COMMITMENTS AND CONTINGENCIES:

Leases

The Company leases office space and motor vehicles under operating leases with various expiration dates through 2026. Expenses related to office space and motor vehicle leases were approximately $18.9 million, $14.3 million and $15.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. The terms of the facility leases provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid.

At December 31, 2016, future minimum payments under non-cancelable operating leases are as follows:



Year Ended December 31,	Operating Leases
	(in thousands)
2017	$	19,329
2018	15,912
2019	11,325
2020	7,175
2021	4,589
Thereafter	7,656
Total minimum lease payments	$	65,986

Purchase commitments

At December 31, 2016, the Company had the following non-cancelable purchase commitments:



Year Ended December 31,	Purchase Commitments
	(in thousands)
2017	$	157,964
2018	7,017
2019	1,954
Thereafter	—
Total purchase commitments	$	166,935

Term Debt

For more information about the term debt, see Note 15-Term Debt.

Other Commitments

Operating lease

On May 3, 2016, the Company entered into a lease agreement for additional office space expected to be built in Yokneam, Israel. The Company is not involved in the construction, and will not be exposed to any risk during the construction period. The lease term expires 10 years after lease inception with no options to extend the lease term. The Company's occupancy of the additional office space and its obligation under the lease agreement are contingent on the lessor's attainment of stated milestones in the lease agreement. As such, the Company cannot make a reliable estimate as to the timing of cash payments under the lease. At December 31, 2016, the estimated total future lease obligation is approximately $28.7 million. Over a twelve month period, the estimated rental expense will be approximately $2.9 million, and if recognized, would increase the Company's operating expenses in its consolidated statement of operations.

Royalty-bearing grants

We are obliged to pay royalties to the Office of the Israeli National Authority for Technological Innovation or the Office of the Chief Scientist of the Ministry of Economy and Industry of Israel (formerly, the Ministry of Industry, Trade and Labor) (the "OCS") for research and development efforts partially funded through grants from the OCS and under approved plans in accordance with the Israeli Law for Encouragement of Research and Development in the Industry, 1984, (the "R&D Law"). Royalties are payable to the Israeli government at the rate of 4.5% on the revenues of the Company's products incorporating OCS funded know-hows, and up to the amount of the grants received. The Company's obligation to pay these royalties is contingent on actual sales of the products, at which time a liability is recorded. In the absence of such sales, we cannot make a reliable estimate as to the timing of cash settlement of the royalties. At December 31, 2016, the Company estimated a total future royalty obligation of approximately $25.8 million, and if recognized, would increase the Company's cost of revenues in its consolidated statement of operations.

Unrecognized tax benefits

Due to the inherent uncertainty with respect to the timing of future cash outflows associated with the Company's unrecognized tax benefits, it is unable to reliably estimate the timing of cash settlement with the respective taxing authorities. As of December 31, 2016, the Company's unrecognized tax benefits totaled $41.5 million, out of which an amount of $23.4 million would reduce the Company's income tax expense and effective tax rate, if recognized.

Contingencies

Legal proceedings

The Company is engaged in other legal actions not described below arising in the ordinary course of its business and, while there can be no assurance, it believes that the ultimate outcome of these actions will not have a material adverse effect on its operating results, liquidity or financial position.

Settled legal proceedings

Avago Technologies Fiber (IP) Singapore Pte. Ltd. vs. IPtronics, Inc. and IPtronics A/S (the "Parties").

On September 29, 2010, Avago Technologies Fiber (IP) Singapore Pte. Ltd. (“Avago IP”) filed a complaint for patent infringement against IPtronics, Inc. and IPtronics A/S (now Mellanox Technologies Denmark Aps) (collectively, “IPtronics”) in the United States District Court, Northern District of California, San Jose Division (Case No.: 5:10-cv-02863 EJD), asserting infringement of U.S. Patents Number 5,596,456 and 5,359,447. On September 11, 2012, Avago IP along with additional subsidiaries of Avago Technologies Limited (collectively, “Avago”) filed a Second Amended and Supplemental Complaint against IPtronics adding allegations that IPtronics engaged in violations of the Lanham Act, Section 43 (A); misappropriated Avago’s trade secrets; engaged in unfair competition against Avago; intentionally interfered with Avago’s contractual relations; and were unjustly enriched by and through the conduct complained of by Avago. Avago’s motion to file a Fourth Amended and Supplemental Complaint (the “Complaint”) to add the Company and a new claim for interference with prospective economic advantage against IPtronics was granted. The Company and IPtronics answered the new complaint. Pursuant to a Settlement and Patent License Agreement (the "Settlement") dated March 7, 2016, on March 8, 2016 the Parties jointly filed a Stipulation of Dismissal with Prejudice Pursuant to Fed.R.Civ.P. 41(a)(1)(A)(ii), in which the parties stipulated to the dismissal with prejudice of this action, including all claims alleged in the Fourth Amended and Supplemental Complaint and all counterclaims alleged in the answers thereto, with each party to bear its own costs and attorneys’ fees.

IPtronics, Inc. and Mellanox Technologies Denmark ApS vs. Avago Technologies, Inc., et al.

IPtronics filed an antitrust Complaint in the United States District Court, Northern District of California, San Jose Division (Case No.: 5:14-cv-05647-BLF (PSG)), against Avago for pursuing what the Company believed to be a baseless ITC action against IPtronics. Pursuant to the Settlement, the Parties filed a Joint Stipulation of Dismissal with Prejudice Pursuant to Fed.R.Civ.P. 41(a)(1)(A)(ii), in which the parties stipulated to the dismissal of this action with prejudice, with each party to bear its own costs and attorneys’ fees.

Per the settlement of the claims, the Company and Avago agreed not to sue each other for a period of 5 years. The contractual patent rights conveyed by the settlement were deemed not contributory to the Company's operations or products sold. As a result, the Company recorded settlement expense in its operating expenses in the amount of $5.1 million during the year ended December 31, 2016.

Mellanox Technologies, Ltd. v. Methode Electronics, Inc.

On August 16, 2015, Mellanox filed this action in the federal court for the Northern District of California (Civil Action No. 15-cv-03730-PJH) naming Methode Electronics, Inc. as defendant on claims for infringement of Mellanox’s U.S. Patent No. 8,419,444 and U.S. Patent No. 7,934,959. In December 2015 and March 2016, Mellanox filed amended complaints that asserted infringement of the 959 patent but not the 444 patent and sought an award of damages from Methode and imposition of injunctive relief. Methode asserted defenses and counterclaims for declaratory judgment concerning the issues of infringement and validity of the 959 patent, and later moved to add other defenses and counterclaims relating to the 959 patent. The court denied in part and granted in part Methode’s motion. The parties engaged in fact discovery and initial claim construction disclosures and briefing. On October 5, 2016, the parties conducted a mediation before a private mediator. The following day, the parties jointly reported to the court that they had reached an agreement in principle that resolves all claims and counterclaims in the case and requested a stay of proceedings to allow time to work out formal settlement documents. On October 7, 2016, the court entered a 45 day stay of proceedings. The parties formalized the confidential settlement terms on November 22, 2016 and, consistent therewith, the parties filed a joint motion for dismissal with prejudice which the court granted on December 14, 2016.