of, our company and our stockholders (other than the Harbinger Parties), approved the Exchange Agreement and the transactions contemplated thereby, and recommended that our stockholders approve the issuance of our common stock pursuant to the Exchange Agreement. On September 10, 2010, the Harbinger Parties, which collectively held approximately 51.6% of our outstanding common stock on that date, executed a written consent to approve the issuance of our common stock pursuant to the Exchange Agreement. See “The Spectrum Brands Acquisition — Background of the Spectrum Brands Acquisition — Consideration of the Spectrum Brands Acquisition.”

 

On the Closing Date, the Harbinger Parties will cease to have any rights with respect to the SB Holdings Contributed Shares, except for the right to receive the shares of our common stock pursuant to the Exchange Agreement. We will be entitled to receive the net proceeds after taxes of any dividends or other distributions and pre-emptive rights, rights offerings or other similar rights, on the SB Holdings Contributed Shares arising after the date we entered into the Exchange Agreement.

 

The Exchange Agreement contains customary public company representations and warranties made by us to the Harbinger Parties and each of the Harbinger Parties to us. Our representations and warranties are qualified by, among other things, the information included in reports, registration statements, certifications and information and proxy statements required to be filed or furnished by us with the SEC since December 31, 2009. The assertions embodied in the representations and warranties were made solely for purposes of the Exchange Agreement and may be subject to important qualifications and limitations agreed to by the parties to the Exchange Agreement in connection with negotiating its terms. In addition, certain representations and warranties were made as of a specified date, may be subject to a contractual standard of materiality different from what might be viewed as material to our stockholders, may have been used for the purpose of allocating risk between us and each of the Harbinger Parties rather than establishing matters of fact, may be qualified by the breach of such representations and warranties not having and not reasonably likely to have a material adverse effect on such party’s ability to consummate the Spectrum Brands Acquisition and may be qualified by reference to the information included in each party’s disclosure schedules accompanying the Exchange Agreement. For the foregoing reasons, you should not rely on the representations and warranties as statements of factual information.

 

Pursuant to the Exchange Agreement, we and each of the Harbinger Parties each made representations and warranties relating to, among other things:

 

 

 

Each of the Harbinger Parties also made certain other representations and warranties to us relating to, among other things, the following:

 

 

 

 

We also made certain other representations and warranties to the Harbinger Parties relating to, among other things, the following:

 

 

Under the Exchange Agreement, we have agreed to, among other things, the following:

 

 

Under the Exchange Agreement, each of the Harbinger Parties have agreed, from the date of the Exchange Agreement until the earlier of the consummation of the Spectrum Brands Acquisition and the termination of the Exchange Agreement and, subject to applicable law and certain exceptions set forth therein, not to vote any shares of, execute and deliver any written consent in lieu of any vote, or enter into any agreement to vote or execute and deliver a consent with respect to, SB Holdings common stock or other voting security of SB Holdings held by the Harbinger Parties, in favor of any proposal to do any of the following:

 

 

 

 

 

In addition, under the Exchange Agreement, each of the Harbinger Parties agrees, from the date of the Exchange Agreement until the earlier of the consummation of the Spectrum Brands Acquisition or termination of the Exchange Agreement, not to amend (or consent to any proposed amendment of) the SB Holdings Registration Rights Agreement or the SB Holdings Stockholder Agreement in any manner that adversely affects in any respect the rights of such Harbinger Party thereunder.

 

 

Antitrust and Other Consents

 

Each of our company and each of the Harbinger Parties has agreed to use its respective reasonable best efforts to (collectively, the “Government Approvals”):

 

 

However, neither party is required to (i) commence or threaten to commence litigation, (ii) agree to hold separate, divest, license or cause a third party to purchase, any of the assets or businesses of such party or its affiliates or subsidiaries, or (iii) otherwise agree to any restrictions on the businesses of such party or its affiliates or subsidiaries in connection with avoiding or eliminating any restrictions to the consummation of the Spectrum Brands Acquisition under the HSR Act or any other United States federal or state or foreign statutes, rules, regulations, orders, administrative or judicial doctrines or other laws that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, the “Competition Laws”).

 

Listing of Stock on the NYSE

 

We have agreed to use our reasonable best efforts to cause the shares of our common stock to be issued to the Harbinger Parties under the Exchange Agreement to be approved for listing on the NYSE prior to the Closing. The listing on the NYSE of the shares of our common stock to be issued to the Harbinger Parties under the Exchange Agreement is also a condition under the Exchange Agreement to the obligation of the Harbinger Parties to consummate the Spectrum Brands Acquisition.

