Filed Pursuant to Rule 424 (b)(4)
Registration Statement No. 333-175167

 

6,495,489 Shares

 

 

 

 

Spectrum Brands Holdings, Inc.

Common Stock

 

 

 

 

We are offering 1,000,000 shares of common stock and Harbinger Capital Partners Master Fund I, Ltd. (the “Selling Stockholder”) is offering 5,495,489 shares of common stock. We will not receive any proceeds from sale of shares of common stock by the Selling Stockholder.

 

Our common stock is listed on the New York Stock Exchange under the symbol “SPB.” On July 14, 2011, the last reported sale price of our common stock on the New York Stock Exchange was $28.57 per share.

 

We and the Selling Stockholder have granted the underwriters an option to purchase a maximum of 974,323 additional shares of our common stock to cover over-allotment of shares. Of this amount, we have granted an option to purchase 150,000 shares and the Selling Stockholder has granted an option to purchase 824,323 shares. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

 

Investing in our common stock involves risks that are described in the “Risk Factors” section incorporated by reference herein.

 

 

 

 

Delivery of the shares of common stock will be made against payment in book-entry form on or about July 20, 2011.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

 

The date of this prospectus is July 14, 2011.

 

None of us, the Selling Stockholder or the underwriters have authorized any person to provide you with any information other than that contained or incorporated by reference in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. None of us, the Selling Stockholder or the underwriters take responsibility for, and can provide assurance as to the reliability of, any information that others may give to you. None of us, the Selling Stockholder or the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus or such other date stated in this prospectus.

 

TABLE OF CONTENTS

 

 

We urge you to read carefully this prospectus together with the information incorporated herein by reference as described under “Information Incorporated by Reference,” before deciding whether to invest in any of the common stock being offered.

 

We have proprietary rights to or are exclusively licensed to use a number of registered and unregistered trademarks that we believe are important to our business, including, without limitation, Rayovac^®, VARTA^®, Remington^®, Spectracide^®, Cutter^®, Tetra^®, 8-in-1^®, Hot Shot^®, Repel^®, Dingo^®, Black & Decker^®, George Foreman^®, Russell Hobbs^®, Toastmaster^®, Farberware^®, Juiceman^®, Breadman^®, Nature’s Miracle^®, Garden Safe^® and LitterMaid^®. We attempt to obtain registration of our key trademarks whenever possible or practicable and pursue any infringement of those trademarks. Solely for convenience, the trademarks, service marks and tradenames referred to in this prospectus are without the ‘‘^®” and “^tm” symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames.

 

We have obtained the industry, market and competitive position data and information used in this prospectus from our internal company surveys and management estimates, as well as from industry and general publications and research, surveys or studies conducted by third parties.

 

There is only a limited amount of independent data available about our industry, market and competitive position, particularly outside of the United States. As a result, certain data and information related to us and our business are based on our good faith estimates, which are derived from our review of internal data and information, information that our management obtains from customers, and other third party sources. The industry data that we present in this prospectus includes estimates that involve risk and uncertainties, including those referred to under “Risk Factors” and under “Special Note Regarding Forward-Looking Statements.”

 

PROSPECTUS SUMMARY

		LTM Period Ended April 3, 2011
										Net
		Pro Forma				Adjusted				Income /
Operating Segment		Net Sales(a)				EBITDA(a)				(Loss)				Market Position by Product Category
		(In millions)
Global Batteries & Appliances		$	2,211			$	302			$	183			Consumer batteries: #3 in North America, #2 in Europe and #1 in Latin America
														Electric shaving and grooming: #2 in North America, United Kingdom and Australia, and #3 in Continental Europe
														Electric personal care products: #1 in Australia, #2 in the United Kingdom and #3 in North America
														Portable lighting: #2 in North America, Europe and Latin America
														Kitchen products: #2 position in United States with two of our brands holding a #1 market share
														Home products: #1 in hand-held irons in the U.S.
Global Pet Supplies		$	565			$	99			$	60			Global pet supplies: #2 position Aquatics products: #1 position
Home and Garden Business		$	359			$	71			$	56			Home and garden control products: #2 position
Corporate			—			$	(32	)		$	(85	)
Unallocated items(b)			—				—			$	(395	)
Consolidated SB Holdings		$	3,135			$	440			($	181	)

(a)		See “Summary Consolidated Financial and Other Data” for reconciliations of Pro Forma Net Sales to Net Sales and Adjusted EBITDA by segment to Net Income by segment.
(b)		It is our policy to record income tax expense and interest expense on a consolidated basis. Accordingly, such amounts are not reflected in the operating results of the operating segments.

Common stock offered by the Company		1,000,000 shares, or 1,150,000 shares if the underwriters exercise their over-allotment option in full
Common stock offered by the Selling Stockholder		5,495,489, or 6,319,812 shares if the underwriters exercise their over-allotment option in full.
Common stock outstanding before this offering		As of July 8, 2011, 51,075,535 shares of our common stock were outstanding, excluding 1,578,136 unvested restricted stock units issued pursuant to our equity incentive plans.
Option to purchase additional shares of common stock		The underwriters have an option to purchase a maximum of 974,323 additional shares of our common stock from us and the Selling Stockholder to cover over-allotment of shares. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.
Use of proceeds		We expect to use the net proceeds of the sale of shares offered by us for general corporate purposes, which may include, among other things, working capital needs, the refinancing of existing indebtedness, the expansion of our business and acquisitions. We will not receive any proceeds from the sale of common stock by the Selling Stockholder.
Dividend policy		We have not historically paid dividends and we do not anticipate paying any dividends on our common stock in our 2011 fiscal year. See “Dividend Policy.”
NYSE symbol		“SPB”

 

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

														Successor
		Predecessor Company												Company				Successor Company
		Fiscal Year Ended								Period				Period
		September 30,								from				from
										October 1,				August 31,				Fiscal				Six				Six				LTM
										2008				2009				Year				Months				Months				Period
										through				through				Ended				Ended				Ended				Ended
										August 30,				September 30,				September 30,				April 4,				April 3,				April 3,
		2007				2008				2009				2009				2010				2010				2011				2011(1)
		(In millions)
Statement of Operations Data(2):
Net sales		$	2,333			$	2,427			$	2,011			$	220			$	2,567			$	1,125			$	1,555			$	2,997
Cost of goods sold			1,425				1,490				1,246				155				1,638				727				998				1,909
Restructuring and related charges			31				16				13				0				7				4				3				6
Gross profit			877				920				752				64				921				394				555				1,082
Operating Expenses
Selling			510				506				363				39				467				215				271				522
General and administrative			162				189				145				21				199				86				119				233
Research and development			27				25				21				3				31				14				16				33
Acquisition and integration related charges			—				—				—				—				38				5				24				58
Restructuring and related charges			67				23				31				2				17				8				8				17
Goodwill and intangibles impairment(3)			363				861				34				—				—				—				—				—
Operating income
(loss)			(252	)			(685	)			157				0				169				65				116				221
Net (loss) income(4)(5)(6)			(597	)			(932	)			1,014				(71	)			(190	)			(79	)			(70	)			(181	)

