Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2014 |
Commitments And Contingencies Disclosure [Abstract] | ' |
Commitments and Contingencies | ' |
7. Commitments and Contingencies |
Hotel Development Related Commitments |
In order to obtain long-term management, franchise and license contracts, the Company has committed to contribute capital in various forms on hotel development projects. These include equity investments, key money, and cash flow guarantees to hotel owners. The cash flow guarantees generally have a stated maximum amount of funding and a defined term. The terms of the cash flow guarantees to hotel owners generally require the Company to fund if the hotels do not attain specified levels of operating profit. Oftentimes, cash flow guarantees to hotel owners may be recoverable as loans repayable to the Company out of future hotel cash flows and/or proceeds from the sale of hotels. |
The following table details, as of September 30, 2014 and December 31, 2013, the Company’s key money, equity investment and debt financing commitments for hotels under development as well as potential funding obligations under cash flow guarantees at operating hotels and hotels under development at the maximum amount under the applicable contracts, but excluding contracts where the maximum amount cannot be determined (in thousands): |
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| As of | | | As of | | | |
September 30, | December 31, | | |
2014 (1) | 2013 (1) | | |
Key money, equity investment and debt financing commitments (2) | $ | 15,514 | | | $ | 22,499 | | | |
Key money commitments related to terminated project (3) | | — | | | | 10,000 | | | |
Cash flow guarantees | | 5,000 | | | | 13,000 | | | |
Cash flow guarantees in dispute (4) | | 8,000 | | | | 8,000 | | | |
Total maximum future funding commitments | $ | 28,514 | | | $ | 53,499 | | | |
Amounts due within one year (5) | $ | 15,514 | | | $ | 25,499 | | | |
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-1 | The currency translation is based on an exchange rate of the applicable local currency to U.S. dollar using the exchange rate as of the end of the applicable reporting period. | | | | | | | | |
-2 | As of September 30, 2014 and December 31, 2013, these commitments consist of key money commitments. The Company had no equity or debt financing commitments at September 30, 2014 and December 31, 2013. | | | | | | | | |
-3 | As of December 31, 2013, amount reflects the funding of $10.0 million in key money for Mondrian at Baha Mar, which the Company is not obligated to fund due to the termination of the related management agreement in June 2014, discussed further below. | | | | | | | | |
-4 | Reflects an $8.0 million performance cash flow guarantee related to Delano Marrakech, which the Company believes it is not obligated to fund due to the owner’s defaults under the management agreement terms. The Company has terminated its management agreement effective November 12, 2013, discussed further below. | | | | | | | | |
-5 | As of September 30, 2014, amount primarily consists of £9.4 million (or approximately $15.3 million at the exchange rate as of September 30, 2014) in key money for Mondrian London. As of December 31, 2013, amount represents key money for Mondrian London and Mondrian at Baha Mar. The Company is not obligated to fund the key money for Mondrian Baha Mar due to the termination of the related management agreement in June 2014, discussed further below. | | | | | | | | |
On September 30, 2014, Mondrian London at Sea Containers opened. As a result, the Company funded its £9.4 million key money obligation (or approximately $15.2 million at the exchange rate as of the payment date) in October 2014 with cash on hand. The Company also paid approximately $3.0 million of value added tax which the Company expects to recover from the taxing authority. |
In September 2014, the Company and the hotel owners mutually agreed to terminate the Delano Moscow management agreement. As a result, the Company was relieved of its $10.0 million key money obligation, of which $3.0 million had already been funded and was refunded back to the Company in September 2014. The Company was also relieved of its $8.0 million potential cash flow guarantee. All of these amounts are no longer included in the September 30, 2014 commitment table above. |
In June 2014, the Mondrian at Baha Mar management agreement was terminated due to the failure of hotel owner to obtain a non-disturbance agreement from its lender as required by the management agreement, among other things. |
