Note 8—Commitments and Contingencies

Commitments

The Company has committed to a plan of reorganization pursuant to which it intends to reduce annual operating expenses by approximately $54 million by 2013, when compared to the Company’s actual annualized operating expenses for the first half of 2012, excluding the $4.9 million non-cash charge to cost of goods sold during the second quarter of 2012 by reducing non-workforce related operating expenses across all functional areas and by reducing its salary, bonus and benefit related operating costs. In addition, the Company has committed to cash retention payments to certain key employees during 2012 and 2013. The Company’s potential commitment, if all recipients are employed at the time of payment, would be approximately $1.1 million during 2012 and $1.1 million during 2013.

At June 30, 2012, the Company had employment agreements with eight senior officers. Under these agreements, the Company has committed to total aggregate base compensation per year of approximately $3.0 million plus other benefits and bonuses. These employment agreements generally have an initial-term of three years and are automatically renewed thereafter for successive one-year periods unless either party gives the other notice of non-renewal. The Company also currently has in place a severance arrangement with a former President, of which $0.4 million is to be paid in equal installments over the next 5 months. We have also recorded severance expense of $0.6 million in the current period for the Company’s former CFO based on his notification of resignation on March 30, 2012. In addition, in order to secure the retention of executive’s and certain other employees key to the functioning of the Company and prevent any disruption to the strategic development of the Company, the Company granted cash and stock retention awards which vest as to 50% of the award on specific dates over a two-year period to these employees. The Company’s potential commitment, if all recipients are employed at the time of vesting, would be approximately $0.2 million during 2012, $0.9 during 2013 and $0.9 million during 2014.

On January 23, 2012, the Company entered into a lease agreement for office space consisting of approximately 48,000 rentable square feet in Bridgewater, NJ, which will be used as the Company’s principal offices and corporate headquarters. The Company intends to relocate all of its operations to the new facility during the third quarter of 2012. The term of the new lease is 123 months, and the Company has rights to extend the term for two additional five-year terms at fair market value subject to specified terms and conditions. The aggregate minimum lease commitment over the 123-month term of the new lease is approximately $15.2 million. The Company has arranged for a bank to provide the landlord a letter of credit of $1.6 million, to secure he Company’s obligations under the lease.

The new lease agreement includes fixed escalations of minimum annual lease payments and accordingly, the Company will recognize rent expense on a straight-line basis over the lease-term. Additionally, in connection with the lease, the property owner provided a lease inducement to the Company in the form of a $2.0 million tenant improvement allowance. The leasehold improvement asset and the lease incentive liability will be amortized on a straight-line basis over the term of the lease to depreciation expense and as an offset to rent expense, respectively. Rent expense from operations was approximately $0.9 million and $0.5 million for the three-month periods ended June 30, 2012 and 2011, respectively. Rent expense from operations was approximately $1.6 million and $1.0 million for the six-month periods ended June 30, 2012 and 2011, respectively.

The future annual minimum lease payments for each of the following calendar years are as follows:


June 30, 2012	(In thousands)
Remainder of 2012	$	1,618
2013		1,850
2014		1,408
2015		1,432
2016		1,456
2017		1,480
Thereafter		7,228

Total minimum payments	$	16,472

Contingencies

In May 2007, the Company filed a notice of appeal with the New Jersey Division of Taxation contesting a New Jersey Sales & Use Tax assessment of $1.2 million for the tax periods 1999 through 2003. The Company believes it is not subject to taxes on services that were provided to the Company. In May 2010, the Company attended an appeals conference with the Conference and Appeals Branch of the New Jersey Division of Taxation to discuss its case in contesting the Sales & Use Tax assessment. After discussions with the New Jersey appellate division, the Company’s appeal was denied. The previous assessment of $1.2 million was increased by $0.5 million to $1.7 million reflecting additional interest and penalties. The Company filed a timely appeal with the New Jersey Tax Court to continue the appeal process on December 13, 2010. Settlement discussions took place throughout 2011 and in December a settlement agreement was reached with New Jersey Division of Taxation in which the Company paid $327,000 that included penalty and interest. This matter is now considered closed and the lawsuit has been dismissed.