Public Announcements

 

Our company and each of the Harbinger Parties has agreed not to, and to cause its affiliates and representatives not to, subject to applicable law and certain exceptions set forth in the Exchange Agreement, issue or cause the publication of any press release or other public statement or any written communications to investors, employees or vendors with respect to the Exchange Agreement or the Spectrum Brands Acquisition without the prior written consent of the other parties to the Exchange Agreement.

 

Other Covenants

 

We have also agreed, subject to applicable law and certain exceptions set forth in the Exchange Agreement, to the following:

 

 

Each of the Harbinger Parties has also agreed to fully cooperate with us in the preparation of this information statement and such Harbinger Party shall, upon request, furnish to us with all information concerning it and its affiliates as we may deem reasonably necessary or advisable in connection with the preparation of this information statement.

 

Conditions to Our and the Harbinger Parties’ Obligations to Consummate the Spectrum Brands Acquisition

 

Our obligations and the obligations of the Harbinger Parties to consummate the Spectrum Brands Acquisition is subject to the satisfaction or, where permissible, waiver of the following conditions:

 

 

“Fully-Diluted Basis” means, at any date, all shares of SB Holdings common stock outstanding, plus (to the extent not included as outstanding) (i) all other capital stock of SB Holdings, or rights or options to acquire shares of SB Holdings common stock or other shares of SB Holdings capital stock, including any restricted stock units, that have been granted under long-term incentive plans or other plans or agreements,

(ii) such other outstanding securities of SB Holdings otherwise issuable in respect of securities convertible into or exercisable or exchangeable for such capital stock of SB Holdings, including options, warrants and other rights to purchase shares of capital stock of SB Holdings, including options, warrants and other rights to purchase shares of capital stock of SB Holdings, (iii) any voting debt of SB Holdings, or (iv) any obligations pursuant to merger, stock purchase, asset purchase or other acquisition agreements pursuant which SB Holdings is required to issue, or the counter-party thereto is entitled to receive, subscribe for or purchase, any shares of capital stock of SB Holdings or securities convertible into, or exercisable or exchangeable for any shares of capital stock of SB Holdings.

 

Conditions to Our Obligations to Consummate the Spectrum Brands Acquisition

 

Our obligations to consummate the Spectrum Brands Acquisition are subject to the satisfaction, or where permissible, waiver of the following conditions:

 

 

Conditions to the Obligations of the Harbinger Parties to Consummate the Spectrum Brands Acquisition

 

The obligation of the Harbinger Parties to consummate the Spectrum Brands Acquisition is subject to the satisfaction or, where permissible, waiver of the following conditions:

 

 

 

The representations, warranties, covenants and obligations to be performed on or prior to the Closing (the “Pre-Closing Covenants”) contained in the Exchange Agreement shall survive the Closing solely for purposes of the indemnification provisions of the Exchange Agreement and:

 

 

Indemnification by the Harbinger Parties

 

Subject to the limitations and terms discussed in this section and set forth in the indemnification section of the Exchange Agreement, on and after the Closing Date, each of the Harbinger Parties shall severally (and not jointly or jointly and severally) indemnify and defend us and our officers, directors, employees, affiliates (other than the Harbinger Parties) and agents (collectively, the “HGI Indemnitees”) at any time after the Closing, from and against, and shall reimburse such persons for, with respect to any and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, diminution of value (except to the extent arising from special or unique circumstances relating to the indemnified party that were not reasonably foreseeable as of the date of the Exchange Agreement), costs and expenses, including taxes, interest, penalties and reasonable attorneys’ fees and expenses (collectively, the “Damages”) asserted against, relating to, imposed upon or incurred, without duplication, by us or any of the HGI Indemnitees arising from or in connection with, subject to the applicable Survival Period, a breach of any representation of such Harbinger Party or any agreement or covenant made by such Harbinger Party contained in the Exchange Agreement (unless the breach resulted from an action of a HGI Indemnitee) (the “Harbinger Representation Indemnification”).

Indemnification by HGI

 

Subject to the limitations and terms discussed herein and set forth in the indemnification section of the Exchange Agreement, on and after the Closing Date, we shall indemnify, defend and hold harmless the Harbinger Parties and each of their respective officers, directors, members, trustees, stockholders, partners, employees, affiliates (other than our company) and agents (collectively, the “Harbinger Indemnitees”) at any time after the Closing, from and against, and shall reimburse such persons for, with respect to any and all Damages asserted against, relating to, imposed upon or incurred, without duplication, by the Harbinger Indemnitees or any of them arising from or in connection with, subject to the applicable Survival Period, a breach of any representation, agreement or covenant made by us contained in the Exchange Agreement (unless the breach resulted from an action of a Harbinger Indemnitee).

