Harman Kardon 2008 Annual Report Download - page 73

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Note 7 - Convertible Senior Notes
On October 23, 2007, we issued $400 million aggregate principal amount of its 1.25% percent convertible
senior notes due 2012 (“the Notes”). The initial conversion rate is 9.6154 shares of common stock per
$1,000 principal amount of the Notes (which is equal to an initial conversion price of approximately $104
per share). The conversion rate is subject to adjustment in specified circumstances described in the
indenture for the Notes.
The Notes are convertible at the option of the holders:
• during any calendar quarter commencing after December 31, 2007, if the closing price of our
common stock exceeds 130% of the conversion price for at least 20 trading days in the period of
30 consecutive tradings days ending on the last trading day of the preceding calendar quarter;
• during the five business day period immediately after any five day trading period in which the
trading price per $1,000 principal amount of the Notes for each day of the trading period was less
than 98% of the product of (1) the closing price of our common stock on such date and (2) the
conversion rate on such date;
• upon the occurrence of specified corporate transactions that are described in the indenture for the
Notes; or
• at any time after June 30, 2012 until the close of business on the business day immediately prior
to October 15, 2012.
Upon conversion, a holder will receive in respect of each $1,000 of principal amount of Notes to be
converted (a) an amount in cash equal to the lesser of (1) $1,000 or (2) the conversion value, determined
in the manner set forth in the indenture for the Notes and (b) if the conversion value per Note exceeds
$1,000, the Company will also deliver, at its election, cash or common stock or a combination of cash and
common stock for the conversion value in excess of $1,000.
Debt issuance costs of $4.8 million associated with this transaction were capitalized and are being
amortized over the term of the Notes. The unamortized balance at June 30, 2008 was $4.1 million.
On October 23, 2007, we entered into a Registration Rights Agreement requiring us to register the Notes
and the shares contingently issuable upon conversion of the Notes no later than October 23, 2008. We are
required to keep the registration statement effective until the earlier of (a) such time as the Notes and the
shares contingently issuable under the Notes (1) are sold under an effective registration statement or Rule
144 of the Securities Act of 1933, (2) are freely transferable under Rule 144 more than two years
following October 23, 2007, (3) cease to be outstanding or (b) five years and three months following
October 23, 2007. In the event of non-compliance with this agreement, additional interest will accrue on
the Notes at the rate per annum of 0.25%. The maximum exposure to us under this commitment is
therefore four years and three months of interest on $400 million at the rate of 0.25% per annum, or $4.25
million.