Item 1.01. Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On February 24, 2018,
HRG Group, Inc., a Delaware corporation (“
HRG
”), entered into an Agreement and Plan of Merger (the “
Merger
Agreement
”) with Spectrum Brands Holdings, Inc., a Delaware corporation (“
Spectrum
”), HRG SPV Sub
I, Inc., a Delaware corporation and direct wholly owned subsidiary of HRG (“
Merger Sub 1
”), and HRG SPV Sub
II, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of HRG (“
Merger Sub 2
”, and
together with Merger Sub 1, “
Merger Sub
”).
With the execution
of the Merger Agreement, HRG completes its previously announced strategic review process, and will continue to focus on the simplification
of its structure and elimination of overhead costs between signing and closing of the transaction contemplated by the Merger Agreement.
Transaction Structure
The Merger Agreement
provides that, subject to the terms and conditions thereof, Merger Sub 1 will merge with and into Spectrum (the “
First
Merger
”, and if the Second Merger Opt-Out Condition has occurred, the “
Merger
”), with Spectrum continuing
as the surviving corporation (the “
Surviving Corporation
”) and a wholly owned subsidiary of HRG. Following the
effective time of the First Merger (the “
Effective Time
”) but only if Spectrum or HRG (or both) does not receive
and provide to the other, on the closing date but prior to the Effective Time, a tax opinion to the effect that, assuming the Second
Merger does not occur, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal
Revenue Code (the “
Second Merger Opt-Out Condition
”), the Surviving Corporation will merge with and into Merger
Sub 2 (the “
Second Merger
”, and if the Second Merger Op-Out Condition has not occurred, the “
Merger
”),
with Merger Sub 2 surviving as a wholly owned subsidiary of HRG.
Immediately prior
to the Effective Time, the certificate of incorporation of HRG will be amended and restated (the “
Amended HRG
Charter
”, a form of which is attached as an exhibit to the Merger Agreement, a copy of which is filed herewith as
Exhibit 2.1), pursuant to which, among other things, the corporate name of HRG will change to “Spectrum Brands
Holdings, Inc.”, and each issued and outstanding share of common stock, par value $0.01 per share, of HRG
(“
HRG Common Stock
”) will, by means of a reverse stock split (the “
Reverse Split
”), be
combined into a fraction of a share of HRG Common Stock equal to (i) (a) the number of shares of common stock, par value
$0.01 per share, of Spectrum (“
Spectrum Common Stock
”) held by HRG and its subsidiaries as of immediately
prior to the Effective Time,
minus
(b) (1) the sum of (x) HRG’s net indebtedness as of closing and certain
transaction expenses of HRG that are unpaid as of closing,
minus
(y) $200,000,000,
divided by
(2) the
volume-weighted average price of a share of Spectrum Common Stock for the 20-day trading period starting with the 21st
trading day prior to the closing date,
divided by
(ii) as of immediately prior to the Reverse Split, the sum of
(without duplication) (a) the aggregate number of issued and outstanding shares of HRG Common Stock, (b) (1) the aggregate
number of shares of HRG Common Stock subject to then-unexercised HRG stock options and warrants,
minus
(2) the
number of shares of HRG Common Stock having a then-aggregate value equal to the aggregate exercise price of such unexercised
HRG stock options and warrants, and (c) the number of shares of HRG Common Stock subject to HRG restricted stock awards,
vested in full in accordance with terms of the Merger Agreement (the “
HRG Share Consolidation Ratio
”). Assuming (i) the 20 trading day volume-weighted average price and shares outstanding of Spectrum Common Stock were to be determined
as of February 23, 2018 rather than at closing and (ii) $324.3 million of HRG net debt (inclusive of transaction expenses
and change of control payments) at closing, each HRG stockholder is expected to receive approximately 0.1637 of a share of
the post-merger combined company stock for each share of pre-merger HRG Common Stock that such stockholder owns. Pro
forma for the Reverse Split, the Merger and the adjustments described above, Leucadia National Corporation
(“
Leucadia
”) is expected to hold approximately 13% of the combined company and another 45% of the combined
company is expected to be widely held by HRG’s legacy stockholders. Such ownership percentages assume approximately
$324 million of HRG’s net debt at closing and are based on the number of shares outstanding and market prices as of
February 22, 2018 (but are subject to adjustment for HRG's actual amount of net debt, transaction costs and outstanding
shares at closing).