 

Limitation on Damages; Calculation of Damages; Treatment and Payment of Indemnification Payments

 

The obligation of each Harbinger Party to indemnify the HGI Indemnitees for breaches of representation or warranty is limited to an aggregate amount equal to such Harbinger Party’s respective cap (each, a “Cap”). The Cap with respect to Master Fund is $58,326,710, with respect to Special Situations Fund is $11,769,082 and with respect to Global Fund is $5,768,759. No Harbinger Party is liable for any Damages for breaches of representations or warranties by such Harbinger Party except to the extent they exceed, in the aggregate, an amount equal to its respective basket (the “Basket”), in which event such Harbinger Party is liable only for such Damages which exceed its Basket. The Basket with respect to Master Fund is $2,916,335, with respect to Special Situations Fund is $588,454 and with respect to Global Fund is $288,438. However, neither the Cap nor the Basket shall apply to the HGI Indemnitees’ right to indemnification arising from or in connection with any claims arising out of a breach of a Fundamental Representation or a breach of any agreement or covenant to be performed by any Harbinger Party, except that in no event will the aggregate liability of any Harbinger Party exceed $583,267,097 with respect to Master Fund, $117,690,817 with respect to Special Situations Fund or $57,687,592 with respect to Global Fund. None of the limitations in the Exchange Agreement limits or restricts any of the HGI Indemnitees’ rights to maintain or recover any amounts in connection with any action or claim based upon fraud by any Harbinger Party.

 

The amount of any Damages for which indemnification is provided under the obligations discussed herein shall be reduced to take account of certain tax benefits actually realized by the HGI Indemnitees and with respect to certain insurance payments.

 

Any obligation of a Harbinger Party to indemnify the HGI Indemnitees shall be payable in shares of our common stock or, at the sole option of such Harbinger Party, cash. For purposes of making any such indemnification payments, each share of our common stock shall be valued at the volume weighted average price (computed using Bloomberg) of a share of our common stock for the 30-trading day period ending on the date preceding the date on which such payment is made.

 

The Exchange Agreement may be terminated at any time prior to the Closing, provided that our decision to terminate the Exchange Agreement is subject to approval of the Committee:

 

 

 

 

 

If the Exchange Agreement is terminated, there will generally be no liability on the part of either our company or the Harbinger Parties, except that no party is relieved from any liability for any willful and material breach of any representation, warranty, or covenant of such party contained in the Exchange Agreement.

 

Each party will be responsible for all of the fees and expenses it incurs in connection with the Exchange Agreement. Except for the fees and expenses of outside legal counsel to SB Holdings which the Harbinger Parties agree to be responsible for (pro rata based on their respective percentages of the SB Holdings Contributed Shares), we agree to pay or promptly reimburse SB Holdings for all fees and expenses incurred by SB Holdings or any of its subsidiaries in connection with the Exchange Agreement and/or the Spectrum Brands Acquisition that the Harbinger Parties would otherwise be obligated to pay under the SB Holdings Stockholder Agreement including, for the avoidance of doubt, all out-of-pocket fees and expenses of accountants used to prepare the financial statements of Russell Hobbs and its subsidiaries to be included herein. We estimate that our Spectrum Brands Acquisition-related fees and expenses, consisting primarily of accounting and financial advisory fees and expenses, and financial printing and other related charges, will be approximately $[     ] million.

Amendment, Assignment and Waiver

 

Subject to applicable law, the provisions of the Exchange Agreement, any inaccuracies in the representations and warranties of any of the parties or compliance with any of the agreements or conditions may be waived or the time for performance of any obligations may be extended only if in writing and signed by the party against whom the waiver is to be effective, except that the parties cannot waive the stockholder approval requirements in the Exchange Agreement.

 

Neither the Exchange Agreement nor any of the rights, interests or obligations under the Exchange Agreement may be assigned, in whole or in part, by operation of law or otherwise by us or the Harbinger Parties without the prior written consent of the other parties.

We (following recommendation of the Committee) and the Harbinger Parties may amend any provision of the Exchange Agreement by mutual written agreement of each party.

 

If any party fails to perform any covenant or agreement made by it in the Exchange Agreement, the other party will be entitled, subject to the terms of the Exchange Agreement and in addition to any remedy at law or in equity, to injunctions to prevent breaches and to enforce specifically the performance of the terms of the Exchange Agreement.

