UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

For the fiscal year ended December 31, 2019

OR

 

Commission File Number 001-38841

 

Precision BioSciences, Inc.

(Exact name of registrant as specified in its charter)

 

 

Registrant’s telephone number, including area code: (919) 314-5512

 

Securities registered pursuant to Section 12(b) of the Act:

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  YES ☐ NO ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES ☒ NO ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ☐ NO ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The Nasdaq Global Select Market on June 28, 2019, was $589.0 million.

The number of shares of Registrant’s common stock outstanding as of March 2, 2020 was 51,399,847.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 

 

 

 

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Table of Contents

 

 

 

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of present and historical facts contained in this Annual Report on Form 10-K, including without limitation, statements regarding our future results of operations and financial position, business strategy and approach, including related results, prospective products, planned preclinical or greenhouse studies and clinical or field trials, the status and results of our preclinical and clinical studies, expected release of interim data, expectations regarding our allogeneic chimeric antigen receptor T cell immunotherapy product candidates, capabilities of our manufacturing facility, regulatory approvals, research and development costs, timing, expected results and likelihood of success, as well as plans and objectives of management for future operations, may be forward-looking statements. Without limiting the foregoing, in some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seeks,” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. No forward-looking statement is a guarantee of future results, performance, or achievements, and one should avoid placing undue reliance on such statements.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and assumptions may or may not prove to be correct.  Additionally, such forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part I. Item 1A. “Risk Factors” and Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks and uncertainties include, but are not limited to:

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Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Annual Report on Form 10-K and the documents that we reference herein completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. All forward-looking statements contained herein speak only as of the date of this Annual Report on Form 10-K.  Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

As used in this Annual Report on Form 10-K, unless otherwise stated or the context requires otherwise, references to “Precision,” the “Company,” “we,” “us,” and “our,” refer to Precision BioSciences, Inc. and its subsidiaries on a consolidated basis.

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PART I

Item 1. Business.

We are a life sciences company dedicated to improving life through the application of our pioneering, proprietary ARCUS genome editing platform. We leverage ARCUS in the development of our product candidates, which are designed to treat human diseases and create healthy and sustainable food and agricultural solutions. We are actively developing product candidates in three innovative areas: allogeneic CAR T cell immunotherapy, in vivo gene correction, and food. We are currently conducting a Phase 1/2a clinical trial of PBCAR0191 in adult patients with relapsed or refractory, or R/R, non-Hodgkin lymphoma, or NHL, or R/R B-cell precursor acute lymphoblastic leukemia, or B-ALL. PBCAR0191 is our first gene-edited allogeneic chimeric antigen receptor, or CAR, T cell therapy candidate targeting CD19 and is being developed in collaboration with Les Laboratoires Servier, or Servier. We have received orphan drug designation for PBCAR0191 from the U.S. Food and Drug Administration, or FDA, for the treatment of acute lymphoblastic leukemia, or ALL. Made from donor-derived T cells modified using our ARCUS genome editing technology, PBCAR0191 recognizes the well characterized tumor cell surface protein CD19, an important and validated target in several B-cell cancers, and is designed to avoid graft-versus-host disease, or GvHD, a significant complication associated with donor-derived, cell-based therapies. We believe that this trial, which is designed to assess the safety and tolerability of PBCAR0191 at increasing dose levels, as well as to evaluate anti-tumor activity, is the first U.S.-based clinical trial to evaluate an allogeneic CAR T therapy for R/R NHL. Furthermore, we believe that our proprietary, one-step engineering process for producing allogeneic CAR T cells with a potentially optimized cell phenotype, at large scale in a cost-effective manner, will enable us to overcome the fundamental clinical and manufacturing challenges that have limited the CAR T field to date.

 

In December 2019, we announced initial data from the ongoing Phase 1/2a clinical trial of PBCAR0191 in adult patients with R/R NHL and R/R B-ALL. A total of nine adult patients were reported in these initial Phase 1 trial results, including six with NHL (three treated at Dose Level 1 (3x10⁵ cells/kg), or DL1, and three treated at Dose Level 2 (1x10⁶ cells/kg), or DL2), and three with B-ALL (all treated at DL2). These data indicated no serious adverse events or dose limiting toxicities. In the NHL cohort, four of six patients demonstrated an objective tumor response by Lugano criteria at day 28, for an overall objective response rate of 67%, including three partial responses and one complete response. In the ALL cohort, one of three patients achieved a complete response at day 28 following treatment with PBCAR0191. As of December 31, 2019, dosing of patients at Dose Level 3 (3x10⁶ cells/kg) was underway.  Based on the data observed at DL1 and DL2, we filed a protocol amendment for this trial with the FDA in December 2019.  The amended trial design is intended to specifically address key clinical questions. These include assessing the impact of higher total doses of cells on clinical activity and/or the impact of modified lymphodepletion on the ability to achieve durable clinical benefit with associated CAR T cell expansion and persistence. Following feedback from the FDA in late January 2020, the protocol amendment is now being implemented.

In September 2019, the FDA accepted our investigational new drug, or IND, application for our second allogeneic CAR T cell therapy product candidate, PBCAR20A, for which we expect to commence a Phase 1/2a clinical trial in the first quarter of 2020. PBCAR20A is wholly owned by us and targets the validated tumor cell surface target CD20. It will be investigated in subjects with NHL, chronic lymphocytic leukemia, or CLL, and small lymphocytic lymphoma, or SLL. A subset of the NHL patients will have the diagnosis of mantle cell lymphoma, or MCL, and we have received orphan drug designation for PBCAR20A from the FDA for the treatment of this disease.  Based on the adverse events observed to date with PBCAR0191, the FDA has agreed to allow us to commence dosing with PBCAR20A directly at Dose Level 2, which we expect to accelerate the timing for our expected completion of the trial.

In January 2020, the FDA accepted our IND application for our third allogeneic CAR T cell therapy product candidate, PBCAR269A, for which we expect to commence a Phase 1/2a clinical trial in 2020. PBCAR269A is wholly owned by us and is designed to target the validated tumor cell surface target BCMA. It will be investigated in subjects with R/R multiple myeloma and we have received orphan drug designation from the FDA for this indication.

 

Also in January 2020, we announced that we expect to advance a program targeting the rare genetic disease primary hyperoxaluria type 1, or PH1 as our lead wholly owned in vivo gene correction program. PH1 affects approximately 1-3 people per million in the United States and is caused by loss of function mutations in the AGXT gene, leading to the accumulation of calcium oxalate crystals in the kidneys. Patients suffer from painful kidney stones which may ultimately lead to renal failure. Using ARCUS, we are developing a potential therapeutic approach to the treatment of PH1 that involves knocking out a gene called hydroxyacid oxidase 1, or HAO1, which acts upstream of AGXT. Suppressing HAO1 has been shown in preclinical models by us to prevent the formation of calcium oxalate. We, therefore, believe that a one-time administration of an ARCUS nuclease targeting HAO1 may be a viable strategy for a durable treatment of PH1 patients. In preclinical studies we have demonstrated in a mouse model of PH1 that administration of an ARCUS nuclease targeting HAO1 resulted in approximately 70% reduction in urine calcium oxalate levels. We have also demonstrated that ARCUS efficiently knocked out the HAO1 gene in non-human primates. We plan to select a clinical candidate for this program during 2020.

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During the fiscal year ended December 31, 2019, we opened our Manufacturing Center for Advanced Therapeutics, or MCAT, which we believe is the first in-house current good manufacturing practice, or cGMP, compliant manufacturing facility dedicated to genome-edited, off-the-shelf CAR T cell therapy product candidates in the United States.  MCAT will enable in-house production of three different drug substances: allogeneic CAR T cells, messenger RNA (including formulations development) and adeno-associated viral vectors. We are currently using this new manufacturing center to create clinical trial material to be used in our BCMA targeting allogeneic CAR T clinical trials beginning in 2020.  We believe MCAT confers a number of strategic advantages including cost benefits, control of our manufacturing process, and strategic flexibility as we execute our clinical trials. In the longer term, we believe MCAT has the potential to be a commercial launch facility with the capacity to generate up to 10,000 doses of CAR T cell therapies and 4,000 doses of gene therapies per year.

Our Pipeline

Allogeneic CAR T Immunotherapy

We believe that we have developed a transformative allogeneic CAR T immunotherapy platform with the potential to overcome certain limitations of autologous CAR T cell therapies and significantly increase patient access to these cutting‑edge treatments. Cancer immunotherapy is a type of cancer treatment that uses the body’s immune system to fight the disease. CAR T is a form of immunotherapy in which a specific type of immune cell, called a “T cell”, is genetically engineered to recognize and kill cancer cells. Current commercially available CAR T therapies are autologous, meaning the T cells used as the starting material for this engineering process are derived directly from the patient. As a consequence, the therapy is highly personalized, difficult to scale, and expensive. Our allogeneic approach uses donor‑derived T cells that are gene edited using ARCUS and are designed for safe delivery to an unrelated patient. We believe that this donor-derived approach will allow us to consistently produce a potent product by selecting donors with high quality T cells and will lessen the product-to-product variability seen in autologous therapies. We are able to produce allogeneic CAR T cells at a large scale in a cost-effective manner and have the potential to overcome the “one patient: one product” burden of autologous CAR T cell therapies.

Leveraging the unique gene editing capabilities of ARCUS, we have developed a one-step cell engineering process for allogeneic CAR T cells that is designed to maintain naïve and central memory T cell phenotypes throughout the CAR T manufacturing process, which we believe to be important for an optimized CAR T therapy. Due to our one-step editing method and the decision early in the development of our allogeneic CAR T immunotherapy platform to invest in process development, we have scaled our manufacturing process and are currently producing allogeneic CAR T cells at large scale in accordance with good manufacturing practice, or GMP.

In February 2016, we entered into a development and commercial license agreement, as subsequently amended, with predecessor entities of Les Laboratoires Servier, or Servier, which we refer to as the Servier Agreement. Pursuant to this agreement we have agreed to perform early-stage research and development on individual T cell modifications for up to six unique antigen targets, the first of which was selected at the inception of the agreement. Upon selection of an antigen target, we have agreed to develop the resulting therapeutic product candidates through Phase 1 clinical trials and prepare the clinical supply of such product candidates for use in Phase 2 clinical trials. We have the ability to opt-in to a 50/50 co‑development and co-promotion agreement in the United States on all licensed products under the Servier Agreement.

Our most advanced program, PBCAR0191, is an allogeneic CAR T cell therapy candidate targeting the well-validated tumor target CD19 and is being developed for the treatment of adult patients with NHL and B-ALL. CD19 is a protein that is expressed on the surface of B cells. The FDA has granted PBCAR0191 orphan drug designation for the treatment of ALL. In December 2019, we reported initial data from our ongoing Phase 1/2a clinical trial of PBCAR0191. A total of nine adult patients were reported in these initial Phase 1 trial results, including six with NHL (three treated at Dose Level 1 (3x10⁵ cells/kg), or DL1, and three treated at Dose Level 2 (1x10⁶ cells/kg), or DL2), and three with B-ALL (all treated at DL2). These data indicated no serious adverse events or dose limiting toxicities. In the NHL cohort, four of six patients demonstrated an objective tumor response by Lugano criteria at day 28, for an overall objective response rate of 67%, including three partial responses and one complete response. In the ALL cohort, one of three patients achieved a complete response at day 28 following treatment with PBCAR0191. As of December 31, 2019, dosing of patients at Dose Level 3 (3x10⁶ cells/kg) was underway. Based on the data observed at DL1 and DL2, we filed a protocol amendment for this trial with the FDA in December 2019.  The amended trial design is intended to specifically address key clinical questions. These include assessing the impact of higher total doses of cells on clinical activity and/or the impact of modified lymphodepletion on the ability to achieve durable clinical benefit with associated CAR T cell expansion and persistence. Following feedback from FDA in late January 2020, the protocol amendment is now being implemented.

In vivo Gene Correction. Our goal is to cure genetic diseases by correcting the DNA errors responsible for causing them. In vivo gene corrections are gene corrections that take place in a living organism. We have advanced a deep portfolio of diverse programs toward in vivo efficacy and toxicity studies. We have generated a significant large animal dataset that we believe to be the most comprehensive of any in the field and have observed high-efficiency in vivo genome editing in non-human primates in our preclinical studies, as highlighted in our July 2018 publication in Nature Biotechnology. We believe this is the first peer-reviewed publication of in vivo genome editing data in non-human primates. In our preclinical studies, we observed the high-efficiency editing of the PCSK9 gene in non-human primates using ARCUS and, even at the highest dose, the treatment was observed to be well-tolerated. We have

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continued to observe the subjects for over three years since initial dosing and the benefit of the treatment in these studies appears to be permanent, which we believe is due to modifications to the DNA itself.

In January 2020 we announced that we expect to advance a program for the treatment of the rare genetic disease PH1 as our lead wholly owned gene correction program, based on preclinical data we have generated demonstrating high efficiency knock out of the HAO1 target gene in non-human primates using ARCUS, and evidence from a mouse model of clinically meaningful biomarker changes using our approach. We expect to nominate a clinical development candidate for this program during 2020. In addition, we are party to a collaboration agreement with Gilead Sciences, Inc. (“Gilead”) to co-develop an ARCUS-based product candidate that is designed to cure chronic hepatitis B infection. Submission of an IND to the FDA for this product candidate is currently targeted for 2021. We are also in the discovery stage for other in vivo indications: familial amyloid polyneuropathy, hemophilia A, autosomal dominant retinitis pigmentosa, lipoprotein lipase deficiency and familial hypercholesterolemia.

Food. Our food platform, which we operate through our wholly owned subsidiary, Elo Life Systems, or Elo, is an integrated suite of gene discovery and crop engineering technologies that is designed to generate products in collaboration with leading food producers. We have a team with in-depth experience in crop genome editing. Over the last decade, we have worked with some of the largest plant biotechnology companies to edit gene targets and develop potential product candidates in a variety of crop plants. By combining the power of our ARCUS technology platform with target discovery, transformation and high throughput trait evaluation, we are enabling our partners to potentially address critical issues in food and agriculture created by climate change and dramatic shifts in consumer preference toward healthier eating. Our collaboration-driven business model enables us to remain capital efficient throughout the product development cycle while generating revenue through various revenue-sharing models. For example, since 2014, Elo and Cargill have been engaged in a collaboration to produce ARCUS-optimized canola varieties and have achieved significantly lower levels (less than 4.5%) of saturated fatty acids compared to the current levels (7%) in greenhouse studies. Elo achieved proof of concept with its ZeroMelon^TM watermelon-based sweetener program. This program is intended to leverage ARCUS to develop a scalable low-calorie sweetener. Elo will continue to advance the ZeroMelon program towards greenhouse trials in 2020. Prior to commercialization of any of our food product candidates, we must complete greenhouse studies and multiple phases of field testing.  

Our Team

We believe that our team, whom we call Precisioneers, has among the deepest scientific experience and capabilities of all genome editing companies. Derek Jantz, Ph.D., our Chief Scientific Officer and a co-founder of Precision, and Jeff Smith, Ph.D., our Chief Technology Officer and also a co-founder of Precision, have been working with genome editing technology for more than 15 years. They are pioneers in the genome editing field and developed our ARCUS genome editing platform to address what they perceived as limitations in the existing genome editing technologies. Our Chief Executive Officer, Matthew Kane, also a co-founder of Precision, has almost 20 years’ experience in life sciences, most of which has been working in genome editing.

We have selectively expanded our team of Precisioneers to include individuals with extensive industry experience and expertise in the discovery, development, manufacture and commercialization of cell and gene therapies and the creation of innovative solutions to myriad problems affecting food systems.   Our team of Precisioneers includes more than 62 scientists with Ph.D. degrees.

We are a purpose-driven organization, and we have carefully promoted a culture that values innovation, accountability, respect, adaptability and perseverance. We strive to ensure that our open, collaborative culture empowers Precisioneers to be their best selves and do their best work. We strongly believe that our shared values will help our team navigate and overcome any challenges we may experience as we pursue our mission of improving life through genome editing. Our culture has helped build a world-class team with industry-leading experience in genome editing and continually attracts new talent to further build our capabilities. Our team is a group of motivated individuals that value the opportunity to contribute their time and talents toward the pursuit of improving life. Precisioneers appreciate high-quality research and are moved by the opportunity to translate their work into treatments and solutions that will impact human health.

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Our Strategy

We are dedicated to improving life. Our goal is to broadly translate the potential of genome editing into permanent genetic solutions for significant unmet needs. Our strategy to achieve this goal includes the following key elements:

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Overview of Genome Editing

Deoxyribonucleic acid, or DNA, carries the genetic instructions for all basic functions of a living cell. These instructions are encoded in four different molecules, called bases, which are strung together in specific sequences to form genes. Each gene is responsible for a specific function in a cell, and the complete set of genes in a cell, which can consist of tens of thousands of genes and billions of individual bases, is known as a genome. The complete genome sequence has been determined for many organisms, including humans. This allows scientists to identify specific genes and determine how their unique sequences contribute to a particular cellular function. Studying variations in gene sequences further informs an understanding of why a cell behaves a certain way, which can greatly enhance understanding of what causes and how to treat aberrant behavior that leads to disease.

Genome editing is a biotechnology process that removes, inserts or repairs a portion of DNA at a specific location in a cell’s genome. Early applications of genome editing focused on advancing genetic research. As genome editing technologies have advanced, their application is moving beyond understanding disease to treating or preventing disease by editing DNA. Genome editing is accomplished by delivering a DNA cutting enzyme, called an endonuclease, to a targeted segment of genetic code. Once the endonuclease cuts the DNA, the cell has to repair the break to survive and will generally do so in one of two ways, as shown below.

 

 

There are two primary mechanisms of DNA repair, non-homologous end joining, or NHEJ, and homology directed repair, or HDR. As shown in A) above, NHEJ is a pathway that repairs breaks in DNA without a template. NHEJ is the less precise method of repair that prioritizes speed over accuracy, making it prone to leaving insertions and/or deletions of DNA bases at the cut site. These insertions or deletions can disrupt the gene sequence and can be used to inactivate or “knock out” the function of the gene. Accordingly, genome editing technologies can be used to permanently knock out a gene in a cell or organism by creating a break in the DNA sequence of that gene.

As shown in B) above, HDR is a mechanism of DNA repair whereby the cell uses a second DNA molecule with a sequence similar to that of the cut DNA molecule to guide the repair process. Since HDR uses a “template” of similar genetic information to guide the repair process, it is the more precise mechanism of cellular repair. HDR results in the sequence of the template being copied permanently into the genome at the site of the DNA cut. If we provide a template DNA molecule directly to the edited cell and the cell repairs itself using HDR, a new gene can be incorporated or “knocked in” at a precise location in the genome. Alternatively, the use of HDR can “repair” a DNA mutation by correcting it to the proper functioning sequence when repairing the break. Thus, genome editing endonucleases can be used to introduce a variety of different changes to the genetic code of a cell or organism including gene knockout, gene insertion and gene repair.

There are several genome editing technologies, including ARCUS, zinc-finger nucleases, or ZFNs, TAL-effector nucleases, or TALENs, and CRISPR/Cas9. These technologies differ from one another principally in the properties of the endonuclease that they each employ. The different endonucleases have fundamentally different mechanisms of recognizing and cutting their DNA targets, which gives each technology advantages and disadvantages depending on how each is used.

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Our Approach to Genome Editing

We are pioneers in the field of genome editing and have extensive experience with a breadth of genome editing technologies. Our ARCUS platform was developed to address limitations of other editing technologies that could impair their deployment for therapeutic applications. We looked to nature for examples of genome editing and found the I-CreI endonuclease from the algae Chlamydomonas reinhardtii. Unlike ZFN, TALEN or CRISPR/Cas9, I-CreI is a natural enzyme that evolved to edit a large, complex genome. In nature, it is responsible for modifying a specific location in the algae genome by inserting a gene using the HDR process, according to scientific literature.

We believe that I-CreI has a number of attributes that make it attractive for the development of novel genome editing endonucleases, such as:

Recognizes and cuts a DNA sequence in the genome of algae that is 22 base pairs in length.    A sequence of this length is statistically expected to occur only once in a large genome.

Recognizes its DNA target site through a large number of complex molecular interactions with the bases.    Relative to other endonucleases, an unusually high percentage of the I-CreI protein surface area is dedicated to specific contacts with the DNA bases. This method of site recognition enhances I-CreI’s ability to discriminate among similar sequences of DNA, reducing the likelihood that it will cut DNA sequences that differ even slightly from the intended DNA sequence.

Physically couples the functions of DNA binding and DNA cutting.    The region of I-CreI that is responsible for DNA site recognition also contains the region that cuts the DNA, or the active site. Due to this structure, the active site is not in a position to cut unless the enzyme is seated properly on the correct DNA sequence. ZFN, TALEN and CRISPR/Cas9 are multi-domain endonucleases in which the DNA-binding and DNA-cutting functions reside in different regions of the enzyme.

 

 

Remains inactive in the absence of its DNA target site.    When I-CreI is not bound to its proper DNA target site, it folds up on itself such that its active site is blocked from external interaction. In this form, I-CreI is inert. This structural configuration provides a type of natural “on/off switch” that reduces I-CreI’s activity away from the target site. Other genome editing endonucleases lack this type of natural control over the enzyme’s cutting activity.

Cuts slowly and with low turnover.    Relative to other genome editing endonucleases and to enzymes in general, I-CreI has a very slow mechanism of action. I-CreI takes a relatively long time to cut its DNA target site and, after doing so, remains bound to the cut DNA ends. These properties greatly reduce the likelihood that I-CreI will cut any other DNA site after making its initial on-target cut. We believe that this translates directly to a reduction in the frequency of off-target cutting without sacrificing on-target editing efficiency. In contrast, other editing endonucleases have high rates of catalysis and turnover because their natural function is defending bacteria from viruses.

 

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Other than the key programming challenge, we believed that the differentiated properties of I-CreI cited above made it an ideal “scaffold” for the development of novel genome editing tools. Moreover, we believed those properties were differentiated enough from other editing technologies to merit substantial investment in overcoming the key challenge of programmability. To that end, we invested 15 years of research effort to develop a robust, proprietary protein engineering method that now enables us to consistently re-program I-CreI to direct it to targeted sites in a genome. We call our approach ARCUS.

Our ARCUS Genome Editing Platform

ARCUS is a collection of protein engineering methods that we developed specifically to re-program the DNA recognition properties of I-CreI. In nature, the I-CreI endonuclease recognizes and cuts a DNA sequence in the genome of algae. To apply I-CreI to genome editing in other cells or organisms, we must modify it to recognize and cut a different DNA sequence for each new application we pursue. Since the I-CreI endonuclease evolved to recognize its target sequence in the algae genome with a high degree of selectivity, as supported by scientific literature, it was necessary for us to develop sophisticated protein engineering methods to re-engineer I-CreI endonucleases to bind and cut a different DNA sequence. Using the ARCUS process, we create customized endonucleases for particular applications. We call these custom endonucleases “ARCUS nucleases.” Our process is proprietary and core components are claimed in an extensive international patent portfolio. Moreover, since the ARCUS process involves a sophisticated blend of protein engineering art and science, each ARCUS nuclease we create is novel and, we believe, patentable. As of December 31, 2019, we have obtained U.S. patents with claims directed to three ARCUS nucleases as compositions of matter, and currently claim over 270 ARCUS nucleases as compositions of matter in pending U.S. and foreign patent applications.

Our objective with ARCUS is to redirect I-CreI to a new location in a genome without compromising its editing abilities. To accomplish this, we modify the parts of the enzyme that, as reported by scientific literature, are involved in recognizing the specific DNA target site. These enzyme parts are also reported to comprise the I-CreI active site and to be involved in anchoring the enzyme to its DNA site in the algae genome. In our preclinical studies, we have observed that these modifications allowed us to control how tightly an engineered variant of I-CreI binds to its intended DNA site, as well as how quickly it cuts, in a plant or animal cell. By adjusting these two parameters, we observed that we can generally control the efficiency with which the engineered endonuclease cuts its intended target site or any potential off-target sites.

The natural I-CreI target site is pseudo-palindromic, meaning the first half of the sequence is approximately a mirror image of the second half of the sequence. Palindromic DNA sites are rare in most genomes so it was necessary for us to develop additional technology that would overcome this limitation on the diversity of DNA sites that we can target. To this end, the ARCUS process involves the production of two re-programmed I-CreI proteins for each target site. These two different proteins are then linked together into a single protein that can be expressed from a single gene. This approach, called a “single-chain endonuclease,” represents a major advancement in I-CreI engineering because it enables our ARCUS nucleases to recognize and cut non-palindromic target sites using an endonuclease that, like natural I-CreI, is very small and easy to deliver to cells.

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The graphic below depicts the molecular structure of natural I-CreI in comparison to an engineered ARCUS nuclease called “M1PCSK9.” The regions of the structures colored in pink or cyan represent the amino acid building blocks that are responsible for contacting the DNA target site and determining the sequence of DNA bases that the endonuclease recognizes and cuts. The DNA target sites recognized by the two endonucleases are shown below the structures.

 

 

Since creating an ARCUS nuclease requires such extensive reengineering of I-CreI, it is, generally, an iterative process that involves multiple cycles of design and testing. We can typically produce a first-generation ARCUS nuclease in seven weeks. First-generation nucleases are suitable for research and development, proof-of-concept studies or other non-therapeutic applications. For therapeutic applications requiring the lowest possible off-targeting, however, we are rarely satisfied with generation one and each endonuclease undergoes extensive optimization. To this end, we thoroughly interrogate the nuclease with respect to its on-and off-target cutting properties using ultra-sensitive tests that we developed specifically for use with ARCUS. These results then inform our design of a second-generation nuclease with the goal of optimizing on-target efficiency while minimizing off-target cutting. Therapeutic ARCUS nucleases typically require two to four cycles of design and testing, often resulting in off-target cutting frequencies that are below the limit of detection with our most sensitive assays. This process can take six months or longer and has resulted in development of “therapeutic-grade” editing endonucleases.

The ARCUS process is robust and reproducible. It enables us to create engineered variants of the I-CreI endonuclease that recognize and cut DNA sites that bear little resemblance to I-CreI’s natural target site. Importantly, however, ARCUS retains the attributes of I-CreI that we believe make it highly suitable as a genome editing endonuclease for complex commercial applications. We expect ARCUS nucleases to be exquisitely specific as a result of the natural structure of I-CreI and the intricate design process we employ to create them. We believe ARCUS nucleases are the smallest and easiest to deliver genome editing endonucleases. Like I-CreI, in our preclinical studies, ARCUS nucleases have been observed to produce DNA cuts with 3’ overhangs that promote HDR, facilitating gene insertions and gene repairs in addition to gene knockouts. We believe that these attributes will enable us to translate ARCUS into patient-based clinical trials and a wide array of product candidates that have the potential to address the limitations of other genome editing technologies and improve life.

