INVESTMENTS IN JOINT VENTURES AND RELATED PARTY TRANSACTIONS

Solazyme Bunge Joint Venture

In April 2012, the Company and Bunge formed the Solazyme Bunge JV to build, own and operate the Solazyme Bunge JV Plant, a commercial-scale renewable algal oils production facility adjacent to Bunge’s Moema sugarcane mill in Brazil. The Company expects this production facility to have annual production capacity of 100,000 MT of oil. Construction of the Solazyme Bunge JV Plant commenced in the second quarter of 2012. In May 2014, the Solazyme Bunge JV Plant produced its first commercially saleable products on full-scale production lines, including 625,000 liter fermentation tanks. Both oil and Encapso^™ lubricant products have been manufactured; production is continuing and is expected to ramp toward nameplate capacity as the Company works to increase efficiency in unit operations, and balances production volumes with operating costs as it focuses on higher value products. The Company expects that additional capital expenditures may be required to reach nameplate capacity depending on the product mix produced at the plant. The Solazyme Bunge JV Plant leverages the Company’s technology and Bunge’s sugarcane milling and natural oil processing capabilities to produce microalgae-based products. The Solazyme Bunge JV is 50.1% owned by the Company and 49.9% by Bunge and is governed by a four member board of directors, two from each investor. The capital contributions for this venture are being provided jointly by Solazyme and Bunge, and the agreement includes a value sharing mechanism that provides additional compensation to the Company for its technology contributions. The Company committed to make an initial capital contribution of up to $36.3 million in fiscal 2012 and, additional capital contributions of up to an additional $36.3 million beginning after December 31, 2012, primarily to fund the construction of the Solazyme Bunge JV Plant. The Company and Bunge each contributed capital in the amount of $59.3 million through September 30, 2014, comprised of $37.0 million, $12.3 million and $10.0 million during the nine months ended September 30, 2014 and during the years ended December 31, 2013 and 2012, respectively, to the Solazyme Bunge JV. In August 2014, the Company contributed $6.5 million to the Solazyme Bunge JV through a reduction in the Company’s receivables due from the Solazyme Bunge JV of $6.5 million. The Company and Bunge each contributed capital in the amount of $1.0 million in October 2014. The Company’s capital contributions paid in cash were recorded as an increase to investment in unconsolidated joint venture and a corresponding decrease to cash and cash equivalents.

The Company has determined that the Solazyme Bunge JV is a VIE based on the insufficiency of each party’s equity investment at risk to absorb losses and the Company’s share of the respective expected losses of the Solazyme Bunge JV. Currently, the construction of the Solazyme Bunge JV Plant is the activity of the Solazyme Bunge JV that most significantly impacts its economic performance. Although the Company has the obligation to absorb losses and the right to receive benefits of the Solazyme Bunge JV that could potentially be significant to the Solazyme Bunge JV, each of the Company and Bunge has equally shared decision–making powers over certain significant activities of the Solazyme Bunge JV, including those related to the construction of the Solazyme Bunge JV Plant. Therefore, the Company does not consider itself to be the Solazyme Bunge JV’s primary beneficiary at this time, and as such has not consolidated the financial results of the Solazyme Bunge JV since the inception of this joint venture. The Company accounts for its interests in the Solazyme Bunge JV under the equity method of accounting. This consolidation status could change in the future due to changes in events and circumstances impacting the power to direct the activities that most significantly affect the Solazyme Bunge JV’s economic performance. The Company will continue to reassess its potential designation as the primary beneficiary of the Solazyme Bunge JV. During the three and nine months ended September 30, 2014 the Company recognized $7.2 million and $15.7 million of losses, respectively, related to its equity method investment in the Solazyme Bunge JV. During the three and nine months ended September 30, 2013 the Company recognized $2.3 million and $4.1 million of losses, respectively, related to its equity method investment in the Solazyme Bunge JV.

In anticipation of the Solazyme Bunge JV’s formation, in May 2011, the Company granted Bunge a warrant (the "Bunge Warrant”) to purchase 1,000,000 shares of its common stock at an exercise price of $13.50 per share. The Bunge Warrant was to vest (i) 25% on the date that Solazyme and Bunge entered into a joint venture agreement to construct and operate a commercial-scale renewable oil production facility ("first tranche"); (ii) 50% upon the commencement of construction of the Solazyme Bunge JV Plant ("second tranche"); and (iii) 25% on the date upon which the aggregate output of triglyceride oil at the Solazyme Bunge JV Plant reached 1,000 MT ("third tranche"). The number of warrant shares issuable was subject to adjustment for failure to achieve the performance milestones on a timely basis, as well as certain changes to the capital structure of Solazyme Bunge JV and corporate transactions. The Bunge Warrant expires in May 2021.