The Amended HRG Charter
generally would retain restrictions, present in HRG’s existing certificate of incorporation, on transfer to or by stockholders
of HRG who own or would own (or are or would be treated for this purpose as owning) 4.9% or more of the outstanding shares of HRG
Common Stock before or after such transfer. However, the Amended HRG Charter would except from those restrictions certain transfers
by (i) Leucadia and its
affiliates
and stockholders and (ii) CF Turul LLC (“
Fortress
”) and its affiliates and ultimate owners.
At the Effective Time,
by virtue of the Merger each share of Spectrum Common Stock issued and outstanding immediately prior to the Effective Time (other
than shares held in the treasury of Spectrum or owned or held, directly or indirectly, by HRG or any wholly owned subsidiary of
HRG or Spectrum, which shall be cancelled and no consideration will be paid with respect thereto) will be converted into the right
to receive one share of newly issued HRG Common Stock (the issuance of HRG Common Stock in the Merger, the “
Share Issuance
”).
No HRG Common Stock will be issued in the Merger in violation of the Amended HRG Charter, including if as a result of such issuance
a person would become a holder of more than 4.9% of “Corporation Securities” (as defined in the Amended HRG Charter).
Any shares of HRG Common Stock that would be issuable to a Spectrum stockholder but for the operation of the Merger Agreement and
the provisions of Article XIII of the Amended HRG Charter shall instead be treated as “Excess Securities” (as defined
in the Amended HRG Charter) and be delivered to one or more 501(c)(3) charitable organizations or escheated to the state of residence,
incorporation or formation (as applicable) of the relevant Spectrum stockholder.
At the Effective Time,
pursuant to the Merger Agreement, each award of restricted stock, restricted stock units or performance stock units granted under
an equity plan of Spectrum, whether vested or unvested (collectively, the “
Spectrum Equity Awards
”), that is
outstanding immediately prior to the Effective Time, will be assumed by HRG and will be automatically converted, by virtue of
the Merger, into a corresponding equity-based award in HRG (each a “
New HRG Equity Award
”) with the right to
hold or acquire shares of HRG Common Stock equal to the number of shares of Spectrum Common Stock previously underlying such Spectrum
Equity Award. Each New HRG Equity Award generally will be subject to the same terms and conditions as the corresponding Spectrum
Equity Award. At the Effective Time, pursuant to the Merger Agreement, HRG will assume all rights and obligations in respect of
each equity-based plan of Spectrum.
At the Effective Time
of the Merger, (i) the board of directors of HRG will consist of Kenneth C. Ambrecht, Norman S. Matthews, David M. Maura, Terry
L. Polistina, Hugh R. Rovit, Andreas Rouvé, Joseph S. Steinberg and an individual (who must satisfy NYSE and certain other
independence requirements) to be designated by Leucadia, each to be a member of the class of the board of directors of HRG as
set forth in the Amended HRG Charter, (ii) the officers of Spectrum will become the officers of HRG, and (iii) the NYSE ticker
symbol for HRG Common Stock will be “SPB”.
Governance and Other Matters
Prior to the closing
of the Merger, HRG shall take all action necessary (including obtaining all necessary director resignations) so that, as of the
Effective Time, (i) the board of directors of HRG will consist of Kenneth C. Ambrecht, Norman S. Matthews, David M. Maura, Terry
L. Polistina, Hugh R. Rovit, Andreas Rouvé, Joseph S. Steinberg and an individual (who must satisfy NYSE and certain other
independence requirements) to be designated by Leucadia, each to be a member of the class of the board of directors of HRG as set
forth in the Amended HRG Charter and (ii) the officers of Spectrum will become the officers of HRG. From and after the Effective
Time, the NYSE ticker symbol for HRG Common Stock will be “SPB”.
