11.

Commitments and Contingencies

Capital Leases

The Company did not purchase equipment under capital leases during the year ended December 31, 2013 or 2012. At December 31, 2013 and 2012, assets held under capital leases had a net book value of $0, net of accumulated amortization of $510,000. The present value of the net minimum lease payments as of December 31, 2013 is $0.

Operating Leases

The Company leases its office space and certain equipment under non-cancelable operating leases with various terms through 2017. The minimum annual rent on the Company’s office space is subject to increases based on stated rental adjustment terms, property taxes and operating costs and contains rent concessions. For financial reporting purposes, rent expense is recognized on a straight-line basis over the term of the lease. Accordingly, rent expense recognized in excess of rent paid is reflected as deferred rent. Rental expense under operating leases in 2013, 2012 and 2011 was $4.1 million, $4.5 million and $4.7 million, respectively. The Company’s office space lease contains incentives in the form of reimbursement from the landlord for a portion of the costs of leasehold improvements incurred by the Company which are recorded to rent expense on a straight-line basis over the term of the lease.

The minimum future lease payments under non-cancelable operating leases as of December 31, 2013 are as follows (in thousands):


For the Period Ending December 31,	Amount
2014	$	3,626
2015		3,417
2016		3,394
2017		806
2018		422
Thereafter		653

Total minimum lease payments	$	12,318

Committed Purchase Orders

The Company has entered into purchase commitments totaling approximately $52.0 million with certain contract manufacturers under which the Company has committed to buy a minimum amount of designated products between January 2014 and December 2014. In certain of these agreements, the Company may be required to acquire and pay for such products up to the prescribed minimum or forecasted purchases.

Management Retention Agreements

During 2004 and 2005, the Company entered into management retention agreements with certain of the Company’s executive officers. The agreements entitle those employees to enumerated severance benefits if, within the one year period immediately following a change of control (as defined in the agreement) or at the direction of an acquirer in anticipation of such an event, the Company terminates the employee’s employment other than for cause or disability or the employee terminates his or her employment for good reason. These severance benefits would include a lump sum payment of three times the sum of the employee’s annual base salary then in effect and the applicable targeted annual bonus, continued employee benefits, accelerated vesting of the employee’s stock incentive awards, a tax equalization payment to eliminate the effects of any applicable excise tax and financial planning and outplacement services.

In November 2007, the Company entered into an employment agreement with the Company’s Chief Executive Officer, with an initial term of three years. Under the agreement, Mr. Leparulo will continue to serve as Chairman of the Board and as the Company’s most senior officer. The agreement entitles Mr. Leparulo to enumerated severance benefits under various circumstances if Mr. Leparulo’s employment with the Company is terminated. These enumerated severance benefits vary according to whether (a) Mr. Leparulo’s employment with the Company is terminated within the one year period immediately following a change in control (as defined in the agreement) or at the direction of an acquirer in anticipation of such an event; (b) the Company terminates his employment other than for cause or he terminates his employment for good reason; or (c) the Company terminates his employment for cause or he terminates his employment for other than good reason. Depending on the cause of the employment termination, the enumerated severance benefits include a lump sum payment ranging from one to three years annual base salary then in effect, an additional lump sum bonus payment representing certain multiples of his targeted bonus, and varying periods of ongoing employee benefits including health care and outplacement services.

During 2010, the Company entered into management retention agreements with certain of the Company’s executive officers. The agreements entitle those employees to enumerated severance benefits if, within the two year period immediately following a change of control (as defined in the agreement), the Company terminates the employee’s employment other than for cause or disability or the employee terminates his or her employment for good reason. These severance benefits would include a lump sum payment of three times the sum of the employee’s annual base salary then in effect and the applicable targeted annual bonus, continued employee benefits, accelerated vesting of the employee’s stock incentive awards and financial planning and outplacement services. The agreements do not provide for any additional payments by the Company for excise or other taxes.

