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DOJ Legal Proceedings
12 Months Ended
Dec. 31, 2011
DOJ Legal Proceedings/Contingencies and Commitments [Abstract]  
DOJ LEGAL PROCEEDINGS

NOTE B – DOJ LEGAL PROCEEDINGS

On January 19, 2010, the Company received a subpoena and communications from the U.S. Department of Justice (“DOJ”) requesting the Company produce documents relating to its dealings with foreign governments. The subpoena stated that it was issued in connection with an ongoing criminal investigation. On the same day, the Company also became aware through a press release issued by the DOJ that an employee of Mecar USA had been indicted by the DOJ for allegedly engaging in schemes to bribe foreign government officials to obtain and retain business. The unsealed indictment of this employee and the DOJ’s press release indicate that the alleged criminal conduct was on behalf of a Decatur, Georgia company which is unrelated to the Company or Mecar USA. Mecar USA’s employment agreement with the employee provides that the employee shall not actively engage in any other employment, occupation or consulting activity that conflicts with the interests of the Company. In light of the employee’s breach of his employment agreement, Mecar USA terminated his employment on January 20, 2010.

According to the DOJ’s press release, the former employee was arrested on January 19, 2010, along with twenty-one other individuals, after an undercover operation that targeted foreign bribery in the military, and small arms and ammunition industries. The indictments of the twenty-two individuals allege that the defendants conspired to violate the Foreign Corrupt Practices Act (“FCPA”), conspired to engage in money laundering and engaged in substantive violations of the FCPA.

Subsequently, the Company received notice from the DOJ that indicated that it would request additional documents and expand its review beyond matters relating to the indicted former employee of Mecar USA. The Company understands that the DOJ’s expanded review was in connection with an industry-wide review. The Company has also received inquiries from the SEC on this matter.

The Company is cooperating with the DOJ and the SEC and has been complying with the DOJ’s subpoena and the SEC’s requests for information. The Company’s response to the DOJ and SEC inquiries is being overseen by the Company’s Board of Directors. The Board of Directors is being assisted in these matters by outside counsel. The Company cannot predict the outcome of these matters or the impact, if any, that they may have on the plan to return the net proceeds of the Chemring sale to its stockholders. The period of time required to resolve these matters is uncertain but is expected to take in excess of one year. Furthermore, under the Agreement, the Company has agreed to indemnify Chemring and certain of its related parties from any losses, fines or penalties arising out of, among other things, the completed contracts of Mecar and Mecar USA. We have agreed to escrow $15,000 of the cash consideration paid to the Company in the sale to secure our maximum indemnification obligations under the Agreement. These escrowed funds will not be available to the Company for distribution to our stockholders, or otherwise, until released to the Company pursuant to the terms of the Agreement.

 

In late February, 2012, the DOJ dismissed charges against all individuals indicted in the FCPA sting operation, including the former employee of MECAR USA. The Company has subsequently requested that the DOJ consider the Company’s status in its investigation so that the Company may move forward with distributions to Company stockholders. No distributions to stockholders are expected prior to resolution of the DOJ and SEC inquiries and completion of the Delaware dissolution process which includes notices to creditors and publication of dissolution followed by a petition to the Delaware courts.

For additional disclosures surrounding other legal contingencies, refer to Note H—Contingencies and Commitments.