AKAO 2017 Annual Report

124 recorded as contract revenue during the year ended December 31, 2015. As of December 31, 2017, the contract and final settlement are complete. NIAID In July 2015, the Company was awarded a contract by the National Institute of Allergy and Infectious Diseases ("NIAID") to support the discovery and development of LpxC inhibitors for the treatment of bacterial infections for $1.5 million committed through June 30, 2016. In January 2016, an additional committed funding of $0.5 million was added. In April 2016, NIAID modified the contract to exercise the first option to increase the total contract committed funding to $4.4 million. In April 2017, NIAID modified the contract to add committed funding of $0.3 million to the first option, bringing the total committed funding to $4.7 million. In June 2017, NIAID modified the contract to exercise the second option of $0.6 million and extended performance through August 2018, bringing the total committed funding to $5.3 million, of which $0.4 million remains available as of December 31, 2017. During 2017, the Company decided to discontinue all research and development efforts on its preclinical LpxC inhibitor programs for gram-negative pathogens. The Company does not expect to recognize additional revenues under this contract in future periods. During the years ended December 31, 2017, 2016 and 2015, the Company recognized revenue of $1.3 million, $2.3 million and $1.4 million, respectively, under these agreements, of which $0.2 million and $0.5 million were included in contracts receivable at December 31, 2017 and 2016, respectively. 7. Commitments Facility Lease Agreement In August 2016, the Company entered into a non-cancelable agreement (the "Lease") to lease 47,118 square feet of office, laboratory and research and development space (the “Original Space”) for the Company's new principal executive offices in South San Francisco. In July 2017, the Company entered into an amendment (the “Lease Amendment”) to lease an additional 51,866 square feet of space (the “Expansion Space”) for a total of 98,984 square feet (the “Premises”). The Lease commenced in March 2017, after the substantial completion of certain improvements (“Tenant Improvements”) required under the Lease and the Company moved into the Original Space in April 2017. The lease for 18,888 square feet of the Expansion Space commenced in August 2017 and the remainder is expected to begin by the end of the second quarter 2018. The lease term for the Premises is through January 31, 2028 (the “Lease Term”) and contains an option to extend the Lease Term for an additional 5 years. Base rent for the first year for the Original Space and Expansion 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. The Company has 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 behalf of the Company. At its election, the Company is also entitled to an additional improvements allowance of $0.9 million (“Original Additional Allowance”). Effective August 17, 2017, the Company 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, the Company has recorded $6.6 million of leasehold improvements under property, plant and equipment, net 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 its election, the Company is also entitled to an additional improvements allowance of $1.5 million (“Expansion Additional Allowance”). In the event the Company elects 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.