Avid 2014 Annual Report Download - page 80

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reasonable terms without a material impact on its results of operations or financial position. The Company procures product
components and builds inventory based on forecasts of product life cycle and customer demand. If the Company is unable to provide
accurate forecasts or manage inventory levels in response to shifts in customer demand, the Company may have insufficient, excess or
obsolete product inventory.
Contingencies
In March 2013 and May 2013, two purported securities class action lawsuits were filed against us and certain of our former executive
officers seeking unspecified damages in the U.S. District Court for the District of Massachusetts. In July 2013, the two cases were
consolidated and the original plaintiffs agreed to act as co-plaintiffs in the consolidated case. In September 2013, the co-plaintiffs filed
a consolidated amended complaint on behalf of those who purchased our common stock between October 23, 2008 and March 20, 2013.
The consolidated amended complaint, which named us, certain of our current and former executive officers and our former independent
accounting firm as defendants, purported to state a claim for violation of federal securities laws as a result of alleged violations of the
federal securities laws pursuant to Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. In October
2013, we filed a motion to dismiss the consolidated amended complaint, resulting in the dismissal of some of the claims, and the dismissal
of Mr. Hernandez and one of the two plaintiffs from the case. The discovery portion of the proceedings ended in October 2014 and the
matter was scheduled for trial in March 2015. However, subsequently to the discovery portion of the trial we began settlement discussions
with the remaining plaintiffs together with our former auditors, and in December 2014 we agreed in principal to settle the case for $2.6
million, of which our insurance company will pay $2.5 million and our former auditors will pay the remainder. The finalization of this
settlement is subject to a number of procedural steps, including approval by the court, which likely will not be complete until later this
year. Should the settlement not become final for any reason, the matter would proceed to trial.
In June 2013, a purported stockholder of the Company filed a derivative complaint against us as nominal defendant and certain of our
current and former directors and officers in the U.S. District Court for the District of Massachusetts. The complaints alleged various
violations of state law, including breaches of fiduciary duties, waste of corporate assets and unjust enrichment. The derivative complaint
sought, inter alia, a monetary judgment, equitable and/or injunctive relief, restitution, disgorgement and a variety of purported corporate
governance reforms. On October 30, 2013, the complaint was dismissed without prejudice. On November 26, 2013, our Board received
a demand letter from the plaintiff in the dismissed derivative suit, demanding that our Board investigate, address and commence proceedings
against certain of our directors, officers, employees and agents based on conduct identified in the dismissed complaint. In December
2013, our Board created a committee to conduct an investigation into the allegations in the demand letter. On October 29, 2014, our
Board, based on the committee’s final recommendation, formally decided not to take action in response to the demand letter.
In April and May 2013, we received a document preservation request and inquiry from the SEC Division of Enforcement and a federal
grand jury subpoena from the Department of Justice requesting certain documents, including in particular documents related to our
disclosures regarding our accounting review and revenue transactions. We produced documents responsive to such requests and provided
regular updates to the authorities on our accounting evaluation and intend to continue to cooperate fully with the authorities should we
receive any further inquiries or requests. However, we have not received any such further inquiries or requests since briefing the authorities
over twelve months ago and, although there can be no assurance, we believe that, based on information currently available, neither any
further action in this matter nor the outcome of these inquiries will have a material adverse impact on our overall operations, financial
condition or liquidity.
Our industry is characterized by the existence of a large number of patents and frequent claims and litigation regarding patent and
other intellectual property rights. In addition to the legal proceedings described above, we are involved in legal proceedings from time
to time arising from the normal course of business activities, including claims of alleged infringement of intellectual property rights
and contractual, commercial, employee relations, product or service performance, or other matters. We do not believe these matters
will have a material adverse effect on our financial position or results of operations. However, the outcome of legal proceedings and
claims brought against us is subject to significant uncertainty. Therefore, our financial position or results of operations may be
negatively affected by the unfavorable resolution of one or more of these proceedings for the period in which a matter is resolved. See
Part I, Item 1A, “Risk Factors.” Our results could be materially adversely affected if we are accused of, or found to be, infringing
third parties’ intellectual property rights.
The Company considers all claims on a quarterly basis and based on known facts assesses whether potential losses are considered
reasonably possible, probable and estimable. Based upon this assessment, the Company then evaluates disclosure requirements and
whether to accrue for such claims in its consolidated financial statements.