Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

8. Commitments and Contingencies

a. Operating and capital lease obligations

The Company has entered into operating leases for various office space, storage facilities and equipment. Rent expense under all operating leases, including both cancelable and non-cancelable leases, was $1.4 million, $1.8 million and $1.6 for the years ended December 31, 2012, 2011, and 2010, respectively. The Company has executed subleases on certain of its operating leases that it expects will result in inflows to offset the future rent expense amounts noted below. The Company expects to receive approximately $64,000 and $50,000 in the years ended December 2013 and December 2014, respectively, associated with these subleases.

Included in property and equipment in the consolidated balance sheet as of December 31, 2012 is $137,000 of office equipment the Company acquired under a capital lease during the current year. The leased equipment has an original cost of $147,000 and associated accumulated amortization of $10,000 as of December 31, 2012. The Company’s capital lease obligation as of December 31, 2012 was $137,000 and bears an interest rate of 6.15%.

Future minimum lease payments under non-cancelable leases are as follows (years ended December 31):

	Operating		Capital
2013	$	273,795	$	41,445
2014		173,590		41,445
2015		84,494		41,445
2016		—		29,513
2017		—		—
Thereafter		—		—
Total minimum lease payments	$	531,879		153,848
Less: Amount representing interest				(16,618	)
Capital lease obligation			$	137,230

b. Purchase commitments

The Company routinely enters into cancelable purchase orders with many of its key vendors. Based on the strategic relationships with many of these vendors, the Company’s ability to cancel these purchase orders and maintain a favorable relationship would be limited. As of December 31, 2012, the Company has $12.7 million of open purchase orders.

c. Litigation

Product Litigation

The Company is currently named as a defendant in 28 lawsuits and one companion lawsuit in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CEW was used (or present) by law enforcement officers in connection with arrests or during training exercises. Companion cases arising from the same incident have been combined into one for reporting purposes. While the facts vary from case to case, the product liability claims are typically based on an alleged product defect resulting in injury or death, usually involving a failure to warn, and the plaintiffs are seeking monetary damages. The Company is defending each of these lawsuits vigorously and does not expect these lawsuits to individually or in the aggregate, materially affect our business, results of operations or financial condition. The information throughout this note is current through the filing date of this Annual Report on Form 10-K.

Turner (NC) lawsuit

The Turner (NC) lawsuit was tried in July 2011 and resulted in a jury verdict of $10.0 million against the Company. The Company filed post-trial motions seeking judgment as a matter of law notwithstanding the verdict and in the alternative, a new trial or alternatively, a remittitur of the jury award. During March 2012, the Federal District Court for the Western District of North Carolina granted the Company’s motion for remittitur and ordered the reduction of the original jury award from $10.0 million to approximately $4.4 million after offsets. On April 20, 2012, the court issued an order which adjusted the award to $5.5 million. On May 4, 2012, the court issued another order which entered judgment in the amount of $5.5 million plus costs and post-judgment interest. Based on this action by the court, the Company reversed a portion of the previously accrued litigation judgment during the year ended December 31, 2012, which resulted in a benefit of $2.2 million, leaving a reserve of $1.1 million as of December 31, 2012. The Company has appealed this verdict. The appeal is fully briefed but the Court has not yet set a date for oral argument.

With respect to each of the pending lawsuits, the following table lists the name of plaintiff, the date the Company was served with process, the jurisdiction in which the case is pending, the type of claim and the status of the matter. Companion cases arising from the same incident have been combined into one for reporting purposes.

