12. Commitments and Contingencies

Contingent Payment to Cognate BioServices

Under the January 17, 2014 DCVax®-L Manufacturing Services Agreement and the DCVax-Direct Agreement, a new set of provisions apply going forward to any shut down or suspension. Under these provisions, the Company will be contingently obligated to pay certain fees to Cognate BioServices (in addition to any other remedies) if the Company shuts down or suspends its DCVax-L program or DCVax-Direct program. For a shut down or suspension of the DCVax-L program, the fees will be as follows:

Prior to the last dose of the last patient enrolled in the Phase III trial for DCVax®-L or After the last dose of the last patient enrolled in the Phase III clinical trial for DCVax®-L but before any submission for product approval in any jurisdiction or after the submission of any application for market authorization but prior to receiving a marketing authorization approval: in any of these cases, the fee shall be $3 million.

At any time after receiving the equivalent of a marketing authorization for DCVax®-L in any jurisdiction, the fee shall be $5 million.

For a shut down or suspension of the DCVax-Direct program, the fees will be as follows:

Prior to the last dose of the last patient enrolled in the Phase I/II trial for DCVax®-Direct, the fee shall be $1.5 million.

After the last dose of the last patient enrolled in the Phase I/II clinical trial for DCVax®-Direct but before the initiation of a Phase III trial the fee shall be $2.0 million.

After initiation of a phase III trial but before submission of an application for market authorization in any jurisdiction or after the submission of an application for market authorization but prior to receiving a market authorization approval: in each of these cases, the fee shall be $3.0 million.

At any time after receiving the equivalent of a marketing authorization for DCVax®-Direct in any jurisdiction the fee shall be $5.0 million.

While our DCVax programs are ongoing, the Company is required to pay certain fees for dedicated production suites or capacity reserved exclusively for DCVax production, and pay for a certain minimum number of patients, whether or not we fully utilize the dedicated capacity and number of patients.

Operating Lease

On July 31, 2012, the Company entered into a non-cancelable operating lease for 7,097 square feet of office space in Bethesda, Maryland, which expires in March 2018. Rent expense for 2016 and 2015 amounted to $0.3 million and $0.3 million, respectively.

On October 28, 2013, the Company entered into a non-cancelable operating lease for 4,251 square feet of office space in Germany, which expires in December 2017. The lease contains an option with 3 years extension, and a 6 month in advance notice is required.

On March 26, 2016, the Company entered into a non-cancelable operating lease for 505 square feet of office space in London, which expires in March, 2017. On December 19, 2016, the Company entered a renewal agreement to extend the office lease for an additional 1 year until March, 2018. Rent expense in the U.K. for the year ended December 31, 2016 was approximately $120,000.

The Company’s future minimum lease payments are as follows as of December 31, 2016 (in thousands):

	Office Leases
	U.S.		Germany		U.K.		Total
2017	$	318	$	64	$	175	$	557
2018		81		-		39		120
Total	$	399	$	64	$	214	$	677

Derivative and Class Action Litigation

On June 19, 2015, two purported shareholders filed a lawsuit in the Delaware Court of Chancery, captioned Tharp, et al. v. Cognate, et al., C.A. 11179-VCG (Del. Ch. filed June 19, 2015), purportedly suing on behalf of a class of similarly situated shareholders and derivatively on behalf of the Company. The lawsuit names Cognate BioServices, Inc., Toucan Partners, Toucan Capital Fund III, our CEO Linda Powers and the individuals who then served on the Company’s Board of Directors as defendants, and names the Company as a “nominal defendant” with respect to the derivative claims. The complaint generally challenges certain transactions between the Company and Cognate and the Toucan entities, in which Cognate and the Toucan entities provided services and financing to the Company, or agreed to the conversion of debts owed to them by the Company into equity. The complaint seeks unspecified monetary relief for the Company and the plaintiffs, and various forms of equitable relief, including disgorgement of allegedly improper benefits, rescission of the challenged transactions, and an order forbidding similar transactions in the future. The plaintiffs filed an amended complaint on November 6, 2015. The Company and the other named defendants filed motions to dismiss the amended complaint on January 19, 2016, which are now fully briefed. The Company intends to vigorously defend the case.

On November 19, 2015, a third purported shareholder filed a lawsuit in the U.S. District Court for the District of Maryland, captioned Yonemura v. Powers, et al., No. 15-03526 (D. Md. filed Nov. 19, 2015), claiming to sue derivatively on behalf of the Company. The complaint names the individuals who then served on the Company’s Board of Directors, Toucan Capital Fund III, L.P., Toucan General II, LLC, Toucan Partners, LLC, and Cognate as defendants, and names the Company as a nominal defendant. The complaint generally challenges the same transactions disputed in the Delaware case, claiming that the Company purportedly overcompensated Cognate and Toucan for certain services and loans in payments of stock, and that the Company’s CEO, Ms. Powers, benefited from these transactions with Cognate and Toucan, which she allegedly owns or controls. The complaint asserts that the alleged overpayments unjustly enriched Ms. Powers, Toucan, and Cognate; that the Company’s directors breached their fiduciary duties of loyalty and good faith to the Company by authorizing the payments to Cognate; and that Ms. Powers, Cognate, and Toucan aided and abetted the directors’ breaches of fiduciary duties. The plaintiff seeks an award of unspecified damages to the Company and seeks equitable remedies, including disgorgement by Ms. Powers, Toucan, and Cognate of the allegedly improper benefits received as a result of the disputed transactions. The plaintiff also seeks costs and disbursements associated with bringing suit, including attorneys' fees and expert fees. The Company intends to vigorously defend the case. The case is currently stayed pending the parties’ progress toward an acceptable resolution of the litigation.