In September 2012, the Company opened Delano Marrakech, a 71-room hotel in Marrakech, Morocco. The management agreement included certain cash flow guarantees by the Company which stipulate certain minimum levels of operating performance and could result in potential future funding obligations related to Delano Marrakech, which are in dispute and disclosed in the hotel commitments and guarantees table above. As discussed further below, the Company and the hotel owner are in litigation surrounding the termination of the hotel management agreement, performance-based cash flow guarantee and related matters. Both parties are seeking arbitration of the dispute, which is expected to occur in March 2015. Mediation is currently scheduled for mid-December 2014. |
In January 2014, the Company signed a franchise agreement for 10 Karakoy, a Morgans Original branded hotel in Istanbul, Turkey. The hotel, which is currently under development, is being converted from office and retail space, is expected to have 71 rooms and open in November 2014. The Company has a $0.3 million key money obligation, which is included in the table above and will be funded upon the hotel opening. |
The Company has signed management, license or franchise agreements for new hotels which are in the development stage. As of September 30, 2014, these included the following: |
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| Expected Room | | | Anticipated | | | Initial |
Count | Opening | Term |
Hotels Currently Under Construction or Renovation: | | | | | | | | | |
10 Karakoy, a Morgans Original, Istanbul (1) | | 71 | | | | 2014 | | | 15 years |
Mondrian Doha | | 270 | | | | 2015 | | | 30 years |
Other Signed Agreements: | | | | | | | | | |
Mondrian Istanbul | | 122 | | | | | | | 20 years |
Delano Aegean Sea | | 150 | | | | | | | 20 years |
Delano Cartagena | | 211 | | | | | | | 20 years |
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-1 | Hotel is subject to a license or franchise agreement. | | | | | | | | |
There can be no assurances that any or all of the Company’s projects listed above will be developed as planned. If adequate project financing is not obtained, these projects may need to be limited in scope, deferred or cancelled altogether, and to the extent the Company has previously funded key money, an equity investment or debt financing on a cancelled project, the Company may be unable to recover the amounts funded. |
For example, due to the Company’s joint venture partner’s failure to achieve certain agreed milestones in the development of the Mondrian Istanbul hotel, in early 2014, the Company exercised its put option under the joint venture agreement and initiated foreclosure proceedings, as discussed further in note 4 and Part II, “Item 1. Legal Proceedings.” |
Other Guarantees to Hotel Owners |
As discussed above, the Company has provided certain cash flow guarantees to hotel owners in order to secure management contracts. |
The Company’s hotel management agreements for Royalton and Morgans contain cash flow guarantee performance tests that stipulate certain minimum levels of operating performance. These performance test provisions give the Company the option to fund a shortfall in operating performance limited to the Company’s earned base fees. If the Company chooses not to fund the shortfall, the hotel owner has the option to terminate the management agreement. As of September 30, 2014, approximately $0.7 million was accrued as a reduction to management fees related to these performance test provisions. The Company’s maximum potential amount of future fundings related to the Royalton and Morgans performance guarantee cannot be determined as of September 30, 2014, but under the hotel management agreements is limited to the Company’s base fees earned. |
Operating Joint Venture Hotels Commitments and Guarantees |
The following details obligations the Company has or may have related to its operating joint venture hotels as of September 30, 2014. |
Mondrian South Beach Mortgage and Mezzanine Agreements. Morgans Group and affiliates of its joint venture partner have agreed to provide standard nonrecourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard nonrecourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of its joint venture partner also agreed to guarantee the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability in connection with certain third-party actions. Morgans Group and affiliates of its joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject to the lien of the lender’s mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of its joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of its joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of September 30, 2014, there were remaining payables outstanding to vendors of approximately $0.3 million. Pursuant to a letter agreement with the lenders for the Mondrian South Beach loan, the joint venture agreed that these payables, many of which are currently contested or under dispute, will not be paid from operating funds but only from tax abatements and settlements of certain lawsuits. In the event funds from tax abatements and settlements of lawsuits are insufficient to repay these amounts in a timely manner, the Company and its joint venture partner are required to fund the shortfall amounts. |