 

The Exchange Agreement is governed by the laws of the State of Delaware.

 

The following section contains a summary of the (i) Registration Rights Agreement entered into by and among us and the Harbinger Parties, a copy of which is attached as Annex B to the Exchange Agreement, (ii) Stockholder Agreement by and among the Harbinger Parties and SB Holdings to which we will become a party upon the consummation of the Spectrum Brands Acquisition, a copy of which was filed as Exhibit [  ] to our Current Report on Form 8-K filed with the SEC on          , 2010, and (iii) Registration Rights Agreement entered into by and among SB Holdings, the Harbinger Parties and the Avenue Parties, to which we will become a party upon the consummation of the Spectrum Brands Acquisition, a copy of which was filed as Exhibit [  ] to our Current Report on Form 8-K filed with the SEC on          , 2010. The rights and obligations of the parties to these agreements are governed by the express terms and conditions of such agreements and not by this summary. This summary may not contain all of the information about the agreements that is of importance to you and is qualified in its entirety by reference to the complete text of the applicable agreement. We encourage you to read these agreements carefully and in their entirety for a more complete understanding of each agreement.

 

In connection with the Spectrum Brands Acquisition, we and the Harbinger Parties entered into the Registration Rights Agreement, dated as of September 10, 2010 (the “HGI Registration Rights Agreement”), pursuant to which, after the consummation of the Spectrum Brands Acquisition, the Harbinger Parties will have certain demand and so-called “piggy back” registration rights with respect to their shares of our common stock.

 

Registration Rights

 

Under the HGI Registration Rights Agreement, after the consummation of the Spectrum Brands Acquisition, any of the Harbinger Parties may demand that we register all or a portion of such Harbinger Party’s shares of our common stock for sale under the Securities Act, so long as the anticipated aggregate offering price of the securities to be offered is (i) at least $30 million if registration is to be effected pursuant to a registration statement on Form S-1 or a similar “long-form” registration or (ii) at least $5 million if registration is to be effected pursuant to a registration statement on Form S-3 or a similar “short-form” registration.

 

Upon such demand registration request, we are obligated to file the relevant registration statement as promptly as reasonably practicable after the written request of the initiating holders and to use our reasonable best efforts to cause such shelf registration statement to be declared effective within 60 days (in the case of a long-form registration) or 45 days (in the case of a short-form registration) of the date on which we receive the relevant request, and to cause such shelf registration to remain effective thereafter. If so requested by Harbinger Parties holding a majority of the our common stock to be included in the relevant registration statement, we will use our reasonable best efforts to cause the offering to be made in the form of a firm commitment underwritten public offering. No Harbinger Party is entitled to more than one short form registration in any six-month period or more than three long form registrations in general; provided, however, that two or more registration statements filed in response to one demand for long-form registration shall be counted as one long-form registration.

 

If we become eligible to use a shelf registration statement on Form S-3 in connection with a secondary public offering of our equity securities (other than as a result of our becoming a “well known seasoned issuer,” as discussed below), any Harbinger Party may demand that we register its shares of our common stock on Form S-3 on a delayed or continuous basis pursuant to Rule 415 promulgated under the Securities Act, so long as the anticipated aggregate market value of such shares is at least $25 million. Following the effectiveness of a shelf registration statement, upon request of any Harbinger Party, we are obligated to use our reasonable best efforts to cause shares registered under the shelf registration to be offered in a firm commitment underwritten public offering, so long as the anticipated aggregate offering amount to the public is at least $10 million.

If we become a “well known seasoned issuer,” we are obligated, as soon as reasonably practicable, to register all of the shares of our common stock entitled to registration under the HGI Registration Rights Agreement on a single “automatic shelf registration statement,” to use our reasonable best efforts to cause such automatic shelf registration statement to become effective within ten business days of becoming a well-known seasoned issuer, and to cause such automatic shelf registration statement to remain effective until there are no longer any registrable securities.

 

If our board of directors determines that a demand registration or shelf registration under the HGI Registration Rights Agreement (or the continuation of any such registration thereunder) would materially interfere with any material financing, acquisition, corporate reorganization, merger or other material transaction or would require premature disclosure of a matter that the board of directors has determined would not be in our best interests to be disclosed at such time, we may delay filing the registration statement until such intervening circumstance no longer exists, or if the registration statement has already been filed, we may withdraw the registration statement and postpone or terminate its effectiveness. Our board of directors may not, however, withdraw a registration statement demanded under the HGI Registration Rights Agreement more than once in any 12-month period or postpone an offering for a period of greater than 90 days in any 12-month period.