The Company accounts for the Bunge Warrant pursuant to ASC 505-50, Equity-Based Payments to Non-Employees, which establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued (whichever is more reliably measurable), and the measurement date of such instruments shall be the earlier of the date at which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. A performance commitment is a commitment under which performance by the counterparty to earn the equity instruments is probable because of sufficiently large disincentives for nonperformance. The measurement date of the Bunge Warrant was April 2, 2012, the formation date of Solazyme Bunge JV, as it was determined that the future performance to earn the Bunge Warrant shares was probable.

On April 2, 2012, the Company recorded an investment in the Solazyme Bunge JV of $10.4 million, equal to the fair value of the Bunge Warrant, and recorded a corresponding $2.7 million of additional paid-in capital for the vested first tranche of the Bunge Warrant shares and $7.7 million of warrant liability for the unvested Bunge Warrant shares as of that date. The fair value of the Bunge Warrant was determined using the Black-Scholes option pricing model. The warrant liability is remeasured to fair value at each balance sheet date and/or upon vesting, and the warrant liability is reclassified to additional paid-in capital upon vesting. On June 20, 2012, the second tranche of the Bunge Warrant shares vested, resulting in a reclassification of $4.6 million, which represented the fair value as of that date, to additional paid-in capital. The Company had a $0.7 million warrant liability associated with the unvested third tranche of the Bunge Warrant shares as of December 31, 2013. The fair value of the warrant liability was determined using the Black-Scholes option pricing model based upon the following assumptions as of December 31, 2013: volatility of 50%, risk-free interest rate of 2.45%, exercise price of $13.50 and an expected life of 7.34 years. As of June 30, 2014, the Company had no warrant liability associated with the Bunge Warrant shares as the third tranche could no longer vest. The Company recorded a net unrealized gain related to the change in the fair value of the warrant liability of $0 and $0.7 million during the three and nine months ended September 30, 2014, respectively, and a net unrealized gain of $0.2 million and a net unrealized loss of $0.4 million during the three and nine months ended September 30, 2013, respectively. As of September 30, 2014, 750,000 of the Bunge Warrant shares had vested.

In addition to forming the Solazyme Bunge JV in April 2012, the Company entered into a Development Agreement with the Solazyme Bunge JV to continue to conduct research and development activities that are intended to benefit the Solazyme Bunge JV, including activities in the areas of strain development, molecular biology and process development. The Development Agreement provides that the Solazyme Bunge JV will pay the Company a technology maintenance fee in recognition of the Company’s ongoing research investment in technology that would benefit the Solazyme Bunge JV. The Company also entered into a Technology Service Agreement with the Solazyme Bunge JV under which the Solazyme Bunge JV will pay the Company for technical services related to the operations of the production facility. In the third quarter of 2013, the Solazyme Bunge JV also agreed to pay the Company to support the Solazyme Bunge JV’s commercial activities, including, but not limited to, facilitating supply agreements on behalf of the Solazyme Bunge JV and providing regulatory support.

In November 2012, the Company entered into a joint venture expansion framework agreement with Bunge. This framework agreement sets forth the intent of the partners to expand joint venture-owned oil production capacity from the current 100,000 MT under construction in Brazil to 300,000 MT by 2016 at select Bunge owned and operated processing facilities worldwide. In addition, the Company and Bunge amended the Joint Venture Agreement in October 2013 to expand the field and product portfolio of the Solazyme Bunge JV. The Company and Bunge intend to work together through joint market development to bring new, healthy and nutritious edible oils to the Brazilian market.

In February 2013, the Solazyme Bunge JV entered into a loan agreement with the Brazilian Development Bank (“BNDES” or “BNDES Loan”) under which it may borrow up to R$245.7 million (approximately USD $100.8 million based on the exchange rate as of September 30, 2014). As a condition of the Solazyme Bunge JV drawing funds under the loan, the Company may be required to provide a bank guarantee equal to 14.39% of the total amount available under the BNDES Loan and a corporate guarantee equal to 35.71% of the total amount available under the BNDES Loan (an amount not to exceed the Company’s ownership percentage in the Solazyme Bunge JV). The BNDES funding supports the construction of the Solazyme Bunge JV’s first commercial-scale production facility in Brazil, which will reduce the capital requirements funded directly by the Company and Bunge. The term of the BNDES Loan is eight years and the loan has an average interest rate of approximately 4.0% per annum. As of September 30, 2014, the Company’s bank guarantee was in place and the corporate guarantee was not in place. The fees incurred on the cancelable bank guarantee were not material during the three and nine months ended September 30, 2014.

