Audiovox 2008 Annual Report Download - page 102

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 29, 2008
(Dollars in thousands, except share and per share data)
Certain consolidated class actions transferred to a Multi-District Litigation Panel of the United States District Court of the
District of Maryland against the Company and other suppliers, manufacturers and distributors of hand-held wireless
telephones alleging damages relating to exposure to radio frequency radiation from hand-held wireless telephones are still
pending. No assurances regarding the outcome of this matter can be given, as the Company is unable to assess the degree of
probability of an unfavorable outcome or estimated loss or liability, if any. Accordingly, no estimated loss has been recorded
for the aforementioned case.
During fiscal 2004, an arbitration proceeding was commenced by the Company and several of its subsidiaries against certain
Venezuelan employees and two Venezuelan companies ("Respondents") before the American Arbitration Association. The
matter was submitted to mediation and settled in fiscal 2005. The agreement provided for a payment (to be made upon
satisfaction of certain pre-closing conditions) from the Company to the Respondents of $1,700 in consideration of which the
Company will acquire all of Respondents' ownership. In addition, the Company and Respondents will release all claims. As
of February 28, 2006, $250 was paid to the Respondents and the remaining balance (which includes accrued interest), was
included in restricted cash on the accompanying consolidated balance sheet. In April 2006, all closing conditions were
satisfied and the remaining balance in restricted cash was paid to the Respondents. This purchase of minority interest was
recorded as goodwill on the accompanying consolidated balance sheet in accordance with FASB Statement 141 “Business
Combinations” (see Note 1(j)). As such, this matter has been completed and the Company has full ownership of Audiovox
Venezuela.
The products the Company sells are continually changing as a result of improved technology. As a result, although the
Company and its suppliers attempt to avoid infringing known proprietary rights, the Company may be subject to legal
proceedings and claims for alleged infringement by its suppliers or distributors, of third party patents, trade secrets,
trademarks or copyrights. Any claims relating to the infringement of third-party proprietary rights, even if not meritorious,
could result in costly litigation, divert management’s attention and resources, or require the Company to either enter into
royalty or license agreements which are not advantageous to the Company or pay material amounts of damages.
Under the asset purchase agreement for the sale of the Company’s Cellular business to UTSI, the Company agreed to
indemnify UTSI for any breach or violation by ACC and its representations, warranties and covenants contained in the asset
purchase agreement and for other matters, subject to certain limitations, for a period of five years. Significant
indemnification claims by UTSI could have a material adverse effect on the Company's financial condition and results of
operation. The Company is not aware of any such claim(s) for indemnification.
Derivative Settlement
In November 2004, several purported double derivative, derivative and class actions were filed in the Court of Chancery of
the State of Delaware, New Castle County challenging approximately $27,000 made in payments from the proceeds of the
sale of the Company’s cellular business. These actions were subsequently consolidated into a single derivative complaint
(the "Complaint"), In re Audiovox Corporation Derivative Litigation.
This matter was settled in May 2007 and received final Chancery court approval in June 2007. As a result of the settlement,
the Company received $6,750 in gross proceeds. The gross proceeds were offset by $2,378 in plaintiff legal fees and $1,023
in accrued legal and administrative costs for defending all remaining ACC legal claims. The items discussed above resulted
in a pre-tax benefit of $3,349 recorded in discontinued operations for the year ended February 29, 2008.
F-42
Source: AUDIOVOX CORP, 10-K, May 14, 2008