	Month
Plaintiff	Served		Jurisdiction	Claim Type	Status
Washington		May-05	US District Court, ED CA	Wrongful Death	Discovery Phase; Trial scheduled Feb 2014
Hollman		Aug-06	US District Court, ED NY	Wrongful Death	Motion Phase
Salinas		Aug-08	US District Court, ND CA	Wrongful Death	Motion Phase, trial scheduled Jun 2013
Grable		Aug-08	FL 6th Judicial Circuit Court, Pinellas County	Training Injury	Discovery Phase
Koon		Dec-08	17th Judicial Circuit Court, Broward County, FL	Training Injury	Discovery Phase
Peppler		Apr-09	Circuit Court 5th Judicial Dist., Sumter City, FL	Training Injury	Discovery Phase
Athetis		May-09	US District Court, AZ	Wrongful Death	Discovery Phase
Humphreys		Oct-09	CA Superior Court, San Joaquin County	Wrongful Death	Discovery Phase
Derbyshire		Nov-09	Ontario, Canada Superior Court of Justice	Officer Injury	Discovery Phase, trial scheduled May 2013
Rich		Feb-10	US District Court, NV	Wrongful Death	Pretrial phase
Thompson		Mar-10	11th Judicial Circuit Court Miami-Dade County, FL	Suspect Injury During Arrest	Discovery Phase
Doan		Apr-10	The Queens Bench Alberta, Red Deer Judicial Dist.	Wrongful Death	Pleading Phase
Piskura		May-10	US District Court, OH	Wrongful Death	Motion phase, trial scheuduled May 2013
Shymko		Dec-10	The Queens Bench, Winnipeg Centre, Manitoba	Wrongful Death	Pleading Phase
Juran		Dec-10	Hennepin County District Court, 4th Judicial District	Officer Injury	Discovery Phase
Wilson		May-11	US District Court, ED MO	Wrongful Death	Discovery Phase
Russell		Dec-11	U.S. District Court, VA	Wrongful Death	Motion Phase, trial scheduled Apr 2013
Ramsey		Jan-12	Broward County Circuit Court, 17th Judicial Circuit, FL	Wrongful Death	Discovery Phase
Duensing (NV)		Feb-12	US District Court, NV	Suspect Injury During Arrest	Pleading Phase
Mitchell		Apr-12	US District Court, ED MI	Wrongful Death	Discovery Phase, trial scheduled May 2014
City of Warren MI *		Apr-12	US District Court, ED MI	Third Party Complaint	Discovery Phase; trial set for May 2014
Firman		Apr-12	Ontario, Canada Superior Court of Justice	Wrongful Death	Pleading Phase
Ricks		May-12	US District Court, WD LA	Wrongful Death	Discovery Phase
Norman		Aug-12	US District Court, WD MO	Wrongful Death	Discovery Phase
Wingard		Oct-12	US District Court, WD PA	Wrongful Death	Pleading Phase
Manjares		Nov-12	US District Court, ED, WA	Suspect Injury During Arrest	Discovery Phase
McCarthy		Dec-12	US District Court, WD, NC	Wrongful Death	Pleading Phase
Miller		Jan-13	New Castle County Superior Court, DE	Wrongful Death	Pleading Phase
Fressadi		Feb-13	US District Court, AZ	Suspect Injury During Arrest	Pleading Phase

* Companion case

In addition, other litigation matters in which the Company is involved that are currently on appeal are listed below:

	Month
Plaintiff	Served	Jurisdiction	Claim Type	Status
Kandt	Jun-09	US District Court, ND NY	Training injury	Opening brief was filed in November 2012. TASER’s Answering brief was filed in February 2013
Turner	Feb-10	US District Court, ED NC	Wrongful death	Appeal is fully briefed. Waiting for the Court to set the date for oral argument
Jacobs	Oct-10	District Court, Travis County, TX	Wrongful death	Appellants have requested a 45 day extension to file their opening brief. The brief was originally due in January 2013
Williams	Dec-10	US District Court, ND MS	Wrongful death	Appellant’s opening brief was filed in January 2013. TASER’s Answering brief is due March 2013.
Butler	Jan-11	US District Court, ND TX, Dallas	Training injury	Appellants filed their opening brief in January 2013. TASER’s Answering brief was filed February 2013.
Bachtel	Aug-11	14th Judicial District Circuit Court, Randolph County, MO	Wrongful Death	Apellant filed a notice of appeal in February 2013.

Cases that were dismissed or judgment entered during the fourth quarter and through the filing date of this Annual Report on Form 10-K are listed in the table below. Cases that were dismissed or judgment entered in prior fiscal quarters are not included in this table.

	Month
Plaintiff	Served	Jurisdiction	Claim Type	Status
Manjares (WA)	Jul-12	US District Court, ED WA	Suspect Injury During Arrest	Motion to dismiss granted for TASER
Kelley	Oct-10	District Court for Harris County, TX	Wrongful Death	Directed verdict granted for TASER
Jacobs	Oct-10	District Court for Travis County, TX	Wrongful Death	Summary Judgment granted for TASER, Appeal filed
Sylvester	Jun-11	US District Court, ND CA	Wrongful Death	Voluntary Dismissal
Neill	Jun-12	US District Ct. ED PA	Wrongful Death	Voluntary Dismissal
Fahy	Dec-09	Ciruit Court of the City of St. Louis, MO	Suspect Injury During Arrest	Defense Verdict at jury trial
Coto	Oct-11	Superior Court of CA, Los Angeles County CA	Wrongful Death	Voluntary Dismissal
Stough	Feb-11	US District Court, ED MO	Training Injury	Voluntary Dismissal
Bachtel	Aug-11	14th Judicial District Circuit Court, Randolph County, MO	Wrongful Death	Summary Judgment granted for TASER, Appeal filed
Payne	Mar-11	Blount County Circuit Court, TN	Suspect Injury During Arrest	Voluntary Dismissal
Nelson	Aug-11	CA Superior Court, Riverside County	Wrongful Death	Voluntary Dismissal
Glowczenski	Oct-04	U.S. District Court, ED NY	Wrongful Death	Summary Judgment granted for Taser

The claims, and in some instances the defense, of each of these lawsuits have been submitted to the Company’s insurance carriers that maintained insurance coverage during the applicable periods. The Company continues to maintain product liability insurance coverage with varying limits and deductibles. The following table provides information regarding the Company’s product liability insurance. Remaining insurance coverage is based on information received from the Company’s insurance provider.

Policy Year	Policy Start Date		Policy End Date		Insurance Coverage		Deductible Amount		Defense Costs Covered		Remaining Insurance Coverage		Active Cases and Cases on Appeal
2004		12/01/03		12/01/04	$	2.0	$	0.1		N	$	2.0	n/a
2005		12/01/04		12/01/05		10.0		0.3		Y		7.0	Washington
2006		12/01/05		12/01/06		10.0		0.3		Y		3.7	Hollman
2007		12/01/06		12/01/07		10.0		0.3		Y		8.0	n/a
2008		12/01/07		12/15/08		10.0		0.5		Y		—	Salinas, Grable, Koon, Peppler, Rich, Turner
2009		12/15/08		12/15/09		10.0		1.0		N		10.0	Athetis, Kandt, Humphreys, Derbyshire
2010		12/15/09		12/15/10		10.0		1.0		N		10.0	Thompson, Jacobs, Shymko, Doan, Piskura, Juran, Williams
2011		12/15/10		12/15/11		10.0		1.0		N		10.0	Butler, Wilson, Russell, Bachtel
Jan—Jun 2012		12/15/11		06/25/12		7.0		1.0		N		7.0	Ramsey, Duensing, Mitchell, City of Warren, Firman, Ricks
Jul—Dec 2012		06/25/12		12/15/12		12.0		1.0		N		12.0	Norman, Wingard, Manjares
2013		12/15/12		12/15/13		12.0		1.0		N		12.0	McCarthy, Miller, Fressadi

The amount of the remaining insurance coverage for the 2008 policy year is shown based on what has actually been paid out on cases in that policy year or held for the appellate bond in Turner (NC). If the Company is not successful in its appeal related to the Turner (NC) lawsuit, the policy will be fully exhausted for that policy year and as a result, the Company will have no remaining insurance coverage for other cases relating to the 2008 policy year. See additional information related to the Turner (NC) lawsuit discussed above in this Note 8(c).

