AKAO 2017 Annual Report

100 and contains an option to extend the Lease Term for an additional 5 years. Base rent for the first year for the Original Space is approximately $2.9 Million. The base rent increases approximately 3.5% in each subsequent year of the Lease Term. The Lease also provides for rent abatement of approximately $1.8 million and $2.0 million for the first year of the Lease Term for the Original Space and Expansion Space, respectively. We have a one-time improvement allowance of $5.7 million for the Tenant Improvements (the "Original Allowance"). The Landlord disbursed the Original Allowance for the Tenant Improvement on our behalf. At our election, we are also entitled to an additional improvements allowance of $0.9 million (“Original Additional Allowance”). Effective August 17, 2017, we elected to use the Original Additional Allowance and the base rent was increased by an aggregate of $1.7 million over the Lease Term. As of December 31, 2017, we have recorded $6.6 million within leasehold improvements under property, plant and equipment, net in the condensed consolidated balance sheet related to costs incurred under the Original Allowance and the Original Additional Allowance. The Lease Amendment provides for a one-time improvement allowance of $1.0 million for certain tenant improvements and, at our election, we are also entitled to an additional improvements allowance of $1.5 million (“Expansion Additional Allowance”). In the event we elect to use the Expansion Additional Allowance, the base rent will be increased as calculated in the Lease Amendment. Pursuant to the Lease Amendment, the Company holds the option to pay the balance of the Original Additional Allowance and Expansion Additional Allowance in full any time within the first 36 months of the Lease Term. Further, the Company had deposits of $0.5 million and $0.4 million included in long-term restricted cash as of December 31, 2017 and 2016, respectively, restricted from withdrawal and held in a money market account with one of the Company’s financial institutions in the form of collateral for a letter of credit held as security for the Lease and Lease Amendment. Other Commitments We have obligations to make future payments to third parties under license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement of certain development, regulatory and commercialization milestones. However, because the achievement of these milestones is not fixed and determinable, such commitments have not been included on our balance sheet or in the Contractual Obligations and Commitments table above. Indemnification In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations. In accordance with our amended and restated certificate of incorporation and our amended and restated bylaws, we have indemnification obligations to our officers and directors for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. We have also entered into indemnification agreements with our directors and executive officers. There have been no claims to date, and we have director and officer insurance that may enable us to recover a portion of any amounts paid for future potential claims. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Recent Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases , which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease