Harman Kardon 2007 Annual Report Download - page 27

14
Risks Related to the Merger with Parent
The merger may not be completed, which could adversely affect our business.
Completion of the merger is subject to the satisfaction of various conditions, including adoption of the
merger agreement by holders of a majority of the outstanding shares of our common stock, expiration or
termination of applicable waiting periods under the HSR Act (the FTC granted early termination of the
applicable waiting period on May 18, 2007) and other non-U.S. competition laws, and other customary
closing conditions described in the merger agreement. We cannot guarantee when or if these closing
conditions will be satisfied, that the required approvals will be received or that the proposed merger will
be successfully completed. In the event that the proposed merger is not completed, we may be subject to
several risks, including the following:
1 our management’s and employees’ attention from day-to-day business may be diverted;
1 we may lose key employees;
1 our relationships with customers and vendors may be substantially disrupted as a result of
uncertainties with regard to our business and prospects;
1 we would still be required to pay significant transaction costs related to the merger, including
legal and accounting fees, and under certain circumstances, we may be required to reimburse
Parent’s out-of-pocket transaction expenses up to $20 million and pay a termination fee of up to
$225 million (less any reimbursed transaction expenses); and
1 the market price of shares of our common stock may decline to the extent that the current market
price of those shares reflects a market assumption that the proposed merger will be completed.
Uncertainties associated with the merger may have a negative impact on employee and business
relationships.
The announcement of the proposed merger may have a negative impact on our ability to attract and retain
officers and other key employees and/or maintain relationships with key customers and suppliers. These
events could have a material negative impact on our results of operations and financial condition.
As a result of the proposed acquisition, we will have substantially more debt.
We will have substantial indebtedness if the proposed acquisition is consummated. There can be no
assurance that our businesses will be able to generate sufficient cash flows from operations to meet our
anticipated debt service obligations. Our level of indebtedness will have important consequences,
including limiting our ability to invest operating cash flow to expand our businesses or execute our
strategies, to capitalize on business opportunities and to react to competitive pressures, because we will
need to dedicate a substantial portion of these cash flows to service our debt. In addition, we could be
unable to refinance or obtain additional financing because of market conditions, high levels of debt and
the debt restrictions expected to be included in the debt instruments executed in connection with the
consummation of the proposed acquisition. This new indebtedness is expected to contain restrictive
covenants, which may adversely affect our ability to operate our businesses.