Plantronics 2010 Annual Report Download - page 30

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22
There remain risks from the sale of Altec Lansing, our discontinued AEG business segment.
Under the terms of the Asset Purchase Agreement, dated October 2, 2009, a First Amendment to the Asset Purchase Agreement, dated
November 30, 2009, a Side Letter to the Asset Purchase Agreement, dated January 8, 2010, and a second Side Letter to the Asset
Purchase Agreement, dated February 15, 2010 (collectively, the “Purchase Agreement”), we retained certain assets and liabilities of
Altec Lansing as of the closing date, December 1, 2009, including accounts receivable, accounts payable and certain other liabilities.
We also retained the use of certain strategic assets, including the right to use the Altec Lansing brand for specific music applications
for three years.
Pursuant to the Purchase Agreement, we have agreed to indemnify the Purchaser following the closing of the transaction up to its one
year anniversary against specified losses in connection with the AEG business and generally retain responsibility for various legal
liabilities that may accrue. We have also made representations and warranties to the Purchaser about the condition of AEG, including
matters relating to intellectual property, employee matters and environmental laws. Following the closing, if the Purchaser makes an
indemnification claim because it has suffered a loss or a third party has commenced an action against the Purchaser, we may incur
substantial expenses resolving the Purchaser’s claim or defending the Purchaser and ourselves against the third party action which
would harm our operating results. In addition, our ability to defend ourselves may be impaired because most of our former AEG
employees are employees of the Purchaser and our management may have to devote a substantial amount of time to resolving the
claim, and, as we are no longer in the AEG business, we may not be able to readily offer products, service and intellectual property in
settlement. In addition, these indemnity claims may divert management attention from our continued business. It may also be
difficult to determine whether a claim from a third party stemmed from actions taken by us or the Purchaser and we may expend
substantial resources trying to determine which party has responsibility for the claim.
We may be required to record further impairment charges on our investments in auction rate securities.
The uncertainties in the credit markets have affected all of our auction rate securities (“ARS”) holdings, and, as a consequence, these
investments are not currently liquid and, we will not be able to access these funds until a future auction of these investments is
successful, the underlying securities are redeemed by the issuer, or a buyer is found outside of the auction process. In November
2008, we accepted an agreement (the “Agreement”) from UBS AG (“UBS”), the investment provider for our now $23.3 million par
value ARS portfolio, granting us certain rights relating to our ARS (the “Rights”). The Rights permit us to require UBS to purchase
our ARS at par value, which is defined as the price equal to the liquidation preference of the ARS plus accrued but unpaid dividends
or interest, at any time during the period from June 30, 2010 to July 2, 2012. Conversely, UBS has the right, in its discretion, to
purchase or sell the ARS at any time until July 2, 2012, so long as we receive payment at par value upon any sale or liquidation. We
expect to sell our ARS under the Rights; however, if we do not exercise the Rights before July 2, 2012, they will expire and UBS will
have no further rights or obligation to buy the ARS. UBS’s obligations under the Rights are not secured and do not require UBS to
obtain any financing to support its performance obligations under the Rights. UBS has disclaimed any assurance that it will have
sufficient financial resources to satisfy its obligations under the Rights. Although we currently have the ability to hold these ARS
investments until a recovery of the auction process, until maturity or until purchased by UBS, if UBS does not purchase the ARS as
per their Agreement, the current market conditions deteriorate further or a recovery in market values does not occur, we may incur
further other-than-temporary impairment charges resulting in further losses in our statement of operations, which would reduce net
income.