The Company and affiliates of its joint venture partner also have each agreed to purchase approximately $14.0 million of condominium units under certain conditions, including an event of default. In the event of a default under the lender’s mortgage or mezzanine loan, the joint venture partners are each obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the lender’s mezzanine loan, or the then outstanding principal balance of the lender’s mezzanine loan. The joint venture is not currently in an event of default under the mortgage or mezzanine loan. As of September 30, 2014, there had been no triggering event that would require the Company to recognize a liability related to the construction completion or the condominium purchase guarantees. |
Mondrian SoHo. Certain affiliates of the Company’s joint venture partner have agreed to provide a standard nonrecourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its own gross negligence or willful misconduct. As of September 30, 2014, there had been no triggering event that would require the Company to recognize a liability related to this indemnity. |
Ames. On April 26, 2013, the joint venture closed on a new loan agreement with the mortgage lenders that provided for a reduction of the mortgage debt and an extension of maturity in return for a cash paydown. The Company did not contribute to the cash paydown and instead entered into an agreement with its joint venture partner pursuant to which, among other things, (1) the Company assigned its equity interests in the joint venture to its joint venture partner, (2) the Company agreed to give its joint venture partner the right to terminate its management agreement upon 60 days’ prior notice in return for an aggregate payment of $1.8 million, and (3) a creditworthy affiliate of the Company’s joint venture partner has assumed all or a portion of the Company’s potential liability with respect to historic tax credit guaranties, with the Company’s liability for any tax credit guaranties capped, in any event, at $3.0 million in the aggregate. The potential liability for historic tax credit guaranties relates to approximately $16.9 million of federal and state historic rehabilitation tax credits that Ames qualified for at the time of its development. As of September 30, 2014, there had been no triggering event that would require the Company to accrue any potential liability related to the historic tax credit guarantee. In May 2013, the hotel owner exercised its right to terminate the Company’s management agreement and it was terminated on July 17, 2013. The termination fee totaling $1.8 million was recorded by the Company in the second and third quarters of 2013. |
Guaranteed Loans and Commitments |
The Company has made guarantees to lenders and lessors of its owned and leased hotels, namely related to the Hudson/Delano 2014 Mortgage Loan and Clift lease payments, as discussed further in note 6. |
Litigations Regarding Mondrian SoHo |
On January 16, 2013, German American Capital Corporation (“GACC” or the “lender”), the lender for the mortgage loans on Mondrian SoHo, filed a complaint in the Supreme Court of the State of New York, County of New York against Sochin Downtown Realty, LLC, the joint venture that owns Mondrian SoHo (“Sochin JV”), Morgans Management, the manager for the hotel, Morgans Group, Happy Bar LLC and MGMT LLC, seeking foreclosure including, among other things, the sale of the mortgaged property free and clear of the management agreement, entered into between Sochin JV and Morgans Management on June 27, 2007, as amended on July 30, 2010. According to the complaint, Sochin JV defaulted by failing to repay the approximately $217.0 million outstanding on the loans when they became due on November 15, 2012. Cape Advisors Inc. indirectly owns 80% of the equity interest in Sochin JV and Morgans Group indirectly owns the remaining 20% equity interest. |
On March 11, 2013, the Company moved to dismiss the lender’s complaint on the grounds that, among other things, the Company’s management agreement is not subject to foreclosure. On April 2, 2013, the lender opposed the Company’s motion to dismiss and cross-moved for summary judgment. On August 12, 2013, the court heard oral argument on both motions, as well as a third motion brought by the Company to strike an affirmation submitted by lender’s attorney. On January 27, 2014, the court granted Morgans Management’s motion to dismiss on the ground that Morgans Management was not a proper party to the foreclosure action and that a management contract does not constitute an interest in real property subject to foreclosure, and denied lender’s motion for summary judgment as moot. On March 20, 