Commitments And Contingencies | 9 Months Ended |
Sep. 30, 2013 |
Commitments And Contingencies [Abstract] | ' |
Commitments And Contingencies | ' |
7. Commitments and Contingencies |
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Purchase Commitments |
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At September 30, 2013, the Company was committed to make future purchases for inventory and other items that occur in the ordinary course of business under various purchase arrangements with fixed purchase provisions aggregating $7.7 million. |
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Contractual Obligations |
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On September 25, 2013, the Company entered into the Merger Agreement with Stryker. Upon a change of control event, the Company has a contingent obligation to make one-time payments of up to $18.0 million under certain royalty bearing arrangements related to its intellectual property rights. The contingent obligation to pay up to $18.0 million is generally in lieu of paying ongoing, periodic royalty payments. In addition, the Company retained J.P. Morgan as its financial advisor in connection with the proposed Merger and to deliver a fairness opinion in connection with the proposed Merger. The Company has agreed to pay J.P. Morgan an aggregate fee of approximately $19.0 million, of which approximately $16.0 million will be payable upon completion of the Merger, and of which $3.0 million was earned upon delivery of J.P. Morgan’s opinion and was not contingent on the consummation of any transaction. |
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Legal Proceedings |
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In May 2012, two shareholder complaints were filed in the U.S. District Court for the Southern District of Florida against the Company and certain of its officers and directors as purported class actions on behalf of all purchasers of the Company’s common stock between January 9, 2012 and May 7, 2012. The cases were filed under the captions James H. Harrison, Jr. v. MAKO Surgical Corp. et al., No. 12-cv-60875 and Brian Parker v. MAKO Surgical Corp. et al., No. 12-cv-60954. The court consolidated the Harrison and Parker complaints under the caption In re MAKO Surgical Corp. Securities Litigation, No. 12-60875-CIV-Cohn/Seltzer, and appointed Oklahoma Firefighters Pension and Retirement System and Baltimore County Employees’ Retirement System to serve as co-lead plaintiffs. In September 2012, the co-lead plaintiffs filed an amended complaint that expanded the proposed class period through July 9, 2012. The amended complaint alleged the Company, its Chief Executive Officer, President and Chairman, Maurice R. Ferré, M.D., and its Chief Financial Officer, Fritz L. LaPorte, violated federal securities laws by making misrepresentations and omissions during the proposed class period about the Company’s financial guidance for 2012 that artificially inflated the Company’s stock price. The amended complaint sought an unspecified amount of compensatory damages, interest, attorneys’ and expert fees, and costs. In October 2012, the Company, Dr. Ferré, and Mr. LaPorte filed a motion to dismiss the amended complaint in its entirety. On May 15, 2013, the court granted the motion to dismiss and found that the challenged statements in the amended complaint were not material misrepresentations or omissions but rather were forward-looking statements accompanied by meaningful cautionary language and thus not actionable. In its order, the court gave co-lead plaintiffs an opportunity to request leave to file a second amended complaint, which they declined. Accordingly, on June 14, 2013 the court closed the case and entered final judgment for the Company, Dr. Ferré and Mr. LaPorte. No appeal was filed and the time for filing an appeal has expired. |
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Additionally, in June and July 2012, four shareholder derivative complaints were filed against the Company, as nominal defendant, and its Board, as well as Dr. Ferré and, in two cases, Mr. LaPorte. Those complaints allege that the Company’s directors and certain officers violated their fiduciary duties, wasted corporate assets and were unjustly enriched by allowing the Company to make misrepresentations or omissions that exposed the Company to damages in an earlier filed securities class action and damage to the Company’s goodwill. |
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Two of the derivative actions were filed in the Seventeenth Judicial Circuit in and for Broward County, Florida and have been consolidated under the caption In re MAKO Surgical Corporation Shareholder Derivative Litigation, No. 12-cv-16221. By order dated July 3, 2012, the court stayed In re MAKO Surgical Corporation Shareholder Derivative Litigation pending a ruling on the motion to dismiss filed in the earlier-filed class action. On June 20, 2013, this case was voluntarily dismissed. |
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The two other derivative actions were filed in the U.S. District Court for the Southern District of Florida under the captions Todd Deehl v. Ferré et al., No. 12-cv-61238 and Robert Bardagy v. Ferré et al., No. 12-cv-61380. On August 29, 2012, the court consolidated these two federal cases under the caption In re MAKO Surgical Corp. Derivative Litig.¸ Case No. 12-61238-CIV-COHN-SELTZER and approved the filing of a consolidated complaint. The consolidated complaint alleged that the Company’s directors and two of its officers breached fiduciary duties, wasted corporate assets and were unjustly enriched by issuing, or allowing the issuance of, annual sales guidance for 2012 that they allegedly knew lacked any reasonable basis. The consolidated complaint sought an unspecified amount of damages, attorneys’ and expert fees, costs and corporate reforms to allegedly improve the Company’s corporate governance and internal procedures. On October 31, 2012, the Company and the individual defendants each filed motions to dismiss the consolidated complaint. On June 6, 2013, the court granted the Company’s motion to dismiss on the grounds that the plaintiff failed to comply with applicable law by serving a pre-suit demand on the Board or by adequately alleging that doing so would be futile. The court gave the plaintiff until June 27, 2013 to file a motion seeking leave to file a second amended complaint. |
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On June 14, 2013, the plaintiff in the federal court derivative action made a demand on the Company to inspect its books and records. Because the Company believed the plaintiff had not stated a proper purpose for the requested inspection, it denied this inspection request. |
