COMMITMENTS AND CONTINGENCIES

Legal Proceedings

On June 30, 2009, Professional Home Care Services, Inc., or PHCS, one of the subsidiaries the Company acquired through its acquisition of CHS, was sued by Alexander Infusion, LLC, a New York-based home infusion company, in the Supreme Court of the State of New York. The complaint alleges principally breach of contract arising in connection with PHCS's failure to consummate an acquisition of Alexander Infusion after failing to satisfy the conditions to PHCS's obligation to close. Alexander Infusion has sued for $3.5 million in damages. The Company believes Alexander Infusion's claims to be without merit and intends to continue to defend against the allegations vigorously. Furthermore, under the merger agreement, subject to certain limits, the former CHS stockholders agreed to indemnify the Company in connection with any losses arising from claims made in respect of the acquisition agreement entered into between PHCS and Alexander Infusion. As of December 31, 2011, no liability or indemnification reimbursement has been accrued in the Consolidated Financial Statements as a loss is not considered probable.

Government Regulation

Various Federal and state laws and regulations affecting the healthcare industry do or may impact the Company's current and planned operations, including, without limitation, Federal and state laws prohibiting kickbacks in government health programs, Federal and state antitrust and drug distribution laws, and a wide variety of consumer protection, insurance and other state laws and regulations. While management believes the Company is in substantial compliance with all existing laws and regulations material to the operation of its business, such laws and regulations are subject to rapid change and often are uncertain in their application. As controversies continue to arise in the healthcare industry (for example, the efforts of Plan Sponsors and pharmacy benefit managers to limit formularies, alter drug choice and establish limited networks of participating pharmacies), Federal and state regulation and enforcement priorities in this area can be expected to increase, the impact of which on the Company cannot be predicted.

From time to time, the Company responds to subpoenas and requests for information from governmental agencies. The Company cannot predict with certainty what the outcome of any of the foregoing might be. While the Company believes it is in substantial compliance with all laws, rules and regulations that affects its business and operations, there can be no assurance that the Company will not be subject to scrutiny or challenge under one or more existing laws or that any such challenge would not be successful. Any such challenge, whether or not successful, could have a material effect upon the Company's Consolidated Financial Statements. A violation of the Federal anti-kickback statute, for example, may result in substantial criminal penalties, as well as suspension or exclusion from the Medicare and Medicaid programs. Moreover, the costs and expenses associated with defending these actions, even where successful, can be significant. Further, there can be no assurance the Company will be able to obtain or maintain any of the regulatory approvals that may be required to operate its business, and the failure to do so could have a material effect on the Company's Consolidated Financial Statements.

Legal Settlements

Following responses to government subpoenas and discussions with the government, in May 2011, the Company was advised of a qui tam lawsuit filed under seal in federal court in Minnesota in 2006 and naming the Company as defendant. The complaint alleged violations of healthcare statutes and regulations by the Company and predecessor companies dating back to 2000. The Company has negotiated an agreement in principle to resolve all issues alleged in the complaint and the government's investigation in exchange for a release and dismissal of those claims. The resolution is subject to definitive documents and court approval. The Company has to resolve by negotiation or litigation additional claims of the qui tam relator and counsel. During the year ended December 31, 2011, the Company recorded a legal settlement expense of $4.8 million in the accompanying Consolidated Statements of Operations related to the settlement. As of December 31, 2011, there was a liability of $4.8 million included in accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets related to the settlement.

During the year ended December 31, 2010, we recorded $3.9 million of legal settlement costs. These costs were the result of an independent arbitration award against the Company in a lawsuit brought by JPD, Inc. and James P. DiCello, the sellers of Northland Medical Pharmacy (“Northland”), which was purchased in late 2005 by Chronimed Holdings, Inc. (“Chronimed”), a wholly-owned subsidiary of the Company.

Leases

The Company leases its facilities and certain equipment under various operating leases with third parties. The majority of these leases contain escalation clauses that increase base rent payments based upon either the Consumer Price Index or an agreed upon schedule.

In addition, the Company utilizes capital leases agreements with third parties to obtain certain assets such as telecommunications equipment and vehicles. Interest rates on capital leases are both fixed and variable and range from 1.0% to 5.5%.

As of December 31, 2011, future minimum lease payments under operating and capital leases are as follows (in thousands):



	Operating Leases		Capital Leases		Total
2012	$	7,568	$	2,360	$	9,928
2013	4,924		2,090		7,014
2014	3,600		184		3,784
2015	2,691		159		2,850
2016	1,787		3		1,790
2017 and thereafter	3,616		—		3,616
Total	$	24,186	$	4,796	$	28,982

Rent expense for leased facilities and equipment was approximately $9.2 million, $8.3 million and $5.1 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Letters of Credit

At December 31, 2010, there was $4.3 million of cash on deposit as collateral for certain letters of credit from commercial banks obtained in the ordinary course of business. The collateral was included in prepaid expenses and other current assets on the Consolidated Balance Sheets. During the year ended December 31, 2011, the Company was refunded the $4.3 million as collateral was no longer required for the letters of credit.

Purchase Commitments

As of December 31, 2011, the Company had commitments to purchase prescription drugs from drug manufacturers of approximately $27.8 million in 2012. These purchase commitments are made at levels expected to be used in the normal course of business.