Legal Matters and Indemnification

The Company is, from time to time, party to various legal proceedings arising in the ordinary course of business. For example, the Company is currently named as a defendant or co-defendant in some patent infringement lawsuits in the U.S. and is indirectly participating in other U.S. patent infringement actions pursuant to its contractual indemnification obligations to certain customers. Based on evaluation of these matters and discussions with Company’s intellectual property litigation counsel, the Company believes that liabilities arising from or sums paid in settlement of these existing matters would not have a material adverse effect on its consolidated results of operations or financial condition.

On September 15, 2008 and September 18, 2008, two putative securities class action lawsuits were filed in the United States District Court for the Southern District of California (the “Court) on behalf of alleged stockholders of the Company. On December 11, 2008, these lawsuits were consolidated into a single action and in May 2010, the consolidated lawsuits were captioned the case In re Novatel Wireless Securities Litigation (the “Litigation”). The Litigation is being pursued on behalf of persons who purchased the Company’s common stock between February 27, 2007 and September 15, 2008. As previously disclosed, on December 6, 2013, to avoid the costs, disruption and distraction of further litigation, legal counsel for the defendants entered into a binding Memorandum of Understanding (“MOU”) with legal counsel for the lead plaintiffs, reflecting a proposed agreement to settle the Litigation. The proposed agreement did not admit any liability and the Company and the individual defendants continue to deny any and all liability. Under the terms of the proposed settlement, the Company would pay $6 million in cash, $5 million in the Company’s common stock and a $5 million secured promissory note, to resolve all claims asserted in the Litigation on behalf of class members. A portion of the $6 million in cash would be funded by insurers for the Company. The $5 million in shares of the Company’s common stock would be unrestricted and freely tradable shares and either registered or exempt from registration at the time of issuance and distribution to class members, which would occur within 10 business days after the entry of a final order of approval by the Court. The $5 million secured note, with a 5% interest rate, would have a 30 month maturity and be secured by the Company’s accounts receivables. The Company has the right, at its sole option, to substitute cash for the note prior to the entry of final approval by the Court. The settlement is subject to the following conditions: (1) the funding by the Company of the settlement; (2) the Company’s right to terminate the settlement if an agreed upon portion of the class members deliver timely and valid requests for exclusion from the class; (3) entry of final judgment by the Court approving the settlement; and (4) satisfaction of waiver of all covenants in the MOU.

On March 7, 2014, the Court entered an order giving preliminary approval to the settlement. The Court set a hearing for June 20, 2014, for final approval of the settlement of the Litigation.

In the normal course of business, the Company periodically enters into agreements that require the Company to indemnify and defend its customers for, among other things, claims alleging that the Company’s products infringe third-party patents or other intellectual property rights. The Company’s maximum exposure under these indemnification provisions cannot be estimated but the Company does not believe that there are any matters individually or collectively that would have a material adverse effect on its financial condition, results of operation or cash flows.

The Company has accrued $14.3 million as of December 31, 2013 related to our best estimate of potential settlements on legal and indemnification matters for which we have deemed the outcome to be probable.

Credit Facility

The Company has a credit facility with a bank to allow margin borrowings based on the Company’s investments in cash equivalents and marketable securities held with the bank. This facility is collateralized by the Company’s cash equivalents and marketable securities held with the bank. Borrowings under the facility incur an interest rate at the bank’s base rate plus 1%. This margin account facility provides the Company with the flexibility to access cash for short periods of time and avoids the need to sell marketable securities for these short-term requirements. At December 31, 2013, the Company had approximately $5.2 million in marketable securities held at this bank, and the Company’s unused borrowing capacity at December 31, 2013 under the credit facility was $1.8 million. Any monies borrowed and interest incurred are payable on demand, and there is no express expiration date to the credit facility. During the twelve months ended December 31, 2012, the Company borrowed $14.0 million against the facility and repaid the entire amount during the same period. During the twelve months ended December 31, 2013, the Company borrowed $20.3 million against the facility and had outstanding borrowings of $2.6 million under this facility at December 31, 2013. Under the terms of the credit facility, the bank may liquidate any of the Company’s cash equivalents or marketable securities held at any time in order to recoup the outstanding balance of the facility. Accordingly, a like amount of marketable equity securities have been classified by the Company as restricted marketable securities on the balance sheet at December 31, 2013. At December 31, 2013 the Company had no cash equivalents held at this bank.