COMMITMENTS

On December 31, 2012, the Company entered into a stock purchase agreement to acquire Eleven Blade Solutions, Inc. (Eleven Blade). The closing of the transaction was conditioned upon Eleven Blade obtaining United States Food and Drug Administration clearance for certain suture-based anchor products, which was received in January 2013, and the Company subsequently paid $7 million in cash and closed the acquisition. In addition, the agreement provides that the Company will pay the sellers a one-time earn-out payment based on the net sales of Q-Fix® products during the three-year period following the full commercialization of these products in the United States. Finally the purchase agreement provides the sellers a right to receive royalties based on the net sales of Q-Fix® products for a term of 10 years.

On July 1, 2013, the Company acquired ENTrigue Surgical, Inc. ("ENTrigue"), a privately-held Delaware corporation specializing in ENT sinus surgical products. The Agreement provides that the Company will make annual cash payments to the former stockholders of ENTrigue shortly after each of the next five anniversaries of the acquisition date based on the annual net sales of the acquired products. The annual payment shall equal annual net sales growth times the applicable sales growth multiple for the year. The sales growth multiple is 0.6 for years 1-3; 1.1 for year 4; and 1.25 for year 5. For purposes of calculating this multiple, the annual growth of net sales each year is determined by subtracting the highest amount of net sales in any previous year from the net sales in the current year. The range of undiscounted future payments that could be required is currently estimated to be between $2.4 million and $32.2 million. The estimated fair value of the contingent consideration arrangement used for determining total purchase price is $14.5 million, which was estimated by applying the income approach using a Monte Carlo simulation model.

The fair value of the liability is based on valuation inputs that are not observable in the market (considered as a level 3 fair value in the hierarchy to classify fair value under generally accepted accounting principles) including volatility of 21%, a risk free rate between 0.16% to 1.76% and a discount rate between 11.5% to 13%, each of which fluctuates within those ranges over the term of the earn out. The Company updated the fair value of the earn out as of December 31, 2013 using the Monte Carlo simulation model noting that the change in fair value from $14.5 million on the date of acquisition to $15.2 million as of December 31, 2013 was due to the accretion of interest expense.

On July 22, 2013, ArthroCare Costa Rica S.R.L. (“ACR”), an indirect wholly-owned subsidiary of ArthroCare, entered into agreements with Zona Franca Coyol, S.A. (“CFZ”) under which ACR acquired property in Alajuela, Costa Rica for $4.9 million from CFZ and CFZ has been contracted to design and construct a new manufacturing facility for the Company on the acquired property currently expected to cost approximately $19.9 million.

The Company recognizes rent expense on a straight-line basis over the lease term. Rent expense for 2013, 2012 and 2011 was $6.0 million, $6.0 million and $5.4 million, respectively.

The Company advances legal fees as required pursuant to indemnification agreements that were entered into with certain former executives and employees while they were employed with the Company. The company advanced and expensed $12.5 million, $7.7 million and $6.3 million for the years ended December 31, 2013, 2012 and 2011, respectively, under these indemnification agreements. We expect to continue to advance payments pursuant to these agreements in future periods; however, management is unable to estimate the amount or timing of future payments under such agreements.

The Company leases certain facilities and equipment under operating leases. At December 31, 2013, total and future minimum commitments were as follows (in thousands):



	Minimum Lease Payments		Other		Sub-lease Income		Minimum Commitments
2014	$	6,398	$	105	$	79	$	6,424
2015	5,188		—		81		5,107
2016	4,587		—		83		4,504
2017	3,609		—		21		3,588
2018	3,075		—		—		3,075
Thereafter	10,301		—		—		10,301
	$	33,158	$	105	$	264	$	32,999

Warranties

The Company guarantees its disposable medical devices for materials, function and workmanship for a single usage. The Company's warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. The Company periodically evaluates and adjusts the warranty reserve to the extent actual warranty expense varies from the original estimates.