		Predecessor Company								Combined				Successor Company
										Twelve Months				Fiscal Year				Six Months
		Fiscal Year Ended								Ended				Ended				Ended				Six Months				LTM Period
		September 30,								September 30,				September 30,				April 4,				Ended				Ended
		2007				2008				2009				2010				2010				April 3, 2011				April 3, 2011(1)
		(In millions)
Other Data:
Capital expenditures(7)		$	23			$	19			$	11			$	40			$	11			$	19			$	48
Depreciation and amortization (excluding amortization of debt issuance costs)(7)			77				85				67				117				53				66				131
Cash Flow Data:
Net cash provided by (used in)
Operating activities		$	(33	)		$	(10	)		$	77			$	57			$	(81	)		$	(123	)		$	15
Investing activities			(23	)			(6	)			(20	)			(43	)			(11	)			(23	)			(55	)
Financing activities			93				52				(65	)			66				56				50				60
Balance Sheet Data (at period end):
Cash and cash equivalents		$	70			$	105			$	98			$	171			$	55			$	73			$	73
Working capital(8)			370				372				324				537				304				591				591
Total assets			3,211				2,248				3,021				3,874				2,901				3,801				3,801
Total debt			2,460				2,523				1,584				1,744				1,627				1,825				1,825
Supplemental Financial Information:
Pro forma net sales(9)		$	2,333			$	2,427			$	3,006			$	3,111			$	1,531			$	1,555			$	3,135
Adjusted EBITDA(10)			272				297				391				432				208				216				440

(1)		The LTM period ended April 3, 2011 is derived from the financial results of the fiscal year ended September 30, 2010, subtracting the financial results for the six months ended April 4, 2010 and adding the financial results for the six months ended April 3, 2011.
(2)		On November 5, 2008, our Board of Directors committed to the shutdown of the growing products portion of the 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 our 2009 fiscal year, we 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, we began reporting the results of operations of the Nu-Gro Pro and Tech division of the Home and Garden Business as discontinued operations. We 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 business 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.
(3)		During our 2010, 2009, 2008 and 2007 fiscal years, pursuant to the Financial Accounting Standards Board (“FASB”) Codification Topic 350: “Intangibles-Goodwill and Other,” formerly SFAS No. 142, “Goodwill and Other Intangible Assets,” we conducted our annual impairment testing of goodwill and indefinite-lived intangible assets. As a result of these analyses’ we recorded non-cash pretax impairment charges of approximately $34 million, $861 million and $363 million in the eleven month period ended August 30, 2009 and in our 2008 and 2007 fiscal years, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Valuation of Assets and Asset Impairment” as well as Note 3(i), Significant Accounting Policies and Practices — Intangible Assets, beginning on page 51 and 77, respectively, in our current report on Form 8-K filed with the SEC on February 25, 2011 incorporated by reference herein.

(4)		For our 2010 fiscal year, income tax expense of $63 million includes a non-cash charge of approximately $92 million which increased the valuation allowance against certain net deferred tax assets.
(5)		Included in the one month period for the Successor Company is a non-cash tax charge of $58 million related to the residual U.S. and foreign taxes on approximately $166 million of actual and deemed distributions of foreign earnings. The eleven month period ended August 30, 2009 income tax expense includes a non-cash adjustment of approximately $52 million which reduced the valuation allowance against certain deferred tax assets.
		The eleven month period for the Predecessor Company includes a reorganization gain of $1,143 million and a non-cash charge of $104 million related to the tax effects of the fresh-start adjustments. In addition, the eleven month period for the Predecessor Company includes the tax effect on the gain on the cancellation of debt from the extinguishment of the senior subordinated notes as well as the modification of the senior term credit facility resulting in approximately $124 million reduction in the U.S. net deferred tax asset exclusive of indefinite lived intangibles. Due to our full valuation allowance position as of August 30, 2009 on the U.S. net deferred tax asset exclusive of indefinite lived intangibles, the tax effect of the gain on the cancellation of debt and the modification of a prior senior term loan is offset by a corresponding adjustment to the valuation allowance of $124 million. The tax effect of the fresh-start adjustments, the gain on the cancellation of debt and the modification of the Old Senior Term Credit Facility, net of corresponding adjustments to the valuation allowance, are netted against reorganization items.
(6)		For our 2008 fiscal year, income tax benefit of $10 million includes a non-cash charge of approximately $222 million which increased the valuation allowance against certain net deferred tax assets. For our 2007 fiscal year, income tax expense of $56 million includes a non-cash charge of approximately $180 million which increased the valuation allowance against certain net deferred tax assets.
(7)		Amounts reflect the results of continuing operations only.
(8)		Working capital is defined as current assets less current liabilities.
(9)		The following table reconciles pro forma net sales, which includes pre-acquisition Russell Hobbs net sales as of October 1, 2008, to our net sales, as reported:

(10)		EBITDA represents net income (loss) before net interest expense, income tax expense, depreciation, and amortization (excluding amortization of debt issuance costs). Adjusted EBITDA represents EBITDA adjusted to add back or deduct certain items that are unusual in nature or not comparable from period to period. Management believes EBITDA and Adjusted EBITDA are useful in evaluating our business and also for a discussion of the analytical limitations of these measures.