Other Litigation

In January 2011, we were served with a complaint in the matter of GEOTAG, Inc. v. TASER International, et. al. that was filed in the United States District Court for the Eastern District of Texas, Marshall Division which alleges that a dealer geographical locator feature on TASER’s website infringes upon plaintiff’s US Patent No. 5,930,474. The complaint seeks a judgment of infringement, a permanent injunction against infringement, an award for damages, costs, expenses and prejudgment and post-judgment interest, and an award for enhanced damages and attorneys’ fees. TASER has licensed this locator feature from a third party and has denied liability for infringement. This lawsuit is at the discovery phase and no trial date has been set.

In July 2011, the Company filed a complaint against Karbon Arms, LLC for infringement of TASER’s U.S. Patent Nos. 7,800,885 and 7,782,592 in US District Court for the District of Delaware seeking damages, injunctive relief and an award of attorneys’ fees. Karbon Arms filed a counterclaim on July 18, 2011 alleging invalidity and non-infringement of four of TASER’s patents, tortuous interference with prospective contractual relations and for false advertising under the Lanham Act. TASER thereafter filed counter-counterclaims for infringement of U.S. Patent Nos. 7,602,597 and 6,999,295. This lawsuit is at the discovery phase, a Markman hearing was held, and a trial date has been set for January 2014.

In February 2012, the Company was served with a complaint in the matter of AA & Saba Consultants, Inc. v. TASER International, Inc. that was filed in the Superior Court for the County of Maricopa, Arizona, which alleges that the Company breached a contract by unilaterally terminating a distributor agreement between the Company and plaintiff without good cause. The complaint seeks an award for damages, costs, expenses and attorneys’ fees. TASER filed a counterclaim for breach of contract and fraud. This lawsuit is at the discovery phase and a trial date has been set for October 2013. The Company has made a settlement offer of $0.8 million to AA & SABA Consultants, Inc. which has not been accepted at the time of this filing. The Company has recorded the offer as an estimated liability.

In September 2012, the Company was served with a complaint in the matter of Chiko Katiki v. TASER International, Inc. that was filed in the Superior Court of the State of California, County of Sonoma which alleges that the TASER CEWs are firearms under California law and that TASER sold consumer model CEWs in California in violation of state laws. Plaintiff seeks class action status, an injunction, declaratory relief, and an award for damages, punitive damages, costs, expenses, and attorneys’ fees. TASER removed the matter to U.S. District Court, Northern Division court and in February 2013 the Judge granted TASER’s Motion to Dismiss without prejudice. The Court issued an order for dismissal without prejudice in March 2013.

General

From time to time, the Company is notified that it may be a party to a lawsuit or that a claim is being made against it. It is the Company’s policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on the Company. After carefully assessing the claim, and assuming we determine that we are not at fault, we vigorously defend and pursue any lawsuit filed against or by the Company. Although we do not expect the outcome in any pending individual case to be material, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts provided by insurance coverage and will not have a material adverse effect on our business, operating results or financial condition. The Company may settle a lawsuit in situations where a settlement can be obtained for nuisance value and for an amount that is expected to be less than the cost of defending a lawsuit. The number of product liability lawsuits dismissed includes a small number of police officer training injury lawsuits that were settled by the Company and dismissed in cases where the settlement economics to the Company were significantly less than the cost of litigation. In addition, it is the Company’s policy to not settle suspect injury or death cases, although the Company’s insurance company may settle such lawsuits over the Company’s objection where the case is over the Company’s liability insurance deductibles. Due to the confidentiality of our litigation strategy and the confidentiality agreements that are executed in the event of a settlement, the Company does not identify or comment on which specific lawsuits have been settled or the amount of any settlement.

d. Employment Agreements

The Company has employment agreements with its Chief Executive Officer, President and General Counsel, Chief Financial Officer, Chief Marketing Officer and Executive Vice President of Sales, and the Technical Fellow of Research and Development. The Company may terminate the agreements with or without cause. Should the Company terminate the agreements without cause, or upon a change of control of the Company or death of the employee, the employee, or family of the employee, are entitled to additional compensation. Under these circumstances, these officers and employees may receive the amounts remaining under their contracts upon termination, which would total $0.8 million in the aggregate at December 31, 2012.