2014, the lender moved for summary judgment against the remaining defendants, seeking foreclosure on four mortgages secured by Mondrian SoHo. By order dated May 27, 2014, the trial court granted the motion for summary judgment to a limited extent, ordering the appointment of a referee to compute the amount but stating that a motion for summary judgment of foreclosure and sale is premature. By decision entered on July 28, 2014, the court referred the matter to a Referee to ascertain and compute the amount due to the lender for principal, interest, and other disbursements and to determine whether the property should be sold in one parcel. On August 6, 2014, the Referee set a hearing on the issues for August 18, 2014, and subsequently issued her report setting the amount due on the loan ($250.5 million, plus interest accruing at a daily rate of approximately $84,000, as of August 18, 2014) and determining the property should be sold as one parcel. On September 15, 2014, the lender filed a motion to confirm the Referee’s report and for judgment of foreclosure and sale, along with the Referee’s Report of Amount Due attached as an exhibit, and a proposed judgment of foreclosure and sale. That motion is fully briefed and pending, but the court has not yet entered a judgment of foreclosure and sale. |
On February 25, 2013, the Sochin JV filed a complaint in the Delaware Court of Chancery against Morgans Management and Morgans Group, seeking, among other things, a declaration that Sochin JV had terminated the management agreement for the hotel. In addition, the Company, through its equity affiliate, filed a separate action against Sochin JV and its parent in the Delaware Court of Chancery for, among other things, breaching fiduciary duties and their joint venture agreement for failing to obtain consent prior to the termination. That action was subsequently consolidated with the joint venture’s termination action. On April 30, 2013, Morgans Management filed a lawsuit against Sochin JV and the majority member of Sochin JV’s parent and its affiliate in New York Supreme Court for damages based on the wrongful attempted termination of the management agreement, defamation, and breach of fiduciary and other obligations under the parties’ joint venture agreement. On September 20, 2013, the Delaware Court of Chancery ruled that Sochin JV properly terminated the hotel management agreement on agency principles, that Morgans Management must vacate the hotel forthwith or on whatever other timetable the hotel owner chooses, and that certain claims by the Company’s equity affiliate are dismissed but not its breach of fiduciary duty claim. |
On May 9, 2014, both of the above-referenced actions in Delaware and the above-reference action in New York were dismissed with prejudice by agreement among the parties. Under the terms of the settlement, if the joint venture does not seek to remove the Company as manager of Mondrian SoHo prior to December 31, 2020, then the Company will be deemed to have released all claims against the joint venture under the Management Agreement. Under the terms of the settlement, the joint venture may demand that Morgans vacate Mondrian SoHo on 90 days’ prior notice; in the event the joint venture provides notice of its intention to remove the Company as manager of Mondrian SoHo, all of the Company’s claims against the joint venture (including for breach of the hotel management agreement) would be revived. The joint venture’s rights under the settlement are not assignable without the Company’s written consent. |
On October 24, 2014, the Company filed suit in the Supreme Court of the State of New York seeking a declaration that the mortgage lenders to the Mondrian SoHo debt cannot remove Morgans Management as hotel manager following the conclusion of the foreclosure proceedings involving the building's ownership and its possible sale. The action seeks to protect and enforce the Company's long-term hotel management contract for Mondrian SoHo, regardless of the outcome of the current foreclosure proceedings. The Company also seeks damages against the lenders and purported buyer of the property should Morgans Management be terminated as manager of the hotel. The lawsuit does not affect the foreclosure proceedings, and Morgans does not oppose the lenders’ efforts to foreclose on Mondrian SoHo. |
Litigation Regarding Delano Marrakech |