Conditions to the Merger
The consummation of
the Merger, the filing of the Amended HRG Charter and the Share Issuance are subject to the satisfaction or waiver of certain closing
conditions, including, (i) the approval of Spectrum stockholders (including the approval of the holders of a majority of the Spectrum
Common Stock not held by HRG, its affiliates and the executive officers of Spectrum, and the approval required under Section 12
of Spectrum’s certificate of incorporation in connection with a “Going-Private Transaction” (as defined therein)),
(ii) the approval of HRG’s stockholders, (iii) the effectiveness of a registration statement on Form S-4 registering the
HRG Common Stock to be issued in the Merger, (iv) the approval of the shares of HRG Common Stock to be issued in the Merger for
listing on the NYSE, (v) the absence of any temporary restraining order, injunction or other judgment, order or decree issued by
any governmental entity or other legal restraint or prohibition preventing the consummation of the Merger, (vi) the receipt of
certain tax opinions by HRG and/or Spectrum that the Merger will qualify as a reorganization under the Internal Revenue Code, (vii)
the accuracy of certain representations and warranties of HRG, Merger Sub and Spectrum contained in the Merger Agreement and the
compliance by the parties with the covenants contained in the Merger Agreement (subject to customary materiality qualifiers), and
(viii) other conditions specified in the Merger Agreement.
Other Terms of the Merger Agreement
HRG and Spectrum each
made certain representations, warranties and covenants in the Merger Agreement, including the pre-closing obligation of HRG to
conduct its businesses in the ordinary course (consistent with the simplification and ongoing wind-down of its businesses) and
the pre-closing obligation of each party to refrain from taking certain specified actions without the consent of the other party.
The Merger Agreement
provides that, during the period from the date of the Merger Agreement until the earlier of the Effective Time or the termination
of the Merger Agreement, each of HRG and Spectrum will be subject to certain restrictions on its ability to solicit alternative
acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with
third parties regarding alternative acquisition proposals, subject to certain exceptions. Subject to certain conditions, either
party’s board of directors is permitted to change its recommendation to its stockholders in response to a “Superior
Proposal” (as defined in the Merger Agreement) or an “Intervening Event” (as defined in the Merger Agreement)
if it determines that the failure to so change its recommendation would be reasonably likely to be inconsistent with its fiduciary
duties to its stockholders
The Merger Agreement
also provides for certain termination rights for both HRG and Spectrum, including the right of either party to terminate the Merger
Agreement if the board of directors of the other party effects a change of recommendation. No termination fee is payable upon termination
of the Merger Agreement, including a termination in connection with a change of recommendation by either of the board of directors
of HRG or Spectrum. In addition to the foregoing termination rights, either party may terminate the Merger Agreement if the Merger
is not consummated on or before October 8, 2018, subject to certain exceptions.
At or prior to the
closing of the Merger, HRG, Fortress and Leucadia will execute a registration rights agreement substantially in the form attached
as Exhibit E to the Merger Agreement (the “
Registration Rights Agreement
”). Pursuant to the Registration Rights
Agreement, the combined company will agree to file within 30 days following the closing of the Merger a shelf registration statement
and keep such shelf registration statement effective so long as Fortress and Leucadia (and their permitted assigns) own Registrable
Securities (as defined in the Registration Rights Agreement). In addition, Fortress and Leucadia (and their permitted assigns)
will be able to cause the combined company to undertake two underwritten take downs of the shelf registration statement. The Registration
Rights Agreement will also grant certain customary piggyback rights for Fortress and Leucadia (and their permitted assigns). The
Registration Rights Agreement will allow Fortress and Leucadia (and their affiliates) to transfer their registration rights to,
among others, certain permitted transferees, including to affiliates of Fortress and Leucadia, respectively, and to persons advised
by Fortress or Leucadia, respectively (so long as the decision-making control with respect to such interests remains after such
transfer with Fortress or Leucadia, respectively), and in certain circumstances, to the direct or indirect members, shareholders,
general or limited partners, or other equityholders of Fortress and Leucadia.
Voting Agreements
Concurrently with the
execution and delivery of the Merger Agreement, HRG, which beneficially owns approximately 59% of the outstanding Spectrum Common
Stock, entered into a voting agreement with Spectrum (the “
HRG Voting Agreement
”). The HRG Voting Agreement
requires that HRG vote its shares of Spectrum Common Stock to approve and adopt the Merger Agreement and the transactions contemplated
thereby and take certain other actions, including voting against any alternative acquisition proposal or other proposal which would
frustrate the purposes, or prevent, delay or otherwise adversely affect the consummation of the transactions contemplated by the
Merger Agreement. The HRG Voting Agreement and the obligations thereunder terminate upon the termination of the Merger Agreement
in accordance with its terms.
