Harman Kardon 2009 Annual Report Download - page 60

• Our minimum liquidity amount (“Liquidity Amount”) may not be less than: (a) $150 million for
the fiscal quarter ending June 30, 2009; and (b) $100 million for the fiscal quarter ending
September 30, 2009 and each fiscal quarter thereafter, subject to certain exceptions. Liquidity
Amount is defined as cash, subject to certain exceptions, plus availability on the Amended Credit
Agreement; and
• The ratio of Consolidated Current Assets to Secured Funded Debt must be equal to or less than
1:00 to 1:00. Consolidated Current Assets is defined as 70 percent of net book value of accounts
receivable, plus 35 percent of net book value of inventory, plus up to $25 million of cash, subject
to certain exceptions. Secured Funded Debt is defined as the aggregate exposure under the
Amended Credit Agreement plus the amount outstanding under certain other secured facilities;
• Limits our ability to pay dividends and make capital expenditures;
• Requires net proceeds from the sale of certain assets and issuances of debt and equity to be applied to
prepayment of the revolving credit facility; and
• Imposes limitations on our ability to incur debt, place liens on our assets, make fundamental changes,
sell assets, make investments, undertake transactions with affiliates, undertake sale and leaseback
transactions, incur guarantee obligations, modify or prepay certain material debt (including the Notes),
enter into hedging agreements and acquire certain types of collateral.
If we do not meet the forecast in our budgets, we could violate our debt covenants and, absent a waiver from
our lenders or an amendment to our credit agreement, we could be in default under the Amended Credit
Agreement and, as a result, our debt under the Amended Credit Agreement could become due which would have
a material adverse effect on our financial position and results of operations and could also lead to an event of
default under the Indenture and the acceleration of the Notes. As of June 30, 2009, we were in compliance with
all the financial covenants of the Amended Credit Agreement. We believe we will be in compliance with these
covenants for at least the next 12 months.
Guarantee and Collateral Agreement
In connection with the Amended Credit Agreement, we and certain of our subsidiaries have entered into a
Guarantee and Collateral Agreement which provides, amongst other things, that the obligations under the
Amended Credit Agreement are guaranteed by us and each of the subsidiary guarantors party thereto, and that the
obligations generally are secured by liens on substantially all of our assets and certain of our subsidiary
guarantors’ assets.
The term of the Guarantee and Collateral Agreement corresponds with the term of the Amended Credit
Agreement, which matures on December 31, 2011. Under the terms of this Guarantee and Collateral Agreement,
we have effectively guaranteed the payment of the full amount of borrowings under the Amended Credit
Agreement, including outstanding letters of credit, upon maturity. The potential amount of future payments that
we would be required to pay under the Guarantee and Collateral Agreement is the amount that we have borrowed
under the Amended Credit Agreement, including outstanding letters of credit. At June 30, 2009, we had
borrowed $227.3 million and had outstanding letters of credit of $7.4 million.
Convertible Senior Notes
On October 22, 2007, we announced the termination of our merger agreement with KKR and GSCP and
companies formed by investment funds affiliated with KKR and GSCP. In connection with the termination
agreement, we entered into a note purchase agreement on October 23, 2007, and we issued $400 million
aggregate principal amount of the Notes. The initial conversion rate is 9.6154 shares of our 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.
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