13. Commitments and Contingencies

Leases

The Company's operating lease obligations result from the lease of land and buildings that comprise the Company's corporate headquarters and manufacturing facilities, leases related to additional manufacturing, office, and warehouse space, leases on Company vehicles, and leases on a variety of office equipment.

The Company had deferred rent obligation of $1.6 million and $1.7 million as of December 31, 2014 and 2013, respectively, primarily related to the lease on its corporate headquarters, which expires in 2022. Total rental expense for operating leases was $3.0 million in both 2014 and 2013 and $2.7 million in 2012.

Future minimum operating lease payments under non-cancelable leases as of December 31, 2014 are as follows (in thousands):



	Operating
	Leases
2015	$	3,073
2016		3,364
2017		3,431
2018		3,486
2019		3,460
Thereafter		10,505
Total minimum lease payments	$	27,319

Liability Claims

At December 31, 2014 and 2013 the Company’s unreported loss liability was $1.4 million and $1.5 million, respectively. The related insurance recoverable amounts were $600,000 and $580,000 as of December 31, 2014 and 2013, respectively. The Company accrues its estimate of unreported product and tissue processing liability claims as other long‑term liabilities and records the related recoverable insurance amounts as other long‑term assets. Further analysis indicated that the liability as of December 31, 2014 could be estimated to be as high as $2.7 million, after including a reasonable margin for statistical fluctuations calculated based on actuarial simulation techniques.

Employment Agreement

In July 2014 the Company’s Board of Directors appointed Mr. James P. Mackin as President and Chief Executive Officer (“CEO”), and the Company and Mr. Mackin entered into an employment agreement, which became effective September 2, 2014. The employment agreement has an initial three-year term. Beginning on the second anniversary of the effective date, and subject to earlier termination pursuant to the agreement, the employment term will, on a daily basis, automatically extend by one day. In accordance with the agreement, on September 2, 2014, Mr. Mackin received a one-time signing bonus of $200,000, a grant of 400,000 stock options, and a performance stock award grant of 250,000 shares. The agreement also provides for a severance payment, which would become payable upon the occurrence of certain employment termination events, including termination by the Company without cause.

The Company’s employment agreement, as amended, with its former President and CEO, and current Executive Chairman, Mr. Steven G. Anderson, confers benefits, which become payable upon the occurrence of certain events, including the voluntary retirement of Mr. Anderson or termination of his employment in conjunction with certain change in control events. As of December 31, 2014 and 2013 the Company had $2.2 million and $2.1 million, respectively, in accrued expenses and other current liabilities on the Consolidated Balance Sheets representing benefits payable upon Mr. Anderson’s voluntary retirement, for which he is currently eligible. Mr. Anderson’s employment agreement took effect on January 1, 2013 and terminates on December 31, 2016.

PerClot Technology

On September 28, 2010 the Company entered into a worldwide distribution agreement (the “Distribution Agreement”) and a license and manufacturing agreement (the “License Agreement”) with SMI for PerClot, a polysaccharide hemostatic agent used in surgery. The Distribution Agreement contains certain minimum purchase requirements and has a term of 15 years. Following the start of manufacturing and U.S. regulatory approval, CryoLife may terminate the Distribution Agreement and the related minimum purchase requirements and sell PerClot pursuant to the License Agreement. The Company will pay royalties to SMI at stated rates on net revenues of products manufactured under the License Agreement.

In April 2014 CryoLife received 510(k) clearance for PerClot Topical from the FDA, which allowed CryoLife to begin commercialization of PerClot Topical in the U.S. The Company began shipping PerClot Topical in August 2014 and is currently in the early stages of this product launch. As a result of this approval and clearance, CryoLife paid $1.0 million to SMI in the second quarter of 2014 pursuant to the terms of the agreements between CryoLife and SMI.

In March 2014 CryoLife received approval of its investigational device exemption (“IDE”) for PerClot from the FDA. IDE approval allows the Company to begin clinical trials for the purpose of obtaining a PMA to distribute PerClot in the U.S. As part of the approval for the PerClot IDE, the FDA recommended several study design considerations. The Company made revisions to the investigational study protocol and most recently refiled the IDE submission on December 2, 2014. In December 2014 CryoLife received approval of the supplement to its IDE for PerClot from the FDA. This approval allows the Company to begin its pivotal clinical trial to gain approval to commercialize PerClot for surgical indications in the U.S. The Company is now actively initiating the clinical trial and plans to begin enrollment in the first half of 2015. CryoLife currently expects to receive PMA from the FDA during 2017.

CryoLife paid $500,000 to SMI in January 2015 related to the achievement of a contingent milestone. The Company expects to make additional contingent payments to SMI of up to $1.0 million if certain FDA regulatory and other commercial milestones are achieved.