The following table summarizes the carrying amounts of the assets and the fair value of the liabilities included in the Company’s condensed consolidated balance sheet and the maximum loss exposure related to the Company’s interest in its unconsolidated VIE (the Solazyme Bunge JV) as of September 30, 2014 (in thousands):



	Assets						Liabilities
VIE	Accounts Receivable		Unbilled Revenues		Investment in Unconsolidated Joint Ventures		Loan Guarantee		Maximum Exposure to Loss (1)
Solazyme Bunge JV	$	4,083	$	5,287	$	41,896	$	—	$	66,847


(1)	Includes maximum exposure to loss attributable to the Company’s bank guarantee required to be provided for the Solazyme Bunge JV of R$35.4 million (approximately $14.5 million based on the exchange rate at September 30, 2014) and non-cancelable purchase obligations of R$2.6 million (approximately $1.1 million based on the exchange rate at September 30, 2014).

The Company may be required to contribute additional capital to the VIE (for which the Company does not consider itself to be the primary beneficiary) in the future, which would increase the Company’s maximum exposure to loss. These future contribution amounts cannot be quantified at this time.

Summarized information on the Solazyme Bunge JV’s balance sheets and income statements as of June 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013, respectively, was as follows (in thousands):



	September 30, 2014		December 31, 2013
Current assets	$	3,974	$	9,872
Noncurrent assets	197,746		127,346
Total assets	$	201,720	$	137,218
Current liabilities	40,853		20,798
Noncurrent liabilities	90,737		90,933
JV's partners' capital, net	70,130		25,487
Total liabilities and partners' capital, net	$	201,720	$	137,218



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net sales	$	540	$	—	$	540	$	—
Net losses	$	10,992	$	4,289	$	23,822	$	7,350

Solazyme Roquette Joint Venture

In November 2010, the Company entered into a joint venture agreement with Roquette. The purpose of the joint venture, Solazyme Roquette Nutritionals, LLC (“SRN”), was to engage in manufacturing, distribution, sales, marketing and support of products and services related to the use of microalgae to which the Company has not applied its targeted recombinant technology, in a fermentation production process to produce materials for use in the following fields: (i) human foods and beverages, (ii) animal feed and (iii) nutraceuticals. In June 2013, the Company and Roquette agreed to dissolve SRN and on July 18, 2013, SRN was dissolved. After assessing the recoverability of SRN amounts capitalized on the Company’s balance sheet, the Company recorded charges to Loss From Equity Method Investments in its condensed consolidated statement of operations of $0.7 million for unrecoverable receivables due from SRN, and $0.7 million for unrecoverable capital contributions made to SRN during the nine months ended September 30, 2013.

The Company had determined that SRN was a VIE based on the insufficiency of each party’s equity investment at risk to absorb losses and the Company’s share of the respective expected losses of SRN. Prior to SRN’s dissolution, the Phase 1 plant operations and market development activities were the activities of SRN that most significantly impacted its economic performance. The Company did not have the obligation to absorb the losses of SRN that could potentially be significant to SRN, and the Company and Roquette had equally shared decision-making powers over certain significant activities of SRN. Therefore, the Company did not consider itself to be SRN’s primary beneficiary since inception of this joint venture and as such had never consolidated the financial results of SRN. The Company accounted for its interests in SRN under the equity method of accounting.

Related Party Transactions

The Company recognized revenues related to its research and development arrangements with the Solazyme Bunge JV of $3.3 million and $10.2 million during the three and nine months ended September 30, 2014, respectively, and $3.4 million and $5.1 million in the three and nine months ended September 30, 2013, respectively. The Company also recognized product revenues from sales to the Solazyme Bunge JV of $1.3 million and $2.7 million during the three and nine months ended September 30, 2014, respectively, and $0 in the three and nine months ended September 30, 2013. At September 30, 2014 and December 31, 2013, the Company had receivables of $4.1 million and $6.9 million, respectively, due from the Solazyme Bunge JV. At September 30, 2014 and December 31, 2013, the Company had unbilled revenues of $5.3 million and $1.1 million, respectively, related to the Solazyme Bunge JV.