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Commitments and Contingencies
 3 Months Ended
Mar. 31, 2012
Commitments and Contingencies  
Commitments and Contingencies

7. Commitments and Contingencies

 

As of March 31, 2012, the Company’s material contractual obligations are (in thousands):

 

 

 

Total

 

Remainder
of 2012

 

2013

 

2014

 

2015

 

2016

 

Thereafter

 

Contractual obligations (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Imputed financing obligation (2)

 

$

59,071

 

$

4,711

 

$

6,827

 

$

6,997

 

$

7,168

 

$

7,348

 

$

26,020

 

Leases

 

9,529

 

2,800

 

1,562

 

1,472

 

1,345

 

992

 

1,358

 

Software licenses (3)

 

2,747

 

2,308

 

359

 

80

 

—

 

—

 

—

 

Acquisition retention bonuses (4)

 

57,390

 

16,667

 

19,114

 

19,113

 

2,496

 

—

 

—

 

Convertible notes

 

172,500

 

—

 

—

 

172,500

 

—

 

—

 

—

 

Interest payments related to convertible notes

 

21,563

 

8,625

 

8,625

 

4,313

 

—

 

—

 

—

 

Total

 

$

322,800

 

$

35,111

 

$

36,487

 

$

204,475

 

$

11,009

 

$

8,340

 

$

27,378

 

 

(1) 

The above table does not reflect possible payments in connection with uncertain tax benefits of approximately $16.0 million including $7.0 million recorded as a reduction of long-term deferred tax assets and $9.0 million in long-term income taxes payable, as of March 31, 2012. As noted below in Note 9, “Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.

 

(2)

With respect to the imputed financing obligation, the main components of the difference between the amount reflected in the contractual obligations table and the amount reflected on the Condensed Consolidated Balance Sheets are the interest on the imputed financing obligation and the estimated common area expenses over the future periods. Additionally, the amount includes the amended Ohio lease and the amended Sunnyvale lease.

 

 

(3) 

The Company has commitments with various software vendors for non-cancellable license agreements generally having terms longer than one year. The above table summarizes those contractual obligations as of March 31, 2012 which are also presented on the Company’s Condensed Consolidated Balance Sheet under current and other long-term liabilities.

 

 

(4)

In connection with recent acquisitions, the Company is obligated to pay retention bonuses to certain employees and contractors, subject to certain eligibility and acceleration provisions including the condition of employment.  The Cryptography Research, Inc. (“CRI”) retention bonuses payable on June 3, 2013 and 2014 will be paid in cash or stock at the Company’s election.

 

Rent expense was approximately $0.8 million and $0.6 million for the three months ended March 31, 2012 and 2011, respectively.

 

Deferred rent of $0.5 million as of March 31, 2012 was included primarily in other long-term liabilities. Deferred rent of $0.5 million as of December 31, 2011 was included primarily in other long-term liabilities.

 

Indemnifications

 

The Company enters into standard license agreements in the ordinary course of business. Although the Company does not indemnify most of its customers, there are times when an indemnification is a necessary means of doing business. Indemnifications cover customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to the Company’s products. The maximum amount of indemnification the Company could be required to make under these agreements is generally limited to fees received by the Company.

 

Several securities fraud class actions, private lawsuits and shareholder derivative actions were filed in state and federal courts against certain of the Company’s current and former officers and directors related to the stock option granting actions. As permitted under Delaware law, the Company has agreements whereby its officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s term in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has a director and officer insurance policy that reduces the Company’s exposure and enables the Company to recover a portion of future amounts to be paid. As a result of these indemnification agreements, the Company continues to make payments on behalf of current and former officers. As of March 31, 2012, the Company had made cumulative payments of approximately $31.9 million on their behalf, including $30.0 thousand in the quarter ended March 31, 2012. As of March 31, 2011, the Company had made cumulative payments of approximately $16.9 million on their behalf, including $1.2 million in the quarter ended March 31, 2011. These payments were recorded under costs of restatement and related legal activities in the condensed consolidated statements of operations.