Note 14. Commitments and Contingencies

Legal Matters

The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property and product liability. As a result, the Company may be subject to various legal proceedings from time to time. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Any current litigation is considered immaterial and counter claims have been assessed as remote.

Severance Agreements and Retention Plans

In October 2012, the Board of Directors and 60% of requisite preferred holders approved a plan to set aside no less than 15% of the proceeds of any sale of the Company to be distributed to the Company’s employees, directors or consultants as designated by the Board of Directors (the “HTG Employee Retention Plan”). The HTG Employee Retention Plan terminated pursuant to its terms upon the closing of the IPO.

The Company has entered into employment agreements or other arrangements with certain named executive officers, which provides salary continuation payments, bonuses and, in certain instances, the acceleration of the vesting of certain equity awards to individuals in the event that the individual is terminated other than for cause, as defined in the applicable agreement.

Indemnification Agreements

In the course of operating its business, the Company has entered into, and continues to enter into, separate indemnification agreements with the Company’s directors and executive officers, in addition to the indemnification provided for in the Company’s amended and restated bylaws. These agreements may require the Company to indemnify its directors and executive officers for certain expenses incurred by a director executive officer in any action or proceeding arising out of their services as one of the Company’s directors or executive officers.

Leases

The Company leases office and laboratory space under two non-cancelable operating leases in Tucson, Arizona, which were set to expire in November and December 2015, respectively. Under the terms of the two Tucson leases, the Company had one option to extend the leases for five years at the end of the initial seven year lease term. The Company amended its existing facilities leases in August 2015 to extend the terms for five years and require the landlord to undergo capital improvements to expand and improve the existing research, development, operations and administration office facilities. The lease amendment includes an increase of $804,000 in total monthly rent over the remaining life of the lease.

In addition, the Company entered into a construction contract with a third party in the third quarter 2015 for the expansion of and leasehold improvements in its laboratory, manufacturing and office spaces, representing an expected cash outlay commitment by the Company of approximately $500,000 through the first quarter of 2016. Such leasehold improvements will be capitalized and amortized over the remaining life of the lease as they are completed.

As a result of the amendments, the Company’s annual minimum lease payments before common area maintenance charges, which will commence in 2016 and continue through 2021 are as follows:

2016	$	494,354
2017		510,125
2018		512,533
2019		514,977
2020		517,457
2021 and beyond		43,139
	$	2,592,585

Rent expense and common area maintenance costs for all operating leases were $443,085and $368,937 for the years ended December 31, 2015 and 2014, respectively.

Merck Non-Exclusive License Agreement

In June 2012, the Company entered into a non-exclusive license agreement with Merck Sharp & Dohme Cor. (“Merck”) whereby the Company agreed to sublicense certain intellectual property related to breast cancer biomarkers with the intent to develop, manufacture and commercialize a diagnostic test utilizing this technology. The Company agreed to pay Merck certain contingent milestone payments between $50,000 and $1,000,000 and future royalties of 3%-6% of sales derived from such products developed that utilize the licensed technology. No amounts have been accrued or paid under this agreement as the Company has not achieved any of the milestone targets or developed any products that utilize the licensed technology.

Product Warranty

The following is a summary of the Company’s general product warranty liability for the year ended December 31, 2015:

Warranty reserve, January 1, 2015	$	—
Cost of warranty claims		(545	)
Warranty accrual		20,758
Warranty reserve, December 31, 2015	$	20,213

Prior to the quarter ended September 30, 2015, no warranty reserves were recorded by the Company.

Defined Contribution Plan

Effective January 1, 2003, the Company established a defined contribution plan (the 401(k) Plan) under Internal Revenue Code section 401(k). All employees upon hire who are over the age of 21 are eligible for participation in the 401(k) Plan. The Company may make discretionary contributions to the 401(k) Plan, but has not done so during the years ended December 31, 2015 and 2014.