										Combined				Successor Company
		Predecessor Company								Twelve Months				Fiscal Year				Six Months				Six Months				LTM Period
		Fiscal Year Ended								Ended				Ended				Ended				Ended				Ended
		September 30,								September 30,				September 30,				April 4,				April 3,				April 3,
		2007				2008				2009				2010				2010				2011				2011
		(In millions)
Net (loss) income		$	(597	)		$	(932	)		$	943			$	(190	)		$	(79	)		$	(70	)		$	(181	)
Interest expense			256				229				190				277				98				126				305
Income tax expense (benefit)			56				(10	)			74				63				33				60				90
Depreciation and amortization (excluding amortization of debt issuance costs)			77				85				67				117				53				66				131
EBITDA		$	(208	)		$	(627	)		$	1,274			$	268			$	104			$	182			$	345
Pre-acquisition earnings(a)			—				—				81				66				51				—				15
Goodwill and Intangibles impairment			363				861				34				—				—				—				—
Restructuring and related charges			98				39				46				24				12				11				24
Acquisition and integration related charges			—				—				—				38				5				24				58
Loss from discontinued operations, net of tax			34				26				86				3				3				—				—
Brazilian IPI credit(b)			(9	)			(12	)			(6	)			(5	)			(5	)			—				(1	)
Reorganization items, net			—				—				(1,139	)			4				4				—				(1	)
Fresh-start inventory fair value adjustments			—				—				16				35				35				—				—
Other fair value adjustments			—				—				2				3				—				—				3
Accelerated depreciation and amortization(c)			(10	)			(0	)			(4	)			(3	)			(0	)			(1	)			(3	)
Transaction costs			4				9				—				—				—				—				—
Adjusted EBITDA		$	272			$	297			$	391			$	432			$	208			$	216				440

(a)		Reflects pro forma earnings of Russell Hobbs as if the Merger was consummated on October 1, 2008.
(b)		Adjustment reflects expiring taxes and related estimated penalties, associated with our provision for presumed credits applied to the Brazilian excise tax on manufactured products, for which the examination period expired.
(c)		Adjustment reflects accelerated amortization and or depreciation associated with restructuring initiatives. As this amount is included within restructuring and related charges, the adjustment negates the impact of reflecting the add back of depreciation and/or amortization twice.

		Global								Home &
LTM Period Ended		Batteries &				Global Pet				Garden								Unallocated				Consolidated
April 3, 2011 (a)		Appliances				Supplies				Business				Corporate				Items (b)				Spectrum
		(In millions)
Net (loss) income		$	183			$	60			$	56			$	(85	)		$	(395	)		$	(181	)
Interest expense			—				—				—				—				305				305
Income tax expense (benefit)			—				—				—				—				90				90
Depreciation and amortization (excluding amortization of debt issuance costs)			67				25				14				25				—				131
EBITDA		$	250			$	85			$	70			$	(60	)			—			$	345
Pre-acquisition earnings(c)			13				2				—				—				—				15
Restructuring and related charges			4				10				2				8				—				24
Acquisition and integration related charges			34				1				—				23				—				58
Other fair value adjustments			2				1				—				—				—				3
Accelerated depreciation and amortization(d)			—				—				(1	)			(2	)			—				(3	)
Other(e)			(1	)			—				—				(1	)			—				(2	)
Adjusted EBITDA		$	302			$	99			$	71			$	(32	)			—			$	440

(a)		The LTM period ended April 3, 2011 is derived from the financial results of the fiscal year ended September 30, 2010, subtracting the financial results for the six months ended April 4, 2010 and adding the financial results for the six months ended April 3, 2011.
(b)		It is our policy to record income tax expense and interest expense on a consolidated basis. Accordingly, such amounts are not reflected in the operating results of the operating segments.
(c)		Reflects pro forma earnings of Russell Hobbs as if the Merger was consummated prior to the LTM period ended April 3, 2011.
(d)		Adjustment reflects accelerated amortization and/or depreciation associated with restructuring initiatives. As this amount is included within restructuring and related charges, the adjustment negates the impact of reflecting the add back of depreciation and / or amortization twice.
(e)		Represents Brazilian IPI credit and Reorganization items, net.

 

An investment in our common stock involves risks. Before deciding whether to purchase our common stock, you should consider the risks disclosed under “Risk Factors” in the documents incorporated by reference. While we believe that these risks are the most important for you to consider, you should read this prospectus and the documents incorporated by reference carefully, including our financial statements, the notes to our financial statements and management’s discussion and analysis of our financial condition and results of operations, which are included in our periodic reports and incorporated into this prospectus by reference.

 

We have made or incorporated by reference in this prospectus statements that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors” in the documents incorporated by reference.

 

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.

 

We expect to use the net proceeds from the sale of shares offered by us for general corporate purposes, which may include, among other things, working capital needs, the refinancing of existing indebtedness, the expansion of our business and acquisitions.

 

We will not receive any proceeds from shares sold by the Selling Stockholder.

 

Spectrum Brands did not declare or pay any cash dividends on its shares of common stock at any time since it commenced public trading in 1997 through its delisting in connection with the Merger on June 16, 2010, and we did not declare or pay cash dividends on our common stock at any time since our shares of common stock commenced public trading on June 16, 2010. While we continue to evaluate the potential payment of dividends, we do not currently anticipate paying cash dividends on our common stock in our 2011 fiscal year. We currently intend to retain any future earnings for reinvestment in our business or use such future earnings to pay down our outstanding indebtedness. In addition, the terms of our outstanding indebtedness restrict our ability to pay dividends to our stockholders. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, contractual restrictions and such other factors as our Board of Directors deems relevant.

 

The following unaudited pro forma condensed combined statement of operations for the year ended September 30, 2010 gives effect to the Merger that was completed on June 16, 2010. The unaudited pro forma condensed combined statement of operations shown below reflects historical financial information and has been prepared on the basis that the merger transaction is accounted for under Accounting Standards Codification Topic 805: Business Combinations (“ASC 805”). For accounting purposes, Spectrum Brands, our wholly owned subsidiary, has been treated as the acquirer in the merger transaction. The transaction between Spectrum Brands and Russell Hobbs was accounted for using the acquisition method of accounting. Accordingly, the consideration transferred in the transaction with Russell Hobbs, that is, the assets acquired and liabilities assumed, were measured at their respective fair values with any excess reflected as goodwill. The unaudited pro forma condensed combined statement of operations reflect that, as a result of a number of related transactions that were completed simultaneously following the Merger, Russell Hobbs became a wholly owned subsidiary of Spectrum Brands and SB Holdings became the parent of the newly merged entity.