Concurrently with the execution and delivery
of the Merger Agreement, Fortress, which beneficially owns approximately 16% of the outstanding HRG Common Stock and the one outstanding
share of Series A Participating Convertible Preferred Stock of HRG, par value $0.01 (the “
HRG Series A Preferred Stock
”),
entered into a voting agreement with HRG (the “
Fortress Voting Agreement
”). The Fortress Voting Agreement requires
that Fortress vote or exercise its right to consent with respect to its share of HRG Series A Preferred Stock and all HRG Common
Stock to approve the Amended HRG Charter and the Share Issuance and take certain other actions, including voting against an alternative
acquisition proposal or other proposal which would frustrate the purposes, or prevent, delay or otherwise adversely affect the
consummation of the transactions contemplated by the Merger Agreement. The Fortress Voting Agreement and the obligations thereunder
(other than certain provisions unrelated to the voting of shares of HRG Common Stock owned by Fortress that survive until a later
specified expiration) terminate upon (i) the termination of the Merger Agreement in accordance with its terms, (ii) the date of
any Adverse Recommendation Change (as defined in the Merger Agreement) and (iii) certain specified amendments to the Merger Agreement
that may be adverse to Fortress. The Fortress Voting Agreement furthermore includes Fortress’s covenant to transfer to HRG,
effective immediately prior to but conditioned upon the filing of the Amended HRG Charter and to the Reverse Split, and for no
additional consideration, its share of HRG Series A Preferred Stock, which in turn will terminate all rights corresponding to such
share of HRG Series A Preferred Stock in HRG’s organizational documents. Spectrum is an express third party
beneficiary of the Fortress Voting Agreement and no provision of the Fortress Voting Agreement may be amended or waived without
the prior written consent of Spectrum.
Concurrently with the
execution and delivery of the Merger Agreement, Leucadia, which beneficially owns approximately 23% of the outstanding HRG Common
Stock, entered into a voting agreement with HRG (the “
Leucadia Voting Agreement
”). The Leucadia Voting Agreement
requires that Leucadia vote its shares of HRG Common Stock to approve the Amended HRG Charter and the Share Issuance and take certain
other actions, including voting against an alternative acquisition proposal or other proposal which would frustrate the purposes,
or prevent, delay or otherwise adversely affect the consummation of the transactions contemplated by the Merger Agreement. The
Leucadia Voting Agreement and the obligations thereunder terminate upon (i) the termination of the Merger Agreement in accordance
with its terms, (ii) the date of any Adverse Recommendation Change (as defined in the Merger Agreement) and (iii) certain specified
amendments to the Merger Agreement that may be adverse to Leucadia. The Leucadia Voting Agreement and the obligations thereunder
terminate upon the termination of the Merger Agreement in accordance with its terms. Spectrum is an express third party beneficiary
of the Leucadia Voting Agreement and no provision of the Leucadia Voting Agreement may be amended or waived without the prior written
consent of Spectrum.
Shareholder Agreement
Concurrently with the
execution and delivery of the Merger Agreement, HRG entered into a shareholder agreement with Leucadia (the “
Leucadia
Shareholder Agreement
”), which will become effective as of the closing of the Merger.
Under the Leucadia
Shareholder Agreement, Leucadia has the right to designate one nominee to the board of directors of HRG, until the earliest of
(i) such time as Leucadia and its subsidiaries in the aggregate own less than 10% of the number of shares of HRG Common Stock (calculated
on a fully diluted basis) issued and outstanding
immediately
after the Effective Time, (ii) such time as Leucadia and its subsidiaries in the aggregate own less than 5% of the number of shares
of HRG Common Stock (calculated on a fully diluted basis) then issued and outstanding, and (iii) the later of (A) the 60 month
anniversary of the Effective Time and (B) such time as Leucadia and its Subsidiaries in the aggregate own less than 10% of the
number of shares of HRG Common Stock (calculated on a fully diluted basis) then issued and outstanding. If at any time following
the Effective Time (i) Leucadia and its Subsidiaries in the aggregate own less than 5% of the number of shares of Common Stock
(calculated on a fully diluted basis) issued and outstanding immediately after the Effective Time, (ii) Leucadia and its subsidiaries
in the aggregate own less than 5% of the number of shares of HRG Common Stock (calculated on a fully diluted basis) then issued
and outstanding, or (iii) the 60 month anniversary of the Effective Time has passed and Leucadia and its Subsidiaries in the aggregate
at such time own less than 10% of the number of shares of HRG Common Stock (calculated on a fully diluted basis) then issued and
outstanding, then the director designated by Leucadia is required to promptly resign from the board of directors of HRG.
