Audiovox 2005 Annual Report Download - page 21

captioned "In Re Audiovox Corporation Derivative Litigation". The complaint
seeks (a) rescission of: agreements; amendments to long−term incentive awards;
and severance payments pursuant to which Audiovox and ACC executives were paid
from the net proceeds of the sale of certain assets of ACC to UTStarcom, Inc.,
(b) disgorgement to ACC of $16,000 paid to Philip Christopher pursuant to a
Personally Held Intangibles Purchase Agreement in connection with the UTStarcom
transaction, (c) disgorgement to Audiovox of $4,000 paid to Philip Christopher
as compensation for termination of his Employment Agreement and Award Agreement
with ACC, (d) disgorgement to ACC of $1,916 paid to John Shalam pursuant to an
Award Agreement with ACC, and (e) recovery by ACC of $5,000 in severance
payments distributed by Philip Christopher to ACC's former employees. Defendants
filed a motion to dismiss the complaint, which was withdrawn. The Company
understands that the individual defendants intend to vigorously defend this
matter; however, no assurances regarding the outcome of this matter can be given
at this point in the litigation. The Company anticipates that defense costs, in
excess of any applicable retention, will be covered by the Company's insurance
policies. Any damages recovered by plaintiffs will be paid to the Company.
Accordingly, no estimated loss has been recorded for the aforementioned case.
During 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, International Centre in New York, New York, seeking recovery of
monies alleged to have been wrongfully taken by individual Respondents and
damages for fraud. Respondents asserted counterclaims alleging that the Company
engaged in certain business practices that caused damage to Respondents. The
matter was submitted to mediation during the fourth quarter of fiscal 2004 and
settled subsequent to year−end. The agreement provides 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 November 30, 2005, $250 was paid to the Respondents and the
remaining balance, which is included in restricted cash on the accompanying
consolidated balance sheet, will be released upon satisfaction of the
aforementioned pre−closing conditions. The Company recorded a $400 reduction to
general and administrative expenses during the year ended November 30, 2005 as a
result of a related legal claim, which was withdrawn from the court.
The 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 is still pending. On March 16,
2005, the United States Court of Appeals for the Fourth Circuit reversed the
District Court's order dismissing the complaints on grounds of federal
pre−emption. The Fourth Circuit remanded the actions to each of their respective
state courts, except for the Naquin litigation, which was remanded to the local
Federal Court. 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.
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 managements
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 Cellular business to
UTStarcom, Inc. ("UTSI"), the Company agreed to indemnify UTSI for any breach or
violation by ACC and its'
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