13. Commitments and Contingencies

Collaborative Agreements, Royalties and Milestone Payments

The Company has committed to make potential future milestone payments to third parties as part of licensing and development programs. Payments under these agreements become due and payable only upon the achievement of certain developmental, regulatory and commercial milestones by the Company’s licensees. Because it is uncertain if and when these milestones will be achieved, such contingencies, aggregating up to $15.5 million (assuming one product per contract meets all milestones events) have not been recorded on the accompanying consolidated balance sheets. The Company is unable to determine precisely when and if payment obligations under the agreements will become due as these obligations are based on milestone events, the achievement of which is subject to a significant number of risks and uncertainties.

Legal Proceedings

On July 24, 2015, a purported securities class action lawsuit was filed in the United States District Court for the Northern District of California, captioned Markette v. XOMA Corp., et al. (Case No. 3:15-cv-3425) naming as defendants the Company and certain of its officers. The complaint asserted that all defendants violated Section 10(b) of the Exchange Act and SEC Rule 10b-5, by making materially false or misleading statements regarding our EYEGUARD-B study between November 6, 2014 and July 21, 2015. The plaintiff also alleged that Messrs. Varian and Rubin violated Section 20(a) of the Exchange Act. On September 2, 2016, the defendants filed a motion to dismiss. On September 28, 2017, the Court granted defendants’ motion to dismiss with leave to amend. All parties subsequently agreed to dismiss the action and on October 25, 2017, the Court issued an Order of Dismissal, dismissing the action with prejudice with respect to the named Plaintiff’s individual claims and without prejudice with respect to unnamed class members.

On October 1, 2015, a stockholder purporting to act on the behalf of the Company, filed a derivative lawsuit in the Superior Court of California for the County of Alameda, purportedly asserting claims on behalf of the Company against certain of officers and the members of Board of Directors of the Company, captioned Silva v. Scannon, et al. (Case No. RG15787990). The lawsuit asserted claims for breach of fiduciary duty, corporate waste and unjust enrichment based on the dissemination of allegedly false and misleading statements related to the Company’s EYEGUARD-B study. The plaintiff was seeking unspecified monetary damages and other relief, including reforms and improvements to the Company’s corporate governance and internal procedures. On December 6, 2017, the parties filed a joint stipulation, agreeing to dismiss the action. On December 7, 2017, the Court granted the stipulation, issuing an order of dismissal. The order dismissed the action without prejudice.

On November 16 and November 25, 2015, two derivative lawsuits were filed purportedly on the Company’s behalf in the United States District Court for the Northern District of California, captioned Fieser v. Van Ness, et al. (Case No. 4:15-CV-05236-HSG) and Csoka v. Varian, et al. (Case No. 3:15-cv-05429-SI), against certain of the Company’s officers and the members of its Board of Directors. The lawsuits asserted claims for breach of fiduciary duty and other violations of law based on the dissemination of allegedly false and misleading statements related to the Company’s EYEGUARD-B study. The plaintiffs seek unspecified monetary damages and other relief including reforms and improvements to the Company’s corporate governance and internal procedures. On December 4, 2017, the parties in each case filed joint stipulations, agreeing to dismiss the actions. On December 6, 2017, the Court granted the stipulations, issuing an order of dismissal in each of the Fieser and Csoka actions. The order dismissed the actions without prejudice.

Operating Leases

The Company leases facilities and office equipment under operating leases expiring on various dates through April 2023. These leases require the Company to pay taxes, insurance, maintenance and minimum lease payments. For each facility lease, the Company has two successive renewal options to extend the lease for five years upon the expiration of the initial lease term.

In September 2017, the Company entered into a lease agreement for an office facility in Emeryville, California. The lease has a term of 63 months and commenced on November 14, 2017. Under the lease agreement the Company will make total lease payments of $0.9 million through February 2023.

Total rental expense, including other costs required under the Company’s leases, was approximately $2.4 million, $3.8 million and $3.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. Rental expense based on leases allowing for escalated rent payments are recognized on a straight-line basis. At the expiration of the lease, the Company is required to restore certain of its leased property to certain conditions in place at the time of lease inception. The Company believes these costs will not be material to its operations.

On November 21, 2017, the Company entered into a non-cancellable sublease agreement for a portion of one of its three leased facilities. The term of the sublease agreement commenced on December 26, 2017. Under the term of the sublease agreement, the Company will receive $5.1 million over the term of the sublease, which ends at the same time as the original lease in April 2023. Under the sublease agreement, the Company’s future sublease income will be equal to the amount required to be paid to the Company’s landlord. In addition, the sublease provides for a tenant improvement allowance of $0.8 million that the Company is to provide to the subtenant; therefore, the Company recognized a loss on the sublease equal to the tenant improvement allowance. Under the sublease agreement, the Company and the sub-lessee executed a standby letter of credit amounting to $1.0 million to be held by the Company as security under the sublease in the event of uncured default by the sub-lessee. As of December 31, 2017, the Company has not drawn any funds from the letter of credit as there was no default by the sub-lessee.

The Company estimates future minimum lease amounts (in thousands):