 

The following unaudited pro forma condensed combined statements of operations for the year ended September 30, 2010 are presented on a basis to reflect the merger related transactions as if they had occurred on October 1, 2009. Because of different fiscal year ends, and in order to present results for comparable periods, the unaudited pro forma condensed combined statement of operations for the year ended September 30, 2010 combines SB Holdings historical consolidated statement of operations data for year ended September 30, 2010 with Russell Hobbs’ historical consolidated statement of operations data for the nine month period ended March 31, 2010, the last quarter end reported by Russell Hobbs prior to the Merger. Russell Hobbs is included within the historical results of SB Holdings from June 16, 2010 through September 30, 2010. The results of Russell Hobbs from June 16, 2010 through July 4, 2010 (SB Holdings third fiscal quarter ended July 4, 2010) have been excluded in order to derive pro forma results for the year ended September 30, 2010. See Note 1 to the Unaudited Pro Forma Condensed Combined Financial Statements for additional information. The unaudited pro forma condensed statement of operations for the year ended September 30, 2010 also excludes the water products operating segment of Russell Hobbs as the assets, liabilities, equity and operations of this segment were not included in the Merger. Pro forma adjustments are made in order to reflect the potential effect of the transaction on the unaudited pro forma condensed combined statement of operations for the year ended September 30, 2010.

The unaudited pro forma condensed combined statement of operations should be read in conjunction with the accompanying notes to unaudited pro forma condensed combined statement of operations. The unaudited pro forma condensed combined statement of operations and the related notes included herein were based on, and should be read in conjunction with:

 

 

Spectrum and Russell Hobbs’ historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined statement of operations to give effect to pro forma events that are (1) directly attributable to the merger transactions; (2) factually supportable; and (3) with respect to the unaudited pro forma statement of operations, have a continuing impact on the combined results. The unaudited pro forma condensed combined statement of operations does not reflect any revenue enhancements, cost savings from operating efficiencies, synergies or other restructurings, or the costs and related liabilities that were or will be incurred to achieve such revenue enhancements, cost savings from operating efficiencies, synergies or restructurings, which resulted from the merger.

 

The latest interim period for SB Holdings is its second quarter results for the three and six month periods ended April 3, 2011. The results of Russell Hobbs are included in the three and six month period ended April 3, 2011, therefore a pro forma presentation of the latest interim statement of operations is not deemed necessary. Furthermore, the Merger is reflected in SB Holdings most recent condensed consolidated statement of financial position as of April 3, 2011, therefore a pro forma presentation of the latest condensed consolidated balance sheet is also not deemed necessary.

 

The pro forma adjustments are based upon available information and assumptions that the managements of Spectrum believe reasonably reflect the merger. The unaudited pro forma condensed combined statement of operations is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of SB Holdings would have been had the merger occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or the financial position of SB Holdings.

Spectrum Brands Holdings, Inc.

 

Unaudited Pro Forma Condensed Combined Statement of Operations

For the year ended September 30, 2010

 

Spectrum Brands Holdings, Inc.

Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Year ended September 30, 2010
(in thousands, except per share amounts)

 

 

SB Holdings fiscal year end is September 30 while Russell Hobbs’ fiscal year end was June 30. Russell Hobbs’ last stand-alone interim period is its third quarter of its fiscal year 2010, which included its results for the nine month period ended March 31, 2010. Because of different fiscal year ends, and in order to present results for comparable periods, the unaudited pro forma condensed combined statement of operations data for the year ended September 30, 2010 combines SB Holdings historical consolidated statement of operations data for year ended September 30, 2010 with Russell Hobbs’ historical consolidated statement of operations for the nine month period ended March 31, 2010, the last quarter end reported by Russell Hobbs prior to the Merger. Results of Russell Hobbs are included within the SB Holdings results from June 16, 2010 through September 30, 2010. This includes the entire SB Holdings fourth fiscal period from July 5, 2010 through September 30, 2010. Accordingly, to derive comparative full year pro forma information, the results of Russell Hobbs from June 16, 2010 through the end of the SB Holdings third fiscal quarter, which ended July 4, 2010, have been excluded.

 

 

The unaudited pro forma condensed combined statement of operations has been prepared using the historical consolidated financial statements of Spectrum Brands and Russell Hobbs as described in Note 1, with the merger transaction accounted for using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”. The acquisition method requires all of the following steps:

 

a. Identifying the acquirer

 

b. Determining the acquisition date

 

c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.

 

d. Recognizing and measuring goodwill or a gain from a bargain purchase.

 

For purposes of the unaudited pro forma condensed combined statement of operations, Spectrum Brands was identified as the acquirer and Russell Hobbs has been treated as the acquiree in the merger. Spectrum Brands’ fiscal year end was September 30 while Russell Hobbs’ fiscal year end was June 30. SB Holdings adopted Spectrum Brands’ fiscal year end of September 30.

 

 

The unaudited pro forma condensed combined statement of operations of SB Holdings does not assume any differences in accounting policies between Spectrum and Russell Hobbs. SB Holdings has reviewed the accounting policies of Russell Hobbs to ensure conformity of such accounting policies to those of Spectrum.

 

 

(a) Represents the exclusion of the historical results of the water products operating segment of Russell Hobbs as the assets, liabilities, equity and operations of this segment were not included in the merger transaction.

 

(b) Spectrum Brands Holdings increased Russell Hobbs’ inventory by $2,504, to estimated fair value, upon completion of the Merger. Cost of sales increased by this amount during the first inventory turn subsequent to the completion of the Merger. Of this amount, $340 was recorded in the three-month period ended July 4, 2010 and has been eliminated as part of the “Elimination of duplicate financial information”

adjustments. The remaining $2,164 was recorded in the three-month period ended September 30, 2010, which amount has been eliminated as a pro forma adjustment related to the Merger. These costs have been excluded from the unaudited pro forma condensed combined statement of operations as they are considered non-recurring.

 

(c) Adjustment reflects increased equity award amortization of $4,577 to reflect the cost of awards issued to Russell Hobbs employees at fair value for future service requirements.

 

(d) Adjustment reflects increased amortization expense associated with the fair value adjustment of Russell Hobbs’ amortizing intangible assets of $10,430.

 

(e) Adjustment reflects the elimination of professional expenses of $34,675 related to the merger transaction. See Note 5 Transaction costs for further details.

 

(f) The Merger included substantial changes to SB Holdings debt structure. These changes resulted in adjustments that decreased interest expense by $114,323 The adjustment consists of the following:

 

 

An assumed increase or decrease of 1/8 percent in the interest rate assumed above with respect to the $750,000 term loan and the ABL revolving credit facility (with an assumed $22,000 average principal balance outstanding), which have variable interest rates, would impact total pro forma interest expense by $965 for the year ended September 30, 2010.

 

(g) As a result of Spectrum’s and Russell Hobbs’ existing income tax loss carry-forwards in the United States, for which full valuation allowances have been provided, no deferred income taxes have been established, and no income tax has been provided related to the pro forma adjustments related to the merger transaction.