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On June 27, 2013, the plaintiff filed a motion requesting sixty additional days to file a motion for leave to amend the consolidated complaint, alleging the intent to pursue a legal action in Delaware or Florida in order to inspect the Company’s books and records for the purpose of establishing futility of a pre-suit demand. On July 15, 2013, the Company and the individual defendants filed a motion opposing the plaintiff’s request for additional time. On August 15, 2013, the court entered an order denying plaintiffs' motion for an extension of time to file a motion for leave to amend the complaint and dismissing the case without prejudice. To date, plaintiff has not filed any action regarding his purported inspection rights or refiled a derivative action. |
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In addition, on October 31, 2012, the Board appointed a demand review committee, consisting of two independent directors, to review, investigate, and prepare a report and recommendation to the full Board regarding the claims raised in the consolidated federal derivative action, as well as a demand made on the Board by two Company shareholders, Amy and Charles Miller, challenging the Company’s sales projections for 2012 and statements about its future financial outlook and demanding that the Board file suit on behalf of the Company. On November 19, 2012, upon recommendation of the demand review committee, the Company and the individual defendants filed a joint motion to stay the consolidated federal derivative action pending the completion of the demand review committee’s investigation. When the court dismissed the federal derivative action, it also denied the motion to stay as moot. The demand review committee has not yet completed its review, investigation and report. |
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In connection with the proposed Merger between the Company and Stryker, the Company and the members of its Board have been named as defendants in nine putative stockholder class actions complaints challenging the transaction, three filed in the Court of Chancery in the State of Delaware (the “Delaware Actions”), and six filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida (the “Florida Actions”). The lawsuits generally allege that the individual defendants breached their fiduciary duties by, among other things, failing to obtain sufficient value for the Company’s stockholders in the transaction and agreeing to certain terms in the Merger Agreement that allegedly restrict the individual defendants’ ability to obtain a more favorable offer. The complaints also allege that the Company, Stryker, and/or Merger Sub aided and abetted these purported breaches of fiduciary duties. The relief sought includes, among other things, injunctive relief, unspecified compensatory and/or rescissory damages, attorney’s fees, other expenses, and costs. |
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On October 9, 2013, two of the three Delaware Actions were consolidated and, on October 18, 2013, the third Delaware Action was consolidated with the previous two. The six Florida Actions were consolidated on October 21, 2013. Prior to the consolidation, on October 16, 2013, defendants filed a motion to proceed in one jurisdiction in both the Florida and Delaware courts, in which the motion defendants sought to have all actions related to the proposed transaction litigated in only one of the two fora. |
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Following consolidation, on October 21, 2013, plaintiffs in the Delaware Actions filed a consolidated amended complaint in which they allege, in addition to the claims set out in the original complaints, that the Company’s directors also breached their fiduciary duties by failing to disclose purportedly material information to the Company’s stockholders in the preliminary proxy filed by the Company with the SEC on October 16, 2013. On October 22, 2013, plaintiffs in the Florida Actions likewise filed a consolidated amended complaint that added allegations regarding purported omissions in the preliminary proxy. |
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On October 22, 2013 and October 23, 2013, respectively, plaintiffs in both the Florida and Delaware Actions moved for expedited proceedings, and plaintiffs in the Delaware action also moved for a preliminary injunction to prevent the closing of the proposed transaction. On October 24, 2013, defendants filed an opposition to the expedited proceedings in the Florida Actions. On October 25, 2013, the Florida court heard argument on defendants’ motion to proceed in one forum and determined that Florida litigation would proceed. Shortly thereafter, the Florida court scheduled a preliminary injunction hearing for November 27, 2013. |
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On October 29, 2013, the Delaware court held a hearing on the defendant’s motion to proceed in one forum, and while reserving judgment, noted that it was inclined to let the Delaware Actions proceed. On October 31, 2013, the Florida court issued a Sua Sponte Order of Reconsideration and Staying Consolidated Actions, staying all proceedings in the Florida Actions (including the preliminary injunction hearing previously set for November 27, 2013). On November 4, 2013, the Delaware court heard argument on plaintiffs’ motion for expedited proceedings and on November 5, 2013, that court granted expedited proceedings in connection with certain of plaintiffs’ claims. |
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The Company continues to believe these lawsuits are meritless. |
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The Company has recorded $1.3 million to expense, $500,000 of which was incurred in prior periods, in selling, general and administrative expenses to cover the insurance deductible for the Company’s directors’ and officers’ insurance policies related to the above actions. |
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Contingencies |
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The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. For the matters referenced in the paragraph below, the amount of liability is not probable or the amount cannot be reasonably estimated; and, therefore, accruals have not been made. In addition, in accordance with the relevant authoritative guidance, for matters which the likelihood of material loss is at least reasonably possible, the Company provides disclosure of the possible loss or range of loss; however, if a reasonable estimate cannot be made, the Company will provide disclosure to that effect. |
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In addition to the matters discussed in “Legal Proceedings” above, the Company is a defendant in various litigation matters generally arising in the normal course of business. Although it is difficult to predict the ultimate outcomes of these matters, the Company believes that it is not reasonably possible that the ultimate outcomes of these ordinary course litigation matters will materially and adversely affect its business, financial position, results of operations or cash flows. |
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