Under the Leucadia
Shareholder Agreement, Leucadia is subject to certain standstill provisions following the Effective Time providing that it and
its subsidiaries will not, among other things, (i) acquire equity securities of HRG, if after giving effect to such acquisitions
the aggregate HRG Common Stock beneficially owned by Leucadia and its subsidiaries exceeds 15% of the number of shares of HRG Common
Stock (calculated on a fully diluted basis) issued and outstanding, (ii) make, or in any way participate in, any solicitation of
proxies to vote any voting securities of HRG, (iii) commence a tender offer or exchange offer for voting securities of HRG without
the prior written consent of the board of HRG, (iv) form or join a group for the purpose of voting, acquiring or disposing of any
voting securities of HRG, (v) submit to the board of HRG a written proposal for an acquisition of HRG or make any public announcement
related thereto, or (vi) call a meeting of the stockholders of HRG. The standstill provisions are subject to certain exceptions
as set forth in the Leucadia Shareholder Agreement. The standstill provisions cease at such time as both (i) Leucadia and its subsidiaries
no longer in the aggregate own at least 10% of the number of shares of HRG Common Stock (calculated on a fully diluted basis) issued
and outstanding immediately after the Effective Time and (ii) a nominee of Leucadia is no longer serving on the board of directors
of HRG.
Rights Agreement
The information included in Item 3.03 of
this Current Report on Form 8-K is incorporated by reference into this Item 1.01.
The foregoing descriptions
of the Merger, the Merger Agreement, the HRG Voting Agreement, the Leucadia Voting Agreement, the Fortress Voting Agreement, the
Leucadia Shareholder Agreement, the Registration Rights Agreement and the Rights Agreement (together, the “
Transaction
Agreements
”) do not purport to be complete and are subject to, and qualified in its entirety by, (i) the full text of
the Merger Agreement (including the exhibits thereto, including the Amended HRG Charter and the Registration Rights Agreement),
a copy of which is filed herewith as Exhibit 2.1 and is incorporated into this report by reference in its entirety, (ii) the full
text of the HRG Voting Agreement, a copy of which is filed herewith as Exhibit 10.1 and is incorporated into this report by reference
in its entirety, (iii) the full text of the Fortress Voting Agreement, a copy of which is filed herewith as Exhibit 10.2 and is
incorporated into this report by reference in its entirety, (iv) the full text of the Leucadia Voting Agreement, a copy of which
is filed herewith as Exhibit 10.3 and is incorporated into this report by reference in its entirety, (v) the full text of the Leucadia
Shareholder Agreement, a copy of which is filed herewith as Exhibit 10.4 and is incorporated into this report by reference in its
entirety and (vi) the full text of the Rights Agreement, a copy of which is filed herewith as Exhibit 4.1 and is incorporated into
this report by reference in its entirety. The Transaction Agreements have been attached to provide investors with information regarding
its terms. They are not intended to provide any other factual information about the parties thereto or to modify or supplement
any factual disclosures about HRG in its public reports filed with the U.S. Securities and Exchange Commission (the “
SEC
”).
The Transaction Agreements include representations, warranties and covenants of the parties thereto made solely for the purposes
of such Transaction Agreements and which may be subject to important qualifications and limitations agreed to by the parties thereto
in connection with the negotiated terms of the applicable Transaction Agreements. Moreover, some of those representations and warranties
may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from
those generally applicable to HRG’s SEC filings or may have been used for purposes of allocating risk among HRG and Spectrum,
Fortress or Leucadia,
rather
than establishing matters as facts. Accordingly, the representations and warranties in the Transaction Agreements should not be
relied on as characterizations of the actual state of facts about HRG, Spectrum, Fortress or Leucadia.