14. Commitments and Contingencies

Operating Leases

We lease office space in several facilities under operating leases that expire through 2023. Certain of our lease agreements contain renewal options, rent holidays or rent escalation clauses. In accordance with ASC Topic 840, Leases, we recognize rent expense on a straight-line basis over the term of the related operating leases, accounting for scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy and including any cancelable option periods where failure to exercise such options would result in economic penalty. Rent expense recognized in excess of rent paid is reflected as a deferred rent liability, which is included in lease-related liabilities in the accompanying consolidated balance sheets. Rent expense under our operating leases was $7.9 million, $5.7 million and $6.2 million for the years ended December 31, 2013, December 31, 2012 and December 31, 2011, respectively.

In December 2012, we entered into a lease agreement for a facility with 61,460 square feet of office space, which will serve as our new corporate headquarters in San Diego, California. The lease commenced on July 1, 2013 and has a 10-year term (with an option to terminate after five years, as discussed below). The annual base rent for the first year of the lease is $1.6 million and is subject to annual increases of approximately three to four percent per year, with the rent in the first and sixth years subject to partial abatement. Pursuant to the terms of the lease, we will have: (i) two five-year options to renew the lease (with the base rent subject to adjustment based on certain comparable metrics set forth in the lease); and (ii) a one-time right to terminate the lease effective as of June 30, 2018 upon written notice to the landlord on or before January 1, 2018. In the event that we exercise our right to terminate the lease in accordance with the foregoing, we will be obligated to pay to the landlord a termination fee of $2.3 million.

In addition, the lease provides that if our cash on hand, earnings before interest, taxes, depreciation and amortization, or market capitalization fall below certain thresholds, we will be required to deposit with the landlord a letter of credit equal to 12 times the then-current monthly installment of base rent, subject to certain adjustments and exceptions. The landlord will have the right to draw down on the letter of credit upon the occurrence of certain events, including, among other things, in connection with: (i) the bankruptcy of Accelrys (whether voluntary or involuntary); (ii) the landlord's receipt of notice that the bank extending the letter of credit will not renew or extend such letter of credit as provided for under the lease; or (iii) a material adverse change in the financial condition of the bank extending the letter of credit. There was no letter of credit outstanding as of December 31, 2013 associated with the lease.

Additionally, under the terms of the lease for our former San Diego, California corporate office, we were required to obtain an irrevocable letter of credit for $6.6 million to ensure our performance under the lease agreement. The letter of credit requirement decreased to $3.5 million on September 1, 2011 and expired upon termination of the lease on September 1, 2013.

The letter of credit was fully secured by cash and cash equivalents, which were released in the fourth quarter of fiscal 2013 and prior to the release were included in restricted cash in the accompanying consolidated balance sheet.

We sublease certain facilities abandoned in connection with previous restructuring activities, and sublease income is recorded as a reduction of the restructuring liability and related restructuring expense upon abandonment of the facility.

Future minimum lease commitments and future committed sublease income as of December 31, 2013 are as follows:



	Operating Lease Commitments		Sublease Income		Net
	(In thousands)
Fiscal Year 2014	$	6,728	$	856	$	5,872
Fiscal Year 2015	5,642		724		4,918
Fiscal Year 2016	3,878		364		3,514
Fiscal Year 2017	3,627		—		3,627
Fiscal Year 2018	2,776		—		2,776
Thereafter	14,236		—		14,236
Total	$	36,887	$	1,944	$	34,943

Royalties

We are obligated to pay royalties for licenses to enhance and market certain software used in connection with our product offerings. Annual contractual minimum royalty payments as of December 31, 2013 are as follows (in thousands):




Fiscal Year 2014	$	1,105
Fiscal Year 2015	1,149
Fiscal Year 2016	1,194
Fiscal Year 2017	1,239
Fiscal Year 2018	1,294
Thereafter(1)	1,655
Total minimum royalty commitments	$	7,636

(1) For purposes of the contractual minimum royalty payments table, we have included indefinite-lived contractual minimum royalty payments due in the ten fiscal years following December 31, 2013.

In addition to the contractual minimum royalties included in the table above, we have several royalty agreements that are long term or perpetual in nature and the royalty obligations are generally based on a percentage of revenues derived from certain software license sales and associated sales of PCS. The royalty agreements require quarterly payments and generally do not limit the maximum royalties owed. We incurred royalty related expenses of $5.3 million, $5.5 million and $5.8 million for the years ended December 31, 2013, 2012 and 2011, respectively.