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Legal Proceedings
12 Months Ended
Dec. 31, 2011
Legal Proceedings [Abstract]  
Legal Proceedings

 

Note 14—Legal Proceedings

Although the Company expects to incur significant legal costs in connection with the below legal proceedings, the Company is unable to estimate the amount of such legal costs and therefore, such costs will be expensed in the period the legal services are performed.

Customer Claim

In 2005, a customer claimed a possible defect in a product that was produced for the Company's Swiss subsidiary, Maxwell SA, under contract by a third party manufacturer, Epcos AG, and resold to the customer. In July 2011, the Company reached an agreement in principal with the customer to settle any and all claims for consideration of 1.8 million Euro (approximately $2.3 million as of December 31, 2011), with 500,000 Euro (approximately $648,000 as of December 31, 2011) payable to the customer up front and the remaining amount of 1.3 million Euro (approximately $1.7 million as of December 31, 2011) available to the customer as a specified discount on future purchases of the Company's products. Any balance remaining of the 1.3 million Euro not used as product discount by December 31, 2014 is payable in cash at that time. This agreement is not yet final, and is therefore subject to change until a written agreement between the parties is executed. The Company is continuing to pursue recovery of damages from the manufacturer of the defective product, but at this time is unable to ascertain the amount of the recovery, if any. The anticipated settlement amount of 1.8 million Euro (approximately $2.3 million as of December 31, 2011) due from the Company to the customer has been fully accrued in "accounts payable and accrued liabilities" in the consolidated balance sheet as of December 31, 2011.

FCPA Matter

As a result of being a publicly traded company in the U.S., the Company is subject to the U.S. Foreign Corrupt Practices Act ("FCPA"), which prohibits companies from making improper payments to foreign officials for the purpose of obtaining or keeping business. Beginning in 2009, the Company conducted an internal review into payments made to its former independent sales agent in China with respect to sales of the Company's high voltage capacitor products produced by the Company's Swiss subsidiary. In January 2011, the Company reached settlements with the SEC and the U.S. Department of Justice ("DOJ") with respect to charges asserted by the SEC and DOJ relating to the anti-bribery, books and records, internal controls, and disclosure provisions of the FCPA and other securities law violations. The Company settled civil charges with the SEC, agreeing to an injunction against further violations of the FCPA. Under the terms of the settlement with the SEC, the Company agreed to pay a total of $6.4 million in profit disgorgement and prejudgment interest, in two installments, with $3.2 million paid in each of the first quarters of 2011 and 2012. Under the terms of the settlement with the DOJ, the Company agreed to pay a total of $8.0 million in penalties in three installments, with $3.5 million paid in the first quarter of 2011, $2.3 million paid in the first quarter of 2012, and $2.3 million payable in the first quarter of 2013. As part of the settlement, the Company entered into a three-year deferred prosecution agreement ("DPA") with the DOJ. If the Company remains in compliance with the terms of the DPA, at the conclusion of the term, the charges against the Company asserted by the DOJ will be dismissed with prejudice. Further, under the terms of the agreements, the Company will periodically report to the SEC and DOJ on the Company's internal compliance program concerning anti-bribery. As of December 31, 2011, $5.4 million is included in "accounts payable and accrued liabilities" and $2.3 million is included in "other long-term liabilities" on the accompanying consolidated balance sheet.