We believe that ARCUS is a leading genome editing platform for therapeutic and food applications. Realizing the potential of ARCUS, however, requires supporting technologies and capabilities. To facilitate the potential commercial deployment of ARCUS in different fields, we surround it with ancillary technologies, domain expertise and infrastructure specific to that area of development. Our goal is to leverage ARCUS to build additional product-development platforms designed to rapidly generate new products in a given field. We are currently developing products from three such platforms: allogeneic CAR T immunotherapy, in vivo gene correction, and food.

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Our Allogeneic CAR T Immunotherapy Platform

 

We are leveraging the properties of ARCUS in an integrated platform for the development and large-scale production of off-the-shelf (allogeneic) CAR T cell immunotherapies. A key to the success of this platform is our proprietary, one-step method for modifying the genetics of T cells from a healthy donor to make them detect and kill cancer cells. This method allows us to produce allogeneic CAR T therapy candidates with a potentially optimal phenotype for clinical development and scaled manufacturing. We have demonstrated that our approach yields an allogeneic product with a high proportion of so-called naïve and central memory CAR T cells, which are the T cell phenotypes that have previously correlated best with good clinical benefit and fewer adverse events compared with terminally differentiated effector T cells. Additionally, because these cells are derived from healthy donors and maintain the phenotypic characteristics described, it is our hypothesis that they will be more capable of controlled in vivo expansion and tumor killing without requiring harsh lymphodepletion regimens to be administered to the patient. As such, we believe that our allogeneic CAR T cell platform will greatly increase patient access to these cutting-edge treatments.

CAR T Cell Therapies

CAR T cell therapy is a form of cancer immunotherapy that uses a patient’s immune system to kill cancer cells. T cells are a component of the immune system that can distinguish pathogen-infected or tumor cells from healthy cells and kill them. Recognition of pathogen-infected cells or tumor cells occurs through a protein called a T cell receptor, or TCR, that is expressed on the surface of T cells. Tumor cells, however, have evolved numerous ways to evade TCR-mediated killing by T cells. In CAR T cell therapy, T cells are engineered ex vivo to express a protein called a chimeric antigen receptor, or CAR, that recognizes specific tumor cell surface targets and allows the T cells to function independently of the TCR, thus circumventing tumor cells’ evasion of the TCR. CAR T cell therapy has been shown in clinical trials to be an effective treatment for patients who have not responded to traditional cancer treatments, and there are now two FDA approved CAR T cell products available to treat certain types of leukemia and lymphoma.

The most common form of CAR T cell therapy, which includes the two approved therapies, is referred to as “autologous” CAR T cell therapy because the CAR T cells are generated using T cells taken directly from the cancer patient. T cells are harvested from the patient, genetically engineered ex vivo to express a CAR, and then injected back into the patient. While autologous CAR T cell therapy has been shown to be effective for treating certain tumor types, it has several significant drawbacks:

 

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We believe that the use of allogeneic, or donor-derived, CAR T cells will address many of the challenges associated with autologous CAR T cell therapy. An allogeneic approach allows selection of donors using specific criteria to define “healthy” T cells possessing specific phenotypes, which we believe are important to clinical efficacy and which may lessen the product-to-product variability seen in autologous therapies. Donor-derived cells could be used in any patient, eliminating the “one patient: one product” burden of autologous CAR T cell therapies. Because healthy donors would provide the starting material, patients that were too sick or otherwise unqualified for an autologous approach may benefit from an allogeneic CAR T cell therapy. Additionally, patients receiving an off-the-shelf allogeneic treatment would not have to wait for the manufacture of a personalized autologous treatment, which could be further delayed by manufacturing difficulties. By scaling the manufacturing of CAR T cells and optimizing the manufacturing process for a specific pool of donors, we believe that allogeneic CAR T cells can be manufactured at costs that are significantly lower than autologous CAR T cells and that will, over time, approach the manufacturing costs for conventional biologic drugs. These potential advantages of an allogeneic approach should allow for a safer, more predictable product with defined quality standards and significantly increase patient access.

The major challenge to producing allogeneic CAR T cells is that donor-derived T cells still express their own TCR. Because the TCR enables T cells to recognize cells that are foreign to the donor, they may induce GvHD if introduced to the patient in their natural form. This is a dangerous condition in which the donor T cells indiscriminately attack cells in the body of the patient. Accordingly, expression of the TCR must be eliminated in donor cells before the cells can be engineered into CAR T cells and administered to a patient. An allogeneic CAR T cell therapy therefore requires the use of a genome editing technology like ARCUS to knock out TCR genes in the T cell DNA to produce “universal” donor cells that are designed to be incapable of eliciting GvHD.

We and others have shown that genome editing can be used to eliminate expression of the TCR on donor cells, and there are several companies working on gene-edited allogeneic CAR T cell therapies. However, there are a number of challenges associated with manufacturing gene-edited allogeneic CAR T cells, including the following:

Our Approach to Allogeneic CAR T Cells

We have used the unique qualities of ARCUS to create a one-step cell engineering process for allogeneic CAR T cells that we believe yields a well-defined cell product and is designed to maintain naïve and central memory T cell phenotypes throughout the CAR T manufacturing process; we believe this is of paramount importance for an optimized CAR T therapy. To produce an allogeneic CAR T cell, it is necessary to make two changes to the DNA of T cells from a healthy donor. First, it is necessary to knock out the gene that encodes the TCR to prevent the donor-derived T cells from eliciting GvHD in the patient. The TCR is actually a complex of several

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different components encoded by different genes, and knocking out any one of them is generally sufficient to prevent the TCR from functioning. Second, it is necessary to add, or knock in, a gene that encodes the CAR to give the T cells the ability to recognize and kill cancer cells. We developed a proprietary, one-step method for achieving both genetic changes simultaneously. This method, aspects of which are protected by nine issued U.S. patents, involves the use of ARCUS to target the insertion of a CAR gene directly into the gene that encodes the alpha subunit of the TCR. This approach adds the DNA encoding the CAR while simultaneously disrupting the DNA encoding the TCR, essentially replacing one gene with the other.

One-step engineered allogeneic CAR T cells

 

 

We believe that our one-step engineering approach, and the differentiated attributes of the ARCUS nuclease used to implement it, will overcome many of the critical challenges associated with allogeneic CAR T cell production as follows:

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The figure below shows phenotype data from PBCAR0191 CAR T cells that were produced as drug product for our ongoing Phase 1/2a clinical trial in adult patients with R/R NHL and R/R B-ALL. The drug product comprises mostly naïve (T_N/SCM) and central memory (T_CM) T cells.

 

 

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Key features of Precision’s allogeneic CAR T platform

 

Preventing CAR T Cell Rejection

A patient’s immune system is expected to recognize allogeneic CAR T cells as foreign and destroy or reject the cells. This rejection could limit the efficacy of the CAR T therapy if the cells do not persist long enough in the patient to eradicate the tumor. Patients who receive CAR T therapy are typically preconditioned prior to being given the cell therapy using lymphodepleting drugs such as cyclophosphamide or fludarabine, which suppress the immune system of the patient. We believe that this degree of preconditioning will be sufficient to prevent CAR T cell rejection by patients who receive our treatments due to our unique approach to producing CAR T cells. Our CAR T production process preserves T cell phenotypes that we believe are highly expansile in vivo and therefore do not require an aggressive lymphodepletion regime to survive and proliferate in the body.

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Our ongoing Phase 1/2a clinical trial of PBCAR0191 employs a standard lymphodepletion regimen comprised of cyclophosphamide at a dose of 1,500mg/m² over three days and fludarabine at a dose of 90mg/m² over three days. Based on the initial clinical data from this trial, we believe this lymphodepletion regime to be effective given the high quality of our cell product. However, higher concentrations of fludarabine and cyclophosphamide have been delivered safely to patients. Therefore, we also have the option to increase or decrease the dose of lymphodepletion in the future to further optimize CAR T cell persistence and clinical efficacy if needed, and we will evaluate the need for this based on the assessment of clinical data from our ongoing trials. In addition, we have the ability to incorporate a novel piece of our technology that we call “stealth cell” into the CAR T product candidate. The stealth cell technology is a modified CAR T vector that is designed to suppress a gene called beta-2-microglobulin, or B2M, in CAR T cells using a short-hairpin RNA, or shRNA. B2M is a component of the major histocompatibility complex type 1, a cell surface receptor which activates T cells. In preclinical studies, we and others have observed that suppression or elimination of B2M reduces the rejection of CAR T cells by T cells from an unrelated individual. However, we have found that complete elimination of B2M, for example by knocking the gene out using gene editing, provokes rejection of the CAR T cells by an alternative immune cell called natural killer, or NK cells. As shown in the figure below, in preclinical studies, we have observed that suppression of B2M to a level that is approximately 5% to 20% of normal levels can significantly reduce rejection by T cells without inducing an NK response.

 

 

Our Allogeneic CAR T Immunotherapy Pipeline

We are leveraging our CAR T cell platform to develop product candidates against validated CAR T cell targets. By focusing on validated targets, we seek to avoid many technical hurdles associated with early clinical development and can validate our allogeneic platform in patients with fewer variables. This approach also allows us to leverage the abundance of available public resources for these targets, including CARs, cell and animal models, and clinical protocols. We believe that our modular CAR T platform will allow us to leverage proof-of-concept from our ongoing and planned initial human trials for multiple other CAR T programs. We believe that we have developed the first allogeneic CAR T cell platform capable of producing drug product at scale, with a potentially optimal cell profile for therapeutic efficacy and true off-the-shelf delivery without the need for harsh and potentially toxic lymphodepletion. We believe that the combination of these factors, along with our next generation ARCUS technology, puts us in a differentiated position to become the leader in the development of allogeneic CAR T therapies.

In December 2019, we reported initial data from the first six patients with advanced NHL and the first three patients with advanced ALL treated with PBCAR0191 at the lowest two dose levels from our ongoing Phase 1/2a clinical trial. These initial data indicated no serious adverse events or dose-limiting toxicities, and demonstrated initial evidence of cell-mediated anti-tumor activity. As of December 31, 2019, dosing of patients at the third dose level was underway.

The first three product candidates in our allogeneic CAR T cell development pipeline are:

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We are currently evaluating patients in a Phase 1/2a clinical trial of PBCAR0191 in adult patients with R/R NHL or R/R B-cell precursor ALL, the trial design of which is shown in the figure below. The primary objective of this trial is to evaluate the safety and tolerability of PBCAR0191, as well as to determine the maximum tolerated dose. Secondary objectives include evaluating the anti-tumor activity of PBCAR0191. We are also evaluating the expansion, trafficking and persistence of PBCAR0191 in this trial. NHL and ALL cohorts are evaluated independently. The base trial design includes up to three dose levels: 3.0 x 10⁵ cells/kg, 1.0 x 10⁶ cells/kg and 3.0 x 10⁶ cells/kg. Patients will be further evaluated for a follow-up period of 11 months. The trial is being conducted at the following four clinical sites across the United States: Moffitt Cancer Center in Florida, City of Hope Cancer Treatment and Research Center in California, Dana-Farber Cancer Institute in Massachusetts and MD Anderson Cancer Center in Texas. A further eight to ten sites are expected to be initiated during the course of 2020.

 

 

Initial Data from Phase 1/2a Trial of PBCAR0191 in R/R NHL and R/R B-ALL

 

In December 2019, we announced initial data from our ongoing Phase 1/2a clinical trial of PBCAR0191 in adult patients with R/R NHL or R/R B-ALL. A total of nine patients were reported in these initial Phase 1 trial results, including six with NHL (three treated at Dose Level 1, or DL1, and three treated at Dose Level 2, or DL2), and three with B-ALL (all treated at DL2).

 

Patients treated at Dose Level 1 (3x10⁵ cells/kg) included three NHL patients, two with diffuse large B cell lymphoma and one with mantle cell lymphoma, with a mean age of 54 years (min-max 34-64 years). Patients had received a median of four prior lines of therapy, with two patients being refractory to their last treatment, and one having previously relapsed following treatment with Yescarta®, an FDA-approved autologous CD19-targeted CAR T therapy. Dose Level 2 (1x10⁶ cells/kg) included three NHL patients, all with mantle cell lymphoma, with a mean age of 74 years (min-max 71-77 years) who had received a median of two prior lines of therapy, with one patient refractory to their last treatment and two who had relapsed. Three B-ALL patients were also treated at DL2, with a mean age of 56 years (min-max 48-72 years); these patients had received a median of four prior lines of therapy – all three patients were refractory to their last treatment, with two patients having poor prognostic indicators at trial entry.

 

Patients received a single infusion of PBCAR0191 on day 0, following three days of lymphodepletion using fludarabine 30mg/m²/day and cyclophosphamide 500mg/m²/day. The primary objective of this Phase 1 portion of the ongoing Phase 1/2a trial is to evaluate safety as measured by the occurrence of dose limiting toxicities. Secondary objectives include assessment of objective tumor responses using standard criteria, and further evaluation of adverse events, or AEs, and adverse events of special interest, including GvHD, cytokine release syndrome, or CRS, and immune effector cell-associated neurotoxicity syndrome, or ICANS. Data were presented as of a November 4, 2019 cutoff date, with additional critical data collected through December 2, 2019, including occurrence of CRS, ICANS, GvHD and evaluation of objective responses.

 

Safety of PBCAR0191

 

No serious adverse events or evidence of GvHD were observed through December 2, 2019. Three of the nine patients treated with PBCAR0191, or 33%, developed CRS including two Grade 1 cases and one Grade 2 case. One of the nine patients, or 11%, developed Grade 2 neurotoxicity. All events of CRS and neurotoxicity resolved, and no deaths occurred on study. In addition, one patient experienced a Grade 3 AE that was deemed related to PBCAR0191 (pain at the site of the patient’s tumor mass for one day following infusion) and one patient experienced Grade 4 lymphopenia for a duration of seven days and deemed related to PBCAR0191.

 

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Clinical activity of PBCAR0191

 

Of the nine patients treated with PBCAR0191, seven, or 78%, had objective evidence of tumor shrinkage at any time point. The data also provided preliminary evidence of dose-dependent CAR T cell expansion and persistence. In the NHL cohort, four of six patients, or 67%, achieved an objective response by Lugano 2014 criteria at day 28+, including three partial responses (two patients treated at DL1 and one patient treated at DL2) and one complete response (patient treated at DL2). As of December 2, 2019, one patient (treated at DL2) remained in complete response. One patient (treated at DL1) achieved a partial response then progressed six months after treatment with PBCAR0191. This was notable given the patient had relapsed following treatment with Yescarta®. The remaining two NHL patients, one treated at DL1 and one at DL2, achieved early responses (one CR, one PR respectively) at day 14; both patients had evidence of disease progression at day 28. In the B-ALL cohort treated at DL2, one of three patients, or 33%, achieved a complete response by the National Comprehensive Cancer Network 2017 criteria at day 28+, with undetectable B-ALL in the bone marrow by flow cytometry, described as minimal residual disease (MRD) negative. The remaining two patients did not respond at day 28; these patients had poor prognostic indicators on entry into the trial: one with prior CNS involvement and 95% blast infiltration into the bone marrow, and one with 77% blast infiltration into the bone marrow and disease refractory to two previous lines of treatment.

 

CAR T cell expansion and persistence in the peripheral blood was assessed at DL1 and DL2 by flow cytometry and quantitative polymerase chain reaction, or qPCR. Evidence of a dose-dependent increase in cell expansion was observed between subjects treated at DL1 and DL2, as was a dose-dependent increase in CAR T cell persistence. B-cell aplasia and serum cytokine analysis also anecdotally corresponded to observed clinical responses and CAR T cell expansion.

 

As of December 31, 2019, dosing of patients at Dose Level 3 (3x10⁶ cells/kg) was underway.

 

Recent trial amendment

 

Based on the safety profile and clinical activity observed at DL1 and DL2, we filed a protocol amendment for this trial with the FDA in December 2019.  Following feedback from FDA in late January 2020, the protocol amendment is now being implemented. The amended trial design is intended to specifically address key clinical questions. These include assessing the impact of higher total doses of cells on clinical activity and/or the impact of modified lymphodepletion on the ability to achieve durable clinical benefit with associated CAR T cell expansion and persistence. The most important modification is the inclusion of two additional dose levels: Dose Level 4 (6x10⁶ cells/kg) and Dose Level 5 (9x10⁶ cells/kg). These higher doses will employ a split dosing strategy following a single lymphodepletion with the intention of optimizing clinical activity while preserving a favorable safety profile. Dose Level 4 will comprise two infusions of 3x10⁶ cells/kg, and Dose Level 5 will comprise three such infusions – this strategy will enable us to explore higher total doses of PBCAR0191 while limiting potential GvHD risk. In addition, we have introduced a modification to allow for the option to increase or decrease the doses of fludarabine and cyclophosphamide used in the lymphodepletion protocol if data suggest that CAR T cell rejection limits efficacy. The final modification allows for the option to re-dose patients with PBCAR0191 following evidence of clinical response but with subsequent disease progression.

 

We expect to present updated results from this trial during the course of 2020.

PBCAR20A.    Our second allogeneic CAR T therapy candidate is PBCAR20A, an allogeneic anti-CD20 CAR T cell product candidate for the treatment of NHL, chronic lymphocytic leukemia, or CLL, and small lymphocytic lymphoma, or SLL. Like CD19, CD20 is a protein expressed on the surface of B cells. It is a validated target for cancer treatment and several CD20-targeted therapies, such as the monoclonal antibody Rituxan, have long histories of clinical and commercial success.  In September 2019, the FDA cleared our IND application for PBCAR20A and we expect to commence a Phase 1/2a clinical trial for PBCAR20A in the first quarter of 2020. It will be investigated in subjects in two cohorts: NHL and CLL/SLL. The trial will include patients with NHL, of which a subset will have the diagnosis of mantle cell lymphoma, or MCL. We have received Orphan Drug Designation for the treatment of MCL.  

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In our planned Phase 1/2a clinical trial, the primary objective will be to evaluate the safety and tolerability of PBCAR20A, as well as to determine the maximum tolerated dose. Secondary objectives will include evaluating the anti-tumor activity of PBCAR20A. We also plan to evaluate the expansion, trafficking and persistence of PBCAR20A in this trial. Based on the adverse events observed to date with PBCAR0191, the FDA has agreed to allow us to commence dosing with PBCAR20A directly at Dose Level 2, which we expect to accelerate the timing for our expected completion of the trial. We therefore currently plan to investigate two dose levels in this trial, 1.0 x 10⁶ cells/kg and 3.0 x 10⁶ cells/kg. Our clinical plan for this trial is depicted in the graphic below:

 

Our accepted IND for PBCAR20A included data from our preclinical study in mice measuring cell proliferation, cytotoxic killing, and production of effector cytokines in response to co-culture with CD20+ or CD20- target cells. PBCAR20A CAR T cells were observed to proliferate in response to stimulation by CD20+ K20 cells (K562 myelogenous leukemia cells transfected to express human CD20) at a wide range of doses (effector to target ratios ranging from 1:1 to 1:9). These observations show that, in this study, PBCAR20A cells became activated by and killed CD20+ cells at a wide range of cell doses. In this study, we observed that PBCAR20A cells did not proliferate in response to co-culture with CD20 negative cell K562 cells.

We also evaluated the potency of PBCAR20A in vivo. As shown below, PBCAR20A was observed to prolong survival in a mouse model of lymphoma (Raji Sub-Q model) at both doses tested (1.0 x 10⁶ and 5.0 x 10⁶ cells per mouse), which we believe supports further development. PBCAR20A was observed to be well-tolerated in this study.

 

 

PBCAR269A.  We are developing PBCAR269A as an allogeneic anti-BCMA CAR T cell product candidate for the treatment of R/R multiple myeloma. BCMA is a protein that is expressed on the surface of mature B cells called “plasma cells” that are responsible for the disease and is a validated CAR T cell target. In January 2020, the FDA cleared our IND for PBCAR269A.

 

We plan to commence a Phase 1/2a open-label, multi-center, dose-escalation clinical trial in patients with R/R multiple myeloma in 2020. In this trial, the primary objective will be to evaluate the safety and tolerability of PBCAR269A, as well as to determine the maximum tolerated dose. Secondary objectives will include evaluating the anti-tumor activity of PBCAR269A. We also plan to evaluate the expansion, trafficking and persistence of PBCAR269A in this trial. We expect to investigate up to three dose levels: 6.0 x 10⁵ cells/kg, 2.0 x 10⁶ cells/kg and 6.0 x 10⁶ cells/kg.

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We evaluated the potency of PBCAR269A CAR T cells in a preclinical study in mice by measuring cell proliferation, cytotoxic killing and production of effector cytokines in response to co-culture with BCMA+ or BCMA- target cells. In this study, PBCAR269A CAR T cells were observed to proliferate in response to stimulation by BCMA+ target cells including MM.1S (a human multiple myeloma cell line) and KBCMA (K562 myelogenous leukemia cells transfected to express human BCMA) at a wide range of doses (effector to target ratios ranging from 1:1 to 1:8). These observations show that, in this study, PBCAR269A cells became activated by and killed BCMA+ cells at a wide range of cell doses. We further observed that PBCAR269A cells did not proliferate in response to co-culture with BCMA- K562 cells.

We also evaluated the potency of PBCAR269A in vivo. As shown below, PBCAR269A was observed to prolong survival in a mouse model of multiple myeloma, which we believe supports further development. PBCAR269A was observed to be well-tolerated in this study.

 

 

Our in vivo Gene Correction Platform

Overview

We expect in vivo genome editing to be a significant focus of our operations long-term because the differentiated attributes of ARCUS are particularly advantageous for this type of application. In vivo gene correction involves the delivery of ARCUS nucleases directly into a patient’s cells to treat disease at the level of the underlying DNA. In vivo genome editing is more complex and challenging than ex vivo approaches like CAR T cells due to the need to safely deliver ARCUS directly to cells in the body. We believe that in vivo applications are particularly well suited to ARCUS because they require extremely low levels of off-target editing and efficient delivery.

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Due to the demands of in vivo editing, we are taking a highly disciplined approach to managing our project portfolio that emphasizes studies in large animals, using both viral and non-viral delivery technologies. We believe that there is a remarkable lack of large animal data in the genome editing field and that demonstrating safety and efficacy in large animals is an important gating step prior to beginning human clinical studies. Thus, we are advancing an extensive and diverse portfolio of programs toward in vivo efficacy and toxicity studies and are generating a large animal dataset that, we believe, will be the most comprehensive of any in the field. Our two most advanced programs in this area are focused on chronic hepatitis B, in partnership with Gilead, and PH1 which is wholly owned by Precision.

Treatment of Genetic Disease

Genetic diseases are caused by errors in the DNA that lead to misfunction of a cell or tissue. While the underlying cause of a particular genetic disease can often be complex and variable, DNA errors generally fall into two categories: loss-of-function or gain-of-function. Genetic diseases are most frequently caused by loss-of-function errors in which a particular gene is mutated at the DNA level in such a way that it is either non-functional or less functional than it should be. In these cases, treating the disease requires adding the function that the cell or tissue is otherwise lacking. Gain of function genetic disorders are the result of DNA errors that cause a gene to acquire a new, harmful function that leads to disease. In these cases, it is necessary to remove the unwanted function to treat the disorder.

Genetic disease is a very active area of therapeutic development, and the therapies that are available or in development are, to a large extent, as variable and specialized as the diseases themselves. There are, however, two gene therapy platform approaches that are being broadly applied to the treatment of multiple genetic disorders. For the treatment of loss-of-function diseases, AAV-based gene therapy can often be an effective treatment. AAV is a non-integrating virus that can be used to deliver DNA to a wide range of different cell types in a patient. The virus can be engineered to deliver a functional copy of a gene that is otherwise missing or under-performing in the cell. This approach can, in some cases, restore normal function to the cell and alleviate the symptoms of the disease.

While a number of AAV-based gene therapies appear to be showing great promise in clinical trials, the approach is subject to a number of limitations. Many patients have antibodies in their blood that recognize and inactivate the AAV virus before it can deliver the DNA into the patient’s cells. In addition, among patients who do not have antibodies upon initial treatment with the virus, most will develop antibodies following the first dose. Therefore, in most cases, it is only possible to dose a patient one time. Most importantly, although AAV-based gene therapy can be an effective treatment, it is probably not a permanent cure because AAV-delivered genes do not generally persist for more than a few years in the body. While the duration of virus persistence varies from cell-to-cell and from patient-to-patient, it is not believed to be permanent and symptoms of the disease can return once the virus is no longer present in the body.

Our Approach to in vivo Gene Correction

Our goal is to cure genetic diseases by correcting the DNA errors responsible for causing them. In principle, in vivo genome editing can likely be used to cure any genetic disorder. In practice, however, in vivo genome editing is limited by several challenges that, we believe, are best addressed using ARCUS:

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The potential of ARCUS for in vivo genome editing is highlighted in a July 2018 publication in Nature Biotechnology that describes a research project performed as part of a sponsored research collaboration between our company and Dr. Jim Wilson’s Orphan Disease Center at the University of Pennsylvania. Co-authors of the publication include Derek Jantz and Jeff Smith, two of our co-founders. This publication is, to our knowledge, the first peer-reviewed publication of in vivo genome editing data in non-human primates. We reported well-tolerated, long-term, high-efficiency editing of the PCSK9 gene in non-human primates using ARCUS. A single IV administration of an AAV vector encoding a PCSK9-specific ARCUS nuclease was able to efficiently knock out the gene in the livers of Rhesus macaques, a species of monkey, resulting in up to approximately 85% reduced levels of PCSK9 protein in the blood. This reduction in PCSK9 then resulted in significantly reduced levels of LDL-C, commonly known as “bad cholesterol,” in the blood of treated animals. Because this therapeutic effect is due to modifications to the DNA itself, the benefit of the treatment appeared to be permanent. The first animals that were treated have maintained reduced levels of PCSK9 and LDL-C since they were treated in February 2017. Importantly, even at the highest dose the treatment was observed to be well tolerated in the study. These peer reviewed data exemplify the power of ARCUS for in vivo editing at therapeutically meaningful levels of efficiency.

PCSK9 and LDL Serum Levels

 

 

We believe that establishing collaborations with other groups that have additive domain expertise and access to the most relevant animal models will be important to advancing our in vivo gene correction platform, and we have entered into a number of collaborations and licensing agreements with third parties to help us advance our in vivo editing portfolio.

