Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

(a) Leases

The Company leases (i) its administrative, research, and manufacturing facilities in Irvine, California, (ii) its administrative facility in Den Bosch, The Netherlands, and (iii) certain equipment. These agreements are accounted for as operating leases. The Irvine facility lease agreements require the Company to pay operating costs, including property taxes, insurance, and maintenance.

Future minimum payments by year under non-cancelable leases with initial terms in excess of one year were as follows as of September 30, 2013:

Remainder of 2013	$	165
2014	959
2015	2,000
2016	2,060
2017	2,122
2018	2,122
2019 and thereafter	26,607
	$	36,035

On June 12, 2013, the Company entered into a lease agreement for two adjacent office, research and development, and manufacturing facilities in Irvine, California.  The premises consist of approximately 129,000 combined square feet. The lease has a 15-year term beginning January 1, 2014 and provides for one optional five year extension. The initial base rent under the lease is $1.9 million per year, payable in monthly installments, and escalates by 3% per year for years 2015 through 2019, and 4% per year for years 2020 and beyond.  The Company is entitled to rent abatement for the first nine months of the lease. These premises will replace the Company's existing Irvine facilities.

The terms of this lease agreement provide for $6.8 million of landlord-funded improvements (and certain other allowances) to this facility, in order to best suit the Company's requirements. In June 2013, the Company had Wells issue the landlord two letters of credit in the aggregate amount of $5.4 million under its Wells Credit Facility, representing financial collateral while these facility improvements are completed. The Company placed the same amount in a restricted cash account with Wells, in order to fully support these issued, but undrawn, letters of credit. In July 2013, this restricted cash account was fully released under the July 26, 2013 amendment to the Wells Credit Facility.

(b) Employment Agreements and Retention Plan

The Company has entered into employment agreements with its officers and certain other “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 by the employee for 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 twelve months of salary if upon a change in control of the Company.

(c) Legal Matters

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.

LifePort

On December 28, 2012, LifePort Sciences, LLC filed a complaint against the Company in the United States District Court, District of Delaware alleging that certain of the Company's products infringe U.S. Patent Nos. 5,489,295, 6,117,167, 6,302,906, 5,993,481 and 5,676,696, which are alleged to be owned by LifePort. LifePort is seeking an unspecified amount of monetary damages for sale of the Company's products. The Company does not believe it infringes on any of these patents and intends to vigorously defend itself in this matter.

At this time, the Company is unable to predict the outcome of this matter, but is of the opinion that the outcome will not have a material adverse effect on its financial position, results of operations, or cash flow. However, in order to avoid further legal costs (recognized within "general and administrative" expenses within the Condensed Consolidated Statements of Operations and Comprehensive Loss) and diversion of management resources, it is reasonably possible that the Company may reach a settlement with LifePort, 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 litigation.