 

(h) The 51,333 shares of SB Holdings common stock issued as a result of the merger includes the issuance of 30,629 shares to former shareholders of Spectrum, 5,254 shares related to the conversion of an outstanding term loan and 15,450 shares related to former Russell Hobbs’ shares. Based on the terms and conditions of the restricted stock agreements of Spectrum and Russell Hobbs, it has been assumed that all restricted stock is fully vested and included in both basic and diluted shares for the year ended September 30, 2010.

 

Net income per common share for the year ended September 30, 2010 is calculated based upon the following number of shares:

 

 

Professional expenses related to the merger transaction approximated $28,500 through April 3, 2011. These costs include fees for legal, accounting, financial advisory, due diligence, tax, valuation, printing and other various services necessary to complete this transaction. In accordance with ASC 805, these fees are expensed as incurred. Spectrum’s financial results for the year period ended September 30, 2010 include $38,452 of acquisition and integration related charges related to the merger transaction, which consisted of the following:

 

 

The legal and professional fees and employee termination charges have been excluded from the pro forma condensed combined statement of operations as these amounts are considered non-recurring. See Note 4(e) for the pro forma adjustment.

 

The following table sets forth information regarding beneficial ownership of our common stock as of April 3, 2011 and the anticipated beneficial ownership of our common stock following this offering by:

 

 

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the “SEC”). Determinations as to the identity of 5% Stockholders is based upon filings with the SEC and other publicly available information. Except as otherwise indicated, we believe, based on the information furnished or otherwise available to us, that each person or entity named in the table has sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them, subject to applicable community property laws. The percentage of beneficial ownership set forth below is based upon 51,075,535 shares of our common stock issued and outstanding as of the close of business on July 8, 2011 and assumes no exercise of the over-allotment option. In computing the number of shares of our common stock beneficially owned by a person and the percentage ownership of that person, shares of our common stock that are subject to restricted stock units held by that person that are currently expected to vest within 60 days of July 8, 2011, are deemed outstanding. These shares are not, however, deemed outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Spectrum Brands Holdings, Inc., 601 Rayovac Drive, Madison, Wisconsin 53711.

 

 

 

 

The following is a description of the material terms of our Restated Certificate of Incorporation (our “Charter”) and our Amended and Restated By-laws (our “By-laws”, and together with our Charter, our “Organizational Documents”) and the applicable provisions of the General Corporation Law of the State of Delaware (“DGCL”). The following description may not contain all of the information that is important to you. To understand them fully, you should read our Organizational Documents and the applicable provisions of the DGCL in their entirety.

 

Authorized Capital Stock

 

Our Charter authorizes us to issue two classes of capital stock, designated as common stock and preferred stock. The total number of shares of all classes of capital stock that we are authorized to issue is 300,000,000, consisting of 200,000,000 shares of common stock, with a par value of $0.01 per share (“common stock”), and 100,000,000 shares of preferred stock, with a par value of $0.01 per share (“preferred stock”).

 

Common Stock

 

Dividend Rights

 

Subject to applicable law and the rights, if any, of the holders of outstanding preferred stock, if any, dividends may be declared and paid on our common stock at such times and in such amounts as the our Board of Directors may determine in its discretion.

 

Voting Rights

 

Except as may otherwise be provided our Charter, required by applicable law, or by a preferred stock designation, each holder of our common stock has the exclusive right to vote, and is entitled to one vote for each share of common stock held of record by such holder, on all matters on which stockholders generally are entitled to vote, including the election of directors to our Board of Directors.

 

Right to Receive Liquidation Distributions

 

In the event of our voluntary or involuntary dissolution, liquidation or winding up, subject to the rights, if any, of the holders of any outstanding series of preferred stock, the holders of our common stock will be entitled to receive, ratably in proportion to the number of shares held by them, the assets legally available for distribution to our stockholders after the payment of all our debts and other liabilities.

 

Preferred Stock

 

Our Board of Directors is authorized to issue our preferred stock in one or more series and to fix the number of shares to be included in any such series and the designation, relative powers, preferences, rights and qualifications, limitations or restrictions of such series. The authority of our Board of Directors with respect to each such series includes the determination of any or all of the following:

 

 

 

Registration Rights

 

In connection with the Merger, we entered into a Registration Rights Agreement, dated as February 9, 2010 (the “SB Holdings Registration Rights Agreement”), with the Harbinger Parties and Avenue International Master, L.P., Avenue Investments, L.P., Avenue Special Situations Fund IV, L.P., Avenue Special Situations Fund V, L.P. and Avenue-CDP Global Opportunities Fund, L.P. collectively, the “Avenue Parties”), pursuant to which 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 their shares of our common stock. The shares of common stock owned by the Avenue Parties have ceased to be “registrable securities” under the terms of the Registration Rights Agreement. Effective January 7, 2011, HRG signed a joinder to the SB Holdings Registration Rights Agreement and became entitled to the rights and subject to the obligations under this agreement (each of HRG, the Harbinger Parties and the Avenue Parties, a “holder”).

 

Under the SB Holdings Registration Rights Agreement, the holders may demand that we register all or a portion of their common stock for sale, 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. The Selling Stockholder is exercising its demand right in connection with this offering. HRG has determined not to participate in the offering.

 

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 the initiating holder of the majority of our common stock to be included in the relevant registration statement, we are required to use our reasonable best efforts to cause the offering to be made in the form of a firm commitment underwritten public offering. None of the holders 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 will 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 becoming a “well known seasoned issuer,” as discussed below), any holder may demand that we register their shares of 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 holder, 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 common stock entitled to registration under the SB Holdings Registration Rights Agreement on a single “automatic shelf registration statement,” and 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 any holder demands registration (or shelf registration) of their shares pursuant to the SB Holdings Registration Rights Agreement, the other holders are entitled to notice thereof and to have all or a portion of their shares of common stock included in the registration and offering. In addition, if we decide to register shares of our common stock for our own account or the account of another stockholder (other than the holders), subject to certain exceptions, the holders may require that we 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 included in the offering.

 

Pursuant to the terms of the SB Holdings Registration Rights Agreement, 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) (other than the Harbinger Parties and the Avenue Parties) to enter into similar lock-up agreements that contain restrictions that are no less restrictive than the restrictions applicable to us.

 

The rights of the holders to demand registration of their common stock will terminate (i) upon the sale of the relevant amount of our common stock pursuant to an effective registration statement or Rule 144 of the Securities Act (“Rule 144”), (ii) once the entire amount of our 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 the relevant holder owns 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 SB Holdings Registration Rights Agreement, or (v) once such common stock is no longer outstanding.