Hepatitis B Program

In September 2018, we entered into a collaboration and license agreement with Gilead to co-develop an ARCUS-based treatment for chronic hepatitis B infection. Infection by the hepatitis B virus, or HBV, is in many ways analogous to a gain-of-function genetic disorder. In this case, the deleterious DNA that needs to be eliminated is the genome of the virus itself. To this end, we are collaborating with Gilead to develop an ARCUS-based product candidate that is designed to specifically target and eliminate both forms of viral DNA (integrated DNA and covalently closed circular DNA (“cccDNA”)) from infected liver cells.  Our ARCUS-based product candidate is designed to cut and thereby inactivate or degrade cccDNA and to cut and thereby inactivate the integrated hepatitis B genome. We believe making these edits gives us the ability to permanently eliminate the chronic viral infection, and potentially cure the disease. Submission of an IND for this product candidate is currently targeted for 2021.

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In preclinical studies, we developed a pair of ARCUS nucleases that recognized and cut conserved DNA sequences in the Hepatitis B genome. We observed that these nucleases reduced HBV S-antigen and cccDNA HBV-infected primary human hepatocytes, as shown below.

 

 

Primary Hyperoxaluria Type 1 (PH1) Program

 

In January 2020, we announced that we will advance a program designed to target the rare genetic disease PH1 as our lead wholly owned in vivo gene correction program. PH1 affects approximately 1-3 people per million in the United States and is caused by loss of function mutations in the AGXT gene. This gene encodes an enzyme which is involved in the production of the amino acid glycine in the liver. In patients with PH1 who lack this enzyme, crystals of calcium oxalate form in the kidneys leading to painful kidney stones which may ultimately lead to renal failure. Approximately 40% of PH1 patients are found to have already progressed to end stage renal disease at the point of diagnosis, requiring a combined liver-kidney transplant.

 

Using ARCUS, we are developing a potential therapeutic approach to PH1 that involves knocking out a gene called HAO1 which acts upstream of AGXT. Suppressing HAO1 has been shown in preclinical models to prevent the formation of calcium oxalate. We therefore believe that a one-time administration of an ARCUS nuclease targeting HAO1 may be a viable strategy for a durable treatment of PH1 patients.

 

In preclinical studies we have demonstrated that ARCUS efficiently knocked out the HAO1 gene in non-human primates. We have also demonstrated in a mouse model of PH1 that administration of an ARCUS nuclease targeting HAO1 resulted in approximately 70% reduction in urine calcium oxalate levels. We plan to select a clinical candidate for this program during 2020.

 

*Ethylene glycol

 

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Our Food Platform

 

Technology-Centric Solutions to Meet Changing Demands in Food and Agriculture

The total global food and agriculture market, estimated to be worth $5 trillion (2015), is heavily influenced by the availability of critical raw material ingredients and changing consumer behavior. With the global population projected to reach 8.5 billion by 2030, demand for basic food and nutrition needs has already put a lot of pressure on traditional food production systems. In response, the food and agriculture industry is currently in the process of a slow, but massive, repositioning effort to reinvent its capital-intensive infrastructure, complex business structures and product pipelines. This is creating new opportunities to disrupt the otherwise archaic food industry by introducing technology solutions that address unmet needs. Of particular concern to the industry is the agronomic impact of climate change. Many staple foods and critical ingredients, such as citrus, bananas and coffee, are under threat from environmental changes and the new pathogens it can bring. The food and agriculture industry has also seen significant shifts in consumer preferences in which consumers are actively transitioning to high quality and healthier foods and beverages, while rejecting artificial ingredients, sugar and salt, creating a demand for natural and holistic ingredients built on a sustainable supply chain. Traditional approaches to agricultural innovation are slow, siloed, rely heavily on non-scalable academic advancements and continue to use inefficient crop improvement practices. We believe that many of the current pressures on the food and agriculture industry from climate-related threats and changing consumer preferences can be effectively addressed using biotechnology. However, consumers are generally opposed to genetically modified organisms, or GMOs, which makes food companies reluctant to incorporate them into their products. Our wholly-owned food and agriculture focused subsidiary, Elo Life Systems, was created to help food companies “thread the needle” between competing pressures to improve the genetics of their ingredients while avoiding the incorporation of GMO organisms.

Elo Life Systems: Innovation-Focused Technology Platform and Business Model

Elo Life Systems is our wholly owned subsidiary, dedicated to addressing the needs of consumers and consumer-facing industries in the food and agriculture sector. Our business model is heavily partner-focused. In the food and agriculture industry, timelines to market are long and the field is dominated by a relatively small number of entrenched companies. Therefore, it is a very difficult to bring a product to market without a larger partner. Thus, we seek partnerships early in the product development process to optimize our chances of market success. Under this partnership model, we are responsible for the early phases of the project, starting from concept through production of a “lead,” which is typically a gene edited plant that has the desired trait in greenhouse testing and is ready for scale-up and testing in the field. At that point, our partners typically assume responsibility for subsequent development and commercialization. Because large consumer-facing food companies are often not directly responsible for producing their own starting ingredients, this transfer may involve an intermediate in the supply chain such as a seed producer or grower who is responsible for pre-commercial activities. Whenever possible, we try to partner with the entire supply chain early in the project to ensure a smooth transition across phases of development. In general, our partners are responsible for financing all or a portion of our development costs, which greatly reduces our capital requirements. We are then generally eligible to share in revenues derived from successfully commercialized products developed under these partnerships.

 

 

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Elo’s Technology Platform

Our end-to-end food platform is built to support rapid innovation across multiple crop species. With the ARCUS genome editing platform as our cornerstone technology, we have integrated complementary tools and technologies both upstream and downstream to potentially be a complete solutions provider.

At the core of our food platform is our ARCUS editing technology. We are one of the first to apply genome editing technology to crop plants and we believe we have the most in-depth experience in crop genome editing in the industry. Over the last decade, we have developed highly efficient methods to improve delivery and functionality of ARCUS nucleases in plants to edit DNA. These nucleases have been successfully validated in collaborative projects with major food and agriculture companies like Cargill, BASF, Bayer CropScience and DuPont Pioneer Hi-bred. Importantly, ARCUS can be used to create small deletions or insertions in plants using a non-plant pest- or pathogen-based delivery approach. As such, we believe that many of the food and agriculture product candidates we may develop have the potential to obtain nonregulated status in the United States and other territories and thereby avoid GMO labels. This aspect of the technology platform is critical to food producers, particularly as they respond to consumer demands for healthier products. Because Elo partners with large companies that generally lack significant biotechnology capabilities, it was necessary for us to build these capabilities in-house to complete Elo’s portion of the development process. This end-to-end platform is unusual in the industry and, we believe, makes Elo an attractive partner. In addition to ARCUS, Elo’s in-house capabilities include:

Ultra-low saturated fatty acid canola oil (in collaboration with Cargill Inc.)

Canola oil is the third largest vegetable oil by volume after palm and soybean oil. In the United States, canola oil is one of the most widely consumed oils, second only to soybean oil. With worldwide production at 30 million metric tons in 2017, global canola oil is estimated to be a $20 billion industry.

Cargill is one of the world’s largest growers and processors of canola. Since 2014, Elo and Cargill are engaged in a collaboration to produce ARCUS-optimized canola varieties and have achieved significantly lower levels (less than 4.5%) of saturated fatty acids compared to the current levels (7%) in greenhouse studies. This oil with the desirable premium trait is intended for the quick-service restaurants and food ingredients industries, and products made with it—particularly fried foods—may be able to use front-of-package nutrient content claims on saturated fat levels, such as “Low in Saturated Fat” or “No Saturated Fat,” depending on their overall nutritional profile.

This program has generated canola varieties with up to an approximately 33% decrease in total saturated fats compared to un-edited varieties in greenhouse studies and we have not observed any less desirable traits in these canola varieties in these greenhouse studies to date.

ZeroMelon^TM Low-Calorie Sweeteners from Watermelon

Low calorie sweeteners are a rapidly growing segment of the food and beverage industry as companies respond to consumer demands for low-sugar snack foods and soda alternatives. Based on an April 2019 report by Mordor Intelligence, the global food sweetener market is estimated to be worth approximately $82 billion by 2024. In addition, the adoption of “sugar taxes” by many cities across the United States and Europe are significantly impacting profit margins and creating an acute need for alternatives to cane sugar and corn syrup such as the natural, high intensity sweeteners in stevia and monk fruit.

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We believe that a potentially optimal low calorie sweetener comes from monk fruit. The monk fruit compound mogroside V is approximately 250 times sweeter than cane sugar and contains zero calories, making it an excellent potential alternative to cane sugar and stevia. However, monk fruit currently is not scalable for large scale applications in the food and beverage industry as a result of lower productivity and a lack of reliable supply chain. We are currently collaborating with an industry partner to develop a watermelon variety to produce this high value metabolite in a crop that is readily cultivated across North America and Europe.  

 

We are now focused on moving this program forward towards initiation of greenhouse trials.

 

Plant-Based Proteins

Shifting consumer preferences across the globe towards higher protein diets has created unprecedented demand for plant-based protein sources. We do not believe that this demand for plant-based proteins, projected to grow to a $10.5 billion global industry by 2020, can be met without the application of biotechnology to increase protein content in different crop species.

In 2018, we launched Elo Life Systems Australia, a subsidiary of Elo that will support research programs in Australia. Elo Life Systems Australia’s primary focus is developing climate-resilient legumes with improved protein and nutritional profiles, starting with chickpea. We aim for the resulting products to make a significant contribution towards the increasing demand for sustainable plant-based proteins as a healthful alternative to animal protein.

Manufacturing

We believe that we have strong internal scientific process development and manufacturing capabilities, including our Manufacturing Center for Advanced Therapeutics, or MCAT, an in-house cGMP compliant manufacturing facility supporting our therapeutic product development platforms which we opened in 2019. We believe that MCAT is the first in-house cGMP compliant manufacturing facility in the United States dedicated to genome-edited, off-the-shelf CAR T cell therapy products.  We believe that having internal manufacturing capacity and expertise is a competitive advantage that enables enhanced control over process development timelines, costs and intellectual property.

We have leased approximately 33,600 square feet of space for our MCAT facility at a location approximately seven miles from our headquarters in Durham, North Carolina. We have a modular, three-suite cleanroom setup, for CAR T cell, mRNA and AAV production, to process development for our allogeneic CAR T immunotherapy platform. Our manufacturing facility leverages single-use, disposable, closed-system operations aligned to our technology platforms to ensure both flexibility and cost effectiveness. The initial scope is creating clinical trial material for certain of our planned clinical trials in 2020. In the longer term, we believe MCAT has the potential to be a commercial launch facility.

We currently contract with third parties for the manufacturing of materials used in the production of our product candidates. To date, our third-party manufacturers have met our manufacturing requirements. We believe that there are alternate sources of supply that can satisfy our requirements.

The manufacturing process for our allogeneic CAR T immunotherapy platform utilizes a one-step cell engineering method in which a CAR gene is targeted directly into the T cell receptor alpha constant, or TRAC, locus. We believe this approach greatly streamlines the manufacturing process and have entered into a license agreement with a principal supplier for research and clinical licensed technology used in such process. Commercial raw materials and reagents for this production are readily available.  Our manufacturing strategy for our in vivo gene correction platform and our food platform is to internally control process development and manufacturing to safeguard the proprietary nature of our technology and facilitate our ability to function as an integrated life sciences company.

License and Collaboration Agreements

Servier

In February 2016, we entered into the Servier Agreement as subsequently amended, with predecessor entities of Servier. Pursuant to this agreement, we have agreed to develop allogeneic chimeric antigen receptor T cell therapies for up to six unique antigen targets, the first of which was selected at the inception of the agreement. Upon selection of an antigen target, we perform early-stage research and development on individual T cell modifications for the selected target, develop the resulting therapeutic product candidates through Phase 1 clinical trials and manufacture clinical trial material for use in Phase 2 clinical trials.

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We received an upfront payment of $105.0 million under the Servier Agreement. At Phase 2 readiness for any product candidate covered by the Servier Agreement, Servier may exercise a commercial option to proceed with development and commercialization of the product candidate, subject to option fees. Following the exercise of any such commercial option, Servier must use commercially reasonable efforts to develop and commercialize the product candidate. We have the ability to receive total payments, including the upfront payment, option fees and milestone payments, in the aggregate across all six targets that may be selected, of up to approximately $1.6 billion. This includes up to $1.5 billion in milestone payments, consisting of up to $401.3 million in development milestone payments and up to $1.1 billion in commercial milestone payments. We are also entitled to receive tiered royalties ranging from the mid-single digit percentages to sub-teen percentages on worldwide net sales of any products developed under the Servier Agreement, subject to customary potential reductions. Servier’s obligation to pay royalties to us expires on a country-by-country and licensed product-by-licensed product basis upon the latest of (1) the expiration of the last to expire valid claim of all Precision patents covering a licensed product, (2) expiration of all regulatory exclusivity with respect to a licensed product in the applicable country of sale, and (3) the expiration of 10 years following the first commercial sale of such licensed product in such country. We also have the right to participate in the development and commercialization of any licensed products resulting from the collaboration through a 50/50 co-development and co-promotion option in the United States, subject to our payment of an option fee, which is exercisable after Servier’s commercial option exercise. So long as Servier holds a commercial license with respect to any particular licensed product, we may not develop, manufacture or commercialize any engineered human T cells with chimeric antigen receptors for use in humans directed to the same antigen target as the target of that licensed product.

Unless terminated earlier, the Servier Agreement expires upon the first to occur of (1) the expiration of the period in which Servier may nominate antigen targets, if there are no included targets under the agreement, (2) the expiration of the period in which Servier may exercise a commercial option on a licensed product candidate, if no commercial options have been exercised by Servier, or (3) the expiration of the last to expire royalty term for the licensed products and satisfaction of all of Servier’s payment obligations under the agreement. Servier has the right to terminate the agreement for convenience, either in its entirety or on a target-by-target or product-by-product basis, by providing advance notice to us. We may terminate immediately upon notice to Servier if Servier (itself or through the use of certain affiliates or a third party) or any sublicensee initiates or participates in a patent challenge against our patents licensed by Servier under the agreement. In addition, the Servier Agreement may be terminated (a) by either party for the other party’s material breach that remains uncured as specified in the agreement, (b) by either party upon the occurrence of certain insolvency-related events of the other party and (c) upon mutual agreement of the parties in the event either party suffers an event of force majeure as specified in the agreement. If Servier terminates the agreement for our uncured material breach of provisions in the agreement that restrict development, manufacture or commercialization of engineered human T cells with chimeric antigen receptors for use in humans directed to a target selected by Servier, certain licenses we grant to Servier will become royalty-free, fully paid-up, perpetual and irrevocable with respect to the licensed product candidates and licensed products directed to the target that was the subject of such breach, and Servier will be deemed to have previously exercised its commercial option for any then-existing licensed product candidates directed to such target.

Gilead

In September 2018, we entered into the Gilead Agreement to develop genome editing tools using ARCUS to target viral DNA associated with the Hepatitis B virus. Pursuant to the terms of the agreement, Gilead received an exclusive license to exploit the resulting synthetic nucleases and products that use them to treat the Hepatitis B virus in humans, and we are entitled to receive up to approximately $40 million in research funding over an initial three year term and milestone payments of up to an aggregate of $445 million, consisting of up to $105.0 million in development milestone payments and up to $340.0 million in commercial milestone payments. We are also entitled to receive tiered royalties ranging from the high single digit percentages to the mid-teen percentages on worldwide net sales of the products developed through the term of the agreement, subject to customary potential reductions. Gilead’s obligation to pay royalties to us expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain events related to expiration of applicable patents, expiration of regulatory exclusivity or 10 years following the first commercial sale of the first licensed product in such country.

Unless terminated earlier, the Gilead Agreement will continue, on a licensed-product-by-licensed-product and country-by-country basis until the expiration of a defined royalty term for each licensed product and country. Gilead has the right to terminate the Gilead Agreement for convenience by providing advance notice to us as specified in the Gilead Agreement. Gilead may also terminate the agreement during the collaboration term if we enter into certain change of control transactions with a third party that is clinically developing or commercializing products in the field of the Hepatitis B virus. In addition, either party may terminate the Gilead Agreement (1) for material breach by the other party and a failure to cure such breach within the time period specified in the Gilead Agreement and (2) upon the occurrence of certain insolvency-related events of the other party.

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Duke University

In April 2006, we entered into the Duke License, pursuant to which Duke University (“Duke”) granted us an exclusive (subject to certain non-commercial rights reserved by Duke), sublicensable, worldwide license under certain patents related to certain meganucleases and methods of making such meganucleases owned by Duke to develop, manufacture, use and commercialize products and processes that are covered by such patents, in all fields and in all applications. The patents that we license pursuant to the Duke License have been generated through the use of U.S. government funding and are therefore subject to certain federal regulations. See Part I, Item 1A. “Risk Factors— Risks Related to Intellectual Property—Some of our in‑licensed intellectual property has been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.”

Under the Duke License, in addition to upfront licensing fees, we are also required to pay Duke (1) a total of $0.3 million in milestone payments, a portion of which we paid upon the completion of our Series A financing, a further portion of which we paid upon our first signed partnership in excess of $1 million, and the remainder of which we will be required to pay upon successful commercialization of seed traits and human therapeutics, (2) royalties in the low single digit percentages on net sales of licensed products and licensed processes sold by us and our affiliates, subject to certain reductions in certain circumstances, with certain annual minimum royalties, and (3) certain percentages of sublicensing revenue received under sublicenses granted to third parties, which are creditable against annual minimum royalties and are subject to certain reductions in certain circumstances. For sublicenses of non-commercial products, the percentage of sublicensing revenue payable to Duke is in the mid-teen percentages for sublicense revenues owed from royalties received and low double-digits for sublicense revenues owed from non-royalty payments. For sublicenses of commercial products created by us and derivatives thereof, the percentage is determined by the highest negotiated royalty rate in such sublicense. If the highest negotiated royalty rate between us and our sublicensee exceeds a mid-single digit percentage, the percentage of sublicensing revenue payable to Duke will be high single digit, decreasing to low single digit as the highest negotiated royalty rate in such sublicense increases. The Duke License will expire upon the expiration of the last-to-expire patent that is licensed to us. We may terminate the Duke License by providing advance written notice as specified in the Duke License. Either party may terminate the Duke License in the event of the other party’s uncured material breach or for the other party’s fraud, willful misconduct or illegal conduct with respect to the subject matter of the Duke License.

Cellectis S.A.

In January 2014, we entered into a cross-license agreement with Cellectis S.A., which we refer to as the Cellectis License, in connection with a settlement of litigation matters (1) between Cellectis and us and (2) among Cellectis, Duke and us. Cellectis granted us a non-exclusive, sublicensable, worldwide, fully paid, royalty-free license to certain modified I‑CreI homing endonuclease patents and Cellectis patents asserted in the litigation, to make, use and commercialize modified I-CreI homing nucleases and products developed using such nucleases, in all fields. The license we received from Cellectis is subject to the rights of a preexisting license agreement that Cellectis entered into with a third party, and the license granted to us excludes any rights exclusively granted by Cellectis under such preexisting license, which preexisting license is limited to certain specific applications unrelated to the fields of human therapeutics and plant agriculture, for so long as the rights under the preexisting license remain exclusive.

We granted Cellectis a non-exclusive, sublicensable, worldwide, fully paid-up, royalty-free license to certain modified I CreI homing endonuclease patents and our patents asserted in the litigation matters (1) between Cellectis and us and (2) among Cellectis, Duke and us to make, use and commercialize modified I-CreI homing nucleases and products developing using such nucleases, in all fields except those for which we did not receive rights from Cellectis due to the preexisting license.

The Cellectis License will expire upon the expiration of the last-to-expire valid claim of all of the patents licensed to or from each of the parties to the agreement. Either party may terminate any of the licenses granted under the agreement (1) in the event of the other party’s material breach, subject to an opportunity to cure within the time period specified in the Cellectis License, or (2) if the other party directly or indirectly challenges a patent licensed to it by the other party.

Competition

As a diversified life sciences company, we compete in multiple different fields. The biotechnology, pharmaceutical and agricultural biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on intellectual property and proprietary products. We principally compete with others developing and utilizing genome editing technology in the human health and plant sciences sectors, including companies such as Allogene Therapeutics, Inc. Cellectis S.A., CRISPR Therapeutics, AG, Editas Medicine, Inc., Intellia Therapeutics, Inc., Sangamo Therapeutics, Inc, and Beam Therapeutics, Inc.

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We compete with many biotechnology and pharmaceutical companies, academic research institutions, governmental agencies and public and private research institutions. We expect that our operations focused on CAR T cell product candidate development and commercialization will face substantial competition from those focusing on immunotherapy solutions. Several companies, including Novartis Pharmaceuticals Corp. and Gilead have obtained FDA approval for autologous cell therapies, and a number of companies, including Cellectis S.A., Celgene Corp., Allogene Therapeutics and CRISPR Therapeutics AG, are pursuing allogeneic cell therapies. We expect that our operations focused on developing products for in vivo treatment of genetic disease will face substantial competition from others focusing on gene therapy treatments, especially those that may focus on conditions that our product candidates target. Moreover, any human therapeutics products that we may develop will compete with existing standards of care for the diseases and conditions that our product candidates target and other types of treatments, such as small molecule, antibody or protein therapies.

Many of our current or potential competitors in the therapeutics space, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials and marketing approved products than we do. In addition to competing on the bases of safety, efficacy, timing of development and commercialization, convenience, cost, availability of reimbursement and rate of adoption of potential product candidates, we may also compete with these competitors in recruiting and retaining qualified personnel, establishing clinical sites, establishing relationships with collaborators or other third parties, registering patients for clinical trials and acquiring technologies complementary to, or necessary for, our product development platforms. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

We also compete with participants in the agricultural biotechnology space, including Pairwise Plants, LLC, Caribou Biosciences, Inc., Corteva Agriscience, Tropic Biosciences UK LTD, Calyxt, Inc. and Cibus. Competition for improving plant genetics comes from conventional and advanced plant breeding techniques, as well as from the development of genetically modified traits. Competition for providing more nutritious ingredients for food companies comes from chemical‑based ingredients, additives and substitutes, which are developed by various companies. We also face less direct competition from trait research and development companies and agricultural research universities and institutions. We compete with respect to many aspects of the product development cycle in the plant sciences space, such as computational capabilities for identifying relevant gene targets, access to germplasm and enabling technologies and entry into strategic relationships to facilitate product development and commercialization.

Many of our current or potential competitors in the agricultural biotechnology space, either alone or with others, have significantly greater financial resources and expertise in research and development, manufacturing, testing and marketing approved products than we do. Mergers and acquisitions in the plant science, specialty food ingredient and agricultural biotechnology, seed and chemical industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through strategic relationships with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring technologies complementary to, or necessary for, our food platform.

Furthermore, we rely upon a combination of patents and trade secret protection, as well as license and confidentiality agreements to protect the intellectual property related to our proprietary technologies, product candidate development programs and product candidates. Our success depends in large part on our ability to secure and maintain patent protection in the United States and other countries with respect to the ARCUS nucleases used in our existing allogeneic CAR T immunotherapy, in vivo gene correction and food programs, as well as any future product candidates. Moreover, the industries in which we operate are characterized by the existence of large numbers of patents and frequent allegations of patent infringement. If, therefore, we are unable to obtain and maintain patent protection for our technology and product candidates, or if the scope of the patent protection obtained or in-licensed is not sufficiently broad or if the validity of such patent protection is threatened, we may not be able to compete effectively, as it could create opportunities for competitors to enter the market or dissuade other companies from collaborating with us to develop products and technology, any of which would hurt our competitive position and could impair our ability to successfully commercialize our product candidates in any indication for which they are approved.

Intellectual property^,

Our success depends in part on our abilities to (1) obtain and maintain proprietary protection for ARCUS, (2) defend and enforce our intellectual property rights, in particular, our patent rights, (3) preserve the confidentiality of our know-how and trade secrets, and (4) operate without infringing valid and enforceable intellectual property rights of others. We seek to protect our proprietary position by, among other things, exclusively licensing U.S. and certain foreign patent applications, and filing U.S. and certain foreign patent applications related to ARCUS, existing and planned programs, and improvements that are important to the development of our business. We also rely on trademarks, trade secrets, know-how, continuing technological innovation and confidential information, and

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the pursuit of licensing opportunities, to develop and maintain our proprietary position and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and others who may have access to proprietary information, under which they are bound to assign to us inventions made during the term of their employment or term of service. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

We cannot be sure that patents will be granted with respect to any patent applications we have licensed or filed or may license or file in the future, and we cannot be sure that any patents we have licensed or which have been granted to us, or patents that may be licensed or granted to us in the future, will not be challenged, invalidated or circumvented or that such patents will be commercially useful in protecting our technology. Moreover, trade secrets can be difficult to protect. While we have confidence in the measures we take to protect and preserve our trade secrets, such measures can be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. For more information regarding the risks related to our intellectual property, see Part I, Item 1A. “Risk Factors—Risks Related to Intellectual Property.”

Our patent portfolio consists of a combination of issued patents and pending patent applications that are owned by us or licensed by us from third parties. As of December 31, 2019, we have an exclusive license from Duke under 12 issued U.S. patents and two pending U.S. patent applications. In addition, as of December 31, 2019, we own 18 issued U.S. patents, 20 pending non-provisional U.S. patent applications, and eight pending PCT international patent applications. We also exclusively license from Duke or own many corresponding patents and patent applications outside the United States, as described below. We intend to pursue, when possible, additional patent protection, including composition of matter, method of use and process claims, related to ARCUS. We also intend to obtain rights to existing delivery technologies through one or more licenses from third parties.

ARCUS Platform Patent Families

We license one patent family from Duke and own three patent families that are directed to the core technologies employed in our ARCUS platform for nuclease design. Thus, each of our product candidates is protected by one or more patents in these families.

The first family, licensed from Duke, includes 12 issued U.S. patents, eight issued European patents, three issued Japanese patents, and one issued patent in each of Australia and Canada. This family also includes one pending patent application in the United States and one pending patent application in each of Europe, Japan and Canada. Patents in this family include claims directed to (1) recombinant meganucleases having altered cleavage specificity, altered heterodimer formation, and/or altered DNA binding affinity, (2) methods for cleaving target recognition sites in DNA using such meganucleases, and (3) methods for producing genetically modified eukaryotic cells using such meganucleases. Patents in this family have a standard expiration date of October 18, 2026, subject to potential extensions.

The second family, which we own, includes four issued U.S. patents, three issued patents in Europe, two issued patents in Japan, and one issued patent in Australia. This family also includes one pending patent application in each of the United States, Europe, Japan and Australia. Patents in this family include claims directed to (1) recombinant single-chain meganucleases, and (2) methods for producing isolated genetically modified eukaryotic cells using such meganucleases. Patents in this family have a standard expiration date of October 31, 2028, subject to potential extensions.

The third family, which we own, includes three issued patents in the United States, and two issued patents in each of Europe and Australia. This family also includes one pending patent application in each of the United States and Europe. Patents in this family include claims directed to methods of cleaving DNA at specific four base pair sites using a recombinant meganuclease. Patents in this family have a standard expiration date of July 14, 2029, subject to potential extensions.