On November 28, 2016, a purported shareholder filed a lawsuit in the Circuit Court for Montgomery County, Maryland, captioned Wells v. Powers, et al., Case No. 427353-V (Md. Cir. Ct., Mont. Cnty. filed Nov. 28, 2016), claiming to sue derivatively on behalf of the Company. The complaint names six current and former members of the Company’s Board of Directors, Toucan Partners, LLC, Toucan Capital Fund III, L.P., Toucan Partners, LP (a non-existent entity), Toucan General II, LLC, and Cognate as defendants, and names the Company as a nominal defendant. The complaint largely challenges the same transactions disputed in the two cases discussed above, claiming that the Company overcompensated Cognate and Toucan for certain services and loans. It asserts that, by authorizing those transactions, the individual defendants breached their fiduciary duties to the Company, abused their ability to control and influence the Company, and engaged in gross mismanagement of the Company’s business and assets. In addition, the complaint claims that the individual defendants are liable to the Company for misleading its investors and financiers. The complaint claims that the individual defendants were unjustly enriched by receiving compensation while the Company’s stock price was allegedly artificially inflated; that Ms. Powers, Toucan, and Cognate are “controlling” stockholders of the Company who breached their fiduciary duties to minority stockholders; that Ms. Powers, Toucan, and Cognate, benefited from these transactions due to their alleged “control”; that the alleged overpayments unjustly enriched Ms. Powers, Toucan, and Cognate; and that Toucan and Cognate aided and abetted the individual defendants in breaching their fiduciary duties. The complaint seeks the award of unspecified damages to the Company; an order from the court directing the Company to reform its corporate governance and internal procedures; and equitable remedies, including restitution and disgorgement from defendants. The plaintiff also seeks the costs and disbursements associated with bringing suit, including attorneys’ fees, costs, and expenses. The plaintiff filed an amended complaint on March 1, 2017. The Company intends to vigorously defend the case.

Class Action Securities Litigation

On August 26, 2015, a purported shareholder of the Company filed a putative class action lawsuit in the U.S. District Court for the District of Maryland, captioned Lerner v. Northwest Biotherapeutics, Inc., et al., No. 15-02532 (D. Md. filed Aug. 26, 2015). The lawsuit named the Company and Ms. Powers as defendants. On December 14, 2015, the court appointed two lead plaintiffs. The Lead Plaintiffs filed an amended complaint on February 12, 2016, purportedly on behalf of all of those who purchased common stock in the Company between January 13, 2014 and August 21, 2015. The amended complaint generally claimed that the defendants violated Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 by making misleading statements and/or omissions on a variety of subjects, including the status and results of the Company’s DCVax trials. The amended complaint sought unspecified damages, attorneys’ fees, and costs. The Company and Ms. Powers filed a motion to dismiss the amended complaint. On March 21, 2017, the court entered an order dismissing the case, and on April 12, 2017, the Lead Plaintiffs submitted a letter advising the court that they do not intend to file an amended complaint.

Shareholder Books and Record Demand

On December 7, 2015, the Company received a letter on behalf of shareholders demanding to inspect certain corporate books and records pursuant to Section 220 of the Delaware General Corporation Law. The demand letter claimed that its purpose was to investigate: (1) allegedly improper transactions, misconduct, and mismanagement by directors and an officer of the Company; (2) the possible breach of fiduciary duty by certain directors and officers of the Company; and (3) the independence and disinterestedness of the Company’s board, to determine whether a pre-suit demand would be necessary before commencing any derivative action on behalf of the Company.

U.S. Securities and Exchange Commission

As previously reported, on December 13, 2016, the Company received a formal information request (subpoena) from the SEC regarding several broad topics that have been previously disclosed, including the Company’s membership on Nasdaq and delisting, related party matters, internal controls and the Company’s Special Litigation Committee. The period covered is January 1, 2013 to the present. The investigation is ongoing and the Company is cooperating fully.

Special Litigation Committee

As previously reported, the Company appointed a Special Litigation Committee, and Committee has undertaken an inquiry into the allegations of various lawsuits filed against the Company, and an anonymous internet report raising a number of criticisms of the Company and its Board and management, including with respect to the reasonableness of the transactions with Cognate. The Committee has retained experts to analyze some of these issues.