Note 8—Commitments and Contingencies

Commitments

On May 13, 2013, as part of the Company’s effort to continue to reassess and re-evaluate its overall cost structure and to identify additional expense reductions, the Company committed to a plan of termination pursuant to which it reduced its workforce by 27 employees, or approximately 21%. The Company recorded a severance charge of approximately $0.8 million against operations related to this workforce reduction for the three and nine-month-periods ended September 30, 2013. On September 15, 2013, the Company initiated another reorganization plan which focused primarily on non-labor cost savings but also included a termination plan for six additional employees. The Company recorded $0.2 million in severance charges related to this plan. The Company has also entered into severance arrangements with other former employees including the Company’s former President and CEO based on his resignation on June 18, 2013, and recorded additional severance charges of $2.1 million related to these severance arrangements for the three and nine-month periods ended September 30, 2013. The Company recorded severance charges of approximately $1.2 and 1.8 million against operations for the three and nine-month-periods ended September 30, 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 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 lease agreement includes fixed escalations of minimum annual lease payments and accordingly, the Company records rent expense on a straight-line basis over the lease-term.

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


September 30, 2013	(In thousands)
Remainder of 2013		352
2014		1,417
2015		1,436
2016		1,460
2017		1,484
Thereafter		6,980

Total minimum payments	$	13,129

Rent expense from operations was approximately $0.4 million for each of the three-month periods ended September 30, 2013 and 2012, respectively. Rent expense from operations was approximately $1.6 million and $1.7 million, respectively, for the nine-month periods ended September 30, 2013 and 2012.

Contingencies

On April 30, 2012, a creditor derivative action complaint was filed by one of the holders of the Company’s 2018 Convertible Notes, Tang Capital Partners, LP, against the Company as a nominal defendant, the Company’s 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 additional claims and 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, which governs the 2018 Convertible Notes. Plaintiffs also added the indenture trustee as a defendant and asserted a claim for appointment of a successor trustee. In addition to asserting derivative claims alleging breach of fiduciary duty, the complaints allege that the Company is insolvent, and seek the appointment of a receiver. The Company filed a motion to dismiss the receiver claim on the grounds that the noteholders lacked standing to bring that claim and also moved for entry of summary judgment that an event of default has not occurred under the 2018 Convertible Notes. On July 27, 2012, the Delaware Court of Chancery issued a memorandum opinion granting both of the Company’s motions. Specifically, the Court determined that the plaintiffs lacked standing to bring an action to appoint a receiver for the Company and that no event of default had occurred under the 2018 Indenture. The Company and the director defendants also moved to dismiss the remaining claims in the June 29 complaint. Briefing is complete and the Court of Chancery held oral argument on the motion to dismiss on March 27, 2013. While that motion was sub judice, on June 26, 2013, plaintiffs filed a motion seeking entry of a partial final judgment of that portion of the Court of Chancery’s July 27, 2012 memorandum opinion dismissing plaintiffs’ claim for appointment of a receiver in order to seek an appeal in the Delaware Supreme Court. In a letter opinion issued on July 12, 2013, the Court of Chancery directed entry of partial final judgment on that limited issue and further stayed a ruling on the Company’s motion to dismiss the remaining claims pending resolution of any appeal. Specifically, the Court of Chancery permitted plaintiffs to appeal the July 27, 2013 memorandum opinion so that the Delaware Supreme Court could decide the issue with the appeal in another indenture case, Quadrant Structured Prods. Co, LTD v. Vertin, No. 338, 2012 (Del.), or the Quadrant appeal. On July 17, 2013, the Court of Chancery entered an order and partial final judgment. Plaintiffs filed a Notice of Appeal in the Delaware Supreme Court on July 19, 2013. Plaintiffs filed their opening appellate brief on September 3, 2013. On October 16, 2013, the Company filed a Suggestion of Bankruptcy and Imposition of Automatic Stay with the Delaware Supreme Court and the Delaware Court of Chancery to provide notice that, pursuant to section 362 of the Bankruptcy Code, judicial proceedings are stayed upon filing of the petition for relief under the Bankruptcy Code. The Company and the director defendants’ appellee answering brief was filed on October 18, 2013. 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 the Company and Tang Capital and for tortious interference with the Company’s business and contractual relations. The Company’s amended complaint remains outstanding.

From time to time, we are subject to other legal proceedings and claims in the ordinary course of business. Such claims, even if without merit, could result in significant expenditure of our financial and managerial resources.

For a discussion of the Company’s Chapter 11 Cases and related proceedings, see Note 15 below and elsewhere in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Chapter 11 Cases” in Part I, Item 2.