Harman Kardon 2010 Annual Report Download - page 62

would have a material adverse effect on our financial condition and results of operations and could also lead to
an event of default under the Indenture, as amended, and the acceleration of the Convertible Senior Notes. As of
June 30, 2010, 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 (the “Guarantee and Collateral Agreement”),which provides, among 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, 2010, we had no
borrowings under the Amended Credit Agreement and had outstanding letters of credit of $6.6 million.
Convertible Senior Notes
On July 1, 2009, we adopted new accounting guidance relating to the Convertible Senior Notes which is
more fully described in Note 1 – Summary of Significant Accounting Policies in the Notes to the Consolidated
Financial Statements.
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 Convertible Senior Notes. The initial conversion rate is 9.6154 shares of our
common stock per $1,000 principal amount of the Convertible Senior 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.
The Convertible Senior 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 percent of the conversion price for at least 20 trading days during any period of 30
consecutive trading 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 Convertible Senior Notes for each day of the trading period
was less than 98 percent 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; 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 Convertible Senior
Notes to be converted an amount in cash equal to the lesser of (a) $1,000 or (b) the conversion value, determined
in the manner set forth in the Indenture. If the conversion value per Convertible Senior Note exceeds $1,000, we
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