The fourth family, which we own, includes two pending provisional patent applications in the United States. Patent applications in this family include claims directed to recombinant meganucleases engineered to cleave recognition sequences having specific four base pair sites. Patents in this family, if issued, will likely have a standard expiration date of May 7, 2040, subject to potential extensions.

Immunotherapy Patent Families

We own seventeen patent families that are directed to immunotherapy, including CAR T cell therapies. Some of these are applicable to immunotherapies and/or CAR T cells directed to killing a variety of different types of infected or cancerous cells. Others are directed to specific indications in which cells expressing particular antigens are targeted. Each of our immunotherapy product candidates is protected by one or more patents in these families.

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The first family includes nine issued U.S. patents, and pending patent applications in each of the United States, Europe, Australia, Canada, China, Hong Kong, Israel, Japan, Mexico and South Korea. Patents in this family include claims directed to (1) populations of genetically modified human T cells in which 20%-65% of the cells have reduced expression of an endogenous TCR and express an anti-cancer antigen CAR from DNA inserted into the cells’ TCR alpha constant region (TRAC) gene, (2) methods for using such populations of genetically modified human T cells for cancer immunotherapy, (3) pharmaceutical compositions comprising such populations of genetically modified human T cells, (4) genetically modified human T cells which have reduced expression of an endogenous TCR and express an anti-cancer antigen CAR from DNA inserted into the cells’ TRAC gene, (5) methods for using such genetically modified human T cells for cancer immunotherapy, and (6) pharmaceutical compositions comprising such genetically modified human T cells. Patents in this family have a standard expiration date of October 5, 2036, subject to potential extensions.

The second family includes one issued patent in Europe and pending patent applications in each of the United States, Europe, Australia, Canada and Japan. Patent applications in this family include claims directed to (1) first-generation recombinant meganucleases that cleave a target in the TRAC gene, (2) nucleic acids and vectors encoding such recombinant meganucleases, (3) methods for producing genetically modified eukaryotic cells, including CAR T cells, using such meganucleases, and (4) methods of using such genetically modified eukaryotic cells for cancer immunotherapy. Patents in this family will have a standard expiration date of October 5, 2036, subject to potential extensions.

The third family includes a pending PCT international patent application. That PCT patent application includes claims directed to (1) second-generation engineered meganucleases that cleave a specific target in the TRAC gene, (2) nucleic acids and vectors encoding such recombinant meganucleases, (3) methods for producing genetically modified eukaryotic cells, including CAR T cells, using such meganucleases, (4) genetically modified eukaryotic cells or populations of cells prepared by such methods, (5) pharmaceutical compositions comprising such cells or populations of cells, and (6) methods of treating diseases using such cells, populations of cells or pharmaceutical compositions to treat diseases, including cancer immunotherapy. Patents in this family, if issued, will likely have a standard expiration date of April 11, 2039, subject to potential extensions.

The fourth family includes pending patent applications in the United States, Europe, Australia, Canada and Japan. Patent applications in this family include claims directed to (1) nucleic acids encoding co-stimulatory domains having certain amino acid sequences, (2) recombinant DNA constructs and vectors comprising such nucleic acids, (3) nucleic acids and vectors encoding such recombinant meganucleases, (4) genetically modified cells comprising such nucleic acids, (5) methods for producing such genetically modified cells, (6) pharmaceutical compositions comprising such cells, and (7) methods of immunotherapy using such cells. Patents in this family, if issued, will have a standard expiration date of October 4, 2037, subject to potential extensions.

The fifth family includes pending patent applications in the United States and Europe. Patent applications in this family include claims directed to (1) methods of reducing cytotoxicity associated with DNA transfection in primary eukaryotic cells, (2) methods for increasing the number of gene-edited primary eukaryotic cells following DNA transfection, (3) methods for increasing gene editing frequency in primary eukaryotic cells following DNA transfection, (4) methods for increasing the number of primary eukaryotic cells comprising targeted insertion of an exogenous sequence of interest into the genome following DNA transfection, (5) methods for increasing insertion frequency of an exogenous sequence of interest into the genome in primary eukaryotic cells following DNA transfection, (6) methods for high throughput screening of primary human T cells expressing a CAR or exogenous TCR, (7) methods for high throughput screening of primary human T cells expressing a CAR or exogenous TCR, and (8) genetically modified primary eukaryotic cells produced by such methods. Patents in this family, if issued, will likely have a standard expiration date of April 30, 2038, subject to potential extensions.

The sixth family includes pending patent applications in the United States, Europe, Australia, Canada and Japan. Patent applications in this family include claims directed to (1) recombinant meganucleases that recognize and cleave a recognition sequence within the human beta-2-microglobulin gene, (2) nucleic acids and vectors encoding such recombinant meganucleases, (3) methods for producing genetically modified eukaryotic cells, including CAR T cells, using such meganucleases, (4) populations of genetically modified eukaryotic cells in which 80% of the cells have reduced expression of an endogenous TCR and 80% of the cells have reduced expression of beta-2-microglobulin, (5) pharmaceutical compositions comprising such populations of genetically modified eukaryotic cells, and (6) methods for using such genetically modified eukaryotic cells for cancer immunotherapy. Patents in this family, if issued, will have a standard expiration date of December 22, 2036, subject to potential extensions.

The seventh family includes a pending PCT international patent application and pending patent applications in the United States, Europe, Australia, Canada and Japan. Patent applications in this family include claims directed to (1) nucleic acids encoding an engineered antigen receptor (e.g., a CAR) and an inhibitory molecule (e.g., an RNA interfering with beta-2-microglobulin expression), (2) genetically modified eukaryotic cells comprising such nucleic acids, (3) methods for producing such genetically modified eukaryotic cells using such nucleic acids and an engineered nuclease that promotes insertion of such nucleic acids, (4) genetically modified eukaryotic cells expressing an engineered antigen receptor and having expression of beta-2-microglobulin or MHC Class I molecules reduced by 10%-95%, (5) pharmaceutical compositions comprising such genetically modified eukaryotic cells, and (6) methods for using such genetically modified eukaryotic cells for immunotherapy. Patents in this family, if issued, will likely have a standard expiration date of May 8, 2038, subject to potential extensions.

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The eighth family includes a pending PCT international patent application and pending patent applications in the United States, Europe, Australia, Canada and Japan. Patent applications in this family include claims directed to (1) engineered meganucleases that recognize and cleave a recognition sequence in an upstream intron of the human TRAC gene, (2) nucleic acids and vectors encoding such engineered meganucleases, (3) methods for producing genetically modified T cells using such nucleic acids or vectors, (4) genetically modified T cells in which an exogenous sequence is inserted into an upstream intron of the human TRAC gene and endogenous TCR expression is reduced, (5) populations of such genetically modified T cells, (6) pharmaceutical compositions comprising such genetically modified T cells, and (7) methods of treating disease using such genetically modified T cells and pharmaceutical compositions, including cancer immunotherapy. Patents in this family, if issued, will likely have a standard expiration date of June 27, 2038, subject to potential extensions.

The ninth family includes a pending PCT international patent application. That PCT patent application includes claims directed to (1) nucleic acids and vectors encoding certain modified human epidermal growth factor receptor, or EGFRs, (2) genetically modified cells and populations of cells, including T cells and CAR T cells, expressing such modified EGFRs, (3) methods for producing such genetically modified cells using such nucleic acids or vectors encoding such modified EGFRs, (4) pharmaceutical compositions comprising such genetically modified cells, (5) methods for isolating such genetically modified cells, (6) methods of treating disease using such genetically modified cells and pharmaceutical compositions, including cancer immunotherapy, and (7) methods of depleting such genetically modified cells in a subject using anti-modified EGFR antibodies. Patents in this family, if issued, will likely have a standard expiration date of October 3, 2038, subject to potential extensions.

We own eight additional patent families that include pending provisional patent applications in the United States that are directed to immunotherapies, including CAR T cell therapies, or to technologies that are useful for the manufacture of immunotherapies. We jointly own one patent family that includes a pending provisional patent application in the United States directed to immunotherapies. We will determine in the future whether to pursue each of these applications.  

In August 2019, the Patent Trial and Appeal Board (the “PTAB”) of the USPTO initiated two patent interferences, administrative proceeding within the USPTO, involving the U.S. patents issued to us in the first family of immunotherapy patents described above and a pending U.S. patent application filed by a third party. An interference is conducted by the PTAB when opposing parties have applied for patent claims to the same invention or substantially the same invention. The interference is conducted to determine which party, if either, is entitled to claims to the subject matter of the interference.

Hepatitis B Virus Gene Therapy Patent Families

We own three patent families that are directed to gene therapy for Hepatitis B virus.

The first family includes pending patent applications in the United States, Europe, Japan, Canada, Australia, China, South Korea, Mexico, Israel, the African Regional Intellectual Property Organization, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Egypt, Eurasia, Guatemala, Hong Kong, India, Indonesia, Morocco, Malaysia, New Zealand, Nigeria, Panama, Peru, the Philippines, Saudi Arabia, Singapore, South Africa, Thailand, Ukraine, and Vietnam. Patent applications in this family include claims directed to (1) engineered meganucleases that recognize and cleave recognition sites in the Hepatitis B virus (“HBV”) genome, (2) nucleic acids and vectors encoding such engineered meganucleases, (3) pharmaceutical compositions comprising such nucleic acids or meganucleases, and (4) methods for treating HBV infection using such meganucleases, nucleic acids and/or pharmaceutical compositions. Patents in this family, if issued, will have a standard expiration date of October 13, 2037, subject to potential extensions.

The second family includes a pending PCT application and patent applications in the United States, Argentina, Taiwan, and the Gulf Cooperation Council. Patent applications in this family include claims directed to (1) second-generation engineered meganucleases that recognize and cleave recognition sites in the Hepatitis B virus, or HBV genome, (2) nucleic acids and vectors encoding such engineered meganucleases, (3) pharmaceutical compositions comprising such nucleic acids or meganucleases, and (4) methods for treating HBV infection using such meganucleases, nucleic acids and/or pharmaceutical compositions. Patents in this family, if issued, will likely have a standard expiration date of April 11, 2039, or April 12, 2039, subject to potential extensions.

The third family includes a pending provisional application in the United States.  That provisional patent application is directed to engineered meganucleases that cleave recognition sequences in the HBV genome. Patents in this family, if issued, will likely have a standard expiration date of December 6, 2040, subject to potential extensions.

Other Patent Families

We own one patent family directed to engineered meganucleases and methods of treatment targeting the PCSK9 gene, which is associated with familial hypercholesterolemia. This family includes a pending PCT international and pending patent applications in the United States, Europe, Australia, Canada, China, Israel, Japan, Mexico, and South Korea. Patents in this family, if issued, will have a standard expiration date of April 20, 2038, subject to potential extensions.

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We own two patent families directed to engineered meganucleases and methods of treatment targeting the rhodopsin gene, which is associated with retinitis pigmentosa. The first family includes pending patent applications in the United States, Europe, Australia, Canada and Japan. Patents in this family, if issued, will have a standard expiration date of September 8, 2036, subject to potential extensions. The second family includes a pending provisional patent application in the United States. Patents in this family, if issued, will likely have a standard expiration date of April 11, 2040, subject to potential extensions.

We own two patent families that are directed to engineered meganucleases and methods of treatment targeting the hydroxyacid oxidase 1 gene, which is associated with primary hyperoxaluria 1. The first family includes a pending PCT international application and one pending provisional patent application in the United States. Patents in this family, if issued, will likely have a standard expiration date of December 20, 2039, subject to potential extensions. The second family includes two pending provisional patent applications in the United States. Patents in this family, if issued, will likely have a standard expiration date of March 26, 2040, subject to potential extensions.

We own two patent families that are directed to engineered meganucleases and methods of treatment targeting the Factor VIII gene, which is associated with Hemophilia A. The first family includes pending patent applications in the United States, Europe, Australia, Canada, and Japan. Patents in this family, if issued, will have a standard expiration date of May 3, 2037, subject to potential extensions. The second family includes a pending PCT international patent application. Patents in this family, if issued, will likely have a standard expiration date of November 1, 2038, subject to potential extensions.

We own one patent family directed to engineered meganucleases and methods of treatment targeting the ApoC3 gene, which is associated with diseases resulting from abnormal triglyceride synthesis. This family includes a pending provisional patent application in the United States. Patents in this family, if issued, will likely have a standard expiration date of August 9, 2040, subject to potential extensions.

We own one patent family directed to engineered meganucleases and methods of treatment targeting the transthyretin (TTR) gene, which is associated with TTR amyloidosis. This family includes two pending provisional patent applications in the United States. Patents in this family, if issued, will likely have a standard expiration date of March 26, 2040, subject to potential extensions.    

We own one patent family directed to engineered meganucleases and methods of treatment targeting the dystrophin gene, which is associated with Duchenne Muscular Dystrophy. This family includes pending patent applications in the United States, Europe, Australia, Canada and Japan. Patents in this family, if issued, will have a standard expiration date of March 12, 2035, subject to potential extensions.

We own one patent family directed to engineered meganucleases and methods of treatment targeting genomic trinucleotide repeats, which are associated with several trinucleotide repeat disorders. This family includes pending patent applications in the United States and Europe. Patents in this family, if issued, will have a standard expiration date of May 2, 2036, subject to potential extensions.

We license from Duke one patent family directed to engineered fusion proteins comprising engineered meganuclease domains and effector domains which may be useful in controlling gene expression. This patent family includes a pending patent application in the United States. Patents in this family, if issued, will have a standard expiration date of October 18, 2026, subject to potential extensions.

We own one patent family directed to engineered meganucleases that target amplifiable genetic loci and may be useful in producing cells with amplified transgenes. This family includes one patent and one pending patent application in each of the United States and Europe. Patents in this family will have a standard expiration date of June 1, 2032, subject to potential extensions.

We own one patent family directed to self-limiting viral vectors (e.g., AAV vectors) that encode engineered meganucleases which eliminate the vector after gene delivery. This family includes pending patent applications in the United States and Europe. Patents in this family, if issued, will have a standard expiration date of June 20, 2036, subject to potential extensions.

We own one patent family directed to eukaryotic cells comprising a modified transferrin gene that includes an exogenous nucleic acid sequence encoding a polypeptide of interest. This family includes one pending provisional patent application in the United States. Patents in this family, if issued, will likely have a standard expiration date of January 11, 2040.

We own one patent family directed to methods for separation of empty and full AAV capsids during manufacturing. This family includes one pending provisional application in the United States. Patents in this family, if issued, will likely have a standard expiration date of February 7, 2040.

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We own, through our Elo Life Systems subsidiary, an issued U.S. patent directed to engineered meganucleases which target a genetic locus in maize and methods for genetically modifying that locus in maize. That patent has a standard expiration date of March 2, 2029, subject to potential extensions.

For any individual patent, the term depends on the applicable law in the country in which the patent is granted. In most countries where we have filed patent applications or in-licensed patents and patent applications, patents have a term of 20 years from the application filing date or earliest claimed non-provisional priority date. In the United States, the patent term is 20 years but may be shortened if a patent is terminally disclaimed over another patent that expires earlier. The term of a U.S. patent may also be lengthened by a patent term adjustment to address administrative delays by the USPTO in granting a patent.

In the United States, the term of a patent that covers an FDA-approved drug or biologic may be eligible for patent term extension in order to restore the period of a patent term lost during the premarket FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the natural expiration of the patent. The patent term restoration period is generally equal to the portion of the FDA regulatory review period for the approved product that occurs after the date the patent issued, subject to certain exceptions. Only one patent may be extended for a regulatory review period for any product, and the application for the extension must be submitted prior to the expiration of the patent. In the future, we may decide to apply for restoration of patent term for one of our currently owned or licensed patents to extend its current expiration date, depending on the expected length of the clinical studies and other factors involved in the filing of the relevant BLA.

We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents or other intellectual property as an inventor or co-inventor. If we are required to and unable to obtain an exclusive license to any such third party co-owners’ interest in such patent applications, such co-owners may be able to license their rights to other third parties, including our competitors. In addition, we may need the cooperation of any such co-owners to enforce any patents that issue from such patent applications against third parties, and such cooperation may not be provided to us. We or our licensors are subject to and may also become a party to similar proceedings or priority disputes in Europe or other foreign jurisdictions.

Our registered trademark portfolio currently contains three registered trademarks, specifically ARCUS, ARC nuclease, and Elo Life Systems, in the United States. In addition, our international portfolio contains seven registered trademarks around the world for ARCUS and ARC nuclease and includes one pending application in Australia for Elo Life Systems.

Licensed Intellectual Property

Duke University

In April 2006, we exclusively licensed from Duke families of patents and patent applications related to certain meganucleases and methods of making such nucleases owned by Duke. The patent family covered by the Duke License comprises the core patents covering ARCUS described above. See “—License and Collaboration Agreements—Duke University” above for additional information regarding the Duke License.

Cellectis S.A.

In January 2014, we entered into the Cellectis License, which relates to certain modified I-CreI homing endonuclease patents and patents that had been subject to litigation between us and Cellectis. The patents to which we have rights under the cross-license include at least eight issued patents in each of the United States and Australia, seven issued patents in Europe, two issued patents in Canada and one issued patent in Japan. These patents have standard expiration dates prior to January 29, 2034, subject to potential extensions. See “—License and Collaboration Agreements—Cellectis S.A.” above for additional information regarding the Cellectis License.

Government Regulation

The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biological product candidates such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

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U.S. Biologics Regulation

The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:

 

Prior to beginning the first clinical trial with a product candidate in the United States, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human clinical trials involving recombinant or synthetic nucleic acid molecules are subject to oversight of institutional biosafety committees, or IBCs, as set forth in the NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, or NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some

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studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.

For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

 

Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

BLA Submission and Review by the FDA

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by investigators. The submission of a BLA requires payment of a substantial user fee to FDA, and the sponsor of an approved BLA is also subject to an annual program fee. These fees are typically increased annually. A waiver of user fees may be obtained under certain limited circumstances. Additionally, no user fees are assessed on BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

Once a BLA has been submitted, the FDA’s goal is to review standard applications within ten months after it accepts the application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. Priority review designation will direct overall attention and resources to the evaluation of applications for products that, if approved, would be significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions. In both standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety, purity and potency. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

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After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response Letter will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response Letter without first conducting required inspections, testing submitted product lots, and/or reviewing proposed labeling. In issuing the Complete Response Letter, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a REMS to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase IV post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies. In addition, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could impact the timeline for regulatory approval or otherwise impact ongoing development programs. For example, in December 2016, the 21st Century Cures Act was signed into law. The Act is intended, among other things, to modernize the regulation of drugs and biologics and to spur innovation.

Expedited Development and Review Programs

A sponsor may seek approval of its product candidate under programs designed to accelerate FDA’s review and approval of new drugs and biological products that meet certain criteria. Specifically, new drugs and biological products are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. For a fast track product, the FDA may consider sections of the BLA for review on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable and the sponsor pays any required user fees upon submission of the first section of the application. A fast track designated product candidate may also qualify for priority review, under which the FDA sets the target date for FDA action on the BLA at six months after the FDA accepts the application for filing. Priority review is granted when there is evidence that the proposed product would be a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious disease or condition. If criteria are not met for priority review, the application is subject to the standard FDA review period of 10 months after FDA accepts the application for filing. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.

Under the accelerated approval program, the FDA may approve a BLA on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Post-marketing studies or completion of ongoing studies after marketing approval are generally required to verify the biologic’s clinical benefit in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. FDA may withdraw approval of a drug or indication approved under accelerated approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product.

In addition, the Food and Drug Administration Safety and Innovation Act, or the FDASIA, which was enacted and signed into law in 2012, established the breakthrough therapy designation. A sponsor may seek FDA designation of its product candidate as a breakthrough therapy if the product candidate is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. If the FDA designates a breakthrough therapy, it may take actions appropriate to expedite the development and review of the application, which may include holding meetings with the sponsor and the review team throughout the development of the therapy; providing timely advice to, and interactive communication with, the sponsor regarding the development of the drug to ensure that the development program to gather the nonclinical and clinical data necessary for approval is as efficient as practicable; involving senior managers and experienced review staff, as appropriate, in a collaborative, cross-disciplinary review; assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development program and to serve as a scientific liaison between the review team and the sponsor; and considering alternative clinical trial designs when scientifically appropriate, which may result in smaller trials or more efficient trials that require less time to complete and may minimize the number of patients exposed to a potentially less efficacious treatment. Breakthrough therapy designation comes with all of the benefits of fast track designation, which means that the sponsor may file sections of the BLA for review on a rolling basis if certain conditions are satisfied, including an agreement with the FDA on the proposed schedule for submission of portions of the application and the payment of applicable user fees before the FDA may initiate a review.

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The Regenerative Medicine Advanced Therapy, or RMAT, designation facilitates an efficient development program for, and expedites review of, any drug that meets the following criteria:  (1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition.  Like breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority review.  Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites.  RMAT-designated products that receive accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical studies, patient registries, or other sources of real world evidence (such as electronic health records); through the collection of larger confirmatory data sets; or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy.

Fast track designation, priority review, breakthrough therapy designation and RMAT designation do not change the standards for approval but may expedite the development or approval process. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.

If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application user fee.

A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if the second applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. We plan to seek orphan drug designation for some or all of our product candidates in specific orphan indications in which there is a medically plausible basis for the use of these products.

Post-Approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual program fees for any marketed products. Biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

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The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

Biosimilars and Exclusivity

The Affordable Care Act, signed into law in 2010, includes a subtitle called the BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.

Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.

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A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.

The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation, and impact of the BPCIA is subject to significant uncertainty.

Genetically Engineered Food Products

In the United States, the FDA and the USDA are primarily responsible for overseeing food regulation and safety, although many other federal agencies also play a role in food regulation.

USDA has jurisdiction over certain genetically engineered crops through the Animal and Plant Health Inspection Services, or APHIS. Under the Plant Protection Act and APHIS’ Part 340 regulations, USDA requires anyone who wishes to import, transport interstate, or release into the environment a “regulated article” to apply for a permit or, in some cases, notify APHIS that the introduction will be made. Regulated articles are defined as “any organism which has been altered or produced through genetic engineering which USDA determines is a plant pest or has reason to believe is a plant pest.” Regulated articles may be subject to extensive regulation, including both permitting requirements and inspections. However, to the extent products are subject to APHIS regulation, APHIS may make a determination of nonregulated status for a product following the submission of a petition requesting such a determination. The petition process can be a multi-year process that varies based on a number of factors, including APHIS’s familiarity with similar products, the type and scope of the environmental review conducted, and the number and types of public comments received. APHIS conducts a comprehensive science-based review of the petition to assess, among other things, plant pest risk, environmental considerations pursuant to the National Environmental Policy Act of 1969, or NEPA, and any potential impact on endangered species. If, upon the completion of the review, APHIS grants the petition, the product is no longer deemed a “regulated article” and the petitioner may commercialize the product, subject to any conditions set forth in the decision. In January 2017, APHIS proposed significant amendments to its Part 340 regulatory framework that would, among other things, clarify the types of genetically engineered plants subject to regulation thereunder. In November 2017, however, APHIS withdrew its proposed rule and stated that it would “begin a fresh stakeholder engagement aimed at exploring alternative policy approaches.” That process appears to remain ongoing.

On May 4, 2018, the USDA issued a proposed rule implementing the National Bioengineered Food Disclosure Standard, with a proposed compliance date of January 1, 2020. Under this proposed rule, the label of a bioengineered, or BE, food must include a disclosure that the food is a BE food or contains a BE ingredient, with certain exceptions. This proposed rule defines BE food as “a food that contains genetic material that was has been modified through in vitro recombinant deoxyribonucleic acid, or DNA, techniques and for which the modification could not otherwise be obtained through conventional breeding or found in nature,” except in the case of an incidental additive present in food at an insignificant level and that does not have any technical or functional effect in the food. The USDA’s proposed rule may change significantly prior to being finalized.

The FDA’s oversight of food safety and security is primarily carried out by the Center for Food Safety and Applied Nutrition. To execute its responsibilities, the FDA conducts inspections and collects and analyzes product samples. Foods are typically not subject to premarket review and approval requirements, with limited exceptions, such as the requirement for premarket review and approval of food additives. Under Section 201(s) and 409 of the FDCA, any substance that is reasonably expected to become a component of food is considered a “food additive” that is subject to premarket approval by the FDA, unless it is already subject to a food additive regulation. Ingredients that are GRAS are exempt from the definition of food additive and from the premarket approval requirements. Under section 201(s), and FDA’s implementing regulations, the use of a food substance may be GRAS either through a determination by qualified experts or, for a substance used in food before 1958, through experience based on common use in food.

Manufacturers of GRAS substances may voluntarily provide the FDA with a notification of GRAS determination, which includes, among other things, a description of the substance, the applicable conditions of use, the dietary exposure and an explanation of how the substance was determined to be safe for the intended use. Upon review of such a notification, the FDA may respond with a “no questions” letter stating that while it has not made its own GRAS determination, it has no questions at the time regarding the applicant’s own GRAS determination. Alternatively, manufacturers may self-affirm that a given substance is GRAS without the voluntary FDA notification. A company may market a new food ingredient based on its independent determination that the substance is GRAS; however, the FDA can disagree with this determination and take enforcement action.

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The FDA regulates foods made with genetically modified organisms under the approach summarized in its 1992 “Statement of Policy: Foods Derived from New Plant Varieties.” Under this policy, updated in 2017, the FDA regulates foods derived from genetically modified plant varieties consistent with the framework for non-genetically modified foods. Under this framework, the FDA offers a voluntary consultation process to determine whether a food derived from a genetically modified plant variety raises any safety or other regulatory issues, such as whether any substance in the food from the plant may require premarket approval as a food additive.

Foreign Regulation

To market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union, or EU, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

To market a medicinal product in the European Economic Area, or EEA (which is comprised of the 28 Member States of the EU plus Norway, Iceland and Liechtenstein), we must obtain a Marketing Authorization, or MA. There are two types of marketing authorizations:

Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

Priority medicines scheme. The EMA has a so-called Priority Medicines, or PRIME, scheme. The PRIME scheme was launched in 2016 by the EMA to support the development and accelerate the review of new therapies to treat patients with unmet medical need. This voluntary scheme is based on enhanced interaction and early dialogue with developers of promising medicines, to optimize development plans and speed up evaluation so these medicines can reach patients earlier. To qualify for PRIME, product candidates require early clinical evidence that the therapy has the potential to offer a therapeutic advantage over existing treatments or benefits patients without treatment options. Among the benefits of PRIME are the appointment of a rapporteur to provide continuous support and help build knowledge ahead of an MA application, early dialogue and scientific advice at key development milestones, and the potential to qualify products for accelerated review earlier in the application process.

