Commitments and Contingencies

Operating Leases

Codexis' 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"). Codexis 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 adjust 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.

We incurred $3.6 million of capital improvement costs related to the facilities leased from MetLife through December 31, 2012. During 2011 and 2012, we requested and received $3.1 million of reimbursements from the landlord from 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. The remaining lease incentive obligation was $1.7 million at December 31, 2014, and is reflected in other liabilities on the consolidated balance sheet. Rent expense for the Redwood City properties is recognized on a straight-line basis over the term of the lease.

We are required to restore certain of the Redwood City facilities that we are renting to their original form. We are expensing the asset retirement obligation over the terms of the respective leases. We review the estimated obligation each reporting period and makes adjustments if our estimates change. In 2014, we entered into a sublease agreement whereby certain changes were made to facility by our sublessor. As such, on December 31, 2014, we revised our estimated asset retirement obligation to restore the sublet facility to its original form and recognized an asset retirement obligation of $0.3 million and we increased our related estimated cash payments $0.3 million. We recognized accretion expense related to our asset retirement obligations of nil in each of 2014 and 2013, and $30 thousand in 2012.

In accordance with the terms of the amended lease agreement, we exercised our right to deliver a letter of credit in lieu of a security deposit. The letters of credit are collateralized by deposit balances held by the bank in the amount of $0.7 million as of December 31, 2014 and 2013. These deposits are recorded as restricted cash on the consolidated balance sheets.

Prior to March 2014, we also rented facilities in Hungary. Rent expense was being recognized on a straight-line basis over the respective terms of the leases. The facility lease was transferred to Intrexon Corporation to in connection with the sale of Codexis Laboratories Hungary Kft (see Note 10).

Our leased facility in Singapore was vacated in 2012, the lease terminated and we 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.

Rent expense, was $3.4 million in 2014 and $3.6 million in 2013, partially offset by sublease income of $0.4 million in 2014 and nil in 2013.

Future minimum payments under noncancellable operating leases are as follows at December 31, 2014 (in thousands):



	Lease Payments
Years ending December 31,
2015	$	2,743
2016	2,827
2017	2,677
2018	2,736
2019	2,818
2020 and beyond	236
Total	$	14,037

The total future minimum rentals to be received under noncancellable subleases as of December 31, 2014 are $1.4 million.

Legal Proceedings

Codexis 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, we have 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 consolidated financial position, results of operations or cash flows.

On July 30, 2013, Dyadic International, Inc. ("Dyadic") delivered notice to Codexis 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 Codexis' decision to wind down its CodeXyme® cellulase enzyme program. Although we do not believe that the use of the licensed technology in its CodeXyme® cellulase enzyme program constituted a breach of the Dyadic license agreement, we can make no assurances that Dyadic will not make such allegations again in the future, or regarding our ability to resolve any possible future disputes with Dyadic on commercially reasonable terms or our 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.

Other Contingencies

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

Indemnifications

Codexis is required to recognize a liability for the fair value of any obligations Codexis assumes upon the issuance of a guarantee. Codexis has certain agreements with licensors, licensees and collaborators that contain indemnification provisions. In such provisions, Codexis 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. We accrue 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.