 

If any of the Harbinger Parties demands registration (or shelf registration) under the HGI Registration Rights Agreement, the other Harbinger Parties are entitled to notice thereof and to have all or a portion of their shares of our common stock included in the registration and offering.

 

The HGI Registration Rights Agreement also provides that, if we decide to register shares of our common stock for our own account or the account of a stockholder other than the Harbinger Parties (subject to certain exceptions set forth in the HGI Registration Rights Agreement), the Harbinger Parties may require us to include all or a portion of their shares of our common stock in the registration, and to the extent the registration is in connection with an underwritten public offering, to have such shares of our common stock included in the offering.

 

The Harbinger Parties’ right to demand or include their shares of our common stock in a registration is subject to the right of the underwriters to limit the number of shares included in the offering in the event such underwriter determines that registration of all or a portion of the securities which the holders have requested to be included in the offering would materially adversely affect the success of such offering.

 

We have agreed that, during the period beginning on the effective date of a demand registration statement and ending on the date that is 120 days (or 90 days in the case of a shelf registration) after the date of the final prospectus relating to the offering, we will not sell, offer for sale or otherwise transfer shares of our common stock or any securities convertible into such shares of common stock, except for transfers pursuant to the demand registration. In addition, we have agreed to use our reasonable best efforts to cause our officers, directors and holders of greater than 1% of our common stock (or any securities convertible into such shares of common stock) to enter into similar lock-up agreements that contain restrictions that are no less restrictive than the restrictions applicable to us.

 

The rights of a given Harbinger Party to demand registration for shares of our common stock held by such party shall, with respect to such shares, terminate (i) upon the sale of the relevant shares of our common stock pursuant to an effective registration statement or Rule 144 of the Securities Act, (ii) once the entire amount of shares of our common stock held by the Harbinger Parties, in the opinion of counsel, be sold in a single sale without any limitation as to volume under Rule 144, (iii) once the Harbinger Parties own less than 1% of our outstanding common stock on a fully-diluted basis, (iv) if our common stock is proposed to be sold by a person not entitled to registration rights under the HGI Registration Rights Agreement, or (v) once such shares are no longer outstanding.

 

Expenses

 

We will bear all registration expenses specified in the HGI Registration Rights Agreement, including expenses incurred by us in connection with the performance of our obligations under the HGI Registration

Rights Agreement, as well as the reasonable fees and expenses of a single law firm selected as counsel by the Harbinger Parties holding a majority of the securities being registered in such registration. The Harbinger Parties will bear any underwriting discounts or commissions attributable to the sale of the applicable shares.

 

Indemnification

 

The HGI Registration Rights Agreement contains customary provisions allocating rights and responsibilities among us and the Harbinger Parties and obligating us and the Harbinger Parties to indemnify each other against certain liabilities arising from any registration of securities thereunder. The obligations of the parties under the HGI Registration Rights Agreement terminate upon termination of the Exchange Agreement.

 

Termination

 

The HGI Registration Rights Agreement will terminate automatically, without action by any party thereto, if the Exchange Agreement is terminated pursuant to its terms. Furthermore, the HGI Registration Rights Agreement will automatically terminate with respect to any Harbinger Party once such person no longer owns any shares of our common stock.

SB Holdings Stockholder Agreement

 

In connection with the Spectrum Brands Acquisition, we will become a party to the existing SB Holdings Stockholder Agreement. The following discussion summarizes the material provisions of the SB Holdings Stockholder Agreement:

 

Board and Committee Requirements

 

With respect to the SB Holdings’ board of directors and its committees:

 

 

Restriction on Affiliate Transactions

 

Neither SB Holdings nor any of its subsidiaries will be permitted pay any monitoring or similar fee to HGI or any of its affiliates, including the Harbinger Parties. The SB Holdings Certificate also contains

provisions restricting other related party transactions. See “Description of SB Holdings Capital Stock and Related Matters — SB Holdings Certificate of Incorporation and Bylaws — Related Party Transactions.”