 

The foregoing description of the material terms of SB Holdings Registration Rights Agreement may not contain all of the information that is important to you. To understand it fully, you should read this agreement in its entirety.

 

Our Transfer Agent and Registrar

 

Mellon Investor Services LLC is the transfer agent and registrar for our common stock.

 

Stock Exchange Listing of Our Common Stock

 

Our common stock is listed on the New York Stock Exchange under the symbol “SPB.”

 

Other Provisions of Our Organizational Documents

 

Purchase Rights of Eligible Stockholders

 

Each stockholder who, together with its affiliates, holds 5% or more of our outstanding voting securities (an “eligible stockholder”) has the right to purchase such eligible stockholder’s pro rata share of all or any part of any “new securities” that we may issue from time to time. Affiliates of eligible stockholders to whom an eligible stockholder assigns its rights are also considered eligible stockholders, if they otherwise meet the aggregate ownership requirement.

 

The term “new securities” is defined to include: (i) any debt instruments issued by us or any of our subsidiaries to any eligible stockholder or any of our affiliates, (ii) our capital stock, whether now authorized or not, (iii) the equity securities of our subsidiaries, (iv) rights, options or warrants to purchase such capital stock, equity securities or debt instruments and (v) securities of any type whatsoever that are, or may become, convertible into, exercisable for or exchangeable into such capital stock, equity securities or debt instruments. The term “new securities” is defined to exclude securities issued or issuable: (a) to our officers, directors,

employers or consultants (or persons who at the time of the grant were our officers, directors, employers or consultants) or officers, directors, employers or consultants of any of our subsidiaries pursuant to an equity incentive plan or stock purchase plan or agreement on terms approved by our Board of Directors, (b) in connection with a stock split (or reverse stock split), subdivision, conversion, recapitalization, reclassification, dividend or distribution in respect of our capital stock, (c) to the public pursuant to a registration statement or debt securities issuable pursuant to an offering made in reliance on Rule 144A under the Securities Act, (d) as consideration for our acquisition of another entity, (e) upon exercise of any convertible securities or in connection with payment-in-kind interest, (f) as any right, option or warrant to acquire any such securities so excluded and (g) any securities issued or issuable pursuant to the Agreement and Plan of Merger, dated as of February 9, 2010, as amended on March 1, 2010, March 26, 2010 and April 30, 2010, by and among SB Holdings, Russell Hobbs, Spectrum Brands, Battery Merger Corp., and Grill Merger Corp. (the “Merger Agreement”), the Harbinger Support Agreement (as defined in the Merger Agreement) or the Stockholder Agreement, dated as of February 9, 2010, by and among the Master Fund, the Special Fund, the Breakaway Fund, and SB/RH Holdings, Inc. (the “Stockholder Agreement”).

 

Corporate Opportunities

 

Our stockholders, their affiliates and directors elected or appointed to our Board of Directors by our stockholders: (i) may have participated, directly or indirectly, and may continue to participate in businesses that are similar to or compete with our business; (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 we or our stockholders may desire to pursue. These individuals will have no obligation to us to present any such business opportunity to us before presenting and/or developing such opportunity with anyone else, other than any such opportunities specifically presented to any such stockholder or director for our benefit in his or her capacity as our stockholder or director. In any such case, to the extent a court might hold that the conduct of such activity is a breach of a duty to us, we have waived any and all claims and causes of action that we believe that we may have for such activities.

 

Restrictions on Affiliate Transactions

 

Under our Charter, subject to certain exceptions listed therein, we and certain of our subsidiaries are not permitted to engage in any transactions in excess of $1 million with any Significant Stockholder unless such transaction is approved by our Board of Directors in advance with “special approval.” “Special approval” means the approval or recommendation of a majority of the Special Nominating Committee, or, if the Special Nominating Committee ceases to exist, by a majority of the members of our Board of Directors who are disinterested with respect to the applicable transaction or matter.

 

Removal of Directors

 

At any time when our Board of Directors is not classified, our directors may not be removed from office without cause except with the affirmative vote of the holders of (i) a majority of our outstanding voting securities and (ii) a majority of our outstanding voting securities that are not held by Significant Stockholders.

 

Annual Meetings of Stockholders

 

Our By-laws require a stockholder proposing business at our annual meeting of stockholders to provide advance notice and submit certain information concerning the stockholder, certain beneficial owners of the related stock and their respective affiliates in connection with making such proposal.

 

Amendment of Our Organizational Documents

 

Pursuant to the DGCL, the approval of our Board of Directors and the holders of a majority of the voting power of our outstanding stock is required to amend our Charter. In addition, pursuant to the DGCL, the affirmative vote of the holders of the outstanding shares of a class of our stock, voting as a separate class, is

required if the amendment would alter or change the powers, preferences or special rights of the class so as to affect them adversely.

 

Amendments of our Organizational Documents relating to (i) purchase rights of our stockholders, (ii) restrictions on Significant Stockholders engaging in “going-private” transactions, (iii) provisions related to conflicts of interests, (iv) the election and removal of directors, (v) reporting obligations to the SEC and (vi) actions to repeal or amend Article 6, Article 11, Article 12, Article 13, Article 14, Article 15 or Article 16 of our certificate of incorporation, will require the affirmative vote of a majority of our Board of Directors and a majority of the Special Nominating Committee or, if the Special Nominating Committee ceases to exist, such amendments will require the affirmative vote of a majority of our Board of Directors and a majority of the independent directors of our Board of Directors. In addition, certain amendments of our Organizational Documents relating to (i) the ability of our stockholders to call a special meeting of stockholders, (ii) the number and term of our directors, (iii) the nomination and election procedures for our directors, (iv) provisions relating to committees of our Board of Directors and (v) provisions relating to affiliate transactions and tag-along rights, will require the affirmative vote of a majority of our Board of Directors and a majority of the Special Nominating Committee or if the Special Nominating Committee ceases to exist, such amendments will require the affirmative vote of a majority of our Board of Directors and a majority of the independent directors of our Board of Directors.

 

Our Board of Directors has the power to make, alter, amend and repeal our By-laws and to make new by-laws; provided, that our stockholders may make additional by-laws and may alter and repeal any by-laws whether such by-laws were originally adopted by the stockholders or our Board of Directors.

