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OTHER COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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Dec. 31, 2012
OTHER COMMITMENTS AND CONTINGENCIES [Abstract] |
OTHER COMMITMENTS AND CONTINGENCIES | NOTE 12. OTHER COMMITMENTS AND CONTINGENCIES Property and Rental Agreements We are obligated under an operating lease for a manufacturing and warehouse facility in St. Petersburg, Florida which lease requires monthly payments of approximately $14,000, and expires on October 31, 2013. We also lease a separate warehouse facility in Clearwater (under a month-to-month arrangement requiring monthly payments of approximately $1,600), and our executive offices in New York (under a month-to-month arrangement requiring monthly payments of approximately $1,500). The following is a schedule of approximate future minimum lease payments under operating leases as of December 31, 2012 (in thousands):
2013 |  | $ | 228 |
2014 |  |  | 12 |
2015 |  |  | -- |
Total |  | $ | 240 |
Rent expense for the years ended December 31, 2012, 2011 and 2010 approximated $228,000, $256,000 and $281,000, respectively. Purchase Commitments At December 31, 2012, we had non-cancelable purchase commitments for inventories totaling approximately $3.8 million, substantially all of which is expected to be purchased by the end of 2013. Employment Agreements At December 31, 2012, we were obligated under three employment agreements which have expiration dates between June 2014 and December 2015. Approximate future minimum payments under these agreements are as follows as of December 31, 2012 (in thousands):
2013 |  | $ | 966 |
2014 |  |  | 786 |
2015 |  |  | 725 |
Total |  | $ | 2,477 |
During 2011, we terminated Leonard Keen as our V.P. and General Counsel. The termination of Mr. Keen's employment is presently the subject of litigation (See "Litigation" below). The agreements with our Chief Executive Officer, our President and Chief Sales and Marketing Officer, and our Senior Vice President contain the following provisions:
| · | Clauses that allow for continuous automatic extensions of one year unless timely written notice terminating the contract is provided to such officers (as defined in the agreements).
| · | Clauses which require the Company to make lump sum payments to such officers equal to three times their salary and bonus in effect at the time of any change in control and/or breach of the agreements by the Company. The 2013 base salaries for these three officers are expected to approximate $725,000, and such amounts may increase by up to 7.5% per year.
Additionally, the employment agreement with our V.P. Sales & Marketing contains a clause which requires the Company to make a lump sum severance payment in the amount of $160,000 at the time of any change in control and/or breach of the agreements by the Company. Litigation Livneh/Lican Development Settlement Agreement and Related Litigation In December 2011, a settlement related to the then pending actions between the Company and certain affiliates, on the one hand, and Steve Livneh and certain affiliates, on the other hand, which was the subject of prior disclosures, was structured and subsequently entered into on February 22, 2012. Under the terms of the Settlement Agreement (the "Settlement Agreement"), we agreed, among other things, to perform the following: (i) make a $250,000 lump sum payment to Livneh ($50,000 of which was previously recorded and expensed), (ii) make 18 installment payments to Livneh in the amount of $23,222.22 per month, (iii) reimburse Livneh for all unpaid expenses that Livneh incurred on behalf of the Company during the period of his employment and/or consultancy (from October 1, 2006 through August 11, 2010), (iv) pay Livneh $14,700, which represents the balance of the amounts due to Henvil Corp. Ltd. under a certain bill of sale, dated April 12, 2010, (v) transfer to Livneh the title of a certain automobile, (vi) transfer to Livneh all of the Company's right and interest in certain Intellectual Property (as defined in the Settlement Agreement) pertaining to the Modular Ergonomic Grip ("MEG"), Modullion, RF Skin Resurfacing, Scannula, Double Jaw Forceps and Tip-On-Tube designs and trade name (collectively, the "Assigned Patents"), (vi) transfer to Livneh certain parts for the MEG device, (vii) grant Livneh an exclusive license to produce, market and sell the Seal-N-Cut device in the People's Republic of China, (viii) pay to Livneh royalty payments of 3% on the Company's Net Sales (as defined in the Settlement Agreement) of the Seal-N-Cut device outside the People's Republic of China, and (ix) pay to Livneh a one-time royalty payment of 5% upon the closing of any sale by the Company of its right or interest in any Intellectual Property pertaining to the Seal-N-Cut device. To secure the Company's obligations, we granted Livneh a security interest in all of our rights and interest of the Company in the Seal-N-Cut device, including all Intellectual Property pertaining thereto. Since the loss was quantifiable and known in December 2011, we recognized this settlement loss in 2011 and all payments hereunder were accrued during the fourth quarter. In exchange, Livneh agreed, among other things, to perform the following: (i) pay us royalty payments of 3% on Livneh's Net Sales of the Assigned Patents, excluding any Net Sales of the RF Skin Resurfacing or Tip-On-Tube, (ii) pay us a one-time royalty payment of 5% upon the closing of any sale by Livneh, Henvil or Lican Development Ltd. of their right or interest in any Intellectual Property pertaining to the Assigned Patents, and (iii) pay us royalty payments of 3% on Livneh's Net Sales of the Seal-N-Cut device in the People's Republic of China. As a result of the Settlement Agreement, we recorded an expense in the fourth quarter of 2011 of approximately $737,000 for the transfer of the MEG and the Modullion intellectual property. We also accrued expenses in approximate amounts for the transfer of related inventory and molds of $194,000 and an additional $27,000 for other various expenses. The Settlement Agreement contained no admission of liability or wrongdoing by us, Mr. Andrew Makrides, the Company's Chief Executive Officer, Mr. Moshe Citronowicz, the Company's Senior Vice President, Livneh, Henvil or Lican. Pursuant to the Settlement Agreement, we, along with Mr. Makrides, Mr. Citronowicz, Livneh, Henvil and Lican agreed to dismiss the litigations with prejudice and they fully and finally released all claims known and unknown, foreseen and unforeseen, which they had against each other through the date of the Settlement Agreement. In July 2012, Steven Livneh and two of his related entities, Henvil Corp. Ltd. and Lican Development Ltd., commenced a new action against the Company, Andrew Makrides, and Moshe Citronowicz, in the United States District Court for the Middle District of Florida (Tampa Division). The complaint asserts, among other things, that (i) the defendants breached their obligations to the plaintiffs under the Settlement Agreement by allegedly failing to take certain actions that facilitated the plaintiffs' marketing and sale of the Seal-N-Cut products in the People's Republic of China ("PRC"), (ii) that defendants tortiously interfered with plaintiffs' business relationships and expectations in PRC allegedly by, among other things, refusing to provide plaintiffs with an ICON VS generator and (iii) plaintiffs allegedly suffered damages as a result of defendants' breaches and misrepresentations. The complaint seeks, among other things, the following: (i) compensatory damages in excess of $10 million, (ii) an order directing Bovie to provide plaintiffs with an ICON VS generator, (iii) an assignment to plaintiffs of all patents identified in the Settlement Agreement, and (iv) rescission of the Settlement Agreement. We believe the allegations to be frivolous and without merit, and we intend to defend the action vigorously. On July 24, 2012, the Company filed a motion to dismiss the complaint and to compel arbitration. The plaintiffs opposed the motion, and the motion was subsequently withdrawn as moot due to the non-availability of the stipulated arbitrator. Discovery is now underway. The outcome of this matter is uncertain, no range of potential loss can be estimated and accordingly no effect has been given to any loss that may result from the resolution of this matter in the accompanying consolidated financial statements. Stockholder Derivative Action As previously reported, in September 2011, we were served in a purported stockholder derivative action that was filed in the United States District Court for the Middle District of Florida against the Company and certain of its present and former officers and directors. The complaint asserts, among other things, breach of fiduciary duties and bad faith in relation to the management of the Company. The complaint seeks, among other things, unspecified compensatory damages and various forms of equitable relief. The allegations in the derivative action appear to be based largely on the January 10, 2011 Livneh counterclaim described above. On March 29, 2012, plaintiffs amended their complaint to remove one of the plaintiffs and replace it with another. The amended complaint asserts essentially the same allegations as the original filing. We believe the allegations to be frivolous and without merit and we intend to defend the action vigorously. We are investigating whether there is a collusive connection between the derivative action and the previously settled lawsuit with Livneh. The outcome of this matter is uncertain, no range of potential loss can be estimated and accordingly no effect has been given to any loss that may result from the resolution of this matter in the accompanying consolidated financial statements. In May 2012, the Company and the individual defendants filed a motion to dismiss the plaintiff's complaint based, in part, upon the plaintiff's failure to make demand upon the board as required by applicable law. The motion was denied and the parties are proceeding with discovery. The outcome of this matter is uncertain, no range of potential loss can be estimated and accordingly no effect has given to any loss that may result from the resolution of this matter in the accompanying consolidated financial statements. Keen Action In February 2012 we received notice that an action had been commenced against us in United States District Court for the Middle District of Florida, by Leonard Keen our former Vice President and General Counsel, related to his termination on December 9, 2011 and associated employment contract. Mr. Keen is demanding amounts outlined under his employment contract which provided for the payment of a base annual salary of not less than $187,500 as well as certain other payments and benefits. The employment agreement also provided for the payment, under certain circumstances, of a lump sum severance payment equal to three times base compensation plus certain other payments and benefits as set forth in the employment agreement under severance payment. Mr. Keen also asserts a claim concerning an alleged violation of Florida's "Whistle Blower's Act" and seeks specific performance of certain indemnification rights under his employment agreement. On April 27, 2012, we filed an Answer and Counterclaims against Mr. Keen alleging violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030(a)(5), breaches of fiduciary duties, conversion, and fraud in the inducement. The counterclaims seek monetary damages, including attorney's fees, and a declaration that Mr. Keen's employment agreement is unenforceable as violative of Florida law and public policy. On May 21, 2012, plaintiff moved to dismiss our second (breach of fiduciary duty), third (breach of fiduciary duty), and fifth (fraud in the inducement) counterclaims. That motion was denied as moot on July 3, 2012, due to plaintiff's filing of an Amended Complaint on the same day. Plaintiff's Amended Complaint repeats the same allegations as the original filing and also adds Andrew Makrides, the Company's Chief Executive Officer, as a defendant and asserts additional claims concerning an alleged violation of ERISA and an alleged tortious interference with the plaintiff's employment contract by Andrew Makrides. On July 16, 2012, we served our Answer to the Amended Complaint and Counterclaims, which repeated the same counterclaims as our Answer and Counterclaims. On the same date, we also moved to dismiss the Amended Complaint for failure to state a claim upon which relief can be granted and lack of subject matter jurisdiction. Plaintiff opposed the motion and also sought to renew his motion to dismiss our Second and Third Counterclaims (breach of fiduciary duty). On September 27, 2012, the Court granted our motion in part and denied it in part and also denied Keen's motion in its entirety. Specifically, the Court dismissed Keen's Second (breach of covenant of good faith and fair dealing) and Eighth (tortious interference with employment contract) claims for relief. Because the Eighth claim was the only one asserted against Andrew Makrides, the Company's Chief Executive Officer, he is no longer a party to the case. On February 1, 2013, both parties moved for summary judgment on the surviving claims. The Court has not issued a decision on the motions as of the filing of this report. We believe we have meritorious defenses against Mr. Keen's claims and are vigorously defending this action. The outcome of this matter is uncertain and accordingly no effect has been given to any loss that may result from the resolution of this matter in the accompanying consolidated financial statements, however the range of potential loss is zero to approximately $600,000, plus possible attorney fees which are not determinable at this time. In addition to the above, in the normal course of business, we are subject, from time to time, to legal proceedings, lawsuits and claims. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of December 31, 2012. These matters could affect the operating results of any one or more quarter when resolved in future periods. We expense costs of litigation related to contingencies in the periods in which the costs are incurred.

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