 

Transfer Restriction

 

We will not be permitted to effect any transfer of SB Holdings’ equity securities to any person that would result in such person and its affiliates owning 40% or more of SB Holdings’ outstanding voting securities, unless (i) such person agrees to be bound by the terms of the SB Holdings Stockholder Agreement, (ii) the transfer is pursuant to a bona fide acquisition of SB Holdings approved by the board of directors and a majority of the members of the Special Nominating Committee, (iii) the transfer is otherwise specifically approved by the board of directors and a majority of the Special Nominating Committee, or (iv) the transfer is of 5% or less of SB Holdings’ outstanding voting securities;

 

Going Private Restriction

 

Before June 16, 2011, we will not (and we will not permit any of our affiliates, including the Harbinger Parties, to) make any public announcement with respect to, or submit a proposal for, or offer in respect of, a Going-Private Transaction of SB Holdings, unless such action is specifically requested in writing by the board of directors with the approval of a majority of the members of the Special Nominating Committee.

 

Inspection and Information Rights

 

We will have certain inspection rights so long as we and our affiliates, including the Harbinger Parties, own, in the aggregate, at least 15% of the outstanding SB Holdings’ voting securities, which will permit us, at our own expense, to visit and inspect any of the properties of SB Holdings and its subsidiaries, examine their respective books and records and discuss the affairs, finances and accounts with SB Holdings and its subsidiaries’ respective officers, employees and public accountants.

 

We will also have certain information rights for so long as we own at least 10% of the outstanding SB Holdings’ voting securities that grant us (i) the ability, at our own expense, to obtain from SB Holdings information concerning its, and its subsidiaries’, business and properties, including financial information, necessary to permit us to comply with any applicable securities laws, (ii) the cooperation of SB Holdings’ officers, employees, counsel and public accountants in connection with our compliance with securities laws, and (iii) the permission to disclose in our filings any information required to be disclosed under applicable law or the rules of any applicable stock exchange.

 

Certain Voting Provisions

 

With respect to any meeting of the stockholders of SB Holdings called for the purpose of electing directors, we have agreed to attend such meeting in person or by proxy for purposes of establishing a quorum and to vote our SB Holdings common stock in favor of the election as directors of SB Holdings any persons who have been nominated for election by the Nominating and Corporate Governance Committee and any persons who have been nominated for election by the Special Nominating Committee in accordance with the procedures set forth in the SB Holdings Stockholder Agreement.

 

We will not, without the approval or recommendation of a majority of the members of the Special Nominating Committee, vote (i) in a manner inconsistent with the provisions of the SB Holdings Stockholder Agreement or in a manner that would frustrate or prevent implementation of the provisions of the SB Holdings Stockholder Agreement, or (ii) for an amendment or repeal of the SB Holdings Certificate and SB Holdings Bylaws relating to the size and classification of the board of directors, the director nomination procedure, committees of the board of directors of SB Holdings, pre-emptive rights, tag-along rights, SB Holdings’ continued status as a reporting company and amendments to the SB Holdings Certificate or SB Holdings Bylaws.

Termination of SB Holdings Stockholder Agreement

 

The provisions of the SB Holdings Stockholder Agreement (other than with respect to information and investigation rights) will terminate on the date on which we and our affiliates (including the Harbinger Parties) no longer beneficially own 40% of outstanding SB Holdings’ voting securities. The SB Holdings Stockholder Agreement terminates when any person or group owns 90% or more of the outstanding SB Holdings’ voting securities. The SB Holdings Stockholder Agreement cannot be amended without the approval of the parties thereto and cannot be waived without the approval of the party against whom the waiver is to be effective; provided that no such amendment or waiver will be effective without approval of a majority of the members of the Special Nominating Committee of SB Holdings.

 

In connection with the Spectrum Brands Acquisition, we also will become a party to the SB Holdings Registration Rights Agreement. Pursuant to the SB Holdings Registration Rights Agreement, we, the Harbinger Parties and the Avenue Parties, will, among other things and subject to the terms and conditions set forth therein, have certain demand and so-called “piggy back” registration rights with respect our and their shares of SB Holdings common stock.

 

Under the SB Holdings Registration Rights Agreement, we, the Harbinger Parties and the Avenue Parties may demand that SB Holdings register all or a portion of our or their SB Holdings common stock for sale under the Securities Act, so long as the anticipated aggregate offering amount of the securities to be offered to the public (based on the average of the daily closing price of the securities for the 30 immediately preceding trading days) is (i) at least $30 million if registration is to be effected pursuant to a registration statement on Form S-1 or a similar “long-form” registration or (ii) at least $5 million if registration is to be effected pursuant to a registration statement on Form S-3 or a similar “short-form” registration.

