Note 12. Commitments and Contingencies

Bonds Payable

We entered into direct financing transactions with the State of Rhode Island and received proceeds from the issuance of industrial revenue bonds totaling $5,000,000 to finance the construction of a 21,000 square-foot pilot manufacturing facility and a 3,000 square-foot cell processing facility in Lincoln, Rhode Island. The related lease agreements are structured such that lease payments fully fund all semiannual interest payments and annual principal payments through maturity in August 2014. In August 2014, we made the final principal and interest payment thereby extinguishing the debt. In March 2015, we sold the vacant 21,000 square-foot pilot manufacturing facility and the vacant 3,000 square-foot cell processing facility in Lincoln, Rhode Island to an unrelated third party net of expenses for approximately $149,000.

Operating leases

We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance, and minimum lease payments. Some of our leases have options to renew.

Operating Leases — California

In December 2010, we entered into a commercial lease agreement with BMR-Gateway Boulevard LLC (BMR), as landlord, for office and research space at BMR’s Pacific Research Center in Newark, California. The initial term of the lease is approximately eleven and one-half years and includes escalating rent payments which we recognize as lease operating expense on a straight-line basis. We will pay approximately $17,869,000 in aggregate as rent over the term of the lease to BMR. Deferred rent for this facility was approximately $1,372,000 as of December 31, 2015, and approximately $1,434,000 as of December 31, 2014.

In March 2013, we entered into a commercial lease agreement with Prologis, L.P. (Prologis), as landlord, for office and research space in Sunnyvale, California. The facility is for operations that support our clinical development activities. The initial term of the lease is ten years and includes escalating rent payments which we recognize as lease operating expense on a straight-line basis. We will pay approximately $3,497,000 in aggregate rent over the term of the lease. As part of the lease, Prologis has agreed to provide us financial allowances to build initial tenant improvements, subject to customary terms and conditions relating to landlord-funded tenant improvements. The tenant improvements are recorded as leasehold improvement assets and amortized over the term of the lease. The financial allowances are treated as a lease incentive and recorded as deferred rent which is amortized as reductions to lease expense over the lease term. Deferred rent for this facility was approximately $382,000 as of December 31, 2015, and $391,000 as of December 31, 2014.

Operating Leases — United Kingdom

In January 2011, we amended the existing lease agreements of our wholly-owned subsidiary, Stem Cell Sciences (U.K.) Ltd, effectively reducing our leased office and lab space. The lease by its terms was extended to September 30, 2013. In October 2013, we signed a new three-year lease agreement for the leased space and expect to pay rent of approximately GBP 53,000 per annum. StemCells, Inc. was the guarantor of SCS UK’s obligations under this lease. The lease gave SCS UK an option for early termination of the lease agreement. In December 2014, we sold our SC Proven reagent and cell culture business and as part of the wind-down of our business operations in UK, sublet our leased space for the remaining term of our lease agreement; from January 2015 to our opted early termination date of October 2015. This lease terminated by its terms in October 2015 and we have no continuing operations in the United Kingdom.

With the exception of the operating leases discussed above, we have not entered into any significant off balance sheet financial arrangements and have not established any special purpose entities. We have not guaranteed any debts or commitments of other entities or entered into any options on non-financial assets.

The table below summarizes the components of rent expense for the fiscal year ended December 31, as follows:


	2015		2014		2013
Rent expense	$	1,844,610	$	1,955,747	$	2,612,899
Sublease income		—		—		(53,726	)

Rent expense, net	$	1,844,610	$	1,955,747	$	2,559,173

Future minimum payments under all leases and loan payable at December 31, 2015 are as follows:


	Loan Payable SVB		Capital Leases		Operating Leases
2016	$	1,440,679	$	20,670	$	1,968,459
2017		—		11,202		2,014,706
2018		—		4,913		2,061,260
2019		—		—		2,108,130
2020		—		—		2,155,325
Thereafter		—		—		3,933,455

Total minimum lease and loan payments (1)		1,440,679		36,785	$	14,241,335

Less amounts representing interest		18,184		875

Principal amounts of loan payable and capital lease obligations		1,422,495		35,910
Less current maturities		1,422,495		20,032

Loan payable and capital lease obligations, less current maturities	$	—	$	15,878

(1)

An aggregate of approximately $9.2 million of principal and accrued interest under the CIRM Loan Agreement is not included. In April 2013, we entered into an agreement with the CIRM under which CIRM would have provided up to approximately $19.3 million as a forgivable loan, in accordance with mutually agreed upon terms and conditions and CIRM regulations. The CIRM loan was to have helped fund preclinical development of our HuCNS-SC cells for Alzheimer’s disease. Between July 2013 and August 2014, we received in aggregate, approximately $9.6 million as disbursements of the loan provided under the CIRM Loan Agreement. However in December 2014, as findings under this pre-clinical study in Alzheimer’s disease did not meet pre-determined criteria for ongoing funding for this program by CIRM, we decided to wind down this pre-clinical study which had been funded in part by the CIRM loan agreement. Under the terms of the CIRM loan agreement, principal amount of approximately $8,917,000 and accrued interest of approximately $243,000 were forgiven. However, authoritative accounting guidance requires certain conditions (which includes a legal release from the creditor) to be met before a liability can be extinguished and derecognized. In February 2015, we repaid CIRM approximately $679,000 of the aggregate loan proceeds received.