In June 2013, the Company served the owner of Delano Marrakech with a notice of default for, among other things, failure to pay fees and reimbursable expenses and to operate the hotel in accordance with the standards under the management agreement. In September 2013, the Company served notice of termination of its management agreement for Delano Marrakech following the failure by the owner of Delano Marrakech to remedy numerous breaches of the agreement. As a result, the Company discontinued all affiliation with the hotel, including removal of the Delano name, and terminated management of the property, effective November 12, 2013. Pursuant to the management agreement, in the event of an owner default, the Company has no further obligations under the performance-based cash flow guarantee. In addition, as a result of the breaches by the hotel owner, the Company has asserted a claim for losses and damages against the owner that is currently estimated at in excess of $30.0 million, including interest. The owner of the hotel is disputing the circumstances surrounding termination and therefore its liability for this amount. On April 17, 2014, the owner submitted a counterclaim against the Company under both the performance-based cash flow guarantee and for loss of profits. The total counterclaim made by the owner is in excess of $119.0 million, excluding interest. The Company considers the counterclaim made by the owner to be entirely without merit and intends to vigorously defend itself. Both parties are seeking arbitration of the dispute, which is expected to occur in March 2015. Mediation is currently scheduled for mid-December 2014. |
Litigation Regarding TLG Promissory Notes |
On August 5, 2013, Messrs. Andrew Sasson and Andy Masi filed a lawsuit in the Supreme Court of the State of New York against TLG Acquisition LLC and Morgans Group LLC relating to the $18.0 million TLG Promissory Notes. See note 1 and note 6 regarding the background of the TLG Promissory Notes. The complaint alleges, among other things, a breach of contract and an event of default under the TLG Promissory Notes as a result of the Company’s failure to repay the TLG Promissory Notes following an alleged “Change of Control” that purportedly occurred upon the election of the Company’s current Board of Directors on June 14, 2013. The complaint sought payment of Mr. Sasson’s $16.0 million TLG Promissory Note and Mr. Masi’s $2.0 million TLG Promissory Note, plus interest compounded to principal, as well as default interest, and reasonable costs and expenses incurred in the lawsuit. On September 26, 2013, the Company filed a motion to dismiss the complaint in its entirety. On February 6, 2014, the court granted the Company’s motion to dismiss. On March 7, 2014, Messrs. Sasson and Masi filed a Notice of Appeal from this decision with the Appellate Division, First Department, and on July 8, 2014, they filed their initial brief in support of that appeal. Briefing of that appeal is ongoing, and the Company’s opposition brief was due August 29, 2014. The oral argument on the motion occurred on October 29, 2014 and the Company is awaiting the court’s ruling. |
Litigation Regarding 2013 Deleveraging Transaction, Proxy Litigation Between Mr. Burkle and OTK and Certain of the Company’s Current Directors, and Litigation Regarding Yucaipa Board Observer Rights |
On May 5, 2014, the Company and affiliates of Yucaipa, among other litigants, executed and submitted to the Delaware Court of Chancery a Stipulation of Settlement (the “Settlement Stipulation”) which contemplates the partial settlement and dismissal of the Delaware Shareholder Derivative Action and the complete settlement and dismissal of the New York Securities Action, the Proxy Action and the Board Observer Action, all defined below. On July 23, 2014, the Delaware Court of Chancery approved the Settlement Stipulation, which, pursuant to its terms, became effective on August 25, 2014 (the “Effective Date”). |
The Settlement Stipulation provided for the partial settlement and dismissal with prejudice of the action entitled OTK Associates, LLC v. Friedman, et al., C.A. No. 8447-VCL (Del. Ch.) (the “Delaware Shareholder Derivative Action”) and the complete settlement and dismissal with prejudice of the actions entitled Yucaipa American Alliance Fund II L.P., et al. v. Morgans Hotel Group Co., et al., Index No. 652294/2013 (NY Sup.) (the “New York Securities Action”); Burkle v. OTK Associates, LLC, et al., Case No. 13-CIV-4557 (S.D.N.Y.) (the “Proxy Action”); and Yucaipa American Alliance Fund II L.P., et al. v. Morgans Hotel Group Co., Index No. 653455/2013 (NY Sup.) (the “Board Observer Action”) (the foregoing four actions are collectively referred to as the “Actions”). |
The Settlement Stipulation provided, among other things, for the following: |
— | The Company paid the Yucaipa parties in the New York Securities Action an amount equal to $3.0 million (which was previously escrowed) for attorneys’ fees and expenses incurred by Mr. Burkle in his defense of the Delaware Shareholder Derivative Action (the “Securities Action Payment”). | | | | | | | | |
