Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

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Commitments and Contingencies
12 Months Ended
Dec. 31, 2017
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

11. Commitments and Contingencies

Litigation and Claims

Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against the Company. The Company accrues for matters when losses are deemed probable and reasonably estimable. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified. The Company has not identified any legal matters needing to be recorded or disclosed as of December 31, 2017.

Leases

The Company leases the existing office space under an amended non-cancelable operating lease that expires in May 2018. Rent expense is recognized using the straight-line method over the term of the lease. In addition to minimum lease payments, the office lease requires payment of a proportionate share of real estate taxes and building operating expenses. Total rent expense was $270 thousand, $271 thousand and $272 thousand for the year ended December 31, 2017, 2016 and 2015, respectively.

Future minimum lease commitments as of December 31, 2017 are as follows (in thousands):

 

As of December 31, 2017

   Total      1 year      2 years      3 years      4 years      5 years      After
5 years
 

Financing lease obligations

   $ 30,042      $ 1,054      $ 1,336      $ 1,336      $ 1,336      $ 1,336      $ 23,644  

Operating lease obligations

     80        76        1        1        1        1        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 30,122      $ 1,130      $ 1,337      $ 1,337      $ 1,337      $ 1,337      $ 23,644  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Financing Lease

The Company entered into a sale-lease back transaction (also called the financing lease) on September 6, 2017 with respect to certain real property and improvements located in Roseville, MN, whereby the Company sold the land and other improvements to a third party in exchange for approximately $7 million in cash and the Company committed to an initial lease term of twenty years, with four options to extend the term of the Lease Agreement for five years each. The transaction also included a construction contract for the Company’s new nearly 40,000 square-foot corporate headquarters which when complete will include office, research laboratory space and outdoor growing plots.

During the construction period, the Company will initially pay annual base rent of $490 thousand until the property has been substantially completed, at which time, the lease will commence and the Company will pay annual base rent at the rate of 8% of the total cost which based on the project plan would approximate an annual base rent of $1.4 million. The Lease Agreement is a net lease, whereby the Company is responsible for the other costs and expenses associated with the use of the property. Cellectis entered into a Lease Guaranty with the landlord, whereby Cellectis has guaranteed the Company’s obligations under the Lease Agreement. Cellectis’ guarantee of the Company obligations under the sale-leaseback transaction will terminate at the end of the second consecutive calendar year in which the Company’s tangible net worth exceeds $300 million, as determined in accordance with generally accepted accounting principles. On November 10, 2017, the Company agreed to indemnify Cellectis for any obligations incurred by Cellectis under the Lease Guaranty. The indemnification agreement will become effective at such time as Cellectis owns 50% or less of the Company outstanding common stock.

The Company is responsible for construction cost overruns. As a result of this involvement, the Company is deemed the “owner” for accounting purposes during the construction period and is required to capitalize the construction costs on the balance sheet. The sale of the land and structures also does not qualify for sale-leaseback accounting under ASC 840 as a result of “continuing involvement” and the guarantee of the transaction by Cellectis. Under ASC 840, the “continuing involvement” precludes the Company from derecognizing the assets from the balance sheet. When the assets under construction have been substantially completed the assets associated with the project will be capitalized and depreciated over the term of the lease.

The Company has recorded assets under construction related to the financing lease transaction of $3.1 million and a financing lease obligation of $10.1 million as of December 31, 2017. The Company recognized $0.2 million of interest expense related to this arrangement for the year end December 31, 2017.

Forward Purchase Commitments

The Company has forward purchase commitments with growers to purchase seed and grain at future dates in the amount of approximately $1.6 million that are estimated based on anticipated yield and expected price. This amount is not recorded in the financial statements because the Company has not taken delivery of the seed and grain.