Rayovac 2012 Annual Report Download - page 25

On June 27, 2012, the United States Securities and Exchange Commission (“SEC”) filed two civil actions in
the United States District Court for the Southern District of New York, asserting claims against Harbinger
Capital Partners Special Situations GP, L.L.C. (“Harbinger Capital”), Harbinger Capital Partners Offshore
Manager, L.L.C., and certain of their current and former affiliated entities and persons, including Philip A.
Falcone. Mr. Falcone is the Chief Executive Officer and Chairman of the Board of Directors of HRG, our parent.
Investment funds managed by Harbinger Capital are the controlling stockholders of HRG, the majority
stockholder of our direct parent company, SB Holdings. One civil action alleges that the defendants violated the
anti-fraud provisions of the federal securities laws by engaging in market manipulation in connection with the
trading of the debt securities of a particular issuer from 2006 to 2008. The other civil action alleges that the
defendants violated the anti-fraud provisions of the federal securities laws in connection with a loan made by
Harbinger Capital Partners Special Situations Fund, L.P. to Mr. Falcone in October 2009 and alleges further
violations in connection with the circumstances and disclosure regarding alleged preferential treatment of, and
agreements with, certain fund investors. Harbinger Capital and certain of its affiliates received “Wells Notices”
in December 2011 with respect to the matters addressed by these actions.
We understand that Harbinger Capital and its affiliates deny the charges in the SEC’s complaints and intend
to vigorously defend against them. It is not possible at this time to predict the outcome of these actions, including
whether the matters will result in settlements on any or all of the issues involved. However, in these actions the
SEC is seeking a range of remedies, including permanent injunctive relief, disgorgement, civil penalties and
pre-judgment interest and an order prohibiting Mr. Falcone from serving as an officer and director of any public
company. If, following the outcome of these investigations, Harbinger Capital determines to dispose of the stock
of HRG, or HRG determines to dispose of the stock of SB Holdings, this could constitute a change of control
under the agreements governing our debt as discussed above.
We face risks related to the current economic environment.
The current economic environment and related turmoil in the global financial system has had and may
continue to have an impact on our business and financial condition.
In the U.S., the uncertainty regarding significant mandated tax increases and government spending cuts
beginning in January 2013, (the “Fiscal Cliff”) poses a serious risk for the U.S. economy and consumer
confidence. In the event that the U.S. federal government is unable to achieve a resolution that would mitigate
the impact of the Fiscal Cliff to a meaningful degree, there could be an adverse impact on the U.S. economy with
a decrease in consumer spending, which could negatively impact our revenues and earnings. In addition, if the
impact of the Fiscal Cliff results in a recessionary environment in the U.S., this could affect the global economy
in a manner that negatively affects our international business and financial performance and results.
Global economic conditions have significantly impacted economic markets within certain sectors, with
financial services and retail businesses being particularly impacted. Our ability to generate revenue depends
significantly on discretionary consumer spending. It is difficult to predict new general economic conditions that
could impact consumer and customer demand for our products or our ability to manage normal commercial
relationships with our customers, suppliers and creditors. The recent continuation of a number of negative
economic factors, including constraints on the supply of credit to households, uncertainty and weakness in the
labor market and general consumer fears of a continuing economic downturn could have a negative impact on
discretionary consumer spending. If the economy continues to deteriorate or fails to improve, our business could
be negatively impacted, including as a result of reduced demand for our products or supplier or customer
disruptions. Any weakness in discretionary consumer spending could have a material adverse effect on our
revenues, results of operations and financial condition. In addition, our ability to access the capital markets may
be restricted at a time when it could be necessary or beneficial to do so, which could have an impact on our
flexibility to react to changing economic and business conditions.
15