Note 5 — Commitments and Contingencies

Operating Leases

In August 2017, we entered into a Lease Agreement (the “Lease”) with ARE-San Francisco No. 19, LLC (ARE) and terminated our sublease with Pfizer, Inc., effectively extending our lease for 128,793 square feet of space located at 455 Mission Bay Boulevard, San Francisco, California (the “Mission Bay Facility”) from 2020 to 2030. The Lease will allow us to continue using the same site we currently use for our San Francisco-based R&D activities and corporate office.

The term of the Lease commenced on September 1, 2017, and will expire January 31, 2030, subject to our right to extend the term of the Lease for two consecutive five-year periods. The monthly base rent for the Mission Bay Facility will escalate over the term of the Lease at various intervals. During the term of the Lease, we are responsible for paying our share of operating expenses specified in the Lease, including insurance costs and taxes. The Lease also obligates Nektar to rent from ARE a total of an additional approximately 24,000 square feet of space at the Mission Bay Facility at specified delivery dates. The Lease includes various covenants, indemnities, defaults, termination rights, security deposits and other provisions customary for lease transactions of this nature.

Including the above, our future minimum lease payments for our operating leases as of September 30, 2017 are as follows (in thousands):

Years ending December 31,
2017 (3 months ending)	$	1,303
2018		6,228
2019		5,457
2020		5,830
2021		8,684
2022		8,968
2023 and thereafter		70,674
Total future minimum lease payments	$	107,144

Legal Matters

From time to time, we are involved in lawsuits, arbitrations, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. We make provisions for liabilities when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Such provisions are reviewed at least quarterly and adjusted to reflect the impact of settlement negotiations, judicial and administrative rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. If any unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse impact on the results of our operations of that period and on our cash flows and liquidity.

On August 14, 2015, Enzon, Inc. filed a breach of contract complaint in the Supreme Court of the State of New York (Court) claiming damages of $1.5 million (plus interest) for unpaid licensing fees (the “Enzon Litigation”) through the date of the complaint. Enzon alleged that we failed to pay a post-patent expiration immunity fee related to one of the licenses. On June 26, 2017, we entered into a Second Amendment to the Cross-License and Option Agreement (Cross-License Agreement) with Enzon in which we agreed to pay Enzon a sum of $7.0 million to satisfy all past and future obligations of royalty payments pursuant to the Cross-License Agreement and to have the Enzon Litigation dismissed. The Enzon Litigation was dismissed with prejudice on June 30, 2017. We paid $3.5 million in June 2017. We will pay the remaining $3.5 million in January 2018, which is included in other current liabilities on our Condensed Consolidated Balance Sheet as of September 30, 2017. Of the total $7.0 million consideration, $1.4 million represents our accrued royalty liability to Enzon related to commercial sales of certain products from January 2017 through June 2017 recorded in cost of goods sold for the nine months ended September 30, 2017. In addition, $2.3 million was recorded as a prepaid royalty asset for estimated future commercial sales of certain products through the term of the applicable underlying Enzon patents expiring in March 2018, which Nektar will amortize over this period. As of September 30, 2017, the unamortized prepaid royalty balance is $1.5 million and is included in other current assets. We recorded the remaining $3.3 million of consideration in general and administrative expense in the nine months ended September 30, 2017. No liability was recorded for this matter on our Condensed Consolidated Balance Sheets as of December 31, 2016.

Indemnifications in Connection with Commercial Agreements

As part of our collaboration agreements with our partners related to the license, development, manufacture and supply of drugs based on our proprietary technologies and drug candidates, we generally agree to defend, indemnify and hold harmless our partners from and against third party liabilities arising out of the agreement, including product liability (with respect to our activities) and infringement of intellectual property to the extent the intellectual property is developed by us and licensed to our partners. The term of these indemnification obligations is generally perpetual any time after execution of the agreement. There is generally no limitation on the potential amount of future payments we could be required to make under these indemnification obligations.

From time to time, we enter into other strategic agreements such as divestitures and financing transactions pursuant to which we are required to make representations and warranties and undertake to perform or comply with certain covenants, including our obligation to RPI described in Note 4. In the event it is determined that we breached certain of the representations and warranties or covenants made by us in any such agreements, we could incur substantial indemnification liabilities depending on the timing, nature, and amount of any such claims.

To date, we have not incurred costs to defend lawsuits or settle claims related to these indemnification obligations. Because the aggregate amount of any potential indemnification obligation is not a stated amount, the overall maximum amount of any such obligations cannot be reasonably estimated. No liabilities have been recorded for these obligations in our Condensed Consolidated Balance Sheets at either September 30, 2017 or December 31, 2016.