Rayovac 2010 Annual Report Download - page 27

• restrict our ability to make strategic acquisitions, dispositions or exploiting business opportunities;
• place us at a competitive disadvantage compared to our competitors that have less debt; and
• limit our ability to borrow additional funds (even when necessary to maintain adequate liquidity) or
dispose of assets.
Under the Senior Secured Facilities and the indenture governing the 12% Notes (the “2019 Indenture”), we
may incur additional indebtedness. If new debt is added to our existing debt levels, the related risks that we now
face would increase.
Furthermore, a substantial portion of our debt bears interest at variable rates. If market interest rates
increase, the interest rate on our variable rate debt will increase and will create higher debt service requirements,
which would adversely affect our cash flow and could adversely impact our results of operations. While we may
enter into agreements limiting our exposure to higher debt service requirements, any such agreements may not
offer complete protection from this risk.
Restrictive covenants in the Senior Secured Facilities and the 2019 Indenture may restrict our ability to
pursue our business strategies.
The Senior Secured Facilities and the 2019 Indenture each restrict, among other things, asset dispositions,
mergers and acquisitions, dividends, stock repurchases and redemptions, other restricted payments, indebtedness
and preferred stock, loans and investments, liens and affiliate transactions. The Senior Secured Facilities and the
2019 Indenture also contain customary events of default. These covenants, among other things, limit our ability
to fund future working capital and capital expenditures, engage in future acquisitions or development activities,
or otherwise realize the value of our assets and opportunities fully because of the need to dedicate a portion of
cash flow from operations to payments on debt. In addition, the Senior Secured Facilities contain financial
covenants relating to maximum leverage and minimum interest coverage. Such covenants could limit the
flexibility of our restricted entities in planning for, or reacting to, changes in the industries in which they operate.
Our ability to comply with these covenants is subject to certain events outside of our control. If we are unable to
comply with these covenants, the lenders under our Senior Secured Facilities or 12% Notes could terminate their
commitments and the lenders under our Senior Secured Facilities or 12% Notes could accelerate repayment of
our outstanding borrowings, and, in either case, we may be unable to obtain adequate refinancing outstanding
borrowings on favorable terms. If we are unable to repay outstanding borrowings when due, the lenders under the
Senior Secured Facilities or 12% Notes will also have the right to proceed against the collateral granted to them
to secure the indebtedness owed to them. If our obligations under the Senior Secured Facilities and the 12%
Notes are accelerated, we cannot assure you that our assets would be sufficient to repay in full such indebtedness.
Assuming consummation of a pending transaction by which Harbinger Group, Inc. (“HRG”) would
acquire a majority of the outstanding shares of our common stock, any sale or other disposition by HRG to
non-affiliates of a sufficient amount of the common stock of SB Holdings would constitute a change of
control under the agreements governing Spectrum Brands’ debt.
HRG and Harbinger Capital Partners Master Fund I, Ltd. (“Harbinger Master Fund”), Harbinger Capital
Partners Special Situations Fund, L.P and Global Opportunities Breakaway Ltd. (collectively, the “Harbinger
Parties”) are parties to a Contribution and Exchange Agreement (the “Exchange Agreement”), pursuant to the
terms of which the Harbinger Parties will contribute 27,756,905 shares of SB Holdings common stock to HRG
and received in exchange for such shares an aggregate of 119,909,830 shares of HRG common stock (the “Share
Exchange”). Immediately following the consummation of the Share Exchange, HRG will own approximately
54.4% of our common stock and the Harbinger Parties will own approximately 12.7% of the outstanding shares
of our common stock. The Harbinger Parties will own approximately 93.3% of the outstanding HRG common
stock.
17