Commitments and Contingencies

Purchase Commitments with Outsourcing Partners and Component Suppliers

We utilize several outsourcing partners to manufacture sub-assemblies for the Company’s products and to perform final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days. The Company also obtains individual components for its products from a wide variety of individual suppliers. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. As of June 30, 2017 and December 31, 2016, the Company had outstanding minimum future commitments for manufacturing and component purchases which totaled $13.7 million and $14.2 million, respectively.

The Company records a liability for firm, non-cancelable and unconditional purchase commitments for quantities in excess of its future demand forecasts. As of June 30, 2017 and December 31, 2016, the liability for these purchase commitments was $0.6 million and $0.4 million, respectively, and is included in accounts payable on the condensed consolidated balance sheets.

Litigation

We are subject to legal claims and litigation in the ordinary course of business, including but not limited to product liability, employment and intellectual property claims. The outcome of any such matters is currently not determinable. In addition, we were party to the litigation set forth below.

Nhan T. Vo, individually and on behalf of other aggrieved employees vs. MRV Communications, Inc., Superior Court of California, County of Los Angeles. On June 27, 2013, the plaintiff in this matter filed a lawsuit against the Company alleging claims for failure to properly pay overtime or provide meal and rest breaks to its non-exempt employees in California, among other things. The complaint seeks an unspecified amount of damages and penalties under provisions of the Labor Code, including the Labor Code Private Attorneys General Act. The Company has filed an answer denying all allegations regarding the plaintiff’s claims and asserting various defenses. Management believes it has accrued adequate reserves for this matter and does not expect the matter to have a material adverse effect on its business or financial condition. However, depending on the actual outcome of this case, further provisions could be recorded in the future which may have a material adverse effect on the Company’s operating results.

In April 2017, MRV received a complaint from Nestor Hilsenrat, a former employee, and a request for a labor board hearing. Mr. Hilsenrat, who had been working in Argentina as the Company's Regional Sales Director for Caribbean and Latin America prior to being terminated as part of a reduction in force, claims that MRV improperly calculated severance payouts related to his termination. Mr. Hilsenrat alleges that MRV owes additional severance along with penalties and interest totaling approximately $2.9 million. Management believes that these allegations are without merit and therefore has not accrued any provisions as of June 30, 2017. However, depending on the actual outcome of the prcoeedings, provisions could be recorded in the future which may have a material adverse effect on the Company’s operating results.

Kachelmyer v. MRV Communications, Inc., et al. On July 21, 2017, a putative securities class action complaint (the “Kachelmyer Complaint”) for an action captioned Kachelmyer v. MRV Communications, Inc., et al. was filed in the Superior Court of California, Los Angeles County. The complaint names as defendants the members of the MRV Board of Directors, as well as MRV. The complaint purports to be brought individually and on behalf of similarly situated public shareholders of MRV and alleges, among other things, that the members of the MRV Board of Directors breached their fiduciary duties to the stockholders of MRV by approving the Merger Agreement and the transactions contemplated therein (the “Transactions”) on terms and conditions alleged to be materially unfair to MRV’s stockholders, and by issuing allegedly materially incomplete and misleading disclosures in connection therewith in the Schedule 14D-9. For descriptions of the Merger Agreement, the Transactions, and the Schedule 14D-9, see Note 17, Subsequent Events. The complaint seeks, among other things, (i) injunctive relief, including enjoining the MRV Board of Directors, and anyone acting in concert with them, from consummating the Transactions, (ii) certification of the action as a class action, (iii) in the event the Transactions are consummated, rescinding the Transactions or awarding damages to MRV’s stockholders, (iv) an award of attorneys’ fees and other fees and costs and (v) such other further relief as the court deems just and proper. A preliminary injunction could delay or jeopardize the completion of the Transactions, and permanent injunctive relief could indefinitely enjoin completion of the Transactions. MRV believes that the claims stated in the Kachelmyer Complaint have no merit; however, the outcome of this matter is uncertain.

Allia v. MRV Communications, Inc. et al. On July 24, 2017, a putative securities class action complaint (the “Allia Complaint”) for an action captioned Allia v. MRV Communications, Inc., et al. was filed in the United States District Court for the Central District of California by Peter Allia, a purported owner of Shares, on behalf of himself and all other public stockholders of MRV, against MRV and the members of the MRV Board of Directors in connection with the pending Offer, the Merger and the other transactions contemplated by the Merger Agreement. The Allia Complaint claims that, among other things, the members of the MRV Board of Directors breached their fiduciary duties to the stockholders of MRV by approving the Merger Agreement and the transactions contemplated thereby on terms and conditions alleged to be materially unfair to MRV’s stockholders and by allegedly omitting and misrepresenting material information on MRV’s Schedule 14D-9 in connection therewith, with such material information alleged to include, among other things, MRV’s financial projections and sales process and certain financial analyses performed by Cowen in connection with the pending Offer, the Merger and the other transactions contemplated by the Merger Agreement. The Allia Complaint further alleges that MRV and the members of the MRV Board of Directors violated Section 14(e) and 20(a) of the Exchange Act by issuing the Schedule 14D-9 with such alleged omissions and misrepresentations of material information as described in the immediately preceding sentence. The Allia Complaint seeks various remedies, including, among other things, (i) certification of the action as a class action, (ii) enjoining the pending Offer and the Merger, (iii) in the event the Offer and the Merger are consummated, rescinding them and setting them aside or awarding rescissory damages, (iv) declaring the Merger Agreement unlawful and unenforceable, (v) awarding damages to the plaintiff and the public stockholders of MRV, (vi) awarding the plaintiff fees and expenses (including reasonable attorneys’ and experts’ fees and expenses) incurred by the plaintiff in connection with the litigation and (vii) granting such other and further relief as the court may deem just and proper. A preliminary injunction could delay or jeopardize the completion of the Transactions, and permanent injunctive relief could indefinitely enjoin completion of the Transactions. MRV believes that the claims stated in the Allia Complaint have no merit; however, the outcome of this matter is uncertain.

Chelvaratnam v. Ken Traub, et al. On July 25, 2017, a putative class action complaint (the “Chelvaratnam Complaint”) for an action captioned Chelvaratnam v. Ken Traub, et al., was filed in the Superior Court of the State of California for the County of Los Angeles by Ravindran Chelvaratnam, a purported owner of Shares, on behalf of himself and all other public stockholders of MRV, against the members of the MRV Board of Directors in connection with the pending Offer and the Merger. The Chelvaratnam Complaint claims that, among other things, the members of the MRV Board of Directors breached their fiduciary duties to the stockholders of MRV by approving the Merger Agreement and the Transactions on terms and conditions and through processes alleged to be materially unfair to MRV’s stockholders, and by issuing allegedly materially incomplete and misleading disclosures in connection therewith in the Schedule 14D-9. The Chelvaratnam Complaint seeks various remedies, including, among other things, (i) certification of the action as a class action; (ii) preliminarily and permanently enjoining the Merger from being consummated, (iii) to the extent already implemented, rescinding the Merger Agreement or any of the terms thereof, or granting the plaintiff and MRV’s public stockholders rescissory damages, (iv) directing the defendants to account to the plaintiff and the public stockholders of MRV for all damages allegedly suffered, (v) awarding the plaintiff fees and expenses (including reasonable attorneys’ and experts’ fees and expenses) incurred by the plaintiff in connection with the action and (vi) granting such other and further relief as the court may deem just and proper. A preliminary injunction could delay or jeopardize the completion of the Offer or the Merger, and permanent injunctive relief could indefinitely enjoin completion of the Offer or the Merger. MRV believes that the claims stated in the Chelvaratnam Complaint have no merit; however, the outcome of this matter is uncertain.