 

Upon such demand registration request, SB Holdings is obligated to file the relevant registration statement as promptly as reasonably practicable after the written request of the initiating holders and to use its reasonable best efforts to cause such shelf registration statement to be declared effective within 60 days (in the case of a long-form registration) or 45 days (in the case of a short-form registration) of the date on which it receives the relevant request, and to cause such shelf registration to remain effective thereafter. If so requested by us, the Harbinger Parties and/or the Avenue Parties holding a majority of the SB Holdings common stock to be included in the relevant registration statement, SB Holdings will use its reasonable best efforts to cause the offering to be made in the form of a firm commitment underwritten public offering. None of us, the Harbinger Parties or the Avenue Parties is entitled to more than one short form registration in any six-month period or more than three long form registrations in general; provided, however, that two or more registration statements filed in response to one demand for long-form registration shall be counted as one long-form registration.

 

If SB Holdings becomes eligible to use a shelf registration statement on Form S-3 in connection with a secondary public offering of its equity securities (other than as a result of SB Holdings becoming a “well known seasoned issuer,” as discussed below), we or any Harbinger Party or Avenue Party may demand that SB Holdings register our or their shares of SB Holdings common stock on Form S-3 on a delayed or continuous basis pursuant to Rule 415 promulgated under the Securities Act, so long as the anticipated aggregate market value of such shares is at least $25 million. Following the effectiveness of a shelf registration statement, upon request of HGI or any Harbinger Party or Avenue Party, SB Holdings is obligated to use its reasonable best efforts to cause shares registered under the shelf registration to be offered in a firm commitment underwritten public offering, so long as the anticipated aggregate offering amount to the public is at least $10 million.

 

If SB Holdings becomes a “well known seasoned issuer,” it is obligated, as soon as reasonably practicable, to register all of the SB Holdings common stock entitled to registration under the SB Holdings Registration Rights Agreement on a single “automatic shelf registration statement,” to use its reasonable best efforts to cause such automatic shelf registration statement to become effective within ten business days of becoming a well-known seasoned issuer, and to cause such automatic shelf registration statement to remain effective until there are no longer any registrable securities.

If SB Holdings’ board of directors determines that a demand registration or shelf registration under the SB Holdings Registration Rights Agreement (or the continuation of any such registration thereunder) would materially interfere with any material financing, acquisition, corporate reorganization, merger or other material transaction or would require premature disclosure of a matter that the board of directors has determined would not be in the best interests of SB Holdings to be disclosed at such time, SB Holdings may delay filing the registration statement until such intervening circumstance no longer exists, or if the registration statement has already been filed, it may withdraw the registration statement and postpone or terminate its effectiveness. SB Holdings’ board of directors may not, however, withdraw a registration statement demanded under the SB Holdings Registration Rights Agreement more than once in any 12-month period or postpone an offering for a period of greater than 90 days in any 12-month period.

 

If we or any Harbinger Party or Avenue Party demands registration (or shelf registration) under the SB Holdings Registration Rights Agreement, we, the Harbinger Parties or the Avenue Parties, as applicable, are entitled to notice thereof and to have all or a portion of our or their shares of SB Holdings common stock included in the registration and offering. In addition, if SB Holdings decides to register shares of its common stock for its own account or the account of a stockholder other than us, the Harbinger Parties or the Avenue Parties (subject to certain exceptions set forth in the SB Holdings Registration Rights Agreement), we, the Harbinger Parties and Avenue Parties may require SB Holdings to include all or a portion of our or their shares of SB Holdings common stock in the registration, and to the extent the registration is in connection with an underwritten public offering, to have such SB Holdings common stock included in the offering.

 

Our, the Harbinger Parties’ and the Avenue Parties’ right to demand or include our or their shares of SB Holdings common stock in a registration is subject to the right of the underwriters to limit the number of shares included in the offering in the event such underwriter determines that registration of all or a portion of the securities which the holders have requested to be included in the offering would materially adversely affect the success of such offering.

 

SB Holdings has agreed that, during the period beginning on the effective date of a demand registration statement and ending on the date that is 120 days (or 90 days in the case of a shelf registration) after the date of the final prospectus relating to the offering, it will not sell, offer for sale or otherwise transfer shares of its common stock or any securities convertible into such shares of common stock, except for transfers pursuant to the demand registration. In addition, SB Holdings has agreed to use its reasonable best efforts to cause its officers, directors and holders of greater than 1% of its common stock (or any securities convertible into such shares of common stock) to enter into similar lock-up agreements that contain restrictions that are no less restrictive than the restrictions applicable to SB Holdings.

