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DSM Asset Purchase Agreement

6 Months Ended

Jun. 30, 2012

3. DSM Asset Purchase Agreement

On March 23, 2012, the Company entered into an agreement with DSM for the purchase of the Company’s oilseed processing business and concurrently entered into a license agreement, a supply agreement and a transition services agreement with DSM. Under the license agreement, the Company issued a license for its alpha-amylase product and xylanase enzyme product to DSM both for use in the food and beverage markets. The Company retains the rights to use the alpha-amylase and xylanase products outside of the food and beverage markets. In turn, DSM licensed to the Company the intellectual property purchased by DSM in the transaction and the intellectual property that the Company had previously licensed to BP Biofuels North America LLC under the BP License Agreement. Further in the license agreement, the Company agreed to provide DSM with three dedicated full time equivalents (“FTE”) for new gene libraries to be developed by the Company for one year, and to deliver any new gene libraries derived from these efforts to DSM in exchange for a royalty paid by DSM to the Company on any enzyme product discovered by DSM through the use of the new gene libraries. The supply agreement requires for the continued manufacture by the Company of the purchased oilseed processing product and the licensed alpha-amylase and xylanase products for sale to DSM with minimum quantities and pricing based on cost plus an agreed upon percentage. Under the transition services agreement the Company will provide services to DSM to be paid on an hourly basis as services are incurred through March 2013.

The aggregate consideration received by the Company in connection with the transactions was $37 million, including reimbursement for transaction and related expenses incurred by the Company of $2 million.

Pursuant to the terms of the purchase agreement, the Company and DSM entered into a non-competition agreement which restricts the Company’s global activities in the oilseed processing business for a period of 10 years. In addition, the non-competition agreement restricts the Company from soliciting for employment or hiring any DSM employee that works in DSM’s oilseed processing operations for a period of 10 years and restricts DSM from soliciting for employment or hiring any Company employee until the one year anniversary of the termination or expiration of the transition services agreement.

The Company accounted for the agreement for the sale of the oilseed business as a sale of a business. The agreements entered into concurrently with the sale of the oilseed business including the license agreement, supply agreement, and transition services agreement contain various elements and, as such, are deemed to be an arrangement with multiple deliverables as defined under authoritative accounting guidance. Several non-contingent deliverables were identified within the agreements. The Company identified the alpha-amylase and xylanase licenses, the gene libraries’ FTE’s, the manufacturing services and the transition services agreement as separate non-contingent deliverables within the agreement. All the deliverables were determined to have standalone value and qualify as separate units of accounting. The Company performed an analysis to determine the fair value for all elements, and have allocated the non-contingent consideration based on the relative fair value. Revenue associated with each of the undelivered elements will be recognized when the item is delivered.

As of the sale and close date of the agreements, March 23, 2012, the Company determined that the oilseed processing business and the alpha-amylase product and xylanase enzyme licenses had been fully delivered, and, as such, a net gain on sale of $31.5 million was recognized for the sale of the oilseed processing business and license revenue of $1.5 million. During the second quarter 2012, as a result of less arrangement allocation being allocated to the sale of the oilseed processing business and more allocated to undelivered elements an adjustment of $0.2 million was recorded to decrease the gain and increase deferred revenue by this amount. As the Company believes this adjustment is immaterial the full amount was recorded during the second quarter 2012. The difference between cash received and revenue allocated to the non delivered items of $1.1 million was recorded as deferred revenue. As of June 30, 2012, the Company had $1.1 million in deferred revenue attributed to DSM.

Based on proportional performance of efforts performed during the three months ended June 30, 2012, a total of $0.6 million was recognized as of June 30, 2012 pursuant to the DSM asset purchase agreement, primarily related to the transition services agreement and gene library efforts.

The final $31.3 million gain on sale of oilseed processing business was calculated as the difference between the allocated consideration amount for the oilseed processing business and the net carrying amount of the assets and assumed liabilities transferred to DSM. The following sets forth the net assets and liabilities and calculation of the gain on sale as of the disposal date (in thousands):


Consideration received	$	37,000
Carrying value of assets:
Assets		(33	)
Liabilities		333

Carrying value		300
Transaction costs		(3,160	)
Allocated license revenue for alpha-amylase and xylanase enzyme		(1,520	)
Deferred revenue associated with undelivered elements		(1,342	)

Gain on sale of oilseed processing business	$	31,278

Due to the continuing involvement of the Company associated with the manufacturing of the products, the results of operations associated with the sale of the oilseed processing business are included in continuing operations in the accompanying consolidated statements of comprehensive income (loss) and balance sheets for the current period and all prior periods presented. Pro forma amounts of historical financials have not been included due to the immaterial nature of the adjustments to the Company’s historical financial statements.