8. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements in California, Pennsylvania and Stockholm, Sweden. The lease for the Company’s facility in Vienna, Austria is on a month-to-month basis. The leases expire at various dates through 2020. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.

Rent expense under the non-cancelable operating leases were $1.5 million, $1.0 million and $1.0 million in 2016, 2015 and 2014, respectively. Future minimum lease commitments under these operating and capital leases at December 31, 2016, are as follows (in thousands):

Years ending December 31,	Capital Leases			Operating leases
2017	$	74		$	2,133
2018		24			2,092
2019		5			2,082
2020		—			2,041
2021 and thereafter		—			1
Total minimum lease payments	$	103		$	8,349
Less: amounts representing interest		(9	)
Present value of minimum lease payments		94
Less: current portion of obligations under capital leases		(68	)
Long-term portion of obligations under capital leases	$	26

The current portion of obligations under capital leases is included in accrued and other liabilities on the balance sheets. The long-term portion is included in long-term debt, net of current portion on the balance sheets.

See Note 10 for the aggregate annual payment schedule for the Company’s outstanding debt.

Royalty Commitments

In November 2004, the Company entered into a license agreement with Roche Molecular Systems, Inc. (“Roche”) that grants the Company the right to use certain Roche technology relating to PCR and quantitative real-time PCR, in clinical laboratory services, including in connection with AlloMap. This is a non-exclusive license agreement in the United States covering claims in multiple Roche patents. The Company had disputed the combination services percentage Roche sought to apply under the agreement. The combination service percentage is a multiplier used to calculate royalties where licensed services are sold in combination with other services. From July 2011 through September 2014, the Company withheld payment of such royalties pending resolution of the matter. On February 11, 2014, Roche filed a demand for arbitration with the American Arbitration Association seeking a declaration that the Company had materially breached the Roche license agreement by failing to report and pay royalties owing to Roche in respect of licensed services performed by the Company after July 1, 2011. Since July 1, 2011, the Company fully accrued the unpaid royalties on the balance sheets, and the amount of the unpaid royalties has been reflected as an expense in the Company’s income statements in the periods to which the royalties relate.

In September 2014, the Company entered into a settlement and mutual release agreement with Roche whereby: (i) for the period beginning July 1, 2011 through June 30, 2014, the Company agreed to pay the amount of $2,827,220 in settlement of past royalties due; (ii) for the period beginning July 1, 2014 through September 30, 2014, the Company agreed to pay royalties based on the same combination services percentage used to determine the past royalties due; (iii) for the period beginning October 1, 2014 through September 30, 2017, Roche and the Company agreed to a downward adjustment of the combination services percentage used to determine the portion of the AlloMap testing revenue that is royalty bearing under the terms of the license; (iv) the Company agreed to report and pay quarterly royalties within 45 days of the end of each calendar quarter; (v) Roche agreed that, subject to the Company’s timely payment of all applicable royalties through such date, no further royalties will be payable by the Company for periods after September 30, 2017; (vi) the Company and Roche agreed to mutually release all claims under the license agreement through the settlement date; and (vii) Roche agreed to dismiss the arbitration claims. For all time periods, the contractual royalty rate in the license agreement was or will be applied to the applicable combination services percentage to determine the royalties payable for the AlloMap service.

Under the license agreement, the Company incurs royalty expenses as a percentage of combination services revenue and classifies those expenses as a component of cost of testing in the consolidated statements of operations. As a result of the Company’s September 2014 settlement and payment to Roche of $2.8 million as payment in full of all royalties under the license agreement from July 1, 2011 through June 30, 2014, the Company recorded a reduction of $0.6 million to cost of testing and $0.1 million to interest expense in the consolidated statements of operations for the year ended December 31, 2014.

For the years ended December 31, 2016, 2015 and 2014, royalty expenses in connection with the Roche agreement were $1.1 million, $1.0 million and $0.7 million, respectively and are recorded as a component of cost of testing in the statement of operations.

Litigation

On April 25, 2016, Oberland filed a breach of contract claim against the Company in the Supreme Court of the State of New York, County of New York (the “Complaint”). Oberland alleged, among other things, that the Company breached certain provisions of the amended and restated commitment letter and the restated fee letter that it entered into with Oberland on February 8, 2016. Pursuant to the Complaint, Oberland sought damages against the Company in the amount of at least $1.4 million, plus costs and expenses, including the fees and expenses of Oberland’s attorneys. As a result, the Company previously accrued the amount being claimed by Oberland of $1.4 million. On July 15, 2016, the Company filed an answer and made counterclaims against Oberland (the “Answer”), generally denying the claims asserted by Oberland in the Complaint and asserting fraudulent inducement and breach of contract counterclaims against Oberland. Pursuant to the Answer, the Company sought dismissal of the Complaint in its entirety, rescission of all agreements with Oberland and damages of not less than $1.3 million, together with interest and punitive damages, if deemed appropriate under applicable law, and costs and disbursements of the action, including reasonable attorneys’ fees.

Effective as of March 2, 2017, the Company and Oberland settled the matters covered by the Complaint and the Answer (the “Settlement”). Pursuant to the Settlement, the Company paid Oberland $0.6 million and each party agreed to release claims asserted in the Complaint and the Answer. The Company subsequently adjusted its accrual from $1.4 million to $0.6 million as of December 31, 2016. See Note 18.

Contingencies

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, would have a material adverse effect on the Company’s business, financial condition, or results of operations.

On June 15, 2016, the Company received a letter from Nasdaq OMX Stockholm AB, or Nasdaq Stockholm, regarding the Company’s compliance with the requirements of the Nasdaq Stockholm Takeover Rules, or the Takeover Rules, and good practice in the securities market in Sweden in connection with the Company’s recently completed acquisition of Allenex. Nasdaq Stockholm concluded that the Company violated certain technical provisions of the Takeover Rules and acted contrary to good practice in the securities market in Sweden. On December 21, 2016, the Disciplinary Committee informed the Company that it decided to impose a SEK 1.0 million (approximately $0.1 million) fine and this amount was paid by the Company in February 2017.