Rayovac 2010 Annual Report Download - page 45

ITEM 3. LEGAL PROCEEDINGS
Litigation
In December 2009, San Francisco Technology, Inc. filed an action in the Federal District Court for the
Northern District of California against the Company, as well as a number of unaffiliated defendants, claiming
that each of the defendants had falsely marked patents on certain of its products in violation of Article 35,
Section 292 of the U.S. Code and seeking to have civil fines imposed on each of the defendants for such claimed
violations. The Company is reviewing the claims and intends to vigorously defend this matter but, as of the date
of this Annual Report on Form 10-K, cannot estimate any possible losses.
In May 2010, Herengrucht Group, LLC (“Herengrucht”) filed an action in the U.S. District Court for the
Southern District of California against the Company claiming that the Company had falsely marked patents on
certain of its products in violation of Article 35, Section 292 of the U.S. Code and seeking to have civil fines
imposed on each of the defendants for such claimed violations. Herengrucht dismissed its claims without
prejudice in September 2010.
Applica Consumer Products, Inc. (“Applica”), a subsidiary of the Company, is a defendant in NACCO
Industries, Inc. et al. v. Applica Incorporated et al., Case No. C.A. 2541-VCL, which was filed in the Court of
Chancery of the State of Delaware in November 2006.
The original complaint in this action alleged a claim for, among other things, breach of contract against
Applica and a number of tort claims against certain entities affiliated with the Harbinger Parties. The claims
against Applica related to the alleged breach of the merger agreement between Applica and NACCO Industries,
Inc. (“NACCO”) and one of its affiliates, which agreement was terminated following Applica’s receipt of a
superior merger offer from the HCP Funds. On October 22, 2007, the plaintiffs filed an amended complaint
asserting claims against Applica for, among other things, breach of contract and breach of the implied covenant
of good faith relating to the termination of the NACCO merger agreement and asserting various tort claims
against Applica and the HCP Funds. The original complaint was filed in conjunction with a motion preliminarily
to enjoin the HCP Funds’ acquisition of Applica. On December 1, 2006, plaintiffs withdrew their motion for a
preliminary injunction. In light of the consummation of Applica’s merger with affiliates of the HCP Funds in
January 2007 (Applica is currently a subsidiary of Russell Hobbs), the Company believes that any claim for
specific performance is moot. Applica filed a motion to dismiss the amended complaint in December 2007.
Rather than respond to the motion to dismiss the amended complaint, NACCO filed a motion for leave to file a
second amended complaint, which was granted in May 2008. Applica moved to dismiss the second amended
complaint, which motion was granted in part and denied in part in December 2009.
The trial is currently scheduled for February 2011. The Company intends to vigorously defend the action,
but may be unable to resolve the disputes successfully or without incurring significant costs and expenses. As a
result, Russell Hobbs and Harbinger Master Fund have entered into an indemnification agreement, dated as of
February 9, 2010, by which Harbinger Master Fund has agreed, effective upon the consummation of the Merger,
to indemnify Russell Hobbs, its subsidiaries and any entity that owns all of the outstanding voting stock of
Russell Hobbs against any out-of-pocket losses, costs, expenses, judgments, penalties, fines and other damages in
excess of $3 million incurred with respect to this litigation and any future litigation or legal action against the
indemnified parties arising out of or relating to the matters which form the basis of this litigation.
Applica is a defendant in three asbestos lawsuits in which the plaintiffs have alleged injury as the result of
exposure to asbestos in hair dryers distributed by that subsidiary over 20 years ago. Although Applica never
manufactured such products, asbestos was used in certain hair dryers distributed by it prior to 1979. The
Company believes that these actions are without merit and intends to vigorously defend the action, but may be
unable to resolve the disputes successfully without incurring significant expenses. As of the date of this Annual
Report on Form 10-K, the Company cannot estimate any possible losses. At this time, the Company does not
believe it has coverage under its insurance policies for the asbestos lawsuits.
35