8. Commitments and Contingencies

 

Operating Leases

 

The Company leases office and warehouse space under operating leases that expire between 2014 and 2018. The terms of the leases include periods of free rent, options for the Company to extend the leases (three to five years) and increasing rental rates over time. The Company recognizes rental expense under these operating leases on a straight line basis over the lives of the leases and has accrued for rental expense recorded but not paid.

 

Rental expense was approximately $0.3 million for each of the three months ended March 31, 2013 and 2014.

 

Future minimum rental payments required under non-cancelable operating leases with initial or remaining terms in excess of one year consist of the following as of March 31, 2014 (in thousands):

 

2014		$	1,234
2015		1,665
2016		1,553
2017		1,332
2018		722
Thereafter		—
		$	6,506

 

Purchase Commitments

 

The Company had non-cancellable purchase commitments for the purchase of inventory, which extend through September 2014 totaling approximately $20.3 million at March 31, 2014.

 

Indemnification

 

The Company has agreed to indemnify its officers and directors for certain events or occurrences, while the officer or director is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that provides corporate reimbursement coverage that limits its exposure and enables it to recover a portion of any future amounts paid. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2014.

 

Employment Agreements

 

The Company has signed employment agreements with certain executive officers who are entitled to receive certain benefits if their employment is terminated by the Company, including severance payments, accelerated vesting of stock options and continuation of certain insurance benefits.

 

Legal Matters

 

The Company is subject to various lawsuits and other claims that arise from time to time in the ordinary course of business. These actions may be based on alleged patent infringement or other matters. The Company intends to defend itself vigorously against any such actions. The Company establishes reserves for specific liabilities in connection with legal actions that it deems to be probable and estimable.

 

In management’s opinion, the Company is not currently involved in any legal proceedings other than specifically identified below, that individually or in the aggregate, could have a material effect on the Company’s financial condition, operations, or cash flows.  Currently, a range of loss associated with any individual material legal proceeding cannot be reasonably estimated.

 

On April 23, 2014, Olivistar, LLC (“Olivistar”), a limited liability company organized under the laws of Texas, filed a Complaint against the Company in the Eastern District of Texas.  During April 2014, Olivistar filed similar complaints against many other companies.  Olivistar’s Complaint asserts that the Company’s light switches and MyHome App infringe two United States patents that Olivistar owns by assignment: U.S. Patent No. 6,839,731, or the ‘731 patent, and U.S. Patent No. 8,239,481, or the ‘481 patent.  The Complaint seeks injunctive relief and monetary damages.  Based on the Company’s preliminary investigation of the patents at issue, the Company does not believe the products infringe any valid or enforceable claim of these patents; and, therefore, the Company will vigorously defend the lawsuit.