Commitments and Contingencies

Operating Leases

The Company's headquarters are located in Redwood City, California where it occupies approximately 107,000 square feet of office and laboratory space in four buildings. On March 16, 2011, the Company entered into a lease with Metropolitan Life Insurance Company (“MetLife”) with respect to the Company's offices located at 200 and 220 Penobscot Drive, Redwood City, California, (the “Penobscot Space”), 400 Penobscot Drive, Redwood City, California (the “Building 2 Space”), and 101 Saginaw Drive, Redwood City, California (the “Saginaw Space”). Under the terms of the agreement, the leases for the Penobscot Space, the Building 2 Space and the Saginaw Space expire on January 31, 2020, and the Company has options to extend for two additional five-year periods.

The Company also leases space with MetLife at 501 Chesapeake Drive, Redwood City, California (the “501 Chesapeake Space”). In September 2012, the Company extended the term of the lease, which would have otherwise expired on January 31, 2013, to January 31, 2017. Pursuant to this extension, the Company has two consecutive options to extend the term of the lease for the 501 Chesapeake Space for an additional five-year period per option.

As part of the Q3 2012 Restructuring Plan, the Company has vacated the Saginaw Space and the Company has begun marketing the facility for sublease (see Note 12).

Rent expense is recognized on a straight-line basis over the term of the lease. In accordance with the terms of the amended lease agreement, the Company exercised the Company's right to deliver letters of credit in lieu of a security deposit. The letters of credit in the amount of $0.7 million as of September 30, 2013 were collateralized by deposit balances held by the Company's bank. These deposits are recorded as restricted cash on the condensed consolidated balance sheets.

As of September 30, 2013, the Company had estimated asset retirement obligations of approximately $0.1 million from operating leases, requiring the Company to restore the facilities that the Company is renting to their original form. The Company expenses the asset retirement obligation over the terms of the respective leases. The Company reviews the estimated obligation each period and makes adjustments for any changes in estimates.

Future minimum payments under noncancellable operating leases are as follows at September 30, 2013 (in thousands):



	Lease payments
3 months ending December 31,
2013	$	719
Years ending December 31,
2014	2,947
2015	3,031
2016	3,047
2017	2,677
2018 and beyond	5,790
Total	$	18,211

Litigation

The Company has been subject to various legal proceedings related to matters that have arisen during the ordinary course of business. Although there can be no assurance as to the ultimate disposition of these matters, the Company has determined, based upon the information available, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the condensed consolidated financial position, results of operations or cash flows.

Indemnifications

The Company is required to recognize a liability for the fair value of any obligations the Company assumes upon the issuance of a guarantee. The Company has certain agreements with licensors, licensees and collaborators that contain indemnification provisions. In such provisions, the Company typically agrees to indemnify the licensor, licensee and collaborator against certain types of third party claims. The maximum amount of the indemnifications is not limited. The Company accrues for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for expenses related to indemnification issues for any periods presented.

Other Contingencies

On July 30, 2013, the Company received notice (the “Dyadic notice”) from Dyadic International, Inc. (“Dyadic”) alleging that the Company is in breach under the License Agreement, dated as of November 14, 2008, by and among the Company, Dyadic International (USA), Inc. and Dyadic (the “Dyadic License Agreement”), and that Dyadic intended to terminate the contract in 60 days if the breach was not cured to Dyadic’s satisfaction. On September 10, 2013, the Company reached agreement with Dyadic to extend the Company's time for response to the allegations until November 15, 2013 as part of ongoing negotiations between the Company and Dyadic to resolve the matter. Pursuant to the Dyadic License Agreement, the Company obtained a non-exclusive license relating to Dyadic's C1-based proprietary fungal expression technology for the production of enzymes.The Dyadic notice does not seek damages or allege any underpayment of fees or royalties. The Company has concluded that the extension of the Dyadic negotiation period does not result in any impact to the financial statement as of September 30, 2013.

In November 2009, one of the Company's foreign subsidiaries sold intellectual property to the Company's U.S. entity. Under the local laws, the sale of intellectual property to a nonresident legal entity is deemed an export and is not subject to value added tax. However, there is uncertainty regarding whether the items sold represented intellectual property or research and development services, which would subject the sale to value added tax. The Company believes that the uncertainty results in an exposure to pay value added tax that is more than remote but less than likely to occur and, accordingly, has not recorded an accrual for this exposure. If the sale is deemed a sale of research and development services, the Company could be obligated to pay an estimated amount of $0.6 million.