Exchange Agreement.
On September 10, 2010, the Master Fund, the Special Fund and the Breakaway Fund (collectively, the “Harbinger Parties”) and Harbinger Group, Inc. (“HGI”) entered into a Contribution and Exchange Agreement (the “Exchange Agreement”), pursuant to which, HGI agreed to issue an aggregate of 119,909,830 Shares to the Harbinger Parties in exchange for an aggregate of 27,756,905 shares of common stock (the “Contributed Sh ares”), par value $0.01 per share (the “SBH Shares”), of Spectrum Brands Holdings, Inc., a Delaware corporation (“SB Holdings”), or approximately 54.4% of the outstanding SBH Shares (approximately 54.1% of the SBH Shares on a fully diluted basis) (such transaction, the “Spectrum Brands Transfer”). The exchange ratio of 4.32 to 1.00 was based on the respective volume weighted average trading prices of the Shares ($6.33) and the SBH Shares ($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 HGI received the Harbinger Parties’ proposal for the Spectrum Brands Transfer.
The consummation of the Spectrum Brands Transfer will result in the following: (i) the Harbinger Parties will together own approximately 93.3% of the outstanding Shares; (ii) SB Holdings will become HGI’s majority-owned subsidiary and SB Holdings’ results will be consolidated with HGI’s results in HGI’s financial statements; (iii) HGI will own approximately 54.4% of the outstanding SBH Shares, or 54.1% of the SBH Shares calculated on a fully diluted basis; (iv) the Master Fund will directly own approximately 12.7% of the SBH Shares outstanding and on a fully diluted basis; and (v) the remaining approximately 32.9% of the outstanding SBH Shares, or approximately 32 .7% of the SBH Shares calculated on fully diluted basis, will continue to be owned by stockholders of SB Holdings who are not affiliated with the Harbinger Parties. The SBH Shares will continue to be traded on the NYSE under the symbol “SPB” following the consummation of the Spectrum Brands Transfer. Pursuant to the terms of the Exchange Agreement the Harbinger Parties may contribute SBH Shares in excess of the Contributed Shares to HGI prior to the closing of the Spectrum Brands Transfer at the same exchange ratio described above.
On September 10, 2010, a special committee of HGI’s board of directors approved the Exchange Agreement and the transactions contemplated thereby, and recommended that HGI’s stockholders approve the issuance of the Shares pursuant to the Exchange Agreement. On September 10, 2010, the Harbinger Parties, who held a majority of the Shares on that date, approved the issuance of the Shares pursuant to the Exchange Agreement by written consent in lieu of a meeting pursuant to Section 228 of the General Corporation Law of the State of Delaware.
The Spectrum Brands Transfer is subject to the following closing conditions, in addition to other customary closing conditions:
| · | approval of the issuance of the Shares to the Harbinger Parties under the Exchange Agreement by the holders of a majority of the outstanding Shares (this condition has been satisfied); |
| · | the filing of an information statement with the Securities and Exchange Commission (the “SEC”) and the mailing of the information statement to HGI’s stockholders at least 20 calendar days prior to the consummation of the Spectrum Brands Transfer; |
| · | approval for the listing on the NYSE of the Shares to be issued under the Exchange Agreement; |
| · | the Contributed Shares represent at least 52.0% of the outstanding SBH Shares as of the closing date of the Spectrum Brands Transfer calculated on a fully diluted basis; |
| · | each Harbinger Party’s delivery of a certificate to HGI with respect to the tax treatment of the Spectrum Brands Transfer applicable to the Harbinger Parties; |
| · | the Harbinger Parties’ delivery to HGI of a certain lock-up letter with respect to the SBH Shares not contributed to HGI pursuant to the Exchange Agreement; and |
| · | the Registration Rights Agreement (as defined below) executed by the Harbinger Parties and HGI with respect to the Shares, and the Stockholder Agreement, as joined by HGI (as described below) with respect to the SBH Shares, remaining in full force and effect. |
The Exchange Agreement also contains a number of customary representations and warranties of the parties, including, among others, corporate organization, capitalization, corporate authority and absence of conflicts, third party and governmental consents and approvals, SEC reports, regulatory matters and financial statements, absence of certain changes, accredited investor status, ownership of the Contributed Shares, related party transactions and brokers and advisors. The representations and warranties of each party set forth in the Exchange Agreement (i) have been qualified by confidential disclosures made to the other party in connection with the Exchange Agreement, (ii) are qualified in certain circumstances by a materiality standard which may differ from what may be viewed as material by investors, (iii) were made only as of the date of the Exchange Agreement or such other date as is specified in the Exchange Agreement, (iv) in some instances, have been included in the Exchange Agreement for the purpose of allocating risk between the parties rather than establishing matters as facts and (v) were made for the benefit of the parties to the Exchange Agreement only and may not be relied upon by any other person.
Registration Rights Agreement.
In connection with the Spectrum Brands Transfer, HGI and the Harbinger Parties entered into a registration rights agreement, dated as of September 10, 2010, (the “Registration Rights Agreement”) pursuant to which, after the consummation of the Spectrum Brands Transfer, the Harbinger 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 to (i) any and all Shares owned after the date hereof by the Harbinger Parties and their permitted transferees (irrespective of when acquired ) and any Shares issuable or issued upon exercise, conversion or exchange of HGI’s other securities owned by the Harbinger Parties, and (ii) any of HGI securities issued in respect of the Shares issued or issuable to any of the Harbinger Parties with respect to the securities described in clause (i).
Under the Registration Rights Agreement, after the consummation of the Spectrum Brands Transfer any of the Harbinger Parties may demand that HGI register all or a portion of such Harbinger Party’s Shares for sale under the Securities Act of 1933, as amended, 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 any 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. Under the agree ment, HGI is not obligated to effect more than three such “long-form” registrations in the aggregate for all of the Harbinger Parties.
The Registration Rights Agreement also provides that if HGI decides to register any Shares for its own account or the account of a stockholder other than the Harbinger Parties (subject to certain exceptions set forth in the agreement), the Harbinger Parties may require HGI to include all or a portion of their Shares in the registration and, to the extent the registration is in connection with an underwritten public offering, to have such Shares included in the offering.
Press Release.
On September 13, 2010, HGI and Harbinger Capital Partners LLC, an affiliate of the Harbinger Parties, issued a joint press release (the "Press Release") announcing that HGI and the Harbinger Parties had entered into the Exchange Agreement.
The foregoing descriptions of the Exchange Agreement and Registration Rights Agreement do not purport to be a complete description of the terms thereof and are qualified in their entirety by reference to the full texts of each document. Copies of the Press Release, the Exchange Agreement, and the Registration Rights Agreement are included as Exhibits 99.1, 2.1, and 10.2, respectively, to HGI's Form 8-K filed on September 14, 2010 with the SEC, and which are incorporated herein by reference.