Rayovac 2006 Annual Report Download - page 94

82 SPECTRUM BRANDS | 2006 ANNUAL REPORT
Euro Tranche B term loans increased by 50 basis points as the
spread between the market rate and the Company’s rate increased
from 2.50% to 3.00%. Interest costs on the Company’s existing
Revolver increased by 75 basis points as the spread between the
market rate and the Company’s rate increased from 2.25% to
3.00%. In connection with the amendment, the Company incurred
$3,494 of fees which are being amortized over the remaining term
of the Senior Credit Facilities.
The Company was in compliance with all covenants associated
with its Senior Credit Facilities, as amended, and Senior
Subordinated Notes, with the exception of the Fixed Charge
Coverage Ratio relating to the Senior Subordinated Notes, that
were in effect as of and during the period ended September 30,
2006. Due to signifi cant Restructuring Charges and reduced busi-
ness performance, the Company is not in compliance with the
minimum requirement of 2:1 for the Fixed Charge Coverage Ratio
under the indentures governing the Company’s Subordinated
Notes. Until the Company returns to compliance with the ratio,
the Company is limited in its ability to make signifi cant acquisitions
or incur signifi cant additional senior debt beyond its existing Senior
Credit Facilities. The Company does not expect this to impair its
ability to provide adequate liquidity to meet the short-term and
long-term liquidity requirements of its existing business, although
no assurance can be given in this regard.
On December 12, 2006, the Company reached agreement
with its Senior Lenders to amend the maximum consolidated
leverage ratio and the minimum consolidated interest coverage
ratio covenants associated with its Senior Credit Facilities effec-
tive for the periods ended December 31, 2006 and April 1, 2007.
The amendment raises the interest rate on all of the Company’s
debt under its Senior Credit Facilities by 0.25% per annum until
the Company prepays at least $500,000 in principal amount of its
term loans with proceeds from the sale of certain of its assets.
The Company’s ability to comply with future debt covenants
beyond the fi rst quarter of fi scal 2007, ending December 31,
2006, will depend on its ability to consummate the disposal of
certain assets on favorable contractual terms. In connection with
the amendment, the Company incurred approximately $1,285 of
fees which are being amortized over the remaining term of its
Senior Credit Facilities. Failure to comply with the fi nancial cov-
enants and other provisions could materially and adversely affect
the Company’s ability to fi nance its future operations or capital
needs and could create a default under such instrument and cause
all amounts borrowed to become due and payable immediately.
In the event of default under the Senior Credit Facilities, the
amounts outstanding under its Senior Subordinated Notes would
also be subject to acceleration.
(8) Shareholders’ Equity
The Company granted approximately 965 shares of restricted
stock during 2006. Of these grants, approximately 414 shares are
time-based and vest on a pro rata basis over either a three- or four-
year period and 389 shares are performance-based and vest upon
achievement of certain performance goals. If the performance tar-
gets are not met, the performance component of a restricted
stock award will automatically vest one year after the originally
scheduled vesting date, effectively making the award time-based.
The remaining 160 shares vest at specifi c dates throughout 2008
and 2009. All vesting dates are subject to the recipient’s contin-
ued employment with the Company. The total market value of
the restricted shares on the date of grant was approximately
$18,875 which has been recorded as unearned restricted stock
compensation, a separate component of Shareholders’ equity.
Unearned compensation is being amortized to expense over the
appropriate vesting period.
The Company granted approximately 1,242 shares of
restricted stock during 2005. Of these grants, approximately
538 shares will vest over a three-year period, with 50% of the
shares vesting on a pro rata basis over the three-year period and
the remaining 50% vesting based on the Company’s performance
during the three-year period or one year after if performance
criteria are not met. Approximately 317 shares granted will be
100% vested on February 7, 2008 if specifi ed performance tar-
gets are met. If those performance targets are not met, the shares
will vest on February 7, 2012. The remaining 387 shares vest at
varying dates through 2009, including 293 that vest in 2008. All
vesting dates are subject to the recipient’s continued employ-
ment with the Company. The total market value of the restricted
shares on the date of grant was approximately $41,924 which has
been recorded as unearned restricted stock compensation, a sep-
arate component of Shareholders’ equity. Unearned compensa-
tion is being amortized to expense over the appropriate vesting
period.
In addition, in 2005 the Company issued 13,750 shares of com-
mon stock from treasury as partial consideration for the United
acquisition (see Note 17, Acquisitions, where the United acquisi-
tion is further described). The value of these shares was calculated
at a share price of $31.94. The share price of $31.94 was based on
a fi ve-day average beginning on December 30, 2004.
During 2004, the Company granted approximately 449 shares
of restricted stock to certain members of management. The total
market value of the restricted shares granted was approximately
$9,746 which was recorded as a separate component of sharehold-
ers’ equity. Unearned compensation is being amortized to expense
over the appropriate vesting period of up to three years.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.