Commitments and Contingencies
|3 Months Ended|
Mar. 31, 2018
|Commitments and Contingencies Disclosure [Abstract]|
|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. Except as discussed in the following paragraph, the Company has not identified any legal matters needing to be recorded or disclosed as of March 31, 2018.
In December 2013, the Company entered into a Research and Commercial License Agreement (the License Agreement) with a subsidiary of Bayer Aktiengesellschaft (Bayer), pursuant to which we granted Bayer a license to certain patents for the research and commercialization of certain products developed with our TALEN technology. The Company believes that Bayer, which has agreed to acquire Monsanto, Inc. and also to sell a significant portion of its seeds business to BASF SE, has breached the License Agreement by filing patent applications in violation of the License Agreement’s provisions and by failing to make a payment due under the License Agreement. As described further in our Annual Report, the Company’s commercial success depends, in part, on obtaining and maintaining proprietary rights to intellectual property and defending these rights against third-party challenges. Accordingly, the Company gave notice to Bayer of its termination of the License Agreement, and on March 12, 2018, the Company filed a complaint in Delaware Chancery Court alleging that it properly terminated the License Agreement for Bayer’s material breach. The Company has requested a declaration that the License Agreement has terminated and an order of specific performance requiring Bayer to comply with its post-termination obligations. The Company does not expect to incur any significant losses as a result of the proceedings. However, litigation is inherently uncertain, and there can be no assurances with respect to the outcome or consequences of this litigation. Bayer, as well as other potential competitors, may choose to develop products that may compete with the product candidates that we are developing or may seek to develop in the future, regardless of the outcome of this litigation. If we are unsuccessful in this litigation, Bayer, as well as its successors and assigns, could use the TALEN technology covered by the License Agreement to develop products that may compete with the product candidates that we are developing or may seek to develop in the future.
The Company has several leases which are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Significant leases are described below.
Current building Lease
The Company leases its 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 for the office space was $77 thousand and $65 thousand for three months ended March 31, 2018 and 2017, respectively.
The Company entered into a sale-leaseback transaction 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 initially pays 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 Calyxt’s obligations under the sale-leaseback transaction will terminate at the end of the second consecutive calendar year in which Calyxt’s tangible net worth exceeds $300 million, as determined in accordance with generally accepted accounting principles. On November 10, 2017, Calyxt agreed to indemnify Cellectis for any obligations incurred by Cellectis under the Lease Guaranty. This indemnification agreement will become effective at such time as Cellectis owns 50% or less of Calyxt’s 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. Lease payments will decrease the finance obligation recorded on the Balance Sheet, net of implied interest. 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 $7.6 million and $3.1 million and a financing lease obligation of $14.5 million and $10.1 million as of March 31, 2018 and December 31, 2017 respectively. The Company recognized $123 thousand and 0 of interest expense related to this arrangement for the quarters-ended March 31, 2018 and 2017, respectively.
Obligations to Cellectis
As of March 31, 2018, and December 31, 2017, the Company had short-term Cellectis obligations of $742 thousand and $1,350 thousand, respectively, consisting of amounts owed under the intercompany management agreement for services provided by Cellectis and costs incurred by Cellectis on behalf of the Company.
Forward Purchase Commitments
As of March 31, 2018, and December 31, 2017, the Company has forward purchase commitments with growers to purchase seed and grain at future dates in the amount of approximately $7.0 million and $1.6 million, respectively, 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.
The entire disclosure for commitments and contingencies.
Reference 1: http://www.xbrl.org/2003/role/presentationRef