XML 67 R12.htm IDEA: XBRL DOCUMENT v2.4.0.8
Long Term Investments and Promissory Notes Receivable
12 Months Ended
Dec. 31, 2013
Long-term Investments and Promissory Notes Receivables [Abstract]  
Long Term Investments and Promissory Notes Receivable
5. Long -Term Investments and Promissory Notes Receivable
Freeslate
We have a non-controlling minority equity interest of approximately 19.5% in Freeslate, a privately held company headquartered in Sunnyvale, California that designs, develops and deploys integrated workflows for research and development labs. We have determined that Freeslate is a variable interest entity in which we are not the primary beneficiary. The key factors in our assessment were that Freeslate’s management team and board of directors were solely responsible for all economic aspects of the entity, including key business decisions that impact Freeslate’s economic performance, and we do not have power, through our variable interest, to direct the activities that most significantly impact the economic performance of Freeslate. We also do not hold any seats on Freeslate’s board of directors. Accordingly, we account for our investment in Freeslate as a cost method investment.
The carrying value of our investment in Freeslate was $1.0 million as of both December 31, 2013 and 2012 and is included in the “Other assets” line in the consolidated balance sheet. In addition to our equity interest, we have a warrant allowing us to retain our 19.5% interest in the event of dilution through future stock issuances under Freeslate’s existing stock plans.
As a result of indicators of potential impairment identified in the fourth quarter of 2013 we performed an impairment assessment, and based on such assessment we determined that the Freeslate cost-method investment is not impaired. This determination was based upon a discounted cash flow model based upon future operating performance estimates, adjusted for the lack of marketability of the investment. As part of our assessment we performed a sensitivity analysis on our assumptions, primarily around the risk adjusted estimated future cash flows and the discount rate assumptions. Our sensitivity analysis includes several combinations of reasonably possible scenarios with regard to these assumptions and in no scenario was an impairment identified.
We also hold an unsecured promissory note receivable with a face value of $10.0 million from Freeslate, which bears interest at 8% per annum payable annually in arrears. The note requires principal payments in the amount of $1.0 million starting on March 1, 2014 and continuing annually until March 1, 2019, with the final principal payment of $4.0 million due on March 1, 2020. As the note receivable was acquired in the Symyx Merger on July 1, 2010, it was revalued in purchase accounting to its then fair value of $8.8 million. The note receivable had a carrying amount of $7.4 million (net of an allowance of $1.7 million) and $8.9 million as of December 31, 2013 and 2012, respectively.
As a result of indicators of impairment identified in the fourth quarter of 2013, we evaluated the recoverability of the Freeslate note receivable based on a discounted cash flow model. After considering the risk adjusted future financial performance of Freeslate and their ability to obtain operating capital, we determined that there is a risk that the principal amount under the note receivable may not be fully recoverable. As a result, an allowance of $1.7 million was established through an impairment charge on the note receivable and is included in the consolidated statement of operations. Refer to Note 6 Fair Value for further discussion regarding the assumptions used in our impairment analysis.
Our maximum exposure to loss as a result of our interests in Freeslate is limited to the aggregate of the carrying value of our equity investment and the promissory note receivable. There were no future funding commitments as of December 31, 2013 related to Freeslate.
Intermolecular
On July 28, 2011, Symyx entered into an agreement (the “IM Agreement”) with Intermolecular, Inc. (“IM”). Symyx was a stockholder of IM, holding 3,968,204 shares of IM common stock (on an as-converted to common stock basis), after giving effect to a 1-for-2 reverse stock split on November 15, 2011. By virtue of its stock ownership, pursuant to a voting agreement, Symyx was also entitled to appoint one member of the IM board of directors.
Pursuant to the terms of the IM Agreement, subject to the transactions contemplated thereby, Symyx agreed to: (i) terminate all royalty obligations of IM accruing after December 31, 2011 pursuant to an existing Alliance Agreement and an existing Collaborative Development and License Agreement between Symyx and IM; and (ii) transfer to IM, subject to a license grant back to Symyx, certain patents relating to Symyx’s legacy high-throughput research business.
As consideration for the foregoing, IM agreed to: (i) use its commercially reasonable efforts to allow Symyx to be included as a selling stockholder in IM’s initial public offering (the “IPO”) with respect to not less than all of the IM shares held by Symyx (with Symyx being obligated to sell such shares); (ii) to the extent the gross proceeds from Symyx’s sale of all of its IM shares in the IPO were less than $67.0 million, issue a secured promissory note to Symyx upon the consummation of the IPO in an amount equal to such shortfall; and (iii) reimburse Symyx for 50% of the underwriting discounts and commissions payable by Symyx with respect to the sale of such shares in the IPO. In addition, pursuant to the IM Agreement, IM agreed to continue to sublicense from Symyx its rights to certain patents and to assume certain royalty and license fee obligations relating thereto.
On November 18, 2011, IM filed its final prospectus relating to the IPO and began trading on the NASDAQ Global Select Market. As disclosed in the final prospectus, Symyx participated as a selling stockholder in the IPO by selling 3,968,204 shares of IM common stock at price per share equal to $10.00, resulting in aggregate proceeds of $39.7 million. In addition, IM reimbursed Symyx $1.4 million of the underwriting discounts and commissions payable by Symyx in connection with the IPO, representing 50% of such fees.
As a result of the sale of Symyx’s equity interest in IM in the IPO and the cash proceeds of $39.7 million, during the quarter ended December 31, 2011 we recognized a gain on sale of approximately $19.0 million, net of transaction costs and commissions of $1.4 million related to the IPO and consulting costs of $1.0 million we incurred in connection with the IM Agreement.
Pursuant to the terms of the IM Agreement, IM issued to Symyx a secured promissory note receivable in a principal amount equal to $27.3 million, (the “IM Note”), representing the difference between $67.0 million and the aggregate gross proceeds from Symyx’s sale of its IM common stock in the IPO. The IM Note had a term of 24 months and an interest rate equal to 4% and was payable in quarterly installments such that an amount equal to the greater of $500,000 per quarter or the amount of accrued interest for such quarter would be payable at the end of each such quarter, with a balloon payment due at maturity. The note was pre-payable by IM at any time without penalty or premium and was secured by a proportionate amount of IM’s tangible fixed assets, excluding intellectual property.
The IM Note was discounted to a fair value of $26.0 million, representing the consideration for the patents transferred to IM, which we carried as purchased technology intangible assets acquired in the Symyx Merger, and the termination of IM’s royalty obligations to Symyx. In connection with the sale of the intellectual property, we wrote off intangible assets sold to IM with a net book value of $4.3 million in the fourth quarter of fiscal 2011 and, based on our assessment of the relevant revenue recognition guidance and other factors, we deferred the recognition of the portion of the net gain equal to the fair value of the IM Note of $26.0 million. The fair value of the IM Note was based on a market interest rate of 6.89% for comparable instruments. Historically, we recognized a gain when the payments became due on the IM Note to the extent they exceeded interest due and the amortization of the discount on the IM Note. Based on our evaluation of the contractual terms of the IM Note and its collectability, we believe the IM Note met the definition of a financial asset; therefore, we recorded the IM Note at expected net realizable value on our consolidated balance sheet. On May 31, 2013, IM paid off the IM Note in full pursuant to the penalty-free pre-payment option. Accordingly, we recognized a $25.9 million gain on sale of intellectual property in the three months ended June 30, 2013.