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Data and marketing exclusivity. In the EEA, new products authorized for marketing, or reference products, qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EU during a period of eight years from the date on which the reference product was first authorized in the EU. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until 10 years have elapsed from the initial authorization of the reference product in the EU. The 10 year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.

Pediatric investigation plan. In the EEA, marketing authorization applications for new medicinal products not authorized have to include the results of studies conducted in the pediatric population, in compliance with a pediatric investigation plan, or PIP, agreed with the EMA’s Pediatric Committee, or PDCO. The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the drug for which marketing authorization is being sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide pediatric clinical trial data can be waived by the PDCO when these data is not needed or appropriate because the product is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a significant therapeutic benefit over existing treatments for pediatric patients. Once the marketing authorization is obtained in all Member States of the EU and study results are included in the product information, even when negative, the product is eligible for six months’ supplementary protection certificate extension.

Orphan drug designation. In the EEA, a medicinal product can be designated as an orphan drug if its sponsor can establish that the product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the EU when the application is made, or that the product is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the European Community and that without incentives it is unlikely that the marketing of the drug in the EU would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU or, if such method exists, the drug will be of significant benefit to those affected by that condition.

In the EEA, an application for designation as an orphan product can be made any time prior to the filing of an application for approval to market the product. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. During this market exclusivity period, the EMA or the member state competent authorities, cannot accept another application for a marketing authorization, or grant a marketing authorization, for a similar medicinal product for the same indication.  The period of market exclusivity is extended by two years for medicines that have also complied with an agreed PIP.

This period may, however, be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation, for example because the product is sufficiently profitable not to justify market exclusivity. Market exclusivity can be revoked only in very selected cases, such as consent from the marketing authorization holder, inability to supply sufficient quantities of the product, demonstration of “clinical superiority” by a similar medicinal product, or, after a review by the Committee for Orphan Medicinal Products, requested by a member state in the fifth year of the marketing exclusivity period (if the designation criteria are believed to no longer apply). Medicinal products designated as orphan drugs pursuant are eligible for incentives made available by the EU and its Member States to support research into, and the development and availability of, orphan drugs.

Clinical trials. Clinical trials of medicinal products in the European Union must be conducted in accordance with European Union and national regulations and the International Conference on Harmonization, or ICH, guidelines on GCPs. Additional GCP guidelines from the European Commission, focusing in particular on traceability, apply to clinical trials of advanced therapy medicinal products. If the sponsor of the clinical trial is not established within the European Union, it must appoint an entity within the European Union to act as its legal representative. The sponsor must take out a clinical trial insurance policy, and in most EU countries, the sponsor is liable to provide ‘no fault’ compensation to any study subject injured in the clinical trial.

Prior to commencing a clinical trial, the sponsor must obtain a clinical trial authorization from the competent authority, and a positive opinion from an independent ethics committee. The application for a clinical trial authorization must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation. Currently, clinical trial authorization applications must be submitted to the competent authority in each EU Member State in which the trial will be conducted. Under the new Regulation on Clinical Trials, which is currently expected to take effect in 2020, there will be a centralized application procedure where one national authority takes the lead in reviewing the application and the other national authorities have only a limited involvement. Any substantial changes to the trial protocol or other information submitted with the clinical trial applications must be notified to or approved by the relevant competent authorities and ethics committees. Medicines used in clinical trials must be manufactured in accordance with cGMP. Other national and European Union-wide regulatory requirements also apply.

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Other U.S. Healthcare Laws and Compliance Requirements

In the United States, our activities are potentially subject to regulation under various federal and state healthcare laws including, among others, the federal Anti-Kickback Statute, the federal False Claims Act and HIPAA.

The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. A person does not need to have knowledge of the statute or specific intent to violate it to have committed a violation.

The U.S. federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced through civil whistleblower or qui tam actions, and civil monetary penalties laws, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. government. In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.

The U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their implementing regulations, impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers, as well as their business associates that perform certain services for or on their behalf involving the use or disclosure of individually identifiable health information.

Additionally, the federal Physician Payments Sunshine Act, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other health care professionals beginning in 2022, and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually to CMS certain ownership and investment interests held by physicians and their immediate family members.

Moreover, analogous state and non-U.S. laws and regulations may apply to our activities, such as state anti-kickback and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by the patients themselves, state laws that require pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources, state and local laws and regulations that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information, state and local laws which require the registration of pharmaceutical sales representatives and state and non-U.S. laws, such as the EU General Data Protection Regulation 2016/679, governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that current and future business arrangements with third parties complies with applicable healthcare laws and regulations involves substantial costs. If a business is found to be in violation of any of these or any other health regulatory laws that may apply to it, it may be subject to significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other U.S. healthcare programs, additional reporting requirements and oversight if subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of operations.

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Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status for newly approved therapeutics. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide coverage, and establish adequate reimbursement levels for such products. In the United States, third-party payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Moreover, the coverage provided may be more limited than the purposes for which the product is approved by the FDA. It is also possible that a third-party payor may consider a product as substitutable and only offer to reimburse patients for the less expensive product. Adequate third-party payor reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Coverage policies and third-party payor reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Healthcare Reform

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively the Affordable Care Act, enacted in March 2010, has substantially changed healthcare financing and delivery by both governmental and private insurers. Among other things the Affordable Care Act included the following provisions:

On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or Texas District Court Judge, ruled that the entire Affordable Care Act is invalid based primarily on the fact that the legislation enacted on December 22, 2017, the Tax Cuts and Jobs Act of 2017, or the TCJA, repealed the tax-based shared responsibility payment imposed by the Affordable Care Act, on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate”. On December 18, 2019, the U.S. Court of Appeals for the 5^th Circuit upheld the district court’s decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. It is unclear how these decisions, subsequent appeals, if any, and other efforts to challenge, repeal or replace the Affordable Care Act will impact the Affordable Care Act.

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In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, included reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute will remain in effect through 2029 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Further, there has been heightened governmental scrutiny recently over pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies, rebates and price negotiation for pharmaceutical products, some of which are included in the Trump administration’s budget proposals for fiscal years 2019 and 2020, as well as recent bills introduced by the U.S. Senate and House of Representatives, respectively. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services has begun soliciting feedback on some of these measures and, at the same, is immediately implementing others under its existing authority. Although a number of these, and other potential, proposed measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product and medical device pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and medical devices to purchase and which suppliers will be included in their prescription drug and other healthcare programs.

Additionally, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

Employees

As of December 31, 2019, we had 199 full-time Precisioneers, including 62 scientists with Ph.D. degrees. Of these full-time employees, 146 are engaged in research and development activities. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We consider our relationships with our employees to be good.

Corporate Information

We were incorporated in Delaware in January 2006. Our principal executive offices are located at 302 East Pettigrew St., Suite A-100, Durham, North Carolina 27701, and our telephone number is (919) 314-5512. Our website address is www.precisionbiosciences.com. The information contained in, or accessible through, our website does not constitute a part of this Annual Report on Form 10-K.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov. Our SEC filings are also available free of charge under the Investors and Media section of our website at www.precisionbiosciences.com as soon as reasonably practicable after they are filed with or furnished to the SEC. Our website and the information contained on or connected to that site are not incorporated into this Annual Report on Form 10-K.

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Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. Before investing in our common stock, you should consider carefully the risks described below, together with the other information included or incorporated by reference in this Annual Report on Form 10-K. The occurrence of any of the following risks could materially adversely affect our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our common stock could decline.

Risks Related to Our Financial Condition, Limited Operating History and Need for Additional Capital

We have incurred significant operating losses since our inception and expect to continue to incur losses for the foreseeable future. We have never been profitable, and may never achieve or maintain profitability.

We have never been profitable and do not expect to be profitable in the foreseeable future. Since inception, we have incurred significant operating losses. If our product candidates are not successfully developed and approved, we may never generate any revenue from product sales. Our net losses were $92.9 million for the year ended December 31, 2019 and $46.0 million for the year ended December 31, 2018. As of December 31, 2019, we had an accumulated deficit of $177.1 million. In addition, we have not commercialized any products and have never generated any revenue from product sales. Substantially all of our losses have resulted from expenses incurred in connection with our research and development activities, including our preclinical development activities, and from general and administrative costs associated with our operations. We have financed our operations primarily through an initial public offering, or IPO, of our common stock, private placements of our convertible preferred stock and convertible debt and our development and commercial license agreement dated February 24, 2016, as amended, with Les Laboratoires Servier, which we refer to as the Servier Agreement. The amount of our future net losses will depend, in part, on the amount and growth rate of our expenses and our ability to generate revenues.

All of our current or future product candidates will require substantial additional development time and resources before we may realize revenue from product sales, if at all. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

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It will be several years, if ever, before we obtain regulatory approval for, and are ready for commercialization of, a therapeutic product candidate. Similarly, no product candidate from our food platform has advanced to field testing, and it will be several years, if ever, before we or our collaborators commercialize any such product candidate. New food and agriculture products using the precise editing approach generally take approximately three to five years to develop. Even if a therapeutic product candidate receives regulatory approval or a food or agriculture product advances through commercialization, future revenues for such product candidate will depend upon many factors, such as, as applicable, the size of any markets in which such product candidate is approved for sale, the market share captured by such product candidate, including as a result of the market acceptance of such product candidate and the effectiveness of manufacturing, sales, marketing and distribution operations related to such product candidate, the terms of any collaboration or other strategic arrangement we may have with respect to such product candidate and levels of reimbursement from third-party payors. If we are unable to develop and commercialize one or more product candidates either alone or with collaborators, or if revenues from any product candidate that receives marketing approval or is commercialized are insufficient, we may not achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability. If we are unable to achieve and maintain profitability, the value of our common stock will be materially adversely affected.

We will need substantial additional funding, and if we are unable to raise a sufficient amount of capital when needed on acceptable terms, or at all, we may be forced to delay, reduce or eliminate some or all of our research programs, product development activities and commercialization efforts.

The process of identifying product candidates and conducting preclinical or greenhouse studies and clinical or field trials is time consuming, expensive, uncertain and takes years to complete. We expect our expenses to increase in connection with our ongoing activities, particularly as we identify, continue the research and development of, initiate and continue clinical or field trials of, and seek marketing approval for, product candidates. In addition, if any therapeutic product candidate that we develop alone or with collaborators obtains marketing approval, we may incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution efforts. Furthermore, with the closing of our IPO, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise sufficient capital when needed, we may be forced to delay, reduce or eliminate current or future research programs, product development activities and/or commercialization efforts.

We expect that our existing cash and cash equivalents will be sufficient to fund our expected operating expenses and capital expenditure requirements into 2021. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our operating plans and other demands on our cash resources may change as a result of many factors, including factors unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. We do not currently expect future grant revenues to be a material source of revenue. Attempting to secure additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop product candidates. Our future capital requirements will depend on many factors, including:

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Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or in light of specific strategic considerations. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to obtain sufficient funding on a timely basis or on favorable terms, we may be required to significantly delay, reduce or eliminate one or more of our research or product development programs and/or commercialization efforts. We may also be unable to expand our operations or otherwise capitalize on business opportunities as desired. Any of these events could materially adversely affect our financial condition and business prospects.

Provisions of our debt instruments may restrict our ability to pursue our business strategies.

In May 2019, we entered into a loan and security agreement with Pacific Western Bank, or PWB, pursuant to which we may request advances on a revolving line of credit of up to an aggregate principal of $50.0 million, or the Revolving Line. The maturity date of the Revolving Line is May 15, 2022. As of December 31, 2019, we had no borrowings under our Revolving Line. Under the loan and security agreement, we granted PWB a security interest in substantially all of our assets, excluding any of the intellectual property now or hereafter owned, acquired or received by us (but including any rights to payment from the sale or licensing of any such intellectual property).  

Our loan and security agreement with PWB requires us, and any debt instruments we may enter into in the future may require us, to comply with various covenants that limit our ability to, among other things:

These restrictions could inhibit our ability to pursue our business strategies. In addition, we are subject to financial covenants based on minimum cash balances.

Raising additional capital may cause dilution to our stockholders restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity and/or debt financings and collaborations, licensing agreements or other strategic arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. To the extent that we raise additional capital through debt financing, it would result in increased fixed payment obligations and a portion of our operating cash flows, if any, being dedicated to the payment of principal and interest on such indebtedness. In addition, debt financing may involve agreements that include restrictive covenants that impose operating restrictions, such as restrictions on the incurrence of additional debt, the making of certain capital expenditures or the declaration of dividends. To the extent we raise additional capital through arrangements with collaborators or otherwise, we may be required to relinquish some of our technologies, research programs,

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product development activities, product candidates and/or future revenue streams, license our technologies and/or product candidates on unfavorable terms or otherwise agree to terms unfavorable to us. Furthermore, any capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to advance research programs, product development activities or product candidates.

We have a limited operating history, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment.

We are a genome editing company with a limited operating history. We formed our company in 2006 and spent the first nine years of our company’s history developing and refining our core technology, and only during the past several years have we focused our efforts on advancing the development of product candidates.

Investment in biopharmaceutical and agricultural biotechnology product development is a highly speculative endeavor. It entails substantial upfront capital expenditures, and there is significant risk that any product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, obtain any required regulatory approvals or become commercially viable. Our genome editing platform and the technologies we are using are new and unproven. We have initiated a Phase 1/2a clinical trial in patients with relapsed or refractory, or R/R, non-Hodgkin lymphoma, or NHL, and R/R B-cell acute lymphoblastic leukemia, or B-ALL, but we have not commenced field trials for any of our product candidates from our food platform. We have not yet demonstrated an ability to successfully complete any clinical or field trials, obtain any required marketing approvals, manufacture products, conduct sales, marketing and distribution activities, or arrange for a third party to do any of the foregoing on our behalf. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing products.

Additionally, we encounter risks and difficulties frequently experienced by new and growing companies in rapidly developing and changing industries, including challenges in forecasting accuracy, determining appropriate investments of our limited resources, gaining market acceptance of our technology, managing a complex regulatory landscape and developing new product candidates, which may make it more difficult to evaluate our likelihood of success. Our current operating model may require changes in order for us to adjust to these challenges or scale our operations efficiently. Our limited operating history, particularly in light of the rapidly evolving nature of the biopharmaceutical and agricultural biotechnology industries and the genome editing field, may make it difficult to evaluate our technology and business prospects or to predict our future performance. Additionally, due to the stage of our operations, we expect that our financial condition and operating results may fluctuate significantly from quarter to quarter as a result of many factors as we build our business, and you should not rely upon the results of any particular quarterly or annual period as indications of future operating performance.

We may expend our limited resources on pursuing particular research programs or product candidates that may be less successful or profitable than other programs or product candidates.

Research programs to identify new product candidates and product development platforms require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs, product candidates or product development platforms that ultimately prove to be unsuccessful. Any time, effort and financial resources we expend on identifying and researching new product candidates and product development platforms may divert our attention from, and adversely affect our ability to continue, development and commercialization of existing research programs, product candidates and product development platforms. Clinical trials or field trials, as applicable, of any of our product candidates may never commence despite the expenditure of significant resources in pursuit of their development, and our spending on current and future research and development programs, product candidates and product development platforms may not yield any commercially viable products. As a result of having limited financial and managerial resources, we may forego or delay pursuit of opportunities that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products or profitable market opportunities. Additionally, if we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other strategic arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

We expect to take advantage of a Research and Development Tax Incentive program in Australia, which could be amended or changed.

We may be eligible to receive a financial incentive from the Australian government as part of its Research and Development Tax Incentive program, or R&D Tax Incentive program. The R&D Tax Incentive program is one of the key elements of the Australian government’s support for Australia’s innovation system and, if eligible, provides the recipient with a 43.5% refundable tax offset for research and development activities in Australia. There have been recent proposals to change the structure of the innovation and research and development funding landscape in Australia, which may impact the research and development tax incentive receivable

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for the 2019 financial year and beyond. There can be no assurance that we will qualify and be eligible for such incentives or that the Australian government will continue to provide incentives, offset, grants and rebates on similar terms or at all.

Risks Related to the Identification, Development and Commercialization of Our Product Candidates

ARCUS is a novel technology, making it difficult to predict the time, cost and potential success of product candidate development. We have not yet been able to assess the safety and efficacy of most of our product candidates in humans, and have only limited safety and efficacy information in humans to date regarding one of our product candidates.

Our success depends on our ability to develop and commercialize product candidates using our novel genome editing technology. The novel nature of our technology makes it difficult to accurately predict the developmental challenges we may face for product candidates as they proceed through research, preclinical or greenhouse studies and clinical or field trials. There have been a limited number of clinical trials of products created with genome editing technologies, only one of which has utilized our technology, and only two therapeutic products created with other genome editing technologies have received marketing approval in the United States. Because our therapeutic research programs are all in preclinical or early clinical stages, we have only been able to assess limited safety and efficacy data for one of our product candidates in a human trial. Current or future product candidates may not meet safety and efficacy requirements for continued development or ultimate approval in humans and may cause significant adverse events or toxicities. All of our product candidates are designed to act at the level of DNA, and because animal DNA differs from human DNA, it will be difficult for us to test our therapeutic product candidates in animal models for either safety or efficacy, and any testing that we conduct may not translate to their effects in humans. Moreover, animal models may not exist for some of the targets, diseases or indications that we intend to pursue. Similarly, we and our collaborators have not yet completed field trials for any agricultural product candidates created with our technology. Our product candidates may not be able to properly implement desired genetic edits with sufficient accuracy to be viable therapeutic or agricultural products, and there may be long-term effects associated with them that we cannot predict at this time. Any problems we experience related to the development of our genome editing technology or any of our or our collaborators’ research programs or product candidates may cause significant delays or unanticipated costs, and we may not be able to satisfactorily solve such problems. These factors may prevent us or our collaborators from completing our preclinical or greenhouse studies or any clinical or field trials that we or our collaborators may initiate, or profitably commercializing any product candidates on a timely basis, or at all. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process as we develop and prepare to commercialize product candidates. These factors make it more difficult for us to predict the time, cost and potential success of product candidate development. If our product development activities take longer or cost more than anticipated, or if they ultimately are not successful, it would materially adversely affect our business and results of operations.

The genome editing field is relatively new and evolving rapidly, and other existing or future technologies may provide significant advantages over our ARCUS platform, which could materially harm our business.

To date, we have focused our efforts on optimizing our proprietary genome editing technology and exploring its potential applications. ARCUS is a novel genome editing technology using sequence-specific DNA-cutting enzymes, or nucleases, that is designed to perform modifications in the DNA of living cells and organisms. Other companies have previously undertaken research and development of genome editing technologies using zinc finger nucleases, transcription activator-like effector nucleases, or TALENs, and clustered regularly interspaced short palindromic repeats associated protein-9 nuclease, or CRISPR/Cas9, although none has obtained marketing approval for a product candidate developed using such technologies. Other genome editing technologies in development or commercially available, or other existing or future technologies, may lead to treatments or products that may be considered better suited for use in human therapeutics or agriculture, which could reduce or eliminate our commercial opportunity.

We are heavily dependent on the successful development and translation of ARCUS, and due to the early stages of our product development operations, we cannot give any assurance that any product candidates will be successfully developed and commercialized.

We are at an early stage of development of the product candidates currently in our programs and are continuing to develop our ARCUS technology. To date, we have invested substantially all of our efforts and financial resources to develop ARCUS and advance our current product development programs, including conducting preclinical studies, early stage clinical trials and other early research and development activities, and providing general and administrative support for these operations. Our future success is dependent on our ability to successfully develop and, where applicable, obtain regulatory approval for, including marketing approval for, and then successfully commercialize, product candidates, either alone or with collaborators. We have not yet developed and commercialized any product candidates, and we may not be able to do so, alone or with collaborators.

Our research and development programs may not lead to the successful identification, development or commercialization of any products.

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The success of our business depends primarily upon our ability to identify, develop and commercialize products using our genome editing technology. With the exception of our CD19 product candidate, all current product candidates and product development programs are still in the discovery, preclinical or greenhouse stages. We may be unsuccessful in advancing those product candidates into clinical development or field trials or in identifying any developing additional product candidates. Our ability to identify and develop product candidates is subject to the numerous risks associated with preclinical and early stage biotechnology development activities, including that:

Our product candidates currently being investigated in clinical trials, or that are expected to be investigated in clinical trials, and other product candidates we may identify may never be approved. Failure to successfully identify and develop new product candidates and obtain regulatory approvals for our products would have a material adverse effect on our business and financial condition and could cause us to cease operations.

If our product candidates do not achieve projected development milestones or commercialization in the announced or expected timeframes, the further development or commercialization of such product candidates may be delayed, and our business will be harmed.

We sometimes estimate, or may in the future estimate, the timing of the accomplishment of various scientific, clinical, manufacturing, regulatory and other product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies or clinical or field trials, the submission of regulatory filings, the receipt of marketing approval or the realization of other commercialization objectives. The achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions, including assumptions regarding capital resources, constraints and priorities, progress of and results from development activities and the receipt of key regulatory approvals or actions, any of which may cause the timing of achievement of the milestones to vary considerably from our estimates. If we or our collaborators fail to achieve announced milestones in the expected timeframes, the commercialization of the product candidates may be delayed, our credibility may be undermined, our business and results of operations may be harmed, and the trading price of our common stock may decline.

Adverse public perception of genome editing may negatively impact the developmental progress or commercial success of products that we develop alone or with collaborators.

The developmental and commercial success of our current product candidates, or any that we develop alone or with collaborators in the future, will depend in part on public acceptance of the use of genome editing technology for the prevention or treatment of human diseases or for application in food or agricultural products. Adverse public perception of applying genome editing technology for these purposes may negatively impact our ability to raise capital or enter into strategic agreements for the development of product candidates.

The commercial success of any food or agricultural products that we develop alone or with collaborators may be adversely affected by claims that biotechnology plant products are unsafe for consumption or use, pose risks of damage to the environment or create legal, social or ethical dilemmas. Additionally, the public may perceive any potential food or agricultural products created with ARCUS to constitute genetically modified organisms, or GMO, even if they do not constitute genetically modified organisms under relevant regulatory requirements, and may be unwilling to consume them because of negative opinions regarding consumption of genetically modified organisms. This may result in expenses, delays or other impediments to development programs in our food platform or the market acceptance and commercialization of any potential food or agricultural products.

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Any therapeutic product candidates may involve editing the human genome. The commercial success of any such potential therapeutic products, if successfully developed and approved, may be adversely affected by claims that genome editing is unsafe, unethical or immoral. This may lead to unfavorable public perception and the inability of any therapeutic product candidates to gain the acceptance of the public or the medical community. Unfavorable public perceptions may also adversely impact our or our collaborators’ ability to enroll clinical trials for therapeutic product candidates. Moreover, success in commercializing any therapeutic product candidates that receive regulatory approval will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of such product candidates in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available. Publicity of any adverse events in, or unfavorable results of, preclinical studies or clinical trials for any current or future product candidates, or with respect to the studies or trials of our competitors or of academic researchers utilizing genome editing technologies, even if not ultimately attributable to our technology or product candidates, could negatively influence public opinion. Negative public perception about the use of genome editing technology in human therapeutics and food or agricultural products, whether related to our technology or a competitor’s technology, could result in increased governmental regulation, delays in the development and commercialization of product candidates or decreased demand for the resulting products, any of which may have a negative impact on our business and financial condition.

We face significant competition in industries experiencing rapid technological change, and there is a possibility that our competitors may achieve regulatory approval before us or develop product candidates or treatments that are safer or more effective than ours, which may harm our financial condition and our ability to successfully market or commercialize any of our product candidates.

The development and commercialization of new drug products is highly competitive, and the genome editing field is characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. We will face competition with respect to our current and future therapeutic product candidates from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization of products. Competition for improving plant genetics comes from conventional and advanced plant breeding techniques, as well as from the development of advanced biotechnology traits. Other potentially competitive sources of improvement in crop yields include improvements in crop protection chemicals, fertilizer formulations, farm mechanization, other biotechnology and information management. Programs to improve genetics and crop protection chemicals are generally concentrated within a relatively small number of large companies, while non-genetic approaches are underway with a broader set of companies.

There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we have research programs. Some of these competitive products and therapies are based on scientific approaches that are similar to our approach, and others are based on entirely different approaches. We principally compete with others developing and utilizing genome editing technology in the human health and plant sciences sectors, including companies such as Cellectis S.A., CRISPR Therapeutics, AG, Editas Medicine, Inc., Intellia Therapeutics, Inc. and Sangamo Therapeutics, Inc. Several companies, including Novartis Pharmaceuticals Corp. and Gilead Sciences, Inc., or Gilead, have obtained FDA approval for autologous immunotherapies, and a number of companies, including Cellectis S.A., Celgene Corp., Allogene Therapeutics and CRISPR Therapeutics AG, are pursuing allogeneic immunotherapies. We expect that our operations focused on developing products for in vivo gene correction will face substantial competition from others focusing on gene therapy treatments, especially those that may focus on conditions that our product candidates target. Moreover, any human therapeutics products that we develop alone or with collaborators will compete with existing standards of care for the diseases and conditions that our product candidates target and other types of treatments, such as small molecule, antibody or protein therapies. Our competitors in the agricultural biotechnology space include Pairwise Plants, LLC, Caribou Biosciences, Inc., Corteva Agriscience, Tropic Biosciences UK LTD, Calyxt, Inc., Benson Hill Biosystems and Cibus.

Many of our current or potential competitors, either alone or with their collaborators, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical or greenhouse testing, conducting clinical or field trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and agricultural biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products we develop alone or with collaborators or that would render any such products obsolete or non-competitive. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we or our collaborators may obtain approval for any that we develop, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, technologies developed by our competitors may render our product candidates uneconomical or obsolete, and we or our collaborators may not be successful in marketing any product candidates we may develop against competitors. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we develop alone or with collaborators.

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Our future profitability, if any, depends in part on our and our collaborators’ ability to penetrate global markets, where we would be subject to additional regulatory burdens and other risks and uncertainties associated with international operations that could materially adversely affect our business.

Our future profitability, if any, will depend in part on our ability and the ability of our collaborators to commercialize any products that we or our collaborators may develop in markets throughout the world. Commercialization of products in various markets could subject us to risks and uncertainties, including:

We have no prior experience in these areas, and our collaborators may have limited experience in these areas. Failure to successfully navigate these risks and uncertainties may limit or prevent market penetration for any products that we or our collaborators may develop, which would limit their commercial potential and our revenues.

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any products that we develop alone or with collaborators.

We face an inherent risk of product liability and professional indemnity exposure related to the testing in clinical or field trials of our product candidates. We will face an even greater liability risk if we commercially sell any products that we or our collaborators may develop for human use or consumption. Manufacturing defects, errors in product distribution or storage processes, improper administration or application and known or unknown side effects of product usage may result in liability claims against us or third parties with which we have relationships. These actions could include claims resulting from acts by our collaborators, licensees and subcontractors over which we have little or no control.

