Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies.

Commitments and Contingencies

8. Commitments and Contingencies

In March 2014, the Company entered into an operating lease for approximately 29,933 square feet of office and research space. The Company intends to use the leased premises as its corporate headquarters and for research and development purposes. The lease term commenced in May 2014 and expires in October 2021. The Company may extend the lease term for one additional five year period. Pursuant to the lease agreement, the Company is obligated to make aggregate rent payments of $5.6 million through October 2021. There are no scheduled rent payments due for the first 23 weeks of the lease term. Thereafter, the Company has agreed to pay an initial annual base rent of approximately $506,000, which base rent rises periodically until it reaches approximately $898,000. The Company is recording rent expense on a straight-line basis through the end of the lease term.  The Company has recorded deferred rent on the condensed consolidated balance sheet at June 30, 2014, accordingly. The Company has agreed to pay for pro rata increases in operating expenses and property taxes. The lease provides the Company with an allowance for improvements of $1.0 million and an ability to finance up to $449,000 at 8% annual interest, amortized over the term of the lease. The Company accounts for leasehold improvement incentives as a reduction to rent expense ratably over the lease term. The balance from the leasehold improvement incentives is included in deferred rent on the balance sheets. The Company has provided a security deposit in the form of a letter of credit in the amount of $400,000, which amount may be reduced to $200,000 in January 2018.