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 within the same business park from Metropolitan Life Insurance Company ("MetLife"). The Company entered into the initial lease with Met Life for a portion of this space in 2004 and the lease has been amended numerous times since then to add and subtract space and amend the terms of the lease, with the latest amendment being in 2012. The various terms for the spaces under the lease have expiration dates that range from January 2017 through January 2020. Annual lease payments for the Redwood City properties totaled $2,587,000 in 2013.

As of December 31, 2012, we incurred $3,600,000 of capital improvement costs related to the facilities leased from MetLife. During 2011 and 2012, we requested and received $3,100,000 of reimbursements from the landlord out of the tenant improvement and HVAC allowances for the completed construction. The reimbursements were recorded once cash was received and is amortized on a straight line basis over the term of the lease as a reduction in rent expense. As of December 31, 2013, the lease incentive obligation remaining as a long-term liability on the Balance Sheet was $2,160,000.

Rent expense for the Redwood City properties 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 its right to deliver a letter of credit in lieu of a security deposit. The letters of credit in the amount of $707,000 as of December 31, 2013 and 2012 are collateralized by deposit balances held by the bank. These deposits are recorded as restricted cash on the consolidated balance sheets.

The Company also rents facilities in Hungary. Rent expense is being recognized on a straight-line basis over the respective terms of the lease. This lease requires annual lease payments of approximately $309,000 and expires in September 2016.

The Company's leased facility in Singapore has been vacated, the lease terminated and the Company recorded a cease use liability of $354,000 representing the remaining six months lease term for the facility as an accrued expense at December 31, 2012, which was paid in 2013.

As of December 31, 2013 and 2012, the Company had asset retirement obligations of $109,000 from operating leases, whereby the Company must restore the facilities that the Company is renting to their original form. The Company is expensing the asset retirement obligation over the terms of the respective leases. The Company reviews the estimated obligation each reporting period and makes adjustments if its estimates change.

Future minimum payments under noncancellable operating leases are as follows at December 31, 2013 (in thousands):



	Lease Payments
Years ending December 31,
2014	$	2,968
2015	3,053
2016	3,063
2017	2,677
2018	2,736
2019 and beyond	3,054
Total	$	17,551

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 Company's 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, Dyadic delivered notice to the Company alleging that it is in breach under the Dyadic license agreement and stating that Dyadic intended to terminate the Dyadic license agreement in 60 days if the alleged breach was not cured to Dyadic's satisfaction. This notice was subsequently withdrawn by Dyadic in February 2014 in light of the Company's decision to wind down its CodeXyme® cellulase enzyme program. Although the Company does not believe that the use of the licensed technology in its CodeXyme® cellulase enzyme program constituted a breach of the Dyadic license agreement , the Company can make no assurances that Dyadic will not make such allegations again in the future, or regarding the Company's ability to resolve any possible future disputes with Dyadic on commercially reasonable terms or the Company's ability to dispute with success, through legal action or otherwise, any possible future allegations by Dyadic that such use may have breached the Dyadic license agreement.

In November 2009, one of the Company's foreign subsidiaries sold intellectual property to the Company. 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, have not recorded an accrual for this exposure. Should the sale be deemed a sale of research and development services, the Company could be obligated to pay an estimated amount of $0.6 million. No amount related to this contingency has been recorded as a payable as of December 31, 2013.