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Note 6 - Commitments and Contingencies
 12 Months Ended
Dec. 31, 2014
Note 6 - Commitments And Contingencies  
Note 6 - Commitments and Contingencies

Note 6 - Commitments and Contingencies

 

a.Indemnity

 

Our organizational documents provide that our directors or officers will be reimbursed for all expenses, to the fullest extent permitted by law arising out of their performance.

 

b.Purchase Commitments

 

As of December 31, 2014, we have made commitments to purchase approximately $402 of production machinery and equipment.

 

c.China

 

Our operating facility in China presents risks including, but not limited to, changes in local regulatory requirements, including changes in labor laws, local wage laws, environmental regulations, taxes and operating licenses, compliance with U.S. regulatory requirements, including the Foreign Corrupt Practices Act, uncertainties as to application and interpretation of local laws and enforcement of contract and intellectual property rights, eminent domain claims, labor disputes, rapid changes in government, economic and political policies, and other various contingencies that are outside of our control.  Any such event could depress our earnings and have other material adverse effects on our business, financial condition and results of operations.

 

d.Employment Contracts

 

                 We have an employment contract with Michael D. Popielec, our President and Chief Executive Officer, which remains in effect until terminated by either party.  This agreement provides for a base salary, as adjusted for increases at the discretion of our Board of Directors, and includes incentive bonuses based upon attainment of specified quantitative and qualitative performance goals.  This agreement also provides for severance payments in the event of specified events of termination of employment.  In addition, this agreement provides for a lump sum payment in the event of termination of employment in connection with a change in control.

 

As part of our employment commencement process, employees are required to enter into agreements providing for confidentiality of certain information and the assignment of rights to inventions made by them while employed by us. These agreements also contain certain noncompetition and nonsolicitation provisions effective during the employment term and for varying periods thereafter depending on position and location. There can be no assurance that we will be able to enforce these agreements. All of our employees agree to abide by the terms of a Code of Ethics policy that provides for the confidentiality of certain information received during the course of their employment.

 

e.Product Warranties

 

We estimate future costs associated with expected product failure rates, material usage and service costs in the development of our warranty obligations. Warranty reserves are based on historical experience of warranty claims and generally will be estimated as a percentage of sales over the warranty period. In the event the actual results of these items differ from the estimates, an adjustment to the warranty obligation would be recorded. Changes in our product warranty liability during the years ended December 31, 2014 and 2013 were as follows:

 

   2014  2013
Balance, January 1  $513   $607 
Accrual for warranties issued   122    20 
Settlements made   (259)   (114)
Balance, December 31  $376   $513 

 

g. Legal Matters –

 

We are subject to legal proceedings and claims that arise in the normal course of business. We believe that the final disposition of such matters will not have a material adverse effect on our financial position, results of operations or cash flows.

 

Arista Power Litigation

 

In September 2011, we initiated an action against Arista Power, Inc. (“Arista”) and our former senior sales and engineering employee, David Modeen (“Modeen”) in the State of New York Supreme Court, County of Wayne, in which we allege that Arista recruited all but one of the members of its executive team from us, subsequently changed and redirected its business to compete directly with us by using our confidential information, and during the summer of 2011, recruited Modeen to become an Arista employee.  We allege that, as a result of actions by Arista and Modeen: (i) Modeen breached the terms of his Employee Confidentiality, Non-Disclosure, Non-Compete, Non-Disparagement and Assignment Agreement with us; (ii) Modeen breached certain agreements, duties and obligations he owed us, including to protect and refrain from disclosing our trade secrets and confidential and proprietary information; (iii) Arista’s employment of Modeen will inevitably lead to the disclosure and use of our trade secrets by Arista, in violation of Modeen’s duties and obligations to us; (iv) Arista unlawfully induced Modeen to breach his agreements with and duties and obligations to us; and (v) Arista’s recruitment and employment of Modeen breached a subcontract between Arista and us.  We seek damages as determined at trial and preliminary and permanent injunctive relief.  The defendants answered the allegations set forth in the Complaint, without asserting any counterclaims. 

 

We initiated the September 2011 Complaint against Arista Power to protect our customers, employees and shareholders from the unauthorized use and theft of our investments in intellectual property, trade secrets and confidential information by Arista and its employees.  Protecting our collective intellectual property and know-how, developed at great cost to us to form our competitive position in the marketplace and create value for our shareholders, is a fundamental responsibility of all our employees.

 

In November 2011, Arista initiated a counterclaim against us, our officers, several of our directors, and one of our employees in the State of New York Supreme Court, County of Monroe, alleging that we and the named defendants violated the terms of a Confidentiality Agreement with Arista and unfairly competed against Arista by unlawfully appropriating Arista’s trade secrets and that as a result of such activity, Arista has incurred damages in excess of $60 million.  Arista sought damages, an accounting, and preliminary and permanent injunctive relief.

 

After various motions and discovery between the parties, amendments to Arista’s Complaint, and pre-trial conferences among the parties and the presiding judge over the time since Arista originally initiated its action, Arista withdrew all its remaining claims against us and our employee on October 31, 2014, and through mutual execution by the parties of a Stipulation of Discontinuance With Prejudice, its case against Ultralife in Monroe County was discontinued.

 

Our suit against Arista remains in Wayne County, where discovery is ongoing, and we plan to continue to vigorously pursue our complaint against Arista.  It is not possible to predict the outcome of this action, whether we will be granted the injunctive relief we seek, nor the monetary amount, if any, which we may be awarded should we prevail.