Audiovox 2006 Annual Report Download - page 14

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• successful integration of business acquisitions and new brands in our distribution network,
and
• compliance with the Sarbanes-Oxley Act.
Item 1B — Unresolved Staff Comments
As of the filing of this annual report on Form 10-K, there were no unresolved comments from the
staff of the Securities and Exchange Commission.
Item 2 — Properties
Our Corporate headquarters is located at 180 Marcus Blvd. in Hauppauge, New York. In
addition, as of February 28, 2007, the Company leased a total of 18 operating facilities or offices
located in 9 states as well as Germany, China, Malaysia, Canada and Venezuela. The leases have been
classified as operating leases, with the exception of one, which is recorded as a capital lease. These
facilities are located in California, Florida, Georgia, Massachusetts, New York, Ohio, Tennessee,
Indiana and Michigan. These facilities serve as offices, warehouses, distribution centers or retail
locations. Additionally, we utilize public warehouse facilities located in Virginia, Nevada and
Mississippi.
Item 3 — Legal Proceedings
The Company is currently, and has in the past been, a party to various routine legal proceedings
incident to the ordinary course of business. If management determines, based on the underlying facts
and circumstances, that it is probable a loss will result from a litigation contingency and the amount of
the loss can be reasonably estimated, the estimated loss is accrued for. The Company believes its
outstanding litigation matters will not have a material adverse effect on the Company’s financial
statements, individually or in the aggregate; however, due to the uncertain outcome of these matters,
the Company disclosed these specific matters below:
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 Asset Sale to UTStarcom, Inc. These actions were
subsequently consolidated into a single derivative complaint (the ‘‘Complaint’’), In re Audiovox
Corporation Derivative Litigation. The Complaint challenges the payment of $16,000 to
Mr. Christopher pursuant to a Personally Held Intangibles Agreement, an additional $4,000 to
Mr. Christopher pursuant to an Agreement and General Release, $1,916 to Mr. Shalam pursuant to an
amendment to his Long-Term Incentive Award, $5,000 distributed to ACC employees other than
Mr. Christopher and the extension of certain options to Mr. Christopher. The Complaint alleges that:
(i) the payments should be rescinded on grounds including, inter alia, material misrepresentation,
breach of fiduciary duty and mistake, (ii) the recipients of the various payments were unjustly
enriched, and (iii) the directors of Audiovox breached their fiduciary duties to Audiovox and its
shareholders. This matter has been settled in principle for an estimated payment of $6,750 to the
Company (less plaintiffs’ legal fees, costs of notice and mailing, etc., all to be determined). The
settlement will not become final until a hearing and Court of Chancery approval in May 2007. As this
represents a gain contingency, these amounts will not be recorded until received and such amount will
be recorded within discontinued operations when received.
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.
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,
13