. Commitments and Contingencies

Leases

The Company leases its facility under noncancelable lease agreements expiring in various years through

2026.

The Company also licenses certain software used in its research and development activities under a term license subscription and maintenance arrangement.

Future minimum lease payments under noncancelable operating leases having initial terms in excess of

one

year are as follows:

	December 31, 201 8
2019	$	4,588
2020		2,252
2021		1,883
2022		1,722
2023		1,615
2024 and thereafter		1,698
	$	13,758

For the years ended

December

31,

2018,

2017

and

2016,

lease operating expense was

$5,742,

$6,865

and

$13,870,

respectively.

Noncancelable Purchase Obligations

The Company depends upon

third

party subcontractors to manufacture wafers. The Company’s subcontractor relationships typically allow for the cancellation of outstanding purchase orders, but require payment of all expenses incurred through the date of cancellation. As of

December 31, 2018,

the total value of open purchase orders for wafers was approximately

$8,634.

As of

December 31, 2018,

the Company has a commitment to pay mask costs of

$665

and

$3,032

for a service contract.

Legal Proceedings

Netlist, Inc. v. Inphi Corporation, Case

No.

-cv-

6900

(C.D. Cal.)

September

22,

2009,

Netlist filed suit in the United States District Court, Central District of California( the “Court”), asserting that the Company infringes U.S. Patent

No.

7,532,537.

Netlist filed an amended complaint on

December

22,

2009,

further asserting that the Company infringes U.S. Patent Nos.

7,619,912

and

7,636,274,

collectively with U.S. Patent

No.

7,532,537,

the patents-in-suit, and seeking both unspecified monetary damages to be determined and an injunction to prevent further infringement. These infringement claims allege that the iMB™ and certain other memory module components infringe the patents-in-suit. The Company answered the amended complaint on

February

11,

2010

and asserted that the Company does

not

infringe the patents-in-suit and that the patents-in-suit are invalid. In

2010,

the Company filed

inter partes

requests for reexamination with the United States Patent and Trademark Office (the “USPTO”), asserting that the patents-in-suit are invalid. As a result of the proceedings at the USPTO, the Court has stayed the litigation, with the parties advising the Court on status every

120

days.

As to the proceeding at the USPTO, reexamination has been ordered for all of the patents that were alleged to infringe, and at present, the USPTO has determined that almost all of the originally filed claims are

not

valid, with certain amended claims being determined patentable. The Reexamination Certificate for U.S. Patent

No.

7,532,537

was issued on

August 2, 2016

based upon amended claims. The Reexamination Certificate for U.S. Patent

No.

7,636,274

was issued on

November 5, 2018,

indicating all claims

were cancelled. The parties continue to assert their respective positions with respect to the reexamination proceeding for U.S. Patent

No.

7,619,912.

While the Company intends to defend the foregoing USPTO proceedings and lawsuit vigorously, the USPTO proceedings and litigation, whether or

not

determined in the Company’s favor or settled, could be costly and time-consuming and could divert management’s attention and resources, which could adversely affect the Company’s business.

Based on the nature of USPTO proceedings and litigation, the Company is currently unable to predict the final outcome of this lawsuit and therefore, cannot determine the likelihood of loss nor estimate a range of possible loss. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the Company’s business, financial condition, results of operations or cash flows could be materially and adversely affected.

Claims Against ClariPhy

During the year ended

December 31, 2018,

the Company entered into settlement agreements related to claims by certain customers of ClariPhy Communications Inc. (ClariPhy) associated with contracts entered prior to the acquisition date under which the Company paid

$8,000

to the customers. The Company also entered into an agreement with former stockholders of ClariPhy in which the Company recovered

$4,875

from the escrow set up as part of the ClariPhy acquisition. The Company recorded a charge of

$2,125,

net of amount previously accrued, during the year ended

December 31, 2018

included in General and administrative expenses in the consolidated statements of income (loss).

Certain customers of ClariPhy have made claims associated with matters occurring prior to the acquisition date, including a demand letter the Company received relating to products purchased by a customer from ClariPhy. The customer alleges that the products did

not

meet the specification or workmanship warranties provided in the agreement with ClariPhy, and has requested reimbursement and damages. The Company is currently reviewing whether these additional claims are valid, and the Company is unable to reasonably estimate the amount of any potential liability at this time. Amounts payable as a result of these claims

may

be recoverable from the escrow set up as part of the ClariPhy acquisition.

Indemnifications

In the ordinary course of business, the Company

may

provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but

not

limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by

third

-parties. These indemnifications

may

survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions

may

not

be subject to maximum loss clauses. The Company has

not

incurred material costs to defend lawsuits or settle claims related to these indemnifications. Accordingly, the Company has

liabilities recorded for these agreements as of

December 31, 2018

and

December

31,

2017.