Commitments and Contingencies
|9 Months Ended|
Sep. 30, 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 September 30, 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 the Company’s TALEN technology. The Company believed that Bayer 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. 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.
On May 15, 2018, Bayer agreed to settle the lawsuit that the Company brought. Under the settlement terms, the parties agreed that the License Agreement is terminated, that Bayer will destroy any technology, related product and confidential information covered by the License Agreement, and that Bayer will permanently abandon patent applications that are based on or include data related to the covered technology. This settlement confirms that Bayer and its subsidiaries have no access to Calyxt technology or intellectual property. The settlement was filed in Delaware Chancery Court on May 15, 2018.
The Company has several leases that are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Significant leases are described below.
Prior Building Lease
The Company leased office space at 600 County Road D West, Suite 8, New Brighton, Minnesota 55112, under an operating lease that expired in June 2018. Rent expense with respect to this lease was recognized using the straight-line method over the term of the lease. In addition to minimum lease payments, the office lease required payment of a proportionate share of real estate taxes and building operating expenses. Total rent expense for the office space was $0 thousand and $65 thousand for the three months ended September 30, 2018 and 2017, respectively. Total rent expense for the office space was $154 thousand and $195 thousand for the nine months ended September 30, 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 nearly 40,000 square-foot corporate headquarters which includes office, research laboratory space and outdoor growing plots.
During the construction period, which ended in June 2018, the Company initially paid annual base rent of $490 thousand until the property was substantially completed in May, at which time, the lease commenced. Under the lease, the Company now pays an annual base rent of approximately $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 for the facilities, 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 was responsible for construction cost overruns during the construction period. As a result of this involvement, the Company was deemed the “owner” for accounting purposes during the construction period and was 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 does not qualify for sale-leaseback accounting under ASC Topic 840,Leases, as a result of “continuing involvement” and the guarantee of the transaction by Cellectis. Under Topic 840, the “continuing involvement” precludes the Company from derecognizing the assets from the balance sheet. Following substantial completion in May 2018, the assets associated with the project were capitalized and will be depreciated over the term of the lease.
The Company’s total financing obligation is classified as a non-current liability of $17.2M and $10.1M as of September 30, 2018 and December 31, 2017, respectively. The increase in the obligation as of September 30, 2018 compared to December 31, 2017 is due to additional construction costs for building and site improvements, office equipment and furniture and architect fees related to construction of the Company’s new corporate headquarters. Based on the terms of the lease no principal payments are due within the next twelve months from the current balance sheet date. The Company recognized $897 thousand and $46 thousand of interest expense related to this arrangement for the nine months ended September 30, 2018 and 2017, respectively.
Obligations to Cellectis
As of September 30, 2018, and December 31, 2017, the Company had short-term Cellectis obligations of $1.9 million and $1.4 million, 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 (Note 5).
Forward Purchase Commitments
As of September 30, 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 $7.3 million and $1.6 million, respectively, which 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://fasb.org/us-gaap/role/ref/legacyRef