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Note 13 - Commitments and Contingencies
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12 Months Ended | |||||||||||||||||||||||||||||||||||
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Jan. 31, 2013
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| Commitments and Contingencies Disclosure [Text Block] |
13. Commitments
and Contingencies
Rental
commitments under non-cancelable operating leases,
principally on our office space, were 0.9 million at
January 31, 2013, payable as follows (in thousands):
Rental
expense for the years ended January 31, 2013 and 2012 was
approximately $0.3 million.
During
fiscal 2012, we entered into an amended and restated office
lease at our existing corporate headquarters reducing our
occupied premises by 67% of the space occupied under the
former lease. Our current lease expires on August
31, 2016, but allows for early termination on June 30, 2014
with advance written notice and payment of abated base rent
of approximately $60,000 as well as a termination fee and
other costs.
Purchase
Commitments with Suppliers
We
generally issue purchase orders to our suppliers with
delivery dates from four to six weeks from the purchase order
date. In addition, we regularly provide significant suppliers
with rolling six-month forecasts of material and finished
goods requirements for planning and long-lead time parts
procurement purposes only. We are committed to accept
delivery of materials pursuant to our purchase orders subject
to various contract provisions that allow us to delay receipt
of such order or allow us to cancel orders beyond certain
agreed lead times. Such cancellations may or may not include
cancellation costs payable by us. In the past, we have been
required to take delivery of materials from our suppliers
that were in excess of our requirements and we have
previously recognized charges and expenses related to such
excess material. During the second quarter of fiscal 2012 we
accrued a charge of $380,000 relating to such excess material
relating to purchase commitments made to support the Targus
business. If we are unable to adequately manage our suppliers
and adjust such commitments for changes in demand, we may
incur additional inventory expenses related to excess and
obsolete inventory. Such expenses could have a material
adverse effect on our business, results of operations, and
financial position. Our fixed purchase commitments at January
31, 2013 totaled $1.5 million, of which approximately
$0.3 million was cancelable as of January 31,
2013.
Executive
Severance Commitments
We
have severance compensation agreements with certain of our
key executives. These agreements require us to pay these
executives, in the event of a termination of employment
following a change of control of the Company or other
circumstances, the amount of their then current annual base
salary and the amount of any bonus amount the executive would
have achieved for the year in which the termination occurs
plus the acceleration of unvested options. We have not
recorded any liability in the consolidated financial
statements for these agreements.
Although
the contemplated sale of shares of common stock and the
issuance of the Warrants and possible issuance of the
Additional Warrant Shares by the Company to Broadwood could
result in a change of control for purposes of the severance
compensation agreements, each of the executives who are
parties to those agreements has waived their rights to
receive payments under those agreements in the event
that a change of control occurs as a result of the sale
of shares and the issuance of Warrants and Additional
Warrants to Broadwood.
Additionally,
as a result of the Company’s sale of the 6,250,000
shares of common stock to Elkhorn Partners Limited
Partnership (“Elkhorn”), subsequent to fiscal
year end (see Note 14), Elkhorn’s beneficial ownership
of the Company has increased from approximately 9% to
approximately 49% of the Company’s outstanding voting
stock, making Elkhorn the Company’s largest shareholder
and resulting in a change of control of for purposes of the
severance compensation agreements. Each of the executives who
are parties to those agreements has waived their rights to
receive payments under those agreements as a result of the
change in Elkhorn’s beneficial ownership of the
Company.
Letter
of Credit
During
the first quarter of fiscal 2010, the Company obtained a
$77,000 letter of credit from Silicon Valley Bank
(“SVB”) to allow for continuous and unlapsed
compliance with a lease provision for the Company’s
corporate offices. The letter of credit expires on
August 1, 2014.
Legal
Contingencies
On
April 26, 2011, Chicony, the contract manufacturer of
the Bronx product that was the subject of a
product recall, filed a complaint against us for breach
of contract, seeking payment of $1.2 million for the
alleged non-payment by us of amounts
alleged by Chicony to be due it for products purchased
from it by the Company. We denied liability and filed a
cross-complaint on May 13, 2011 seeking the recovery of
damages of $4.9 million caused by Chicony's failure to
adhere to our technical specifications when manufacturing the
Bronx product, which we believe resulted in the recall of the
product. On April 16, 2013, the court approved our
first-amended cross-complaint, which adds intentional
interference to our complaint and increases the damages we
seek to at least $15.0 million. The trial date is currently
set for October, 2013. In an effort to resolve this
litigation before the previous trial date of April, 2013, we
sent Chicony a settlement offer, which has since lapsed.
During the fourth quarter of fiscal 2013, we received
reimbursement of previously incurred legal fees in the amount
of $0.4 million from our insurance carrier under a
reservation of rights. The outcome of this matter is not
determinable as of the date of the filing of
this report. We have previously accrued $1.1 million for
the possibility that we could incur a liability to Chicony
should it prevail in the lawsuit.
On
September 1, 2011, subsequent to receiving an infringement
notification from us, ACCO Brands USA LLC and its Kensington
Computer Products Group division (collectively
“Kensington”) filed a lawsuit against us alleging
that five of our patents relating to power technology are
invalid and/or not infringed by products made and/or sold by
Kensington. On February 29, 2012, we denied these claims and
filed a cross-complaint alleging infringement by Kensington
of each of these five patents. Efforts to resolve the
dispute, by court ordered mediation, have been unsuccessful.
Currently, the trial date is set for January, 2014. A number
of these patents are currently the subject of re-examination
proceedings iniated by Kensington or other third parties.
This matter is ongoing and the outcome is not determinable,
however if we do not prevail we will likely not obtain a
license agreement to earn future license revenue from
products sold by Kensington. Conversely, should we prevail
the Company may be awarded a royalty which would generate
license revenue to the Company in the future.
On
March 6, 2012, we filed a lawsuit against EDAC for breach of
contract seeking payment of $2.5 million for the failure to
deliver goods ordered by us in the time, place, manner and
price indicated by each purchase order. As previously
reported, the parties entered into a Settlement Agreement on
July 24, 2012, ending the litigation between the parties. The
settlement involved no cash payments by either of the
parties, but allowed us to reverse previously incurred
product and freight costs and to discharge net liabilities of
$1.4 million from our consolidated balance sheet that would
otherwise have been due to EDAC had it prevailed in the
lawsuit. The settlement resulted in a decrease to cost of
revenue of $1.4 million.
In
addition to the pending matters described above, we are, from
time to time, involved in various legal proceedings
incidental to the conduct of our business. We are unable to
predict the ultimate outcome of these matters.
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