For example, our liability could be sought by patients participating in clinical trials for potential therapeutic product candidates as a result of unexpected side effects, improper product administration or the deterioration of a patient’s condition, patient injury or even death. Criminal or civil proceedings might be filed against us by patients, regulatory authorities, biopharmaceutical companies and any other third party using or marketing any product candidates or products that we develop alone or with collaborators. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated adverse effects. If we cannot successfully defend ourselves against claims that product candidates or products we develop alone or with collaborators caused harm, we could incur substantial liabilities.

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Regardless of merit or eventual outcome, liability claims may result in:

Although the clinical trial process is designed to identify and assess potential side effects, clinical development does not always fully characterize the safety and efficacy profile of a new medicine, and it is always possible that a drug or biologic, even after regulatory approval, may exhibit unforeseen side effects. If our product candidates were to cause adverse side effects during clinical trials or after approval, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our product candidates. If any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safety and quality of such products. We could be adversely affected if we are subject to negative publicity associated with illness or other adverse effects resulting from patients’ use or misuse of such products or any similar products distributed by other companies.

Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage if we or our collaborators successfully commercialize any products. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liabilities to which we may become subject.

Additional Risks Related to the Identification, Development and Commercialization of Our Therapeutic Product Candidates

The regulatory landscape that will apply to development of therapeutic product candidates by us or our collaborators is rigorous, complex, uncertain and subject to change, which could result in delays or termination of development of such product candidates or unexpected costs in obtaining regulatory approvals.

Regulatory requirements governing products created with genome editing technology or involving gene therapy treatment have changed frequently and will likely continue to change in the future. Approvals by one regulatory agency may not be indicative of what any other regulatory agency may require for approval, and there has historically been substantial, and sometimes uncoordinated, overlap in those responsible for regulation of gene therapy products, cell therapy products and other products created with genome editing technology. For example, in the United States, the FDA has established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Our product candidates will need to meet safety and efficacy standards applicable to any new biologic under the regulatory framework administered by the FDA.

In addition to the submission of an IND to the FDA, before initiation of a clinical trial in the United States, certain human clinical trials subject to the NIH Guidelines are subject to review and oversight by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. We are subject to significant regulatory oversight by the FDA, and in addition to the government regulators, the applicable IBC and institutional review board, or IRB, of each institution at which we or our collaborators conduct clinical trials of our product candidates, or a central IRB if appropriate, would need to review and approve the proposed clinical trial.

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The same applies in the European Union, or the EU. The European Medicines Agency, or the EMA, has a Committee for Advanced Therapies, or CAT, that is responsible for assessing the quality, safety and efficacy of advanced-therapy medicinal products. Advanced-therapy medical products include gene therapy medicine, somatic-cell therapy medicines and tissue-engineered medicines. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the EMA. In the EU, the development and evaluation of a gene therapy medicinal product must be considered in the context of the relevant EU guidelines. The EMA may issue new guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that we comply with these new guidelines. Similarly complex regulatory environments exist in other jurisdictions in which we might consider seeking regulatory approvals for our product candidates, further complicating the regulatory landscape. As a result, the procedures and standards applied to gene therapy products and cell therapy products may be applied to any of our gene therapy or genome editing product candidates, but that remains uncertain at this point.

The clinical trial requirements of the FDA, the EMA and other regulatory authorities and the criteria these regulators use to evaluate the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for product candidates created with novel genome editing technology such as ours can be more lengthy, rigorous and expensive than the process for other better known or more extensively studied product candidates and technologies. Since we are developing novel treatments for diseases in which there is little clinical experience with new endpoints and methodologies, there is heightened risk that the FDA, the EMA or comparable regulatory bodies may not consider the clinical trial endpoints to provide clinically meaningful results, and the resulting clinical data and results may be more difficult to analyze. This may be a particularly significant risk for many of the genetically defined diseases for which we may develop product candidates alone or with collaborators due to small patient populations for those diseases, and designing and executing a rigorous clinical trial with appropriate statistical power is more difficult than with diseases that have larger patient populations. Regulatory agencies administering existing or future regulations or legislation may not allow production and marketing of products utilizing genome editing technology in a timely manner or under technically or commercially feasible conditions. Even if our product candidates obtain required regulatory approvals, such approvals may later be withdrawn as a result of changes in regulations or the interpretation of regulations by applicable regulatory agencies.

Changes in applicable regulatory guidelines may lengthen the regulatory review process for our product candidates, require additional studies or trials, increase development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of such product candidates, or lead to significant post-approval limitations or restrictions. Additionally, adverse developments in clinical trials conducted by others of gene therapy products or products created using genome editing technology, such as products developed through the application of a CRISPR/Cas9 technology, or adverse public perception of the field of genome editing, may cause the FDA, the EMA and other regulatory bodies to revise the requirements for approval of any product candidates we may develop or limit the use of products utilizing genome editing technologies, either of which could materially harm our business. Furthermore, regulatory action or private litigation could result in expenses, delays or other impediments to our research programs or the development or commercialization of current or future product candidates.

As we advance product candidates alone or with collaborators, we will be required to consult with these regulatory and advisory groups and comply with all applicable guidelines, rules and regulations. If we fail to do so, we or our collaborators may be required to delay or terminate development of such product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a product candidate to market could decrease our ability to generate sufficient product revenue to maintain our business.

We may not be able to file IND applications to commence additional clinical trials on the timelines we expect, and even if we are able to, the FDA may not permit us to proceed.

We plan to submit IND applications to enable us to conduct clinical trials for additional product candidates in the future, and we expect to file IND amendments to enable us to conduct additional clinical trials under existing INDs. We cannot be sure that submission of an IND application or IND amendment will result in us being allowed to proceed with clinical trials, or that, once begun, issues will not arise that could result in the suspension or termination such clinical trials. The manufacturing of allogeneic CAR T cell therapy remains an emerging and evolving field. Accordingly, we expect chemistry, manufacturing and controls-related topics, including product specifications, will be a focus of IND reviews, which may delay receipt of authorization to proceed under INDs. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND or clinical trial application, we cannot guarantee that such regulatory authorities will not change their requirements in the future.

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The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

We and any collaborators are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Foreign regulatory authorities, such as the EMA, impose similar requirements. The time required to obtain approval by the FDA, the EMA and comparable foreign authorities is unpredictable, but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including substantial discretion of the regulatory authorities and sufficient resources at the FDA. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. To date, we have not submitted a biologics license application, or BLA, or other marketing authorization application to the FDA or similar drug approval submissions to comparable foreign regulatory authorities for any product candidate. We and any collaborators must complete additional preclinical or nonclinical studies and clinical trials to demonstrate the safety and efficacy of our product candidates in humans to the satisfaction of the regulatory authorities before we will be able to obtain these approvals.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations and prospects.

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may impose significant limitations in the form of narrow indications, warnings, or a Risk Evaluation and Mitigation Strategy, or REMS. Regulatory authorities may not approve the price we or our collaborators intend to charge for products we may develop, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

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Clinical trials are difficult to design and implement, expensive, time-consuming and involve an uncertain outcome, and the inability to successfully and timely conduct clinical trials and obtain regulatory approval for our product candidates would substantially harm our business.

Clinical testing is expensive and usually takes many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process, and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. We have initiated a Phase 1/2a clinical trial in patients with R/R NHL or R/R B-ALL, and expect to initiate an additional Phase 1/2a clinical trial in subjects with NHL, chronic lymphocytic leukemia and small lymphocytic lymphoma in the first quarter of 2020. We do not know whether any current or planned clinical trials will need to be redesigned, recruit and enroll patients on time or be completed on schedule, or at all. Clinical trials can be delayed, suspended or terminated for a variety of reasons, including in connection with:

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Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Additionally, we or our collaborators may experience unforeseen events during or resulting from clinical trials that could delay or prevent receipt of marketing approval for or commercialization of product candidates. For example, clinical trials of product candidates may produce negative, inconsistent or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon development programs. Regulators may also revise the requirements for approving the product candidates, or such requirements may not be as we anticipate. If we or our collaborators are required to conduct additional clinical trials or other testing of product candidates beyond those that we or our collaborators currently contemplate, if we or our collaborators are unable to successfully complete clinical trials or other testing of such product candidates, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

If we or our collaborators experience delays in the commencement or completion of our clinical trials, or if we or our collaborators terminate a clinical trial prior to completion, we may experience increased costs, have difficulty raising capital and/or be required to slow down the development and approval process timelines. Furthermore, the product candidates that are the subject of such trials may never receive regulatory approval, and their commercial prospects and our ability to generate product revenues from them could be impaired or not realized at all.

Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authorities may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authorities may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authorities, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.

Any product candidates that we or our collaborators may develop will be novel and may be complex and difficult to manufacture, and if we experience manufacturing problems, it could result in delays in development and commercialization of such product candidates or otherwise harm our business.

Our product candidates involve or will involve novel genome editing technology and will require processing steps that are more complex than those required for most small molecule drugs, resulting in a relatively higher manufacturing cost. Moreover, unlike small molecules, the physical and chemical properties of biologics generally cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that such product will perform in the intended manner. Although we intend to employ multiple steps to control the manufacturing process, we may experience manufacturing issues with any of our product candidates that could cause production interruptions, including contamination, equipment or reagent failure, improper installation or operation of equipment, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error, disruptions in the operations of our suppliers, inconsistency in cell growth and variability in product characteristics. We may

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encounter problems achieving adequate quantities and quality of clinical-grade materials that meet FDA, EMA or other comparable applicable standards or specifications with consistent and acceptable production yields and costs. For example, the FDA has required us to conduct testing of our allogeneic CAR T cell product candidates for the presence of certain human viruses prior to release of such products for clinical use. If the FDA concludes that further such viral testing of our product candidates is required and that any lots testing positive may not be used in clinical trials, we may need to produce new clinical trial materials, which could delay our clinical trials and result in higher manufacturing costs. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which such product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Our manufacturing process for any allogeneic CAR T cell product candidate that we develop alone or with collaborators will be susceptible to product loss or failure due to the quality of the raw materials, failure of the products to meet specifications, logistical issues associated with the collection of white blood cells, or starting material, from healthy third-party donors, shipping such material to the manufacturing site, ensuring standardized production batch-to-batch in the context of mass production, freezing the manufactured product, shipping the final product globally and infusing patients with such product. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, delays in initiating or completing clinical trials, product recalls, product liability claims or insufficient inventory.

As product candidates are developed through preclinical to late-stage clinical trials towards approval and commercialization, we expect that various aspects of the development program, such as manufacturing methods, may be altered along the way in an effort to help optimize processes and results. Such changes carry the risk that they will not achieve the intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of future clinical trials or our reliance on results of trials that have previously been conducted using the product candidate in its previous form. If the manufacturing process is changed during the course of product development, we or our collaborators may be required to repeat some or all of the previously conducted trials or conduct additional bridging trials, which could increase our costs and delay or impede our ability to obtain marketing approval.

We expect our manufacturing strategy for one or more of our product candidates may involve the use of contract manufacturing organizations, or CMOs, as well as our newly opened manufacturing facility, the MCAT. The facilities used by us and our contract manufacturers to manufacture therapeutic product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our BLA to the FDA. We do not control the manufacturing process of, and are currently completely dependent on, our contract manufacturing partners for compliance with cGMP, for the manufacture of our product candidates. We may establish multiple manufacturing facilities as we expand our commercial footprint to multiple geographies, which will be costly and time consuming and may lead to regulatory delays. Even if we are successful, our manufacturing capabilities could be affected by cost-overruns, potential problems with scale-out, process reproducibility, stability issues, lot inconsistency, timely availability of reagents or raw materials, unexpected delays, equipment failures, labor shortages, natural disasters, utility failures, regulatory issues and other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.

The FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of any product that may receive approval together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other foreign regulatory authorities may require that we not distribute a lot until the relevant agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us or our collaborators to delay product launches or clinical trials, which could be costly to us and otherwise harm our business. Problems in our manufacturing process also could restrict our or our collaborators’ ability to meet market demand for products.

Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive development opportunities.

We will rely on donors of T cells to manufacture product candidates from our allogeneic CAR T immunotherapy platform, and if we do not obtain an adequate supply of T cells from qualified donors, development of those product candidates may be adversely impacted.

We are developing a pipeline of allogeneic T cell product candidates that are engineered from healthy donor T cells, which vary in type and quality. This variability in type and quality of a donor’s T cells makes producing standardized product candidates more difficult and makes the development and commercialization pathway of those product candidates more uncertain. We have developed a screening process designed to enhance the quality and consistency of T cells used in the manufacture of our CAR T cell product candidates. If we are unable to identify and obtain T cells from donors that satisfy our criteria in sufficient quantity, to obtain such cells in a timely manner or to address variability in donor T cells, development of our CAR T cell product candidates may be delayed or there may be inconsistencies in the product candidates we produce, which could negatively impact development of such product candidates, harm our reputation and adversely impact our business and prospects.

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Failure to achieve operating efficiencies from MCAT may require us to devote additional resources and management time to manufacturing operations and may delay our product development timelines.

We have leased approximately 33,600 square feet of space for MCAT at a location approximately seven miles from our headquarters in Durham, North Carolina. We intend to begin using this new manufacturing center to create clinical trial material for certain of our planned clinical trials in 2020. We may not experience the anticipated operating efficiencies as we commence manufacturing. Any delays in manufacturing may disrupt or delay the supply of our product candidates if we have not maintained a sufficient back-up supply of such product candidates through third-party manufacturers. Moreover, changing manufacturing facilities may also require that we or our collaborators conduct additional studies, make notifications to regulatory authorities, make additional filings to regulatory authorities, and obtain regulatory authority approval for the new facilities, which may be delayed or which we may never receive. We will further need to comply with the FDA’s and applicable foreign regulatory authorities’ cGMP requirements for the production of product candidates for clinical trials and, if approved, commercial supply, and will be subject to FDA and comparable foreign regulatory authority inspection. These requirements include the qualification and validation of our manufacturing equipment and processes. We may not be able to develop or acquire the internal expertise and resources necessary for compliance with these requirements. Should we fail to comply with cGMP requirements, the opening of our manufacturing facility will be delayed. If we fail to achieve the operating efficiencies that we anticipate, our manufacturing and operating costs may be greater than expected, which could have a material adverse impact on our operating results.

We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel needed to operate our manufacturing processes. If we experience unanticipated employee shortage or turnover in any of these areas, we may not be able to effectively manage our ongoing manufacturing operations and we may not achieve the operating efficiencies that we anticipate from the new facility, which may negatively affect our product development timeline or result in difficulties in maintaining compliance with applicable regulatory requirements.

Any such problems could result in the delay, prevention or impairment of clinical development and commercialization of our product candidates.

We or our collaborators may experience delays or difficulties in enrolling patients in clinical trials, which could delay or prevent receipt of regulatory approvals.

We or our collaborators may not be able to initiate or continue clinical trials on a timely basis or at all for any product candidates we or our collaborators identify or develop if we or our collaborators are unable to locate and enroll a sufficient number of eligible patients to participate in the trials as required by applicable regulations or as needed to provide appropriate statistical power for a given trial. Additionally, some of our competitors may have ongoing clinical trials for product candidates that would treat the same indications as one or more of our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in our competitors’ clinical trials.

Patient enrollment may also be affected by many factors, including:

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We expect that some of our product candidates will focus on rare genetically defined diseases with limited patient pools from which to draw for enrollment in clinical trials. The eligibility criteria of our clinical trials will further limit the pool of available trial participants. In addition to the factors identified above, patient enrollment in any clinical trials we or our collaborators may conduct may be adversely impacted by any negative outcomes our competitors may experience, including adverse side effects, clinical data showing inadequate efficacy or failures to obtain regulatory approval.

Furthermore, our or our collaborators’ ability to successfully initiate, enroll and conduct a clinical trial outside the United States is subject to numerous additional risks, including:

Enrollment delays in clinical trials may result in increased development costs for any of our product candidates, which may cause the value of our company to decline and limit our ability to obtain additional financing. If we or our collaborators have difficulty enrolling a sufficient number of patients to conduct clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which may have an adverse effect on our results of operations and prospects.

Results of preclinical studies and early clinical trials of product candidates may not be predictive of results of later studies or trials. Our product candidates may not have favorable results in later clinical trials, if any, or receive regulatory approval.

Preclinical and clinical drug development is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the preclinical study or clinical trial process. Despite promising preclinical or clinical results, any product candidate can unexpectedly fail at any stage of preclinical or clinical development. The historical failure rate for product candidates in our industry is high.

The results from preclinical studies or early clinical trials of a product candidate may not be predictive of the results from later preclinical studies or clinical trials, and interim results of a clinical trial are not necessarily indicative of final results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy characteristics despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical and biotechnology industries have suffered significant setbacks at later stages of development after achieving positive results in early stages of development, and we may face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including previously unreported adverse events. Moreover, non-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain regulatory approval. With the exception of our allogeneic anti-CD19 CAR T product candidate, which has undergone limited testing in humans to date, our gene editing technology and our product candidates have never undergone testing in humans and have only been tested in a limited manner in animals, and results from animal studies may not be predictive of clinical trial results. Even if product candidates progress to clinical trials, these product candidates may fail to show the safety and efficacy in clinical development required to obtain regulatory approval, despite the observation of positive results in animal studies. Our or our collaborators’ failure to replicate positive results from early research programs and preclinical or greenhouse studies may prevent us from further developing and commercializing those or other product candidates, which would limit our potential to generate revenues from them and harm our business and prospects.

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For the foregoing reasons, we cannot be certain that any ongoing or future preclinical studies or clinical trials will be successful. Any safety or efficacy concerns observed in any one of our preclinical studies or clinical trials in a targeted area could limit the prospects for regulatory approval of product candidates in that and other areas, which could have a material adverse effect on our business and prospects.

Interim “top-line” and initial data from studies or trials that we announce or publish from time to time may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim “top-line” or initial data from preclinical or greenhouse studies or clinical or field trials. For example, we recently reported initial results from our ongoing Phase 1/2a clinical trial of PBCAR0191. Interim data are subject to the risk that one or more of the outcomes may materially change as more data become available. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Initial or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from these initial data we previously published. As a result, interim and initial data should be viewed with caution until the final data are available. Additionally, interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between initial or interim data and final data could significantly harm our business prospects.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure. Any information we determine not to disclose may ultimately be deemed significant by you or others with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. If the top-line data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, product candidates may be harmed, which could significantly harm our business prospects.

If any of our product candidates do not work as intended or cause undesirable side effects, it could hinder or prevent receipt of regulatory approval or realization of commercial potential for them or our other product candidates and could substantially harm our business.

Our product candidates may be associated with off-target editing or other serious adverse events, undesirable side effects or unexpected characteristics. Results of clinical trials could reveal severe or recurring side effects, toxicities or unexpected events, including death. Off-target cuts could lead to disruption of a gene or a genetic regulatory sequence at an unintended site in the DNA. In those instances where we also provide a segment of DNA, it is possible that following off-target cut events, such DNA could be integrated into the genome at an unintended site, potentially disrupting another important gene or genomic element. There may also be delayed adverse events following exposure to therapeutics made with genome editing technologies due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material. In addition to serious adverse events or side effects caused by product candidates we develop alone or with collaborators, the administration process or related procedures may also cause undesirable side effects. Any side effects may not be appropriately recognized or managed by the treating medical staff. We or our collaborators expect to have to educate medical personnel using any product candidates we may develop to understand the side effect profiles for our clinical trials and upon any commercialization of such product candidates. Inadequate recognition or management of the potential side effects of such product candidates could result in patient injury or death.

If any such events occur, clinical trials or commercial distribution of any product candidates or products we develop alone or with collaborators could be suspended or terminated, and our business and reputation could suffer substantial harm. Treatment-related side effects could affect patient recruitment and the ability of enrolled patients to complete the trial or result in potential liability claims. Regulatory authorities could order us or our collaborators to cease further development of, deny approval of or require us to cease selling any product candidates or products for any or all targeted indications. If we or our collaborators elect, or are required, to delay, suspend or terminate any clinical trial or commercialization efforts, the commercial prospects of such product candidates or products may be harmed, and our ability to generate product revenues from them or other product candidates that we develop may be delayed or eliminated.

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Additionally, if we successfully develop a product candidate alone or with collaborators and it receives marketing approval, the FDA could require us to adopt a REMS to ensure that the benefits of treatment with such product candidate outweigh the risks for each potential patient, which may include, among other things, a communication plan to health care practitioners, patient education, extensive patient monitoring or distribution systems and processes that are highly controlled, restrictive and more costly than what is typical for the industry. We or our collaborators may also be required to adopt a REMS or engage in similar actions, such as patient education, certification of health care professionals or specific monitoring, if we or others later identify undesirable side effects caused by any product that we develop alone or with collaborators. Such identification could also have several additional significant negative consequences, such as:

Any of these events could prevent us or our collaborators from achieving or maintaining market acceptance of any potential product.

We are subject to federal, state and non-U.S. healthcare and data privacy and security laws and regulations relating to our business, and could face substantial penalties if we are determined not to have fully complied with such laws, which would have an adverse impact on our business.

Our business operations, as well as our current and anticipated future arrangements with investigators, healthcare professionals, consultants, third-party payors, customers and patients, expose or will expose us to broadly applicable foreign, federal, and state fraud and abuse and other healthcare and privacy laws and regulations. These laws constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute any potential products for which we may obtain marketing approval. Such laws include:

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Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities may conclude that our business practices, including our relationships with certain physicians, some of whom are compensated in the form of stock options for consulting services provided, do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other U.S. healthcare programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations.

Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, results of operations, and financial condition.

The global data protection landscape is rapidly evolving, and we are or may become subject to numerous state, federal and foreign laws, requirements and regulations governing the collection, use, disclosure, retention, and security of personal data, such as information that we may collect in connection with clinical trials in the U.S. and abroad. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our business. This evolution may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer use and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards can be high and is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.

As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. In the U.S., HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their implementing regulations, imposes, among other things, certain standards relating to the privacy, security, transmission and breach reporting of individually identifiable health information on covered entities (defined as health plans, health care clearinghouses and certain health care providers) and their respective business associates, individuals or entities that create, received, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HIPAA mandates the reporting of certain breaches of health information to HHS, affected individuals and if the breach is large enough, the media. Entities that are found to be in violation of HIPAA as the result of a breach of unsecured protected health information, a complaint about privacy practices or an audit by HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance. Even when HIPAA does not apply, according to the Federal Trade Commission or the FTC, failing to take appropriate

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steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, or the FTCA, 15 U.S.C § 45(a). The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards. The FTC’s guidance for appropriately securing consumers’ personal information is similar to what is required by the HIPAA Security Rule.

Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. In addition, California enacted the California Consumer Privacy Act (CCPA) on June 28, 2018, which went into effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal level and in other states. In the event that we are subject to or affected by HIPAA, the CCPA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.

In Europe, the European Union General Data Protection Regulation (GDPR) went into effect in May 2018 and introduces strict requirements for processing the personal data of EU data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements. We are also subject to evolving EU laws on data export, as we may transfer personal data from the EU to other jurisdictions. Following Brexit, we will have to comply with the GDPR and the UK GDPR, each regime having the ability to fine up to the greater of €20 million/ £17 million or 4% of global turnover. The relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear, e.g. how data transfers between EU member states. These changes will lead to additional costs and increase our overall risk.

Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, CROs, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.

We have received orphan drug designation for PBCAR0191 for the treatment of ALL, PBCAR20A for the treatment of mantle cell lymphoma, or MCL, and PBCAR269A for the treatment of multiple myeloma, and we may seek orphan drug designation for some or all of our other product candidates, but we may be unable to obtain such designations or to maintain the benefits associated with orphan drug designation, which may negatively impact our ability to develop or obtain regulatory approval for such product candidates and may reduce our revenue if we obtain such approval.

We may seek orphan drug designation for some or all of our product candidates in specific orphan indications in which there is a medically plausible basis for the use of these products. Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a biologics license application, or BLA. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. We have received orphan drug designation in the United States for PBCAR0191 for the treatment of ALL. Although we may seek orphan product designation for some or all of our other product candidates, we may never receive such designations.

If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a BLA, to market the same biologic for the same indication for seven years, except in limited circumstances such as a showing of clinical superiority to the product with orphan product exclusivity or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can ensure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Even if we or our collaborators obtain orphan drug designation for a product candidate, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. Exclusive marketing rights in the United

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States may be limited if we or our collaborators seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if a product obtains orphan drug exclusivity, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Furthermore, the FDA can waive orphan exclusivity if we or our collaborators are unable to manufacture sufficient supply of the product.

Similarly, in Europe, a medicinal product may receive orphan designation under Article 3 of Regulation (EC) 141/2000. This applies to products that are intended for a life-threatening or chronically debilitating condition and either (1) such condition affects no more than five in 10,000 persons in the EU when the application is made, or (2) the product, without the benefits derived from orphan status, would be unlikely to generate sufficient returns in the EU to justify the necessary investment. Moreover, in order to obtain orphan designation in the EU it is necessary to demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU or, if such a method exists, the product will be of significant benefit to those affected by the condition. In the EU, orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and applicants can benefit from specific regulatory assistance and scientific advice. Products receiving orphan designation in the EU can receive 10 years of market exclusivity, during which time no similar medicinal product for the same indication may be placed on the market. An orphan product can also obtain an additional two years of market exclusivity in the EU for pediatric studies. However, the 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation—for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if:

If we or our collaborators do not receive or maintain orphan drug designation for product candidates for which we seek such designation, it could limit our ability to realize revenues from such product candidates.

We may seek fast track designation, breakthrough therapy designation, Regenerative Medicine Advanced Therapy, or RMAT, designation, or priority review from the FDA or access to the PRIME scheme from the EMA for some or all of our product candidates, but we may not receive such designations, and even if we do, it may not lead to a faster development or regulatory review or approval process, and will not increase the likelihood that such product candidates will receive marketing approval.

We may seek fast track designation, breakthrough therapy designation, Regenerative Medicine Advanced Therapy, or RMAT, designation or priority review from the FDA, or access to the PRIME scheme from the EMA for some or all of our product candidates. If a drug is intended for the treatment of a serious or life-threatening condition or disease, and nonclinical or clinical data demonstrate the potential to address an unmet medical need, the product may qualify for FDA fast track designation, for which sponsors must apply. The FDA has broad discretion whether or not to grant this designation.  If granted, fast track designation makes a drug eligible for more frequent interactions with FDA to discuss the development plan and clinical trial design, as well as rolling review of the application, which means that the company can submit completed sections of its marketing application for review prior to completion of the entire submission.  Products with fast track designation may also be eligible for accelerated approval and priority review, if the relevant criteria are met.  