In a civil action filed in the Fayette Circuit Court in Kentucky on August 31, 2007 ( Joseph R. Berger vs. Savient Pharmaceuticals, Inc .), Dr. Joseph Berger alleged that he had entered into an agreement with the Company in December 1993, under which he assigned an invention and patent rights relating to the use of oxandrolone to treat an HIV-related disorder, the “Invention”, to the Company in exchange for its agreement to use him as a researcher in certain clinical trials relating to the Invention, and that the Company had breached that agreement. Berger’s verified complaint requested disgorgement of profits and assignment to Berger of the patents obtained on the Invention. During fact discovery in the action, the Company uncovered an April 6, 1992 Consulting Agreement between Berger and Savient’s predecessor, Gynex Pharmaceuticals (“Gynex”), wherein Berger assigned the Invention to Gynex in consideration of, among other things, $20,000 from Gynex. After the April 6, 1992 agreement was presented to Berger, he filed an amended verified complaint which acknowledged the April 6, 1992 agreement, but contended that the $20,000 paid to him under the Agreement was not consideration for the assignment of the Invention. The Company filed a motion for summary judgment on Berger’s claims and, on August 17, 2009, the Court issued an order granting the Company’s motion and dismissing Berger’s complaint and amended complaint with prejudice. Berger appealed the decision of the trial court granting the Company’s motion for summary judgment, and the Company filed a notice of cross-appeal solely with respect to the decision of the trial court to apply Kentucky law to the facts of the case. On January 4, 2011, the Kentucky Appellate Court issued an order taking up Berger’s appeal and the Company’s cross-appeal on the papers, and on October 14, 2011, the Court upheld the lower court’s decision dismissing Berger’s complaint and amended complaint with prejudice.

In November 2008, Richard Sagall, an alleged stockholder, commenced an action in the U.S. District Court for the Southern District of New York seeking to certify a class of shareholders who held Savient securities between December 13, 2007 and October 24, 2008. The suit alleges that the Company made false and misleading statements relating to the GOUT1 and GOUT2 phase 3 clinical trials, and that the Company failed to disclose in a timely manner serious adverse events which occurred in five patients in these trials. In March 2009, the Court issued an order appointing a lead plaintiff and the law firm Pomerantz Haudek Block Grossman & Gross LLP as lead counsel. The action was also re-captioned as Lawrence J. Koncelik vs. Savient Pharmaceuticals, et al . Thereafter, the lead plaintiff filed his amended complaint in April 2009, seeking unspecified monetary damages. In June 2009, Savient and the other named defendants moved to dismiss the complaint. The lead plaintiff subsequently filed an opposition to the Company’s motion to dismiss and the Company filed its reply in October 2009. Oral arguments were heard by the Court in February 2010 relating to the Company’s motion to dismiss. On September 29, 2010, the Court issued a memorandum decision and order granting the Company’s motion to dismiss the amended complaint in its entirety. On October 28, 2010, the lead plaintiff timely filed a notice of appeal of the Court’s decision with the United States Court of Appeals for the Second Circuit and the briefing on that appeal was completed in June 2011 with oral arguments scheduled for November 8, 2011. On January 13, 2012, the Second Circuit issued a summary order affirming the dismissal.

On April 30, 2012, a creditor derivative action complaint was filed by one of the holders of the Company’s 4.75% Convertible Notes, Tang Capital Partners, LP, against the Company and its current directors and one former director in the Court of Chancery of the State of Delaware. On May 21, 2012, Tang Capital amended its complaint to add new claims against us and our current and former directors and also to add additional noteholders as plaintiffs. On June 29, 2012, the plaintiffs amended their complaint for a second time to add claims against us relating to an alleged event of default under the 2018 Indenture. As with the April 30 and May 21 complaints, the June 29 complaint also alleges, among other things, that the Company is insolvent, and seeks the appointment of a receiver. The Company filed a motion to dismiss the receiver claim in the June 29 complaint on the grounds that the noteholders did not have standing to bring that claim and a motion for summary judgment that an event of default has not occurred under the Company’s convertible notes. On July 23, 2012, the Delaware Court of Chancery issued a bench ruling granting both of the Company’s motions. Specifically, the Court determined that the noteholders do not have standing to bring an action to appoint a receiver for the Company and that an event of default has not occurred under the Company’s convertible notes. The Court’s decision is subject to appeal by the plaintiffs. The Company has moved to dismiss the remaining claims in the June 29 complaint, but that motion has not yet been decided. On June 8, 2012, the Company filed a cross-complaint against Tang Capital for declaratory and other relief to remedy Tang Capital’s tortious interference with the 2018 Indenture, which remains outstanding.

From time to time, the Company becomes subject to legal proceedings and claims in the ordinary course of business. Such claims, even if without merit, could result in the significant expenditure of the Company’s financial and managerial resources. The Company is not aware of any legal proceedings or claims that it believes will, individually or in the aggregate, materially harm its business, results of operations, financial condition or cash flows.

The Company is obligated under certain circumstances to indemnify certain customers for certain or all expenses incurred and damages suffered by them as a result of any infringement of third-party patents. In addition, the Company is obligated to indemnify its officers and directors against all reasonable costs and expenses related to stockholder and other claims pertaining to actions taken in their capacity as officers and directors which are not covered by the Company’s directors and officer’s insurance policy. These indemnification obligations are in the regular course of business and in most cases do not include a limit on maximum potential future payments, nor are there any recourse provisions or collateral that may offset the cost.