— | The Company paid the reasonable and necessary attorneys’ fees and expenses incurred by Messrs. Friedman, Gault and Sasson (collectively, the “Settling Former Directors”) in defending the Delaware Shareholder Derivative Action. The Settling Former Directors’ assigned to the Company any claims they have against the Company’s insurers relating to any such unpaid amounts. The Company’s insurers covered these attorneys’ fees and expenses. | | | | | | | | |
— | OTK and current director Jason T. Kalisman applied to the Delaware Court of Chancery for an award of payment from the Company of the reasonable and necessary fees and expenses incurred by their counsel in connection with the Delaware Shareholder Derivative Action, excluding those fees and expenses encompassed in the court’s October 31, 2013 order in the Delaware Shareholder Derivative Action. In its July 23, 2014 order approving the Settlement Stipulation, the Delaware Court of Chancery awarded an aggregate amount of approximately $6.5 million (to be reduced by the prior interim award of approximately $2.7 million) to OTK and current director Jason T. Kalisman for their counsel fees and expenses incurred in connection with the Delaware Shareholder Derivative Action which was paid by the Company with insurance proceeds. | | | | | | | | |
— | Plaintiffs and defendants in each of the Actions, apart from the former directors who chose not to participate in Settlement Stipulation and against whom the Delaware Shareholder Derivative Action continues, exchanged customary releases which release the parties and certain of their affiliates from claims arising from the subject matters of each of the Actions. | | | | | | | | |
— | Each of the Actions was dismissed with prejudice and on the merits with each party bearing its own costs, except as to the former directors who have not settled, against whom the Delaware Shareholder Derivative Action continues or as specified in the Settlement Stipulation. | | | | | | | | |
The Company’s insurers have paid a majority of the costs that the Company was obligated to pay under the Settlement Stipulation. |
On October 3, 2014, the Company entered into a Memorandum of Understanding with OTK and Thomas L. Harrison (the “Harrison Settlement”) to settle the claims against Mr. Harrison in the Delaware Shareholder Derivative Action and also to settle claims Mr. Harrison has asserted against the Company in Harrison v. Morgans Hotel Group Co., C. A. No. 10100-VCL (Del. Ch.) (the “Harrison Advancement Action”), in which Mr. Harrison seeks an order requiring the Company to advance his expenses (including attorneys’ fees) incurred in connection with the Delaware Shareholder Derivative Action and further seeks indemnification of the expenses (including attorneys’ fees) he has incurred in connection with his efforts to enforce his claims to advancement. The Harrison Settlement is subject to approval by the Delaware Court of Chancery. Pursuant to the Harrison Settlement, in October 2014, the Company advanced to Mr. Harrison a portion of the fees and expenses for which he has sought advancement and paid a portion of the amounts for which Mr. Harrison seeks indemnification related to the Harrison Advancement Action. As part of the consideration for the release of the claims against Mr. Harrison in the Delaware Shareholder Derivative Action, if the Harrison Settlement is approved by the Court of Chancery, Mr. Harrison would waive his claims to recover the remaining amounts for which he has sought advancement and indemnification in the Harrison Advancement Action. If the Delaware Court of Chancery approves the Harrison Settlement, both the Harrison Advancement Action and the claims against Mr. Harrison in the Delaware Shareholder Derivative Action will be dismissed with prejudice, the parties to the settlement will exchange customary releases, and the only remaining defendant in the Delaware Shareholder Derivative Action will be Michael D. Malone, a former director of the Company. |
As of September 30, 2014, the Company has paid approximately $0.4 million of costs that were not covered by insurance proceeds. The Company had established an accrual to cover certain contingencies related to its obligations under the Settlement Stipulation, which were adequate to cover these costs. The Company does not expect that the net amount of any remaining payments the Company will make under the terms of the Settlement Stipulation, the Harrison Settlement, or any other settlement with the former directors who have not settled will be material to financial position of the Company, and as of September 30, 2014, the Company believes its accruals are adequate to cover its contingencies relating to these matters. |
Other Litigation |
From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. The Company is not currently a party to any legal or administrative proceedings, other than as noted above, the adverse outcome of which, individually or in the aggregate, the Company believes would have a material impact on the Company’s financial condition, results of operations or cash flow. |