Breakthrough therapy designation is intended to expedite the development and review of product candidates that treat serious or life-threatening diseases when "preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development." The designation of a product candidate as a breakthrough therapy provides the same potential benefits as a fast track designation, with more intensive FDA guidance on an efficient development program and an organizational commitment at FDA involving senior managers.

A company may also request RMAT designation of its product candidate, which designation may be granted if the drug meets the following criteria: (1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product  using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. Like breakthrough therapy designation, RMAT

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designation provides potential benefits that include more frequent meetings with FDA  to discuss the development plan for the product candidate, and potential eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. RMAT- designated products that receive accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical studies, patient registries, or other sources of real world evidence (such as electronic health records); through the collection of larger confirmatory data sets; or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy.

PRIME is a scheme provided by the EMA to enhance support for the development of medicines that target an unmet medical need. To qualify for PRIME, product candidates require early clinical evidence that the therapy has the potential to offer a therapeutic advantage over existing treatments or benefits patients without treatment options. Among the benefits of PRIME are the appointment of a rapporteur to provide continuous support and help build knowledge ahead of a marketing authorization application, early dialogue and scientific advice at key development milestones, and the potential to qualify products for accelerated review earlier in the application process.

There is no assurance that we will obtain fast track designation, breakthrough therapy designation, RMAT designation or access to PRIME for any of our product candidates. Fast track designation, breakthrough therapy designation, RMAT designation and PRIME eligibility do not change the standards for product approval, and there is no assurance that any such designation or eligibility will result in expedited review or approval or that the approved indication will not be narrower than the indication covered by the fast track designation, breakthrough therapy designation, RMAT designation or PRIME eligibility. Additionally, fast track designation, breakthrough therapy designation, RMAT designation and access to PRIME can each be revoked if the criteria for eligibility cease to be met as clinical data emerges.

If the product candidates that we or our collaborators may develop receive regulatory approval in the United States or another jurisdiction, they may never receive approval in other jurisdictions, which would limit market opportunities for such product candidate and adversely affect our business.

Approval of a product candidate in the United States by the FDA or by the requisite regulatory agencies in any other jurisdiction does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions. The approval process varies among countries and may limit our or our collaborators’ ability to develop, manufacture, promote and sell product candidates internationally. Failure to obtain marketing approval in international jurisdictions would prevent the product candidates from being marketed outside of the jurisdictions in which regulatory approvals have been received. In order to market and sell product candidates in the EU and many other jurisdictions, we and our collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and may involve additional preclinical studies or clinical trials both before and after approval. In many countries, any product candidate for human use must be approved for reimbursement before it can be approved for sale in that country. In some cases, the intended price for such product is also subject to approval. Further, while regulatory approval of a product candidate in one country does not ensure approval in any other country, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. If we or our collaborators fail to comply with the regulatory requirements in international markets or to obtain all required marketing approvals, the target market for a particular potential product will be reduced, which would limit our ability to realize the full market potential for the product and adversely affect our business.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize any product candidates we or our collaborators develop and may adversely affect the prices for such product candidates.

In the United States and certain non-U.S. jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our or our collaborators’ ability to profitably sell any product candidates that obtain marketing approval.

For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively the Affordable Care Act, was enacted in the United States. Among the provisions of the Affordable Care Act of importance to our product candidates, the Affordable Care Act established an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, expanded eligibility criteria for Medicaid programs, expanded the entities eligible for discounts under the Public Health program, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, created a new Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D, and created a licensure framework for follow-on biologic products.

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On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or Texas District Court Judge, ruled that the entire Affordable Care Act is invalid based primarily on the fact that the TCJA enacted on December 22, 2017, repealed the tax-based shared responsibility payment imposed by the Affordable Care Act, on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate”. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court’s decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. It is unclear how these decisions, subsequent appeals, if any, or other efforts to challenge, repeal or replace the Affordable Care Act will impact the law or our business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, included reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute will remain in effect through 2029 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Further, there has been heightened governmental scrutiny recently over pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies, rebates and price negotiation for pharmaceutical products, some of which are included in the Trump administration’s budget proposals for fiscal years 2019 and 2020, as well as recent bills introduced by the U.S. Senate and House of Representatives, respectively. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services has begun soliciting feedback on some of these measures and, at the same, is immediately implementing others under its existing authority. Although a number of these, and other potential measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product and medical device pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and medical devices to purchase and which suppliers will be included in their prescription drug and other healthcare programs.

Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a framework for certain patients with life-threatening diseases or conditions to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we or our collaborators may receive for any approved or cleared product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we or our collaborators are slow or unable to adapt to new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, any of our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

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Even if we obtain regulatory approval for any products that we develop alone or with collaborators, such products will remain subject to ongoing regulatory requirements, which may result in significant additional expense.

Even if products we develop alone or with collaborators receive regulatory approval, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, distribution, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information, among other things. Any regulatory approvals received for such products may also be subject to limitations on the approved indicated uses for which they may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing and surveillance studies. For example, the holder of an approved BLA in the United States is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. FDA guidance advises that patients treated with some types of gene therapy undergo follow-up observations for potential adverse events for as long as 15 years. Similarly, in the EU, pharmacovigilance obligations are applicable to all medicinal products. In addition to those, holders of a marketing authorization for gene or cell therapy products must detail, in their application, the measures they envisage to ensure follow-up of the efficacy and safety of these products. In cases of particular concern, marketing authorization holders for gene or cell therapy products in the EU may be required to design a risk management system with a view to identifying, preventing or minimizing risks and may be obliged to carry out post-marketing studies. In the United States, the holder of an approved BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Similar provisions apply in the EU. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. Similarly, in the EU any promotion of medicinal products is highly regulated and, depending on the specific jurisdiction involved, may require prior vetting by the competent national regulatory authority.

In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements and adherence to commitments made in the BLA or foreign marketing application. If we, our collaborators or a regulatory agency discovers previously unknown problems with a product such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling of that product, a regulatory agency may impose restrictions relative to that product, the manufacturing facility or us or our collaborators, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

Moreover, if any of our product candidates are approved, our product labeling, advertising, promotion and distribution will be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling.

If we or our collaborators fail to comply with applicable regulatory requirements following approval of any potential products we may develop, authorities may:

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Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our or our collaborators’ ability to commercialize products and our ability to generate revenues.

In addition, the FDA’s policies, and policies of foreign regulatory agencies, may change, and additional regulations may be enacted that could prevent, limit or delay regulatory approval of product candidates. For example, in December 2016, the 21st Century Cures Act, or the Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of biologics and spur innovation, but its ultimate implementation is unclear. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance and review and approval of marketing applications. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose restrictions on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements, or if we or our collaborators are unable to maintain regulatory compliance, marketing approval that has been obtained may be lost and we may not achieve or sustain profitability.

Even if any product we develop alone or with collaborators receives marketing approval, such product may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.

The commercial success of any potential therapeutic products we develop alone or with collaborators will depend upon their degree of market acceptance by physicians, patients, third-party payors and others in the medical community. Even if any potential therapeutic products we develop alone or with collaborators receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. The degree of market acceptance of any product we develop alone or with collaborators, if approved for commercial sale, will depend on a number of factors, including:

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If any products we develop alone or with collaborators do not achieve an adequate level of acceptance, we may not generate significant product revenues, and we may not become profitable.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any products we develop alone or with collaborators, the commercialization of such products may not be successful if and when they are approved.

We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of biopharmaceutical or other commercial products. To achieve commercial success for any approved products for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing and commercial support infrastructure to sell, or participate in sales activities with our collaborators for, certain product candidates if and when they are approved.

There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services. For example, restricted or closed distribution channels may make it difficult to distribute products to segments of the patient population, and the lack of complementary medicines to be offered by sales personnel may put us at a competitive disadvantage relative to companies with more extensive product lines.

Recruiting and training a sales force or reimbursement specialists are expensive and time consuming and could delay any product launch. If the commercial launch of a product for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses, and our investment would be lost if we cannot retain or reposition our commercialization personnel. Factors that may inhibit our efforts to commercialize products on our own include:

If we choose to enter into arrangements with third parties to perform sales, marketing, commercial support or distribution services, we may not be successful in entering into such arrangements or may be unable to do so on terms that are favorable to us. Entering into such third-party arrangements may subject us to a variety of risks, including:

If we do not establish effective commercialization capabilities, either on our own or in collaboration with third parties, we will not be successful in commercializing any of our product candidates that may receive approval.

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If the market opportunities for any products we develop alone or with collaborators are smaller than our estimates, or if we are unable to successfully identify enough patients, our revenues may be adversely affected.

We focus some of our research and product development on treatments for rare genetic diseases. Our and our collaborators’ projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with product candidates we may develop, are based on estimates. These estimates may prove to be incorrect, and new studies may change the estimated incidence or prevalence of these diseases. The number of patients in the United States, Europe and elsewhere may turn out to be lower than expected, and patients may not be amenable to treatment with products that we may develop alone or with collaborators, or may become increasingly difficult to identify or gain access to, any of which would decrease our ability to realize revenue from any such products for such diseases.

The successful commercialization of potential products will depend in part on the extent to which governmental authorities and health insurers establish coverage, and the adequacy of reimbursement levels and pricing policies, and failure to obtain or maintain coverage and adequate reimbursement for any potential products that may receive approval, could limit marketability of those products and decrease our ability to generate revenue.

The availability of coverage and adequacy of reimbursement by government healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors is essential for most patients to be able to afford prescription medications such as the potential therapeutic products we develop alone or with collaborators. The ability to achieve acceptable levels of coverage and reimbursement for any potential products that may be approved by governmental authorities will have an effect on our and our collaborators’ ability to successfully commercialize such products. Even if products we develop alone or with collaborators obtain coverage by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. If coverage and reimbursement in the United States, the EU or elsewhere is not available for any products we develop alone or with collaborators that may be approved, or any reimbursement that may become available is decreased or eliminated in the future, we and our collaborators may be unable to commercialize such products.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved drugs and biologics. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. In August 2019, the CMS published its decision to cover autologous treatment for cancer with T-cells expressing at least one CAR when administered at healthcare facilities enrolled in the FDA risk evaluation and mitigation strategies and used for an FDA-approved indication or for other uses when the product has been FDA-approved and the use is supported in one or more CMS-approved compendia. The Medicare and Medicaid programs increasingly are used as models in the United States for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. We cannot predict at this time what third-party payors will decide with respect to the coverage and reimbursement for any product that we develop alone or with collaborators.

No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us or our collaborators to provide scientific and clinical support for the use of any potential products that may be approved to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases on short notice. Obtaining coverage and adequate reimbursement for products we develop alone or with collaborators may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. In certain instances, payors may not separately reimbursement for the product itself, but only for the treatments or procedures in which such product is used. A decision by a third-party payor not to cover or separately reimburse for products that we develop alone or with collaborators or procedures using such products, could reduce physician utilization of any such products that may receive approval.

Third-party payors are increasingly challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs or biologics when an equivalent generic drug, biosimilar or a less expensive therapy is available. If approved, it is possible that a third-party payor may consider any products that we develop alone or with collaborators as substitutable and only offer to reimburse patients for the less expensive product. Pricing of existing third-party therapeutics may limit the amount we will be able to charge for any products that may receive approval even if we or our collaborators show improved efficacy or improved convenience of administration such products. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in the product. If reimbursement is not available or is available only at limited levels, we or our collaborators may not be able to successfully commercialize any of the products that we develop, even if approved, and we may not be able to obtain a satisfactory financial return on them. Moreover, increasing efforts by governmental and third-

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party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for any products we develop alone or with collaborators that may receive approval. We expect to experience pricing pressures in connection with the sale of any products that may receive approval due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and biologics and surgical procedures and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and elsewhere have and will continue to put pressure on the pricing and usage of any products we develop alone or with collaborators that may receive approval. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional international price controls or other changes in pricing regulation could restrict the amount that we or our collaborators are able to charge for products that we develop that may receive approval. Accordingly, in markets outside the United States, the reimbursement for such products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

If we are successful in achieving regulatory approval to commercialize any biologic product candidate we develop alone or with collaborators, it may face competition from biosimilar products. In the United States, our product candidates are regulated by the FDA as biologic products subject to approval under the BLA pathway. The Biologics Price Competition and Innovation Act of 2009, or the BPCIA, created an abbreviated pathway for the approval of biosimilar and interchangeable biologic products following the approval of an original BLA. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product may not be submitted until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years after the reference product was first licensed by the FDA. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for biological product candidates.

We believe that any of our product candidates that are approved as biological products under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider such product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar product, once approved, will be substituted for any one of our or our collaborators’ reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. If competitors are able to obtain marketing approval for biosimilars referencing any products that we develop alone or with collaborators that may be approved, such products may become subject to competition from such biosimilars, with the attendant competitive pressure and potential adverse consequences.

Additional Risks Related to the Identification, Development and Commercialization of Our Food and Agricultural Product Candidates

The regulatory landscape that may govern any potential food or agricultural products that we or our collaborators may develop is uncertain and may adversely impact the development and commercialization activities of our food platform.

In the United States, the United States Department of Agriculture, or the USDA, regulates, among other things, the introduction (including the importation, interstate movement or release into the environment) of organisms and products altered or produced through genetic engineering determined to be plant pests or for which there is reason to believe are plant pests. Such organisms and products are considered “regulated articles.” However, a petitioner may submit a request for a determination by the USDA of “nonregulated status” for a particular article. A petition for determination of nonregulated status must include detailed information, including relevant experimental data and publications, field trial reports and a description of the genotypic differences between the regulated article and the nonmodified recipient organism, among other things. Neither we nor, to our knowledge, our collaborators

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have obtained a determination from the USDA that any product candidates are not “regulated articles” under these regulations. We cannot predict whether the USDA, advocacy groups or other third parties will contend that these products are regulated articles. The USDA’s regulations also require that companies obtain a permit or file a notification before engaging in the introduction (including the importation, interstate movement or release into the environment such as in field trials) of “regulated articles.” Additionally, a change in the way the USDA interprets its regulations, or a change in its regulations, could subject our or our collaborators’ products to more burdensome regulations, thereby substantially increasing the time and costs associated with developing product candidates. Complying with the USDA’s Part 340 regulations, including permitting requirements, is a costly, time-consuming process and could delay or prevent the commercialization of any potential food or agricultural products we or our collaborators may develop.

Any potential food or agricultural products that we or our collaborators develop may also be subject to extensive FDA food product regulations. Under sections 201(s) and 409 of the Federal Food, Drug, and Cosmetic Act, or the FDCA, any substance that becomes or is reasonably expected to become a component of food is a food additive and is therefore subject to FDA premarket review and approval, unless the substance is generally recognized, among qualified experts, as having been adequately shown to be safe under the conditions of its intended use (generally recognized as safe, or GRAS), or unless the use of the substance is otherwise excluded from the definition of a food additive, and any food that contains an unsafe food additive is considered adulterated under section 402(a)(2)(C) of the FDCA. The FDA may classify some or all of the potential food or agricultural products that we or our collaborators may develop as containing a food additive that is not GRAS or otherwise determine that such products contain significant compositional differences from existing plant products that require further review. Such classification would cause these potential products to require pre-market approval, which could delay the commercialization of these products. In addition, the FDA is currently evaluating its approach to the regulation of gene-edited plants. For example, on January 19, 2017, the FDA issued a notice in the Federal Register requesting public comment on the use of genome editing techniques to produce new plant varieties that are used for human or animal food or foods that are derived from such new plant varieties produced using genome editing. Among other things, the notice asked for data and information in response to questions about the safety of foods from gene-edited plants, such as whether categories of gene-edited plants present food safety risks different from other plants produced through traditional plant breeding. If the FDA enacts new regulations or policies with respect to gene-edited plants, such policies could result in additional compliance costs and delay or even prevent the commercialization of any of our product candidates, which could negatively affect our profitability. Any delay in the regulatory consultation process, or a determination that any potential products we or our collaborators may develop do not meet regulatory requirements by the FDA or other regulators, could cause a delay in, or prevent, the commercialization of our products, which may lead to reduced acceptance by the public and an increase in competitor products that may directly compete with ours, or could otherwise negatively impact our business, prospects and results of operations.

On May 4, 2018, the USDA issued a proposed rule implementing the National Bioengineered Food Disclosure Standard, with a proposed compliance date of January 1, 2020. Under this proposed rule, the label of a bioengineered, or BE, food must include a disclosure that the food is a BE food or contains a BE ingredient, with certain exceptions. This proposed rule defines BE food as “a food that contains genetic material that was has been modified through in vitro recombinant deoxyribonucleic acid, or DNA, techniques and for which the modification could not otherwise be obtained through conventional breeding or found in nature,” except in the case of an incidental additive present in food at an insignificant level and that does not have any technical or functional effect in the food. If this proposed rule is passed and products developed by our collaborators based on our ARCUS technology are required to be labeled “BE,” consumer perception of these products may be adversely affected.

In the EU, genetically modified foods, or GM foods, can only be authorized for sale on the market once they have been subject to rigorous safety assessments. The procedures for evaluation and authorization of GM foods are governed by Regulation (EC) 1829/2003 on GM food and feed and Directive 2001/18/EC on the release of genetically modified organisms, or GMOs, into the environment. If the GMO is not to be used in food or feed, then an application must be made under Directive 2001/18/EC. If the GMO is to be used in food or feed (but it is not grown in the EU) then a single application for both food and feed purposes under Regulation 1829/2003 should be made. If the GMO is used in feed or food and it is also grown in the EU, an application for both cultivation and food/feed purposes needs to be carried out under Regulation (EC) 1829/2003. A different EU regulation, Regulation (EC) 1830/2003, regulates the labeling of products that contain GMOs that are placed on the EU market. Directive 2001/18/EC was amended by Directive (EU) 2015/412 which gives EU Member States more flexibility to allow, restrict or prohibit growing GMOs in their territory, on a range of environmental grounds, even if such crops were previously authorized at EU level. Under Directive 2015/412, EU Member State restrictions or prohibitions can only cover cultivation, and not the free circulation and import of genetically modified seeds and plant propagation material, and should be in conformity with the internal market rules of the EU Treaties. In March 2018, the Commission adopted Commission Directive (EU) 2018/350 amending Directive 2001/18/EC as regards the environmental risk assessment of GMOs. This measure aims to bring the assessment of the environmental risk of GM foods in the EU up to date with developments in scientific knowledge and technical progress. Member States have to transpose the Directive by September 29, 2019. Further EU level legislation on GM foods includes Directive 2009/41/EC on contained use of genetically modified micro-organisms and Regulation (EC) 1946/2003 on transboundary movements of GMOs.

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We cannot predict whether or when any governmental authority will change its regulations with respect to any potential food or agricultural products that we develop alone or with collaborators. Advocacy groups have engaged in publicity campaigns and filed lawsuits in various countries against companies and regulatory authorities seeking to halt biotechnology approval activities or influence public opinion against genetically engineered products. In addition, governmental reaction to negative publicity concerning genetically edited agricultural products could result in greater regulation of genetic research and derivative products or regulatory costs that render our or our collaborators’ development of potential food or agricultural products cost prohibitive. Our collaborators may use or integrate our products or technology into other products in ways that could subject those collaborators or products to additional regulation.

The overall agricultural industry is susceptible to agricultural price changes, and we may be exposed to risks from changes in commodity prices.

Changes in the prices of agricultural products could result in changes in demand for and prices of food and agricultural products that we or our collaborators may develop. We may be susceptible to these changes as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, product recalls and government regulations, subsidies or market export tariffs. If demand for agricultural products that we or our collaborators may develop is negatively impacted, our potential revenues under collaboration agreements for such products may decline, which could adversely affect our results of operations.

The successful commercialization of any food or agricultural products we develop will depend in part on our collaborators’ ability to produce high-quality plants and seeds cost-effectively on a large scale and to accurately forecast demand for such potential products, and they may be unable to do so.

The production of commercial-scale quantities of food or agricultural products or seeds for them requires the multiplication of the plants or seeds through a succession of plantings and seed harvests. The cost-effective production of high-quality, high-volume quantities of such products or seeds may depend in part on our collaborators’ abilities to scale production processes to produce plants and seeds in sufficient quantity to meet demand. Our collaborators’ existing or future plant and seed production techniques may not enable timely meeting of large-scale production goals cost-effectively for any potential food or agricultural products that we and our collaborators may develop. Although we have worked with some of the largest plant biotechnology companies to edit gene targets and develop potential product candidates in a variety of crop plants, no commercial food or agricultural products have ever been developed using our technology.

In addition, because of the length of time it takes to produce commercial quantities of marketable plants and seeds, our collaborators will need to make seed production decisions well in advance of food product sales. The ability to accurately forecast demand can be adversely affected by a number of factors outside of their control, including changes in market conditions, environmental factors, such as pests and diseases, and adverse weather conditions.

The commercial success of any consumer-centric food or agricultural products that we or our collaborators may develop is reliant on the needs of food manufacturers and the recognition of shifting consumer preferences.

The commercial success of any consumer-centric products depends in part on the ability of the food manufacturer to accurately determine the shifting needs and desires of the ultimate consumer. We will not control the marketing, distribution labeling or any other aspects of the sale and commercialization of the manufacturers’ food products. Consumer preferences may be a significant driver in the success of food manufacturers in their efforts to sell food and agricultural products, including products that we or our collaborators may develop. While current trends indicate that consumer preferences may be moving towards “healthier” options, we cannot predict whether such trends will continue or which types of food products will be demanded by consumers in the future. Additionally, as health and nutritional science continues to progress, consumer perception of what foods, nutrients and ingredients are considered “healthy” may shift. We and our collaborators may not be dynamic enough in responding to consumer trends and creating products that will be demanded by consumers in the future. In addition, if consumer demand is lower than our estimates or those of our collaborators, our ability to realize revenues from potential food or agricultural products may be limited. Failure by our collaborators to successfully recognize consumer trends could lower demand for potential food or agricultural products that we or our collaborators may develop, which could harm our business, results of operations and financial condition.

Some of the potential food products we develop alone or with collaborators may be distributed into markets or countries in which they have not received regulatory approval, which may result regulatory challenges or lawsuits.

The scale of the agricultural industry may make it difficult to monitor and control the distribution of any potential food products that we develop alone or with collaborators. As a result, such products may be sold inadvertently within jurisdictions where they are not approved for distribution. Such sales may lead to regulatory challenges or lawsuits against us, which could result in significant expenses and divert our management’s attention, which could harm our business, results of operations and financial condition.

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Risks Related to Our Reliance on Third Parties

We have entered into significant arrangements with collaborators and expect to depend on collaborations with third parties for certain research, development and commercialization activities, and if any such collaborations are not successful, it may harm our business and prospects.

We have sought in the past, and anticipate that we will continue to seek in the future, third-party collaborators for the research, development and commercialization of certain product candidates and the research and development of certain technologies. For example, we are party to the Servier Agreement, pursuant to which we are focused on research and development of allogeneic CAR T cell therapies for up to six oncology targets that utilize or incorporate our genome editing technologies, and we are also party to a collaboration with Gilead focused on research and development of therapeutic product candidates for the treatment of Hepatitis B using ARCUS nucleases. In addition, our food platform is based on a consumer-centric model, whereby our research and development activities and potential revenues are based on the needs and commercial success of our collaborators. For example, we are a party to a commercial license agreement with Cargill focused on targeting and modifying certain genes related to saturated oil production in canola plants. Our likely collaborators for other product research and development arrangements include large and mid-size pharmaceutical and biotechnology companies biotechnology and food, beverage, nutrition and agricultural biotechnology companies, and our likely collaborators for other technology research and development arrangements include universities and other research institutions.

Working with collaborators poses several significant risks. We have limited control over the amount and timing of resources that our collaborators dedicate to the product candidates or technologies we may seek to develop with them. A variety of factors may impact resource allocation decisions of collaborators, such as study or trial results, changes in the collaborator’s strategic focus, turnover in personnel responsible for the development activities, financial capacity or external factors such as a business combination or change in control that diverts resources or creates competing priorities. Collaboration agreements may not lead to development or commercialization of product candidates or the development of technologies in the most efficient manner or at all. Resource allocation and other developmental decisions made by our collaborators may result in the delay or termination of research programs, studies or trials, repetition of or initiation of new studies or trials or provision of insufficient funding or resources for the completion of studies or trials or the successful marketing and distribution of any product candidates that may receive approval. Collaborators could independently develop, or develop with third parties, product candidates or technologies that compete directly or indirectly with our product candidates or technologies if the collaborators believe that competitive products or technologies are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours. Collaborators may not properly obtain, maintain, enforce or defend our intellectual property or proprietary rights or may use our proprietary information in such a way that could jeopardize or invalidate our proprietary information or expose us to potential litigation. Disputes may arise between us and our collaborators that result in the delay or termination of the research, development or commercialization activities or that result in costly litigation or arbitration that diverts management attention and resources.

Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. If our collaborations do not result in the successful development and commercialization of product candidates or technologies, or if one of our collaborators terminates its agreement with us, we may not receive any future funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of product candidates or technologies could be delayed, and we may need additional resources to develop such product candidates or technologies. In addition, if one of our collaborators terminates its agreement with us, we may be unable to find a suitable replacement collaborator or any replacement collaborator or attract new collaborators and may need to raise additional capital to pursue further development or commercialization of the applicable product candidates or technologies. These events could delay development programs, negatively impact the perception of our company in business and financial communities or cause us to have to cease development of the product candidate covered by the collaboration arrangement. Failure to develop or maintain relationships with any current collaborators could result in the loss of opportunity to work with that collaborator or reputational damage that could impact our relationships with other collaborators in the relatively small industry communities in which we operate. Moreover, all of the risks relating to product development, regulatory approval and commercialization described in this Annual Report on Form 10-K apply to the activities of our collaborators. If our existing collaboration agreements or any collaborative or strategic relationships we may establish in the future are not effective and successful, it may damage our reputation and business prospects, delay or prevent the development and commercialization of product candidates and inhibit or preclude our ability to realize any revenues.

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If we are not able to establish collaborations on commercially reasonable terms, we may have to alter our research, development and commercialization plans.

Our research and product development programs and the potential commercialization of any product candidates we develop alone or with collaborators will require substantial additional cash to fund expenses, and we expect that we will continue to seek collaborative arrangements with others in connection with the development and potential commercialization of current and future product candidates or the development of ancillary technologies. We face significant competition in establishing relationships with appropriate collaborators. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include, among other things and as applicable for the type of potential product or technology, an assessment of the opportunities and risks of our technology, the design or results of studies or trials, the likelihood of approval, if necessary, by the USDA, the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products and technologies and industry and market conditions generally.