 

Delaware Law Regulating Corporate Takeovers

 

The provisions of Section 203 of the DGCL regulate corporate takeovers by, in general, prohibiting a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder, subject to certain exceptions. Our Charter contains a provision opting-out of Section 203 of the DGCL, and, accordingly, we are not subject to this provision.

 

Limitation of Liabilities and Indemnification

 

Section 145 of the DGCL provides that a corporation may indemnify directors and officers, as well as employees and agents, who was or is a party, or is threatened to be made a party to any third party proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or firm, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, that are actually and reasonably incurred in connection with various actions, suits or proceedings, whether civil, criminal, administrative or investigative other than an action by or in the right of the corporation, known as a derivative action, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of such actions or suits, and the statute requires approval of the Delaware Court of Chancery or the court in which the action or suit was brought, upon application, before there can be any indemnification if the person seeking indemnification has been found liable to the corporation. The statute provides that it is not excluding other indemnification that may be granted by a corporation’s bylaws, disinterested director vote, stockholder vote, agreement or otherwise.

 

Our Charter and By-laws each contain an indemnification provision that provides that we will indemnify and hold harmless, to the fullest extent permitted by applicable law, each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Company or, while a director or

officer of the Company, is or was serving our request as a director, officer, employee or agent of another entity or enterprise, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such person in connection therewith. Each Organizational Document also provides that we will pay the expenses incurred by such person in defending any such proceeding in advance of its final disposition, to the extent not prohibited by applicable law and, to the extent required by applicable law, we receive an undertaking to repay such amount advanced if it is ultimately determined that such person is not entitled to be indemnified. These rights are not exclusive of any other right that any person may have or acquire under any statute, provision of the Organizational Documents, agreement, vote of stockholders or disinterested directors or otherwise.

 

The Charter provides that, to the fullest extent permitted under the DGCL, none of our directors will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. This provision is known as an exculpation provision. This exculpation provision is limited by Section 102(b)(7) of the DGCL, which prohibits the elimination or limitation of the personal liability of a director:

 

 

Each Organizational Document provides that any repeal or amendment of the indemnification or the exculpation provision by our stockholders or by changes in law, or the adoption of any other provision of the Organizational Documents inconsistent with the aforementioned provisions, will, unless otherwise required by law, be prospective only (except, with respect to the indemnification provision, such amendment or change permits us to provide broader rights retroactively), and will not in any way diminish or adversely affect any right or protection of a director of the Company existing at the time of such repeal or amendment or adoption of such inconsistent provision in respect of any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision.

 

In addition, we maintain liability insurance for our directors and officers and for the directors and officers of our majority-owned subsidiaries. This insurance provides for coverage, subject to certain exceptions, against loss from claims made against directors and officers in their capacity as such, including claims under the federal securities laws.

 

Merger Agreement Provisions Relating to Spectrum Brands and Russell Hobbs Directors and Officers

 

Under the terms of the Merger Agreement, we, Spectrum Brands and Russell Hobbs have agreed that all obligations of Spectrum Brands and Russell Hobbs to indemnify Spectrum Brands’ and Russell Hobbs’ current and former directors and officers under their respective organizational documents or indemnification contracts will survive the Merger and continue in full force and effect and will be assumed and performed by us, Spectrum Brands and Russell Hobbs after consummation of the Mergers. In addition, we have agreed that, upon our, Spectrum Brands’ or Russell Hobbs’ future merger or sale after the consummation of the mergers, we will make proper provision so that the successors and assigns of us, Spectrum Brands or Russell Hobbs, as applicable, assumes such indemnification obligations.

 

In addition, the Merger Agreement requires us to either maintain Spectrum Brands’ and Russell Hobbs’ current directors’ and officers’ liability insurance policies for a period of six years from the effective time of the Merger or obtain substitute policies or purchase a “tail” policy with a claims period of at least six years from the effective time of the Merger, in each case that provides coverage for events occurring on or before the effective time of Merger. The terms of the insurance policies will be no less favorable than Spectrum Brands’ and Russell Hobbs’ respective existing policies, unless the annual premiums of the policies would exceed 300% of the current policies’ premiums as of the date of the Merger Agreement, in which case the coverage will be the greatest amount of coverage available for a premium amount not exceeding 300% of such current premiums.

 

In the opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP, our U.S. federal income tax counsel, the following is a discussion of the material U.S. federal income tax consequences to a Non-U.S. Holder, as defined below, of the acquisition, ownership and disposition of shares of our common stock purchased pursuant to this offering. This discussion is based on the Code, Treasury regulations promulgated under the Code (“Treasury Regulations”), administrative pronouncements or practices and judicial decisions, all as of the date hereof. Future legislative, judicial, or administrative modifications, revocations, or interpretations, which may or may not be retroactive, may result in U.S. federal income tax consequences significantly different from those discussed herein. This discussion is not binding on the U.S. Internal Revenue Service (the “IRS”). No ruling has been or will be sought or obtained from the IRS with respect to any of the U.S. federal tax consequences discussed herein. There can be no assurance that the IRS will not challenge any of the conclusions discussed herein or that a U.S. court will not sustain such a challenge.

 

The following discussion does not purport to be a full description of all U.S. federal income tax considerations that may be relevant to any Holder, as defined below, in light of such Holder’s particular circumstances and addresses only Holders who hold common stock as capital assets within the meaning of Section 1221 of the Code. This discussion does not address any (i) U.S. federal alternative minimum tax, (ii) U.S. federal estate, gift, or other non-income tax (except as set forth below) or (iii) any state, local, or non-U.S. tax consequences of the acquisition, ownership or disposition of our common stock.

 

As used herein, a “Holder” means a beneficial owner of our common stock. A “U.S. Holder” means a Holder that is (i) an individual citizen or resident alien of the United States, (ii) a corporation, or other entity taxable as a corporation for U.S. federal tax purposes, created in or organized under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust that (a) is subject to the primary supervision of a court within the United States and for which one or more U.S. persons have authority to control all substantial decisions or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. A “Non-U.S. Holder” means a Holder that is not a U.S. Holder and that is, for U.S. federal income tax purposes, an individual, corporation, estate or trust.

 

If a partnership or other entity classified as a partnership for U.S. federal income tax purposes (a “Partnership”) or an owner or partner in a Partnership is a beneficial owner, the U.S. federal income tax consequences will depend on the activities of such Partnership and the status of such owner or partner. A beneficial owner that is a Partnership or an owner or partner in a Partnership should consult its own tax advisor regarding the U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock.

