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Veloce
9 Months Ended
Dec. 31, 2011
Veloce [Abstract]  
Veloce

7. VELOCE

In November 2010, the Company and Veloce Technologies, Inc., a Delaware corporation ("Veloce"), amended certain agreements, initially entered into in May 2009, pursuant to which Veloce has agreed to perform product development work for the Company on an exclusive basis for up to five years for cash and other consideration, including a warrant to purchase shares of the Company's common stock, which will vest in quarterly increments through December 2012. A portion of the vested shares have been committed to be distributed to the employees of Veloce and will be settled in cash instead of common stock. Therefore, the Company has recognized stock-based compensation expense in R&D expense and recorded a corresponding liability for this distribution in the Company's consolidated financial statements. The warrant was 59% vested as of December 31, 2011. In addition, Veloce has granted options to purchase shares of Veloce common stock pursuant to its own stock incentive plan. Stock-based compensation expense recognized in connection with this plan was not material and is included in R&D expense.

Under the amended merger agreement between the Company and Veloce, which has been approved by Veloce's Board of Directors and stockholders, the Company agreed to acquire Veloce if certain performance milestones and delivery schedules set forth under the merger and other agreements are achieved. The Company also has the unilateral option to acquire Veloce in the event Veloce fails to meet the milestones and delivery schedules. Should the Company acquire Veloce pursuant to the merger agreement, the purchase price payable by the Company is estimated to be in the range of approximately $7 million up to approximately $135 million, subject to additional adjustments. The final price would be based upon the achievement and timing of multiple development and performance milestones. Though the Company has announced it has achieved core functionality of its processor core in a field programmable gate array ("FPGA"), it is still not determinable if and when the multiple development and performance milestones will be achieved. Accordingly, since at this time the eventual outcome is not determinable, the Company is unable to provide a narrower range for the estimated merger consideration. The Company will update the range in the future when additional relevant information is available. The form of consideration used for the merger, cash or Company stock, would be determined by the Company at the time of the merger. The merger agreement contains customary representations, warranties and covenants and may be terminated upon mutual agreement of the parties or unilaterally by the Company or Veloce if the other party fails to meet certain conditions set forth in the agreement. The amended agreements permit the Company to appoint two individuals to serve on Veloce's Board of Directors and Board committees. The Company's chief executive officer and another member of the Company's Board of Directors have been appointed to Veloce's Board of Directors. As of December 31, 2011, the performance milestones and delivery schedules set forth under the merger and other agreements are not considered probable of being achieved.

 

In addition, the Company has provided Veloce with a $1.5 million loan, to be forgiven over eight quarters beginning on March 31, 2011. Through December 31, 2011, approximately $0.75 million relating to this loan has been forgiven. If Veloce commits a material breach of the merger agreement, then the remaining outstanding principal amount of the promissory note evidencing the loan plus accrued interest will become due to the Company. If the Company commits a material breach of the merger agreement, then the remaining outstanding principal amount of the note and accrued interest is to be forgiven by the Company. The amount under the promissory note is eliminated in consolidation. Pursuant to the product development agreement, as amended, the Company will pay Veloce $2.3 million per quarter for up to twelve consecutive quarters in order to assist Veloce in meeting its expenses to perform its obligations under the agreement. In July 2011, the Company agreed to pay Veloce an additional $2.0 million over the next four quarters to cover certain increased expenses under the development agreement. These additional payments started in July 2011 and will end in the quarter ending June 30, 2012. The Company will recognize the payments as R&D expenses when such operating costs have been incurred by Veloce. The Company recognized $3.4 million and $9.6 million as research and development expense relating to Veloce during the three and nine months ended December 31, 2011, respectively, compared to $3.3 million and $7.7 million during the three and nine months ended December 31, 2010, respectively. The Company also paid, and will likely do so again, certain product development and manufacturing expenses incurred by Veloce.