Current or future collaborators may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us. Additionally, we may be restricted under existing collaboration agreements from entering into future agreements on certain terms or for certain development activities with potential collaborators. For example, we have granted exclusive rights or options to Servier and Gilead for certain targets, and during the terms of our respective collaboration agreements with them we will be restricted from granting rights to other parties to use our ARCUS technology to pursue potential products that address those targets. Similarly, our collaboration agreements have in the past and may in the future contain non-competition provisions that could limit our ability to enter into strategic collaborations with future collaborators.

Collaborations are complex and time-consuming to negotiate and document. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we do enter into additional collaboration agreements, the negotiated terms may force us to relinquish rights that diminish our potential profitability from development and commercialization of the subject product candidates or others. If we are unable to enter into additional collaboration agreements, we may have to curtail the research and development of the product candidate or technology for which we are seeking to collaborate, reduce or delay research and development programs, delay potential commercialization timelines, reduce the scope of any sales or marketing activities or undertake research, development or commercialization activities at our own expense. If we elect to increase our expenditures to fund research, development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all.

We expect to rely on third parties to conduct, supervise and monitor our clinical trials and some aspects of our research and preclinical testing, and if those third parties do not successfully carry out their contractual duties, comply with regulatory requirements, or otherwise perform in a satisfactory manner, we may not be able to obtain regulatory approval or commercialize product candidates, or such approval or commercialization may be delayed, and our business may be substantially harmed.

We may rely on medical institutions, universities, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct preclinical studies and future clinical trials for our product candidates. Nevertheless, we will be responsible for ensuring that each of our studies and trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on such third parties will not relieve us of our regulatory responsibilities.

Although we intend to design the trials for our product candidates either alone or with collaborators, third parties may conduct all of the trials. As a result, many important aspects of our research and development programs, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to conduct future studies and trials will also result in less direct control over the management of data developed through studies and trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes and difficulties in coordinating activities. Outside parties may have staffing difficulties, fail to comply with contractual obligations, experience regulatory compliance issues, undergo changes in priorities, become financially distressed or form relationships with other entities, some of which may be our competitors. We also face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs or other third parties, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology. For any violations of laws and regulations during the conduct of our preclinical studies and future clinical trials, we could be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.

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For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with regulations, commonly referred to as Good Clinical Practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. If we, our collaborators, our CROs or other third parties fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We also are required to register certain ongoing clinical trials and post the results of such completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

If our CROs or other third parties do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reasons, trials for product candidates may be extended, delayed or terminated, and we or our collaborators may not be able to obtain regulatory approval for, or successfully commercialize, any product candidate that we develop. If we are required to repeat, extend the duration of or increase the size of any trials we conduct, it could significantly delay commercialization and require significantly greater expenditures. As a result of any of these factors, our financial results and the commercial prospects for any product candidate that we or our collaborators may develop would be harmed, our costs could increase and our ability to generate revenues could be delayed.

We expect to rely on third parties to supply raw materials or manufacture product supplies that are necessary for the conduct of preclinical studies, clinical trials and manufacturing of our product candidates, and failure by third parties to provide us with sufficient quantities of products, or to do so at acceptable quality levels or prices and on a timely basis, could harm our business.

We are dependent on third parties for the supply of various biological materials, such as cells, cytokines and antibodies, and the manufacture of product supplies, such as media, plasmids, mRNA and AAV viral vectors, that are necessary to produce our product candidates. The supply of these materials could be reduced or interrupted at any time. In such case, identifying and engaging an alternative supplier or manufacturer could result in delay, and we may not be able to find other acceptable suppliers or manufacturers on acceptable terms, or at all. Switching suppliers or manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines. If we change suppliers or manufacturers for commercial production, applicable regulatory agencies may require us to conduct additional studies or trials. If key suppliers or manufacturers are lost, or if the supply of the materials is diminished or discontinued, we or our collaborators may not be able to develop, manufacture and market product candidates in a timely and competitive manner, or at all. If any of our product candidates receives approval, we will likely need to seek alternative sources of supply of raw materials or manufactured product supplies and there can be no assurance that we will be able to establish such relationships to provide such supplies on commercially reasonable terms or at acceptable quality levels, if at all. If we are unable to identify and procure additional sources of supply that fit our required needs, we could face substantial delays or incur additional costs in procuring such materials. In addition, manufactured product supplies are subject to stringent manufacturing processes and rigorous testing. Delays in the completion and validation of facilities and manufacturing processes of these materials could adversely affect the ability to complete studies or trials and commercialize any product candidates that may receive approval. Furthermore, if our suppliers or manufacturers encounter challenges relating to employee turnover, the supply and manufacturing of our materials could be delayed or adversely affected as such parties seek to hire and train new employees. These factors could cause the delay of studies or trials, regulatory submissions, required approvals or commercialization of product candidates that we or our collaborators may develop, cause us to incur higher costs and prevent us from commercializing products successfully. Furthermore, if our suppliers or manufacturers fail to meet contractual requirements, and we are unable to secure one or more replacements capable of production at a substantially equivalent cost, our or our collaborators’ studies or trials may be delayed and we could lose potential revenue.

We may rely on third parties for at least a portion of the manufacturing process of product candidates, and failure by those parties to adequately perform their obligations could harm our business.

While we expect to use our MCAT facility for certain of our clinical-scale manufacturing and processing needs, we may continue to rely on outside vendors for at least a portion of the manufacturing process of product candidates that we or our collaborators may develop. The facilities used by our contract manufacturers to manufacture product candidates must be approved by the FDA or other foreign regulatory agencies pursuant to inspections that will be conducted after we submit an application to the FDA or other foreign regulatory agencies. To the extent that we or our collaborators engage third parties for manufacturing services, we will not control the manufacturing process of, and will be completely dependent on, our contract manufacturing providers for compliance with cGMP requirements for manufacture of the product candidates. We have not yet caused any product candidates to be manufactured or processed on a commercial scale and may not be able to do so. We will make changes as we work to optimize the manufacturing process, and we cannot be sure that even minor changes in the process will result in products that are safe and effective. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market any of our or our collaborators’ potential products.

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Risks Related to Intellectual Property

Our ability to compete may decline if we do not adequately protect our proprietary rights, and if our proprietary rights do not provide a competitive advantage.

Our commercial success depends upon obtaining and maintaining proprietary rights to our intellectual property estate, including rights relating to ARCUS and to our product candidates, as well as successfully defending these rights against third-party challenges and successfully enforcing these rights to prevent third-party infringement. We will only be able to protect ARCUS and product candidates from unauthorized use by third parties to the extent that valid and enforceable patents cover them. Our ability to obtain and maintain patent protection for ARCUS and our product candidates is uncertain due to a number of factors, including that:

 

Even if we have or obtain patents covering ARCUS or any product candidates or compositions, we and our collaborators may still be barred from making, using and selling such product candidates or technologies because of the patent rights of others. Others may have filed, and in the future may file, patent applications covering compositions, products or methods that are similar or identical to ours, which could materially affect our ability to successfully develop any product candidates or to successfully commercialize any approved products alone or with collaborators. In addition, because patent applications can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that we or our collaborators may infringe. These patent applications may have priority over patent applications filed by us.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. For example, in August 2019, the Patent Trial and Appeal Board, or the PTAB, of the United States Patent and Trademark Office, or the USPTO, initiated two patent interferences, administrative proceedings within the USPTO, involving a family of patents that have been issued to us and a pending patent application filed by a third party. An interference is conducted by the PTAB when opposing parties have applied for patent claims to the same invention or substantially the

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same invention. The interference is conducted to determine which party, if either, is entitled to claims to the subject matter of the interference. An adverse outcome in such proceedings could affect our competitive position, including, without limitation, loss of some or all of our involved patent claims, limiting our ability to stop others from using or commercializing similar or identical technology and products, which could harm our business, financial condition and results of operations. Protecting our patent rights in connection with such proceeding may also be expensive and may involve the diversion of significant management time.

Furthermore, we cannot guarantee that any patents will be issued from any pending or future owned or licensed patent applications. Thus, even if our patent applications issue as patents, they may not issue in a form that will provide us with meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. In addition, third parties may be able to develop products that are similar to, or better than, ours in a way that is not covered by the claims of our patents, or may have blocking patents that could prevent us from marketing our products or practicing our own patented technology. Moreover, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for current or future product candidates, we may be open to competition from generic versions of such potential products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to those we or our collaborators may develop.

Obtaining and maintaining a patent portfolio entails significant expense, including periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and patent applications. These expenditures can be at numerous stages of prosecuting patent applications and over the lifetime of maintaining and enforcing issued patents. We may or may not choose to pursue or maintain protection for particular intellectual property in our portfolio. If we choose to forgo patent protection or to allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer. There are situations, however, in which failure to make certain payments or noncompliance with certain requirements in the patent process can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

Legal action that may be required to enforce our patent rights can be expensive and may involve the diversion of significant management time. There can be no assurance that we will have sufficient financial or other resources to file and pursue infringement claims, which typically last for years before they are concluded. In addition, these legal actions could be unsuccessful and result in the invalidation of our patents, a finding that they are unenforceable or a requirement that we enter into a licensing agreement with or pay monies to a third party for use of technology covered by our patents. We may or may not choose to pursue litigation or other actions against those that have infringed on our patents, or have used them without authorization, due to the associated expense and time commitment of monitoring these activities. If we fail to successfully protect or enforce our intellectual property rights, our competitive position could suffer, which could harm our results of operations.

Many biotechnology companies and academic institutions are currently pursuing a variety of different nuclease systems for genome engineering, such a TAL endonucleases, zinc-finger nucleases, and CRISPR/Cas9 nucleases, and the use of those nucleases in cancer immunotherapy, gene therapy and genome editing. Although those nucleases are physically and chemically different from our ARCUS nucleases, those companies and institutions may seek patents that broadly cover aspects of cancer immunotherapy, gene therapy and genome editing using nucleases generally. Such patents, if issued, valid and enforceable, could prevent us from marketing our product candidates, if approved, practicing our own patented technology, or might require us to take a license which might not be available on commercially reasonable terms or at all. While we expect that we will continue to be able to patent our ARCUS nucleases for the foreseeable future, as the scientific and patent literature relating to engineered endonucleases increases, including our own patents and publications, it may become more difficult or impossible to patent new engineered endonucleases in the future.

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We are a party to a number of intellectual property license agreements that are important to our business and expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. We may need to outsource and rely on third parties for many aspects of the development, sales and marketing of any products covered under our current and future license agreements. Delay or failure by these third parties could adversely affect the continuation of our license agreements with our licensors. If we fail to comply with any of our obligations under these agreements, or we are subject to a bankruptcy, our licensors may have the right to terminate the license, in which event we would not be able to market any products covered by the license.

In addition, disputes may arise regarding the payment of the royalties due to licensors in connection with our exploitation of the rights we license from them. Licensors may contest the basis of royalties we retained and claim that we are obligated to make payments under a broader basis. In addition to the costs of any litigation we may face as a result, any legal action against us could increase our payment obligations under the respective agreement and require us to pay interest and potentially damages to such licensors.

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In some cases, patent prosecution of our licensed technology is controlled solely by the licensor. If such licensor fails to obtain and maintain patent or other protection for the proprietary intellectual property we license from such licensor, we could lose our rights to such intellectual property or the exclusivity of such rights, and our competitors could market competing products using such intellectual property. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we or our collaborators may be unable to develop or commercialize the affected product candidates, which could harm our business significantly. In other cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners.

For example, our license agreement with Duke University, or Duke, which we refer to as the Duke License, imposes various payment, royalty and other obligations on us in order to maintain the license. If we fail to make royalty payments or milestone payments required under the Duke License, Duke may terminate the agreement. If we or our affiliates obtain a license from a third party to practice the Duke technology, we must use commercially reasonable efforts to secure a covenant not to sue Duke, or any of its faculty, students, employees or agents, for any research and development efforts conducted at Duke that resulted in the creation of any of its inventions or intellectual property rights arising therefrom. Additionally, because development of the Duke technology was funded in part by the U.S. government, it is subject to certain government rights and obligations, including the requirement that any products sold in the United States based upon such technology be substantially manufactured in the United States.

In addition, our cross-license agreement with Cellectis, or the Cellectis License, imposes various obligations on us in order to maintain the license. In particular, if we participate in or provide assistance to a third party challenging the validity, enforceability and/or patentability of any claim of any patent licensed to us by Cellectis under this agreement, Cellectis may terminate the agreement. The Cellectis License does not provide exclusive rights to use the licensed intellectual property and technology or rights in all relevant fields in which we may wish to develop or commercialize our technology and products in the future. As a result, we are not able to prevent competitors from developing and commercializing competitive products and technology that may use this technology. Additionally, we do not have the right to control the preparation, filing, prosecution, maintenance, enforcement and defense of patents and patent applications covering the technology that we license from Cellectis. Therefore, we cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained and defended in a manner consistent with the best interests of our business. If Cellectis or other licensors fail to prosecute, maintain, enforce and defend the patents subject to such licenses, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize any of our products that are the subject of such licensed rights could be adversely affected.

If we fail to comply with our obligations under the Duke License or the Cellectis License, or arrangements with any other licensors, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product candidate that is covered by these agreements, which could materially adversely affect the value of any such product candidate. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.

Disputes may arise regarding intellectual property subject to a license agreement, including:

Such disputes may be costly to resolve and may divert management’s attention away from day-to-day activities. If disputes over intellectual property that we have licensed from third parties prevent or impair our ability to maintain our licensing arrangements on acceptable terms, we or our collaborators may be unable to successfully develop and commercialize the affected product candidates.

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Some of our in-licensed intellectual property has been discovered through government funded research and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights and our ability to contract with non-U.S. manufacturers.

Certain intellectual property rights that have been in-licensed pursuant to the Duke License have been generated through the use of U.S. government funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future product candidates pursuant to the Bayh-Dole Act of 1980, or the Patent and Trademark Law Amendment. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to require the licensor to grant exclusive, partially exclusive or non-exclusive licenses to any of these inventions to a third party if it determines that (1) adequate steps have not been taken to commercialize the invention, (2) government action is necessary to meet public health or safety needs or (3) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if the licensor fails to disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the U.S. government requires that any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in the United States, and the Duke License requires that we comply with this requirement. This preference for U.S. industry may be waived by the federal agency that provided the funding if the owner or assignee of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture the products substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. industry may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our owned or licensed future intellectual property is also generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

If we do not obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation with respect to our product candidates, thereby potentially extending the term of marketing exclusivity for such product candidates, our business may be harmed.

In the United States, a patent that covers an FDA-approved drug or biologic may be eligible for a term extension designed to restore the period of the patent term that is lost during the premarket regulatory review process conducted by the FDA. Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. In the European Union, our product candidates may be eligible for term extensions based on similar legislation. In either jurisdiction, however, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Even if we are granted such extension, the duration of such extension may be less than our request. If we are unable to obtain a patent term extension, or if the term of any such extension is less than our request, the period during which we can enforce our patent rights for that product will be in effect shortened and our competitors may obtain approval to market competing products sooner. The resulting reduction of years of revenue from applicable products could be substantial.

Patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our patent position.

The patent positions of biopharmaceutical and biotechnology companies and other actors in our fields of business can be highly uncertain and typically involve complex scientific, legal and factual analyses. In particular, the interpretation and breadth of claims allowed in some patents covering biopharmaceutical compositions may be uncertain and difficult to determine, and are often affected materially by the facts and circumstances that pertain to the patented compositions and the related patent claims. The standards of the USPTO and its foreign counterparts are sometimes uncertain and could change in the future. Consequently, the issuance and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications may also be subject to interference or derivation proceedings, and U.S. patents may be subject to reexamination proceedings, post-grant review and/or inter partes review in the USPTO. International patents may also be subject to opposition or comparable proceedings in the corresponding international patent office, which could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, derivation, reexamination, post-grant review, inter partes review and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with sufficient protection against competitive products or processes.

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Furthermore, even if not challenged, our patents and patent applications may not adequately protect our technology and any product candidates or products that we develop alone or with collaborators or prevent others from designing their products to avoid being covered by our claims. If the breadth or strength of protection provided by the patent applications we hold with respect to product candidates or potential products is threatened, it could dissuade companies from collaborating with us to develop, and could threaten our or their ability to successfully commercialize, such product candidates. Furthermore, for U.S. applications in which any claim is entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third party or instituted by the USPTO in order to determine who was the first to invent any of the subject matter covered by such patent claims.

In addition, changes in, or different interpretations of, patent laws in the United States and other countries may permit others to use our discoveries or to develop and commercialize our technology and product candidates or products without providing any compensation to us, or may limit the scope of patent protection that we are able to obtain. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws, and those countries may lack adequate rules and procedures for defending our intellectual property rights.

If the patent applications we hold or have in-licensed with respect to our current and future research and development programs and product candidates fail to issue, if their validity, breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our technology or any products and product candidates that we or our collaborators may develop, it could dissuade companies from collaborating with us to develop product candidates, encourage competitors to develop competing products or technologies and threaten our or our collaborators’ ability to commercialize future product candidates. Any such outcome could have a material adverse effect on our business.

Third parties may assert claims against us alleging infringement of their patents and proprietary rights, or we may need to become involved in lawsuits to defend or enforce our patents, either of which could result in substantial costs or loss of productivity, delay or prevent the development and commercialization of product candidates, prohibit our use of proprietary technology or sale of potential products or put our patents and other proprietary rights at risk.

Our commercial success depends in part upon our ability to develop, manufacture, market and sell product candidates without alleged or actual infringement, misappropriation or other violation of the patents and proprietary rights of third parties. Litigation relating to infringement or misappropriation of patent and other intellectual property rights in the pharmaceutical, biotechnology and agricultural biotechnology industries is common, including patent infringement lawsuits, interferences, oppositions and reexamination proceedings before the USPTO and corresponding international patent offices. The various markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. In addition, many companies in intellectual property-dependent industries, including the biotechnology, agricultural biotechnology and pharmaceutical industries, have employed intellectual property litigation as a means to gain an advantage over their competitors. Numerous United States, EU and other internationally issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing product candidates, and as the biotechnology, agricultural biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the intellectual property rights of third parties. For example, we are aware of certain patents held by third parties relating to the modification of T cells, including the production of CAR T cells. Although conducting clinical trials and other development activities with respect to our CAR T product candidates is not considered an act of infringement in the United States, if and when any of our CAR T product candidates may be approved by the FDA, those third parties may seek to enforce their patents by filing a patent infringement lawsuit against us. As a result of any patent infringement claims, or in order to avoid any potential infringement claims, we may choose to seek, or be required to seek, a license from the third party, which may require payment of substantial royalties or fees, or require us to grant a cross-license under our intellectual property rights, similar to the cross license we granted Cellectis as part of our patent litigation settlement. These licenses may not be available on reasonable terms or at all. Even if a license can be obtained on reasonable terms, the rights may be nonexclusive, which would give our competitors access to the same intellectual property rights. If we are unable to enter into a license on acceptable terms, we or our collaborators could be prevented from commercializing one or more product candidates, or forced to modify such product candidates, or to cease some aspect of our business operations, which could harm our business significantly. We or our collaborators might also be forced to redesign or modify our technology or product candidates so that we no longer infringe the third-party intellectual property rights, which may result in significant cost or delay to us, or which redesign or modification could be impossible or technically infeasible. Even if we were ultimately to prevail, any of these events could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.

Further, if a patent infringement suit is brought against us, our collaborators or our third-party service providers, our development, manufacturing or sales activities relating to the product or product candidate that is the subject of the suit may be delayed or terminated. In addition, defending such claims has in the past and may in the future cause us to incur substantial expenses and, if successful, could cause us to pay substantial damages if we are found to be infringing a third party’s patent rights. These damages potentially include increased damages and attorneys’ fees if we are found to have infringed such rights willfully. Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. In addition, if the breadth or strength of protection provided by the patents and patent applications we own or in-license is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

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We have been and may in the future be subject to third-party claims and similar adversarial proceedings or litigation in other jurisdictions regarding our infringement of the patent rights of third parties. Even if such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and the holders of any such patents may be able to block our or our collaborators’ ability to further develop or commercialize the applicable product candidate unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our technologies, compositions, formulations, or methods of treatment, prevention or use, the holders of any such patents may be able to prohibit our use of those technologies, compositions, formulations, methods of treatment, prevention or use or other technologies, effectively blocking our or our collaborators’ ability to develop and commercialize the applicable product candidate until such patent expires or is finally determined to be invalid or unenforceable or unless we or our collaborators obtain a license.

Some of our competitors may be able to sustain the costs of complex intellectual property litigation more effectively than we can because they have substantially greater resources. In addition, intellectual property litigation, regardless of its outcome, may cause negative publicity, adversely impact prospective customers, cause product shipment delays or prohibit us from manufacturing, marketing or otherwise commercializing our products, services and technology. Any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operation, financial condition or cash flows.

If we or one of our licensors were to initiate legal proceedings against a third party to enforce a patent covering our technology or a product candidate, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States and Europe, defendant counterclaims alleging invalidity or unenforceability are common. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Third parties might allege unenforceability of our patents because during prosecution of the patent an individual connected with such prosecution withheld relevant information, or made a misleading statement. The outcome of proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity of patents, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution, but that an adverse third party may identify and submit in support of such assertions of invalidity. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our technology or product candidates. Our patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without infringing our patents or other intellectual property rights. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors view these announcements in a negative light, the price of our common stock could be adversely affected. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings.

Developments in patent law could have a negative impact on our business.

From time to time, the United States Supreme Court, or the Supreme Court, other federal courts, the United States Congress, or Congress, the USPTO and similar international authorities may change the standards of patentability, and any such changes could have a negative impact on our business. For example, the America Invents Act, or the AIA, which was passed in September 2011, resulted in significant changes to the U.S. patent system. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned from a “first-to-invent” to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we made the invention before it was made by the third party. Circumstances could prevent us from promptly filing patent applications on our inventions.

The AIA limited where a patentee may file a patent infringement suit and provided opportunities for third parties to challenge any issued patent in the USPTO. Those provisions apply to all of our U.S. patents, regardless of when issued. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. These provisions could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents.

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Additionally, the Supreme Court has ruled on several patent cases in recent years either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations, and there are other open questions under patent law that courts have yet to decisively address. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of our patents and patent applications. Depending on decisions by Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways and could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. In addition, the European patent system is relatively stringent in the type of amendments that are allowed during prosecution, but the complexity and uncertainty of European patent laws has also increased in recent years. Complying with these laws and regulations could limit our ability to obtain new patents in the future that may be important for our business.

If we were unable to protect the confidentiality of our trade secrets and enforce our intellectual property assignment agreements, our business and competitive position would be harmed.

In addition to patent protection, because we operate in the highly technical field of development of product candidates and products using genome editing, we rely significantly on trade secret protection in order to protect our proprietary technology and processes. Trade secrets are difficult to protect. Our policy is to enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. These agreements also generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops intellectual property that we regard as our own. Our assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. In addition, these agreements may be held unenforceable and may not effectively assign intellectual property rights to us. If our trade secrets and other unpatented or unregistered proprietary information are disclosed, we are likely to lose such trade secret protection.

In addition, certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual property or technology, or affect financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, agreements with third parties typically restrict the ability of such third parties to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified period of time in order to secure our intellectual property rights arising from the arrangement. In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. We also conduct joint research and product development activities that may require us to share trade secrets under the terms of our research and development collaborations or similar agreements. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not provide adequate protection for our proprietary information. For example, our security measures may not prevent an employee or consultant with authorized access from misappropriating our trade secrets and providing them to a competitor, and the recourse we have available against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Furthermore, our proprietary information may be independently developed by others in a manner that could prevent legal recourse by us. Competitors could purchase any products we may develop and commercialize and attempt to reverse engineer and replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights or design around our protected technology. In addition, our key employees, consultants, suppliers or other individuals with access to our proprietary technology and know-how may incorporate that technology and know-how into projects and inventions developed independently or with third parties. As a result, disputes may arise regarding the ownership of the proprietary rights to such technology or know-how, and any such dispute may not be resolved in our favor. If any of our confidential or proprietary information, including our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position could be harmed and such disclosure or misappropriation could have a material adverse effect on our business.

We will not seek to protect our intellectual property rights in all jurisdictions throughout the world, and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.

Filing, prosecuting and defending patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. In-licensing patents covering product candidates in all countries throughout the world may similarly be prohibitively expensive, if such opportunities are available at all. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions.

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We generally apply for patents in those countries where we intend to make, have made, use, offer for sale or sell products and where we assess the risk of infringement to justify the cost of seeking patent protection. However, we do not seek protection in all countries where we sell products and we may not accurately predict all the countries where patent protection would ultimately be desirable. If we fail to timely file a patent application in any such country or major market, we may be precluded from doing so at a later date. Competitors may use our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and may export otherwise infringing products to territories where we have patent protection, but where our ability to enforce our patent rights is not as strong as in the United States. These products may compete with any products that we or our collaborators may develop, and our patents or other intellectual property rights may not be effective or sufficient to prevent such competition.

The laws of some other countries do not protect intellectual property rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries. In addition, the legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biopharmaceuticals or biotechnologies. As a result, many companies have encountered significant difficulties in protecting and defending intellectual property rights in certain jurisdictions outside the United States. Such issues may make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many other countries, including countries in the EU, have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents and could limit our potential revenue opportunities. Accordingly, our and our licensors’ efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.

Furthermore, proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, subject our patents to the risk of being invalidated or interpreted narrowly, subject our patent applications to the risk of not issuing or provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded to us, if any, may not be commercially meaningful, while the damages and other remedies we may be ordered to pay such third parties may be significant. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses.

We have rights, through licenses from third parties and under patents that we own, to the intellectual property to develop the product candidates we are currently developing alone or with collaborators. Because our programs may involve additional product candidates that may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, product candidates may require specific formulations to work effectively and efficiently, and these rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies, or companies that have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive to develop or commercialize product candidates. These established companies may have a competitive advantage over us due to their size and greater cash resources and clinical development and commercialization capabilities. We may not be able to successfully complete such negotiations and ultimately acquire the rights to the intellectual property surrounding product candidates that we may seek to acquire.

For example, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the strategic alliance. Regardless of such right of first negotiation, we may be unable to negotiate a license within the specified time frame or under terms that are acceptable to us, and the institution may license such intellectual property rights to third parties, potentially blocking our ability to pursue our development and commercialization plans.

In addition, companies that perceive us to be a competitor may be unwilling to assign or license to us intellectual property rights that we require in order to successfully develop and commercialize potential products. We also may be unable to obtain such a license or assignment on terms that would allow us to make an appropriate return on our investment. In either event, our business and prospects for growth could suffer.

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If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. We may not be able to protect our rights to our trademarks and trade names, which we need to build name recognition among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Over the long term, if we are unable to successfully register our trademarks and trade names and establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights and other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.

Risks Related to Our Organization, Structure and Operations

We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

As