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 $45 to $50 million by 2013, 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 September 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 $3.1 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. In addition, in order to secure the retention of the Company’s executive’s and prevent any disruption to the strategic development of the Company, the Company granted executive cash and stock retention awards which vest as to 50% of the award on specific dates over a two-year period to these executives. The Company’s potential commitment, if all of the executives are employed at the time of vesting, would be approximately $0.8 million during 2013 and $0.8 million during 2014.

For the three and nine-month periods ended September 30, 2012, the Company recorded severance charges of $1.1 million and $1.7 million, respectively, of which approximately $1.0 million for each respective period are related to the impact of the reduction in workforce pursuant to the Company’s reorganization plan. Substantially all of the severance will be paid during the remainder of 2012.

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, for the Company’s principal offices and corporate headquarters. The Company relocated all of its operations to the new facility in September 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 the 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.

The Company’s future annual minimum lease payments, which include payments related to the Company’s former corporate headquarters located in East Brunswick, New Jersey, that will expire in March of 2013, for each of the following calendar years are as follows:


September 30, 2012	(In thousands)
Remainder of 2012	$	809
2013		1,850
2014		1,408
2015		1,432
2016		1,456
2017		1,480
Thereafter		7,228


Total minimum payments	$	15,663

Contingencies

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 the Company and its current and former directors and also to add additional note-holders as plaintiffs. On June 29, 2012, the plaintiffs amended their complaint for a second time to add claims against the Company 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 note-holders 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 memorandum opinion granting both of the Company’s motions. Specifically, the Court determined that the note-holders 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 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, which it later amended on August 31, 2012. The Company’s amended complaint alleges a claim for breach of a non-disclosure agreement between Tang Capital and the Company and for tortious interference with the Company’s business and contractual relations. The Company’s amended complaint 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 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.