 

The rights of our company or any Harbinger Party or Avenue Party to demand registration for the SB Holdings common stock held by such party shall, with respect to our or their SB Holdings common stock, terminate (i) upon the sale of the relevant SB Holdings common stock pursuant to an effective registration statement or Rule 144 of the Securities Act, (ii) once the entire amount of SB Holdings common stock held by the relevant holder may, in the opinion of counsel, be sold in a single sale without any limitation as to volume under Rule 144, (iii) once we or such Avenue Party owns less than 1% of the outstanding SB Holdings common stock on a fully-diluted basis, (iv) if the SB Holdings common stock is proposed to be sold by a person not entitled to registration rights under the SB Holdings Registration Rights Agreement, or (v) once such SB Holdings common stock is no longer outstanding.

 

The SB Holdings Registration Rights Agreement contains customary provisions allocating rights and responsibilities among the parties thereto and obligating SB Holdings, the other parties to the SB Holdings Registration Rights Agreement and HGI, when it becomes a party to the SB Holdings Registration Rights Agreement, to indemnify each other against certain liabilities arising from any registration of securities thereunder.

 

The following table sets forth our selected historical consolidated financial information for the periods and as of the dates presented. The selected financial information as of December 31, 2009, 2008, 2007, 2006 and 2005 and for each of the five fiscal years then ended has been derived from our audited consolidated financial statements. The selected financial information as of June 30, 2010 and for the six-month period then ended has been derived from our unaudited condensed consolidated financial statements which include, in the opinion of our management, all adjustments necessary to present fairly the results of operations and financial position of our for the periods and dates presented. All these adjustments are of a normal recurring nature except for the adjustments to income tax disclosed in note (1) below.

 

The financial information indicated may not be indicative of future performance. This financial information and other data should be read in conjunction with, and is qualified in its entirety by reference to, our respective audited and unaudited consolidated financial statements, including the related notes thereto, and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Annexes D, E, F and G to this information statement. This information should also be read in conjunction with the unaudited pro forma condensed combined financial statements. All amounts are in thousands, except for per share amounts.

 

 

 

The following table sets forth selected historical consolidated financial information of SB Holdings and Spectrum Brands for the periods presented. The selected financial information, as of September 30, 2005, 2006, 2007, 2008 and 2009 and for each of the five fiscal years then ended has been derived from Spectrum Brands’ audited consolidated financial statements. The selected historical consolidated statement of operations and balance sheet data, as of July 4, 2010, and for the nine months ended June 28, 2009 and July 4, 2010, has been derived from SB Holdings’ unaudited condensed consolidated financial statements which include, in the opinion of SB Holdings’ management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of operations and financial position of SB Holdings and Spectrum Brands for the periods and dates presented. The information presented below as of and for the nine months ended July 4, 2010 also includes that of Russell Hobbs since the SB/RH Merger on June 16, 2010.

 

On November 5, 2008, Spectrum Brands’ board of directors committed to the shutdown of the growing products portion of Spectrum Brands’ Home and Garden Business, which includes the manufacturing and marketing of fertilizers, enriched soils, mulch and grass seed, following an evaluation of the historical lack of profitability and the projected input costs and significant working capital demands for the growing products portion of the Home and Garden Business during fiscal 2009. During the second quarter of fiscal 2009, Spectrum Brands completed the shutdown of the growing products portion of the Home and Garden Business and, accordingly, began reporting the results of operations of the growing products portion of the Home and Garden Business as discontinued operations. As of October 1, 2005, Spectrum Brands began reporting the results of operations of the Nu-Gro Pro and Tech division of the Home and Garden Business as discontinued operations. Spectrum Brands also began reporting the results of operations of the Canadian division of the Home and Garden Business as discontinued operations as of October 1, 2006, which was sold on November 1, 2007. Therefore, the presentation of all historical continuing operations has been changed to exclude the growing products portion of the Home and Garden Business, the Nu-Gro Pro and Tech and the Canadian divisions of the Home and Garden Business but to include the remaining control products portion of the Home and Garden Business.

 

The financial information indicated may not be indicative of future performance. This financial information and other data should be read in conjunction with the respective audited and unaudited consolidated financial statements of SB Holdings and Spectrum Brands, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SB Holdings and Spectrum Brands.” This information should also be read in conjunction with the unaudited pro forma condensed combined financial statements. References to “Successor Company” in Spectrum Brands’ selected financial information set forth below refer to Spectrum Brands after it emerged from Chapter 11 of the Bankruptcy Code, and references to the “Predecessor Company” in Spectrum Brands’ selected financial information set forth below refer to Spectrum Brands prior to that time.