11. Commitments and Contingencies

Alameda Lease

On December 10, 2015, BioTime entered into a lease for approximately 30,795 square feet of rentable space in two buildings located in an office park in Alameda, California (the “New Alameda Lease”). The term of the New Alameda Lease is seven years and BioTime has an option to renew the term for an additional five years. BioTime moved into the facility and the term of the New Alameda Lease commenced effective February 1, 2016.

The landlord provided BioTime with an initial tenant improvement allowance of $1.4 million that was applied to the construction of improvements of the leased premises, primarily for the research and development facilities. BioTime utilized the tenant improvement allowance to complete the leasehold improvements as of June 1, 2016 (see Note 5). The lease liability payments are included in the base rent payments to the landlord and the $1.4 million due to the landlord as of December 31, 2016, will be amortized using the effective interest method over the lease term.

Base rent under the New Alameda Lease commenced on February 1, 2016 at $64,670 per month, and will increase by approximately 3% annually on every February 1 thereafter during the lease term. The lease payments allocated to the landlord liability are amortized as debt service on that liability over the lease term.

Total base lease payments, inclusive of the lease liability, under the New Alameda Lease per the lease agreement for the years ending after December 31, 2016 are shown below (in thousands):

Years Ending December 31,	Minimum Lease Payments
2017	$	797
2018		822
2019		844
2020		870
2021		896
Thereafter		1,002
Total	$	5,231

In addition to base rent, BioTime will pay a pro rata portion of increases in certain expenses, including real property taxes, utilities (to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those expenses incurred by the landlord during 2017. As security for the performance of its obligations under the New Alameda Lease, BioTime provided the landlord with an initial security deposit of approximately $847,000, which will be reduced by $423,000 after the first twenty-four months of the lease term, and further reduced by an additional $346,000 after the first thirty-six months of the lease term, by applying those amounts to future rent payment obligations under the lease, if BioTime is not in default under the Lease.

BioTime also currently pays $5,050 per month for the use of office space in New York City, which is made available to BioTime by one of its directors at his cost for use in conducting meetings and other business affairs.

Cell Cure Lease

Cell Cure has leased approximately 1,128 square meters of office and laboratory space in Jerusalem, Israel under a lease that expires between May 30, 2019 and December 31, 2020, with two additional options to extend the lease for 5 years each. Base monthly rent is approximately NIS 55,218 (approximately US $14,400 per month). In addition to base rent, Cell Cure pays a pro rata share of real property taxes and certain costs related to the operation and maintenance of the building in which the leased premises are located.

Rent expense totaled $1.5 million, $2.1 million, and $2.0 million for the years ended December 31, 2016, 2015, and 2014, respectively, included in the consolidated statements of operations.

Future minimum annual lease payments under the various operating leases, including the New Alameda Lease noted above, and capital leases, for the years ending after December 31, 2016 are as follows (in thousands):

Year Ending December 31,	Minimum lease payments⁽¹⁾		Capital lease payments
2017	$	1,098	$	202
2018		1,045		217
2019		1,042		93
2020		1,048		-
2021		897		-
Thereafter		1,002		-
Total	$	6,132	$	512

(1)

Includes the lease of our principal office and laboratory facilities in Alameda, California, including the lease liability, leases of the offices and laboratory facilities of LifeMap Sciences, Cell Cure and other operating leases of lab equipment.

Litigation – General

BioTime will be subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and others. When BioTime is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, BioTime will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, BioTime discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. BioTime is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.

Employment Contracts

BioTime has entered into employment agreements with certain executive officers. Under the provisions of the agreements, BioTime may be required to incur severance obligations for matters relating to changes in control, as defined in the agreements, and involuntary terminations.

Indemnification

In the normal course of business, BioTime may provide indemnifications of varying scope under BioTime’s agreements with other companies or consultants, typically BioTime’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, BioTime will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of BioTime’s products and services. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to BioTime products and services. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments BioTime could be required to make under these indemnification agreements will generally not be subject to any specified maximum amount. Historically, BioTime has not been subject to any claims or demands for indemnification. BioTime also maintains various liability insurance policies that limit BioTime’s financial exposure. As a result, BioTime believes the fair value of these indemnification agreements is minimal. Accordingly, BioTime has not recorded any liabilities for these agreements as of December 31, 2016 and 2015.

Royalty obligations and license fees

BioTime and its subsidiaries or affiliates are parties to certain licensing agreements with research institutions, universities and other parties for the rights to use those licenses and other intellectual property in conducting research and development activities. These licensing agreements provide for the payment of royalties by BioTime or the applicable party to the agreement on future product sales, if any. In addition, in order to maintain these licenses and other rights during the product development, BioTime or the applicable party to the contract must comply with various conditions including the payment of patent related costs and annual minimum maintenance fees. Annual minimum maintenance fees are approximately $140,000 to $160,000 per year. The research and development risk for these products is significant. License fees and related expenses under these agreements were $180,000, 282,000 and $432,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Grants

BioTime accounts for grants received to perform research and development services in accordance with ASC 730-20, Research and Development Arrangements, which requires an assessment at the inception of the grant whether the grant is a liability or a contract to perform research and development services for others. If the company receiving the grant is obligated to repay the grant funds to the grantor regardless of the outcome of the research and development activities, then the company is required to estimate and recognize that liability. Alternatively, if the company receiving the grant is required to repay the grant funds only if the research and development activities are successful, then the grant agreement is accounted for as a contract to perform research and development services for others. In this case, the grant payments are recognized as income when the related research and development expense is incurred.

Under the terms of the grant agreement between Cell Cure and Israel Innovation Authority, or the IIA (formerly the Office of the Chief Scientist of Israel) of the Ministry of Economy and Industry, for the development of OpRegen^®, Cell Cure will be required to pay royalties on future product sales, if any, up to the amounts received from the IIA, plus interest indexed to LIBOR. Cell Cure’s research and product development activities under the grant are subject to substantial risks and uncertainties, and performed on a best efforts basis. As a result, Cell Cure is not required to make any payments under the grant agreement unless it successfully commercializes OpRegen^®. Accordingly, pursuant to ASC 730-20, the Cell Cure grant is considered a contract to perform research and development services for others and grant income is recognized as the related research and development expenses are incurred.

Israeli law pertaining to such government grants contain various conditions, including substantial penalties and restrictions on the transfer of intellectual property, or the manufacture, or both, of products developed under the grant outside of Israel, as defined by the IIA.