Scarantino v. MRV Communications, Inc. On July 25, 2017, a putative securities class action complaint (the “Scarantino Complaint”) for an action captioned Scarantino v. MRV Communications, Inc., et al. was filed in the United States District Court for the Central District of California by Louis Scarantino, a purported owner of Shares, on behalf of himself and all other public stockholders of MRV, against MRV and the members of the MRV Board of Directors in connection with the pending Offer and the Merger. The Scarantino Complaint claims that, among other things, MRV and the members of the MRV Board of Directors violated Sections 14(e), 14(d) and 20(a) of the Exchange Act, as applicable, by allegedly misrepresenting and omitting material information on the Schedule 14D-9 in connection with the pending Offer, the Merger and the Transactions. The Scarantino Complaint seeks various remedies, including, among other things, (i) enjoining the Merger from being consummated, (ii) in the event the Merger is consummated, rescinding it and setting it aside or awarding rescissory damages, (iii) awarding the plaintiff fees and expenses (including reasonable attorneys’ and experts’ fees and expenses) incurred by the plaintiff in connection with the action and (iv) granting such other and further relief as the court may deem just and proper. A preliminary injunction could delay or jeopardize the completion of the Offer or the Merger, and permanent injunctive relief could indefinitely enjoin completion of the Offer or the Merger. MRV believes that the claims stated in the Scarantino Complaint have no merit; however, the outcome of this matter is uncertain.

Trottier v. MRV Communications, Inc., et al. On July 27, 2017, a putative securities class action complaint (the “Trottier Complaint”) for an action captioned Trottier v. MRV Communications, Inc., et al., Case No. 2:17-cv-05581, was filed in the United States District Court for the Central District of California by Mark Trottier, a purported owner of Shares, on behalf of himself and all other public stockholders of MRV, against MRV and the members of the MRV Board of Directors in connection with the pending Offer and the Merger. The Trottier Complaint claims that, among other things, MRV and the members of the MRV Board of Directors violated Sections 14(e), 14(d)(4) and 20(a) of the Exchange Act and Rule 14a-9 under the Exchange Act (17 C.F.R. § 240.14a-9), as applicable, by allegedly making untrue statements of material fact and allegedly omitting certain material facts relating to the pending Offer, the Merger and the other transactions contemplated by the Merger Agreement on the Schedule 14D-9. The Trottier Complaint seeks various remedies, including, among other things, (i) certification of the action as a class action, (ii) preliminarily and permanently enjoining the Offer and the Merger from being consummated, (iii) in the event the Offer and the Merger are consummated, rescinding them and setting them aside or awarding rescissory damages, (iv) awarding the plaintiff costs (including reasonable attorneys’ and experts’ fees and expenses) incurred by the plaintiff in connection with the action and (v) granting such further relief as the court deems just and proper. A preliminary injunction could delay or jeopardize the completion of the Offer or the Merger, and permanent injunctive relief could indefinitely enjoin completion of the Offer or the Merger. MRV believes that the claims in the Trottier Complaint have no merit; however, the outcome of this matter is uncertain.

From time to time, MRV receives notices from third parties alleging possible infringement of patents with respect to product features or manufacturing processes. Management believes such notices are common in the communications industry because of the large number of patents that have been filed on these subjects. The Company's policy is to discuss these notices with the parties in an effort to demonstrate that MRV's products and/or processes do not violate any patents. Management does not believe that any of these matters will result in a material adverse outcome.

MRV and its subsidiaries have from time to time been named as a defendant in other lawsuits involving matters that management considers routine to the nature of its business. Management is of the opinion that the ultimate resolution of such outstanding matters will not have a material adverse effect on our business, operating results and financial condition.

Cost Saving Measures and Asset Impairments

During the second half of 2016, the Company initiated cost saving measures intended to optimize its cost structure. These cost saving measures included consolidating facilities in Chatsworth, California which amounted to approximately $0.2 million, in addition to reductions in workforce which included one-time termination benefits of approximately $1.6 million. The costs of implementation were reported under cost of net revenues and operating expenses in the Consolidated Statements of Operations. Substantially all cash outlays in connection with these measures occurred in the third and fourth quarter of 2016.

As of June 30, 2017, activities related to these measures were substantially complete.

The changes in reserves associated with these measures for 2016 consisted of the following and are included in accrued liabilities on the accompanying Consolidated Balance Sheets (in thousands):



	Severance and Other employee related costs			Facility Closures and Asset impairments
Balance at January 1, 2017	$	643		$	103
Cash payments made	(563		)	(26		)
Balance at June 30, 2017	$	80		$	77