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Legal Proceedings
3 Months Ended
Mar. 31, 2012
Legal Proceedings [Abstract]  
Legal Proceedings

Note 10 – 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, and in February 2012 entered into a definitive settlement agreement, to settle any and all claims for consideration of 1.8 million Euro, with 500,000 Euro payable to the customer up front and the remaining amount of 1.3 million Euro 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 by the Company in cash by January 15, 2015. The Company paid the upfront payment of 500,000 Euro during the quarter ended March 31, 2012, and also satisfied a portion of the liability available as product discount, such that the remaining liability was 925,000 Euro ($1.2 million as of March 31, 2012), which is accrued in "accounts payable and accrued liabilities" in the consolidated balance sheet as of March 31, 2012. Additionally, in March 2012, the Company entered into a definitive settlement agreement with EPCOS, the third party manufacturer, wherein EPCOS will pay Maxwell 500,000 Euro ($667,000 as of March 31, 2012), by April 30, 2012 for full and final release from all claims related to this matter. The Company has accrued this settlement gain for the quarter ended March 31, 2012, which is included in "trade and other accounts receivable" in the accompanying consolidated balance sheet, as management believes the amount is realizable as of this date.

 

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 March 31, 2012, the Company has accrued a liability of $2.3 million for this matter, which is included in "accounts payable and accrued 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, the Company would be required to ensure that certain corporate governance measures are in place and enforced. On April 12, 2012, following a required shareholder notification period, a final settlement hearing was held wherein the court approved these settlement terms and the matter was dismissed with prejudice. Shortly thereafter in April 2012, the Company and its insurance carrier paid the settlement amounts due to plaintiffs' counsels. As of March 31, 2012, the Company had accrued a liability of $3.0 million based on the total 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 this offer for settlement. Since this time, in the interest of a more expedient resolution to this matter, the Company recently increased its settlement offer to $750,000. However, this settlement offer was rejected by the previous customer. 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 $750,000 is likely. The Company's current estimate of the range of loss on this matter is $750,000 to $1,100,000, with the low end of this range based on the Company's recent settlement offer, and the high end of the range based on the amount the Company expects that the previous customer would immediately accept without further negotiation. The Company has accrued a total of $750,000 as the estimated loss on this matter, which is included in "accounts payable and accrued liabilities" in the consolidated balance sheet as of March 31, 2012.

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 Defense Criminal Investigative Services ("DCIS") of the Department of Defense requesting a meeting to discuss the failures that occurred with the Company's products delivered to a specific customer. Essentially, the Company believes that the DCIS agent was 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 and in December 2011, the Company completed its production of documents requested under the subpoena. In April 2012, DCIS indicated that it had closed its files concerning this matter with no action to be taken against the Company. Further, the Company did not identify any documents or facts that appear to indicate any wrongdoing by the Company. As DCIS has closed its files on this matter, the Company does not expect to incur a material loss.