Commitments and Contingencies

(a) Operating Leases

The Company leases its administrative, research and manufacturing facility and certain equipment under long-term, non-cancelable lease agreements that have been accounted for as operating leases. Certain of these leases include renewal options and require the Company to pay operating costs, including property taxes, insurance and maintenance as proscribed by the agreements.

Future minimum payments by year under non-cancelable operating leases with initial terms in excess of one year were as follows as of December 31, 2011:



2012	$	653
2013	656
2014	474
2015 and thereafter	—
	$	1,783

Rental expense charged to operations for all operating leases during the years ended December 31, 2011, 2010, and 2009, was $0.8 million, $0.5 million, and $0.4 million, respectively.

(b) Employment Agreements and Retention Plan

The Company has entered into employment agreements with its officers and certain “key employees” under which payment and benefits would become payable in the event of termination by the Company for any reason other than cause, upon a change in control of the Company, or upon the employee's good reason. The payment will generally be equal to six months of the employee’s then current salary for termination by the Company without cause, and generally be equal to twelve months of salary if upon a change in control of the Company.

The majority of the Company's accounts receivable arise from product sales in the U.S. However, the Company also has significant receivable balances from customers within the European Union, Japan, Brazil, Argentina, and Mexico. The Company's accounts receivable in the U.S. are primarily due from public and private hospitals; its accounts receivable outside of the U.S. are primarily due from independent distributors, and to a lessor extent, public and private hospitals. The Company's historical write-offs of accounts receivable have not been significant.

The Company monitors the financial performance and credit worthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company's independent distributors operate in certain countries such as Greece and Italy, where economic conditions continue to present challenges to its independent distributors' businesses, and thus, could place in risk the amounts due from them.

The Company's accounts receivable associated with its distributors in Greece and Italy are presently subject to payment delays. These distributors are owed amounts from public hospitals that are funded by their governments. Adverse financial conditions in these countries may continue, thus negatively affecting the length of time that it will take the Company to collect associated accounts receivable, or the likelihood of ultimate collection.

The below table summarizes the Company's accounts receivable from its independent distributors operating in European markets that are particularly affected by recent economic turmoil. The Company recently performed a careful evaluation of the credit risk profile of each distributor, and the Company believes that it will collect the outstanding balances in full during 2012.



Independent Distributor's Country of Operation	Balance Included within Accounts Receivable, net, as of December 31, 2011
Italy	$	971
Greece	477
Total	$	1,448

(d) Legal Matters - Cook and Bard

The Company from time to time is involved in various claims and legal proceedings of a nature considered normal and incidental to its business. These matters may include product liability, intellectual property, employment, and other general claims. The Company accrues for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are adjusted periodically as assessments change or as additional information becomes available.

Cook

The Company is currently involved in litigation with Cook Medical Incorporated (“Cook”). Cook alleges that the Company infringed two of their patents, granted in 1991 and 1998, which expired on October 17, 2009 and October 25, 2011, respectively. The lawsuit was filed by Cook in the U.S. District Court for the Southern District of Indiana (“Court”), on October 8, 2009.

In December 2009, the U.S. Patent and Trademark Office (“PTO”) granted the Company's request for a reexamination of the two patents asserted by Cook in the lawsuit. In January 2010, the Court ordered that the lawsuit be stayed pending the outcome of the patent reexaminations. In February 2010, the PTO completed its initial reexamination process and confirmed the patentability of one of the two patents (the "706 Patent"), and on March 31, 2010 issued a reexamination certificate to that effect. As to the second patent (the "777 Patent"), the PTO rejected as unpatentable those patent claims asserted by Cook against the Company. Cook subsequently amended the 777 Patent and added certain new claims.

On April 14, 2010 the PTO indicated its intent to issue a reexamination certificate confirming the patentability of the amended and new claims and issued the certificate on July 21, 2010. On June 2, 2010, the stay of the court proceedings was lifted and discovery commenced and is continuing. A hearing on the construction of the asserted claims of the 706 and 777 Patents was conducted on April 15, 2011. The Court issued a favorable Markman ruling on numerous patent claim construction issues on August 17, 2011. A trial date is expected to be set for Fall 2012.

The Company is raising numerous defenses in the case, one of which is that Cook's lawsuit is barred by a prior settlement of an earlier case between the same parties. The Company intends to continue the vigorous defense against these claims and believe the defenses are meritorious.

However, in order to avoid further legal costs and diversion of management resources, it is reasonably possible that the Company may reach a settlement with Cook, which could result in a liability. However, the Company cannot presently estimate the amount, or range, of reasonably possible losses due to the nature of this potential litigation settlement.

Bard

The Company involved in litigation with Bard Peripheral Vascular, Inc. (“Bard”), in which Bard alleged that the Company infringed one of Bard's patents issued in 2002. Bard filed the lawsuit against Endologix and another defendant, Atrium Medical Corp., on August 10, 2010 in the U.S. District Court for the District of Arizona, alleging that the Company infringed U.S. Patent No. 6,436,135 (the “135 Patent”) entitled “Prosthetic Vascular Graft.” Bard alleged in the complaint that the ePTFE material used in our ELG infringed the 135 Patent and sought damages for the infringement. Bard also alleged that the Company's infringement was willful and sought treble damages, prejudgment interest and its attorney fees as well as a permanent injunction. Bard served the complaint on the Company on November 24, 2010.

On October 26, 2011, to settle all claims related to the 135 Patent, Bard entered into a cross license agreement (the “CL Agreement”) with the Company. As part of the CL Agreement, Bard granted the Company a worldwide, nonexclusive, royalty-bearing license, with no sublicense right, under the 135 Patent to make and sell products incorporating ePTFE (the “Company Products”). The Company granted Bard a worldwide, exclusive license, with no sublicense right, under a U.S. patent application owned by the Company (the “Company Patent”) to make and sell medical devices manufactured by Bard (the “Bard Products”).

In consideration for the rights granted under the CL Agreement, the Company agreed to (i) pay Bard royalties equal to a percentage of net sales of Company Products and (ii) release Bard and its affiliates, successors and assigns from any claims arising out of or related to any infringement of the Company Patent by any products manufactured or sold by Bard prior to the effective date of the CL Agreement. Bard agreed to (i) pay Endologix royalties equal to a percentage of net sales of certain Bard Products and (ii) release the Company and its affiliates, successors and assigns from any claims arising out of or related to any infringement of the 135 Patent by any products manufactured or sold by us prior to the effective date of the CL Agreement.

The provisions of the CL Agreement relating to the payment of royalties to Bard will be effective until the invalidity, unenforceability or expiration of the 135 Patent. The provisions of the CL Agreement relating to the payment of royalties to the Company will be effective until the invalidity, unenforceability or expiration of the Endologix Patent.