Note 8. Commitments and Contingencies

The Company, from time to time, is involved in legal proceedings or regulatory encounters or other matters in the ordinary course of business that could result in unasserted or asserted claims or litigation. Management is not aware of any legal proceedings where the likelihood of a loss contingency is reasonably possible and the amount or range of reasonably possible losses is material to the Company’s results of operations, financial condition or cash flows.

Operating leases

The Company leases its main headquarters and manufacturing facility and facilities for its foreign subsidiaries. Certain of the Company’s leases contain renewal options, rent escalation clauses, and/or landlord incentives. Rent expense for noncancelable operating leases with scheduled rent increases and/or landlord incentives is recognized on a straight-line basis over the lease term beginning with the lease commencement date, or the date the Company takes control of the leased space, whichever is sooner. The excess of straight-line rent expense over scheduled payment amounts and landlord incentives is recorded as a deferred rent liability.

The Company leases two adjacent facilities located in San Clemente, California, both of which are subject to leases that expire on December 31, 2021. The agreements each contain an option to extend the leases for up to two additional three-year periods at market rates. The total square footage of both facilities equals approximately 77,000. The lease landlord agreed to provide the Company with a tenant improvement allowance after January 1, 2017 in the amount of the cost of any leasehold improvements, not to exceed approximately $264,000 upon the Company providing the necessary documentation evidencing the costs of the allowable leasehold improvements.

The Company’s foreign subsidiaries lease office space totaling less than 3,000 square feet.

The Company recorded deferred rent of $253,000 and $219,000 as of June 30, 2017 and December 31, 2016, respectively, in conjunction with its facilities lease agreements. For each of the three month periods ended June 30, 2017 and 2016, rent expense was $0.3 million and for the six month periods ended June 30, 2017 and 2016, rent expense was $0.6 million and $0.5 million, respectively.

Future minimum payments under the aforementioned non-cancelable operating leases for each of the five succeeding years are as follows (in thousands):


Remainder of 2017	$	799
2018		1,443
2019		1,294
2020		1,231
2021		1,246
Thereafter		-
	$	6,013

Purchase Commitments

The Company is a party to various purchase arrangements related to components used in production and research and development activities. As of June 30, 2017 and December 31, 2016, the Company had non-cancelable, firm purchase commitments with certain vendors totaling approximately $0.6 million and $3.7 million, respectively, due within one year. There are no material purchase commitments due beyond one year.

Regents of the University of California

On December 30, 2014, the Company executed an agreement (the UC Agreement) with the Regents of the University of California (the University) to correct inventorship in connection with a group of the Company’s U.S. patents (the Patent Rights) and to obtain from the University a covenant that it did not and would not claim any right or title to the Patent Rights and will not challenge or assist any others in challenging the Patent Rights. In connection with the UC Agreement, Glaukos agreed to pay to the University a low single-digit percentage of worldwide net sales of certain current and future products, including the Company’s iStent products, with a required minimum annual payment of $0.5 million. This ongoing product payment terminates on the date that the last of the Patent Rights expires, which is currently expected to be in 2022. For the three month periods ended June 30, 2017 and 2016, the Company recorded approximately $1.0 million and $0.7 million, respectively, in cost of sales in connection with this product payment obligation and approximately $1.9 million and $1.3 million, respectively, in cost of sales in connection with this product payment obligation for the six month periods ended June 30, 2017 and 2016.

Executive Deferred Compensation Plan

Effective April 1, 2017, the Company established a deferred compensation plan (the Deferred Compensation Plan) for eligible senior level employees. The plan is designed to permit eligible employees to make elective deferrals of compensation to which he or she will become entitled in the future. The Company also established a rabbi trust that serves as an investment to shadow the Deferred Compensation Plan liability. The investments of the rabbi trust consist of company-owned life insurance policies (COLIs). The fair value of the Deferred Compensation Plan liability, included in other liabilities on the condensed consolidated balance sheets, was approximately $0.2 million and zero as of June 30, 2017 and December 31, 2016, respectively, and the cash surrender value of the COLIs, included in deposits and other assets on the condensed consolidated balance sheets, which reflects the underlying assets at fair value, was approximately $0.2 million and zero as of June 30, 2017 and December 31, 2016, respectively.