 

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS FOR GENERAL INFORMATION ONLY AND IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY HOLDER OR PROSPECTIVE HOLDER OF SHARES AND NO OPINION OR REPRESENTATION WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO ANY SUCH HOLDER OR PROSPECTIVE HOLDER IS MADE. A HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE APPLICATION OF U.S. FEDERAL TAX LAWS TO ITS PARTICULAR CIRCUMSTANCES AND ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, NON-U.S. OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

 

Distributions on Common Stock

 

As discussed under “Dividend Policy,” we do not anticipate making a distribution with respect to our common stock in the foreseeable future. If we make a distribution with respect to a Non-U.S. Holder’s common stock, however, then to the extent that such distribution is paid from our current and accumulated earnings and profits as determined under U.S. federal income tax principles (a “dividend”), subject to the discussion in the following paragraph, the dividend will be subject to withholding of U.S. federal income tax at a rate of 30% of the gross amount, or any lower rate that may be specified by an applicable tax treaty if we

have received proper certification of the application of that tax treaty. If the amount of the distribution exceeds our current and accumulated earnings and profits, such excess first will be treated as a return of capital to the extent of a Non-U.S. Holder’s tax basis in our common stock, and thereafter will be treated as capital gain. However, except to the extent that we elect (or the paying agent or other intermediary through which a Non-U.S. Holder holds its common stock elects) otherwise, we (or the intermediary) must withhold on the entire distribution, in which case a Non-U.S. Holder would be entitled to a refund from the IRS for the withholding tax on the portion of the distribution that exceeded our current and accumulated earnings and profits. A Non-U.S. Holder should consult its own tax advisor regarding its entitlement to benefits under an applicable tax treaty and the manner of claiming the benefits of such treaty. A Non-U.S. Holder that is eligible for a reduced rate of U.S. federal withholding tax under a tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS.

 

Dividends that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business within the United States (and, if certain tax treaties apply, are attributable to a U.S. permanent establishment or fixed base maintained by such Non-U.S. Holder) are not subject to U.S. withholding tax, but instead are taxed in the manner applicable to U.S. persons. In that case, we will not withhold U.S. federal withholding tax, provided that the Non-U.S. Holder complies with applicable certification and disclosure requirements. In addition, dividends received by a foreign corporation that are effectively connected with the conduct of a trade or business in the United States may be subject to a branch profits tax at a rate of 30%, or any lower rate as may be specified in an applicable tax treaty.

 

Sale or Other Taxable Disposition of Common Stock

 

A Non-U.S. Holder will not be subject to U.S. federal income tax, including by way of withholding, on gain recognized on a sale, exchange or other taxable disposition of our common stock unless any one of the following is true:

 

 

A corporation is a USRPHC only if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and the fair market value of its other assets used or held for use in a trade or business. We are not now, we have not been in the last five years and we do not believe we will likely become in the future a USRPHC. To be confirmed by Spectrum. There can be no assurance regarding our USRPHC status for the current year or future years, however, because USRPHC status is based on the composition of our assets from time to time and on certain rules whose application is uncertain. It is possible that we may become a USRPHC in the future.

 

An individual Non-U.S. Holder who is subject to U.S. tax because he or she was present in the United States for 183 or more days during the year of disposition will be taxed on his or her gains, including gains

from the disposition of our common stock net of applicable U.S. losses from dispositions of other capital assets incurred during the year, at a flat rate of 30% or a reduced rate under an applicable tax treaty.

 

An individual Non-U.S. Holder described in the first bullet point above will be subject to tax on his or her gains under regular graduated U.S. federal income tax rates.

 

U.S. Federal Estate Tax

 

Shares of common stock owned or treated as owned by an individual who is not a U.S. citizen or resident for U.S. federal estate tax purposes will be considered United States situs assets, will be included in that Non-U.S. Holder’s estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax unless an applicable estate tax or other tax treaty provides otherwise.

 

Backup Withholding and Information Reporting

 

Under applicable Treasury Regulations, dividends paid to each Non-U.S. Holder and any tax withheld with respect to those dividends must be reported to the Non-U.S. Holder and the IRS annually. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected dividends or withholding was reduced or eliminated by an applicable tax treaty. Under an applicable tax treaty, that information may also be made available to the taxing authorities in a country in which the Non-U.S. Holder resides or is established.

 

Backup withholding will not apply to payments of dividends to a Non-U.S. Holder if the Holder has provided the appropriate certification described above that it is not a U.S. person (satisfied by providing the applicable IRS Form W-8) or has otherwise established an exemption, provided we or the paying agent have no actual knowledge or reason to know that the beneficial owner is a U.S. person.

 

The payment of the proceeds of a disposition of our common stock by a Non-U.S. Holder to or through the U.S. office of a broker will be reported to the IRS and reduced by backup withholding unless the Non-U.S. Holder either certifies its status as a Non-U.S. Holder in accordance with applicable Treasury Regulations or otherwise establishes an exemption and the broker has no actual knowledge, or reason to know, to the contrary. The payment of the proceeds of a disposition of our common stock by a Non-U.S. Holder to or through a non-U.S. office of a non-U.S. broker will not be reduced by backup withholding or reported to the IRS unless the non-U.S. broker has certain types of relationships with the United States (a “U.S. Related Financial Intermediary”). In the case of the payment of proceeds from the disposition of our common stock to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. Related Financial Intermediary, applicable Treasury Regulations require information reporting (but not backup withholding) on the payment unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder and the broker has no knowledge to the contrary.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be refunded or credited against the Non-U.S. Holder’s U.S. federal income tax liability, if any, provided that certain required information is furnished to the IRS. Non-U.S. Holders should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them and the availability and procedure for obtaining an exemption from backup withholding under current Treasury Regulations.

 

Each prospective Holder is urged to consult its tax advisor with respect to the U.S. federal income and estate tax consequences of the ownership and disposition of our common stock, as well as the application and effect of the laws of any state, local, foreign or other taxing jurisdiction.

 

Recent Legislation

 

Sections 1471 through 1474 of the Code (“FATCA”), recently enacted by the U.S. Congress, generally imposes withholding at a rate of 30% on payments to certain foreign entities, after December 31, 2012, of dividends on and the gross proceeds of dispositions of U.S. common stock, unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interest in or accounts with those entities) have been satisfied. Non-U.S. Holders should consult their tax advisors regarding the possible implications of FATCA on their investment in our common stock.

 

Under the terms and subject to the conditions contained in an underwriting agreement dated July 14, 2011, we and the Selling Stockholder have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Jefferies & Company, Inc. are acting as representatives, the following respective numbers of shares of common stock: