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This excerpt taken from the HDIX 10-Q filed Nov 13, 2007. Part II —
OTHER INFORMATION
We are involved in litigation from time to time in the ordinary
course of our business. Except for the litigation described
below, we do not believe that any litigation in which we are
currently involved, individually or in the aggregate, is
material to our financial condition or results of operations.
Roche
Litigation
In February 2004, Roche Diagnostics Corporation filed suit
against us and three other co-defendants in federal court in
Indiana. The three co-defendants settled with Roche in January
2006. The suit alleges that HDI’s TrueTrack Smart System
infringes claims in two Roche patents. These patents are related
to Roche’s electrochemical biosensors and the methods they
use to measure glucose levels in a blood sample. In its suit,
Roche sought damages including its lost profits or a reasonable
royalty, or both, and a permanent injunction against the accused
products. Roche also alleged willful infringement, which, if
proven, could result in an award of up to three times its actual
damages, as well as its legal fees and expenses. On
June 20, 2005, the Court ruled that one of the Roche
patents was procured by inequitable conduct before the Patent
Office and is unenforceable. On March 2, 2007, the Court
granted our motion for summary judgment for non-infringement
with respect to the second patent and denied the Roche motion
for a summary judgment. These rulings are currently subject to
appeal by Roche. In the event of an appeal, we will vigorously
defend ourselves.
Brandt
Litigation
In March 2007, a settlement in principle was agreed by the
parties to a lawsuit against us, MIT Development Corp. or MIT,
George H. Holley and the Estate of Robert Salem, brought by
Leonard Brandt. Mr. Brandt claimed that he was engaged in
1994 to provide financial consulting services for MIT,
Mr. Holley and Mr. Salem. Mr. Brandt claimed he
was to receive at least $1,000 per month for consulting services
plus 10% of the increase in the value of the assets of MIT,
George Holley or Robert Salem resulting from cash or other
assets received from us in connection with any transaction with
us. In November 1999, we acquired MIT from Messrs. Holley
and Salem. The settlement provides for a total of
$3.0 million of consideration to be paid by the defendants.
Our share of the settlement consideration is $0.6 million,
to be paid in cash, and the remaining $2.4 million will be
funded by George H. Holley and the Estate of Robert Salem in
common stock of the Company. We will grant Mr. Brandt
“piggy-back” registration rights with respect to such
stock for a
Table of Contents
period of one year from the date of settlement. In December
2006, pursuant to Staff Accounting Bulletin No. 107,
Topic 5T “Accounting for Expenses or Liabilities Paid by
Principal Stockholders,” we recorded a charge of
$3.0 million to operating expense and recorded the
$2.4 million funded by the other two defendants as
additional paid-in capital. On July 19, 2007 and
October 31, 2007, the court arbitrated the final payment
terms of the settlement consistent with the foregoing
description, and ordered the immediate exchange of mutual
releases and payment of cash and stock. In July 2007, we reached
a settlement agreement with our directors and officers insurance
provider, whereby, we received $450,000 in insurance proceeds
relating to a recovery of losses incurred as part of the Brandt
matter. Our share of the insurance proceeds was $150,000 and the
remaining $300,000 was distributed to George H. Holley and the
Estate of Robert Salem. During the three months ended
September 30, 2007, we recorded a reduction to operating
expenses of $450,000 and a distribution of capital of $300,000.
There have been no material changes from the risk factors
previously disclosed in the Company’s most recent Annual
Report on
Form 10-K
and in its
Form 10-Q
for the period ending June 30, 2007.
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