Shareholder Derivative Suit

In August 2010 and September 2010, two separate shareholder derivative actions were filed in the Superior Court for San Diego County, California, on behalf of and for the benefit of the Company, against certain of the Company's current and former officers and directors alleging, among other claims, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. In October 2010, these two actions were consolidated, and in March 2011 a consolidated and amended shareholder derivative complaint was filed bringing similar claims as the previous complaints. The consolidated and amended complaint was titled Loizides v. Schramm et al. and alleged that the individual defendants failed to prevent the Company from violating the U.S. Foreign Corrupt Practices Act ("FCPA") and failed to maintain internal controls and accounting systems for compliance with the FCPA. On December 15, 2011, all parties attended mediation, wherein at the conclusion of the hearing the mediator proposed a settlement amount of $3.0 million to be paid to plaintiffs' counsels, with $2.7 million to be paid by the Company's insurance carrier and $290,000 to be paid by the Company. In addition to the monetary amount and as part of the proposed settlement, the Company would be required to ensure that certain corporate governance measures are in place and enforced. On February 8, 2012, the Board of Directors of the Company approved these settlement terms. The agreement is subject to, among other things, court approval and notice to our shareholders. On February 9, 2012, the parties executed a stipulation of settlement, and the plaintiffs filed a motion for court approval of the settlement. On February 14, 2012, the court entered an order that preliminarily approved the proposed settlement, subject to further consideration at a settlement hearing scheduled for April 12, 2012, which will likely result in a dismissal of the consolidated derivative action with prejudice. As of December 31, 2011, the Company has accrued a liability of $3.0 million based on the anticipated settlement amount, which is included in "accounts payable and accrued liabilities", and a receivable of $2.7 million, which is included in "trade and other accounts receivable", for the amount payable by its insurance carrier.

Customer Bankruptcy Matter

In January 2011, the Company attended a bankruptcy proceeding for a previous customer in order to bid on certain intellectual property and physical assets that were being auctioned. During this proceeding, an offer for sale was presented for any and all potential claims held by the previous customer against the Company. These potential claims related primarily to payments made to the Company prior to the previous customer filing bankruptcy, as well as a potential intellectual property dispute between the Company and the previous customer. At the January 2011 bankruptcy proceeding, the Company bid $250,000 to purchase the right to any and all future claims against the Company stemming from rights held by the previous customer. However, following the auction, the previous customer essentially declined the previous offer for settlement with the Company. Since this time, in the interest of a more expedient resolution to this matter, the Company has increased its settlement offer to $500,000. Recently, the parties have been unable to progress with settlement discussions until other matters with the previous customer's estate are resolved with third parties. The Company believes that it has strong legal defenses against any and all potential claims related to this matter, and does not believe a settlement amount in excess of $500,000 is likely. The Company's current estimate of the range of loss on this matter is $500,000 to $1,000,000, with the low end of this range based on the Company's outstanding settlement offer, and the high end of the range based on the opposing party's counter offer of $871,000, which only represented the preference payment claim, plus some amount for the intellectual property dispute. The proposed settlement amount of $500,000 has been fully accrued in "accounts payable and accrued liabilities" in the consolidated balance sheet as of December 31, 2011.

DCIS Matter

In 2007, the Company delivered products to two separate customers who were incorporating the Company's products into larger systems for use by agencies of the U.S. government. In 2008, one of these customers reported intermittent failures in the products delivered to it by the Company and replacement units were provided to that customer. In March 2010, the Company was contacted by an agent from the Defense Criminal Investigative Services ("DCIS") requesting a meeting to discuss the failures that occurred with the Company's products delivered to a specific customer. In April 2011, the DCIS agent contacted the Company again to request a follow up meeting to ask additional questions. Essentially, the Company believes that the DCIS agent is considering the appropriateness of the Company's actions regarding the discovered product failures and whether the failure reported by this particular customer would be applicable to another customer to which the same products were delivered. In June 2011, the DCIS served a subpoena on the Company requesting that the Company produce certain documents. In December 2011, the Company completed its production of documents requested under the subpoena. To date, no formal actions have been taken by DCIS with respect to any documents provided by the Company. Further, the Company has not identified any documents or facts that appear to indicate any wrongdoing, including, potentially, any violation of laws or regulations. At this time, the Company believes it is remote that it will incur any penalties, fines or other monetary settlements as a result of this matter, and as such has not accrued any amount associated with this matter. However, given the passage of time on this matter and the indeterminate amount of time that this matter could remain open, the Company has determined that there is a reasonable possibility that this matter could have a material impact on its financial condition. However, based on the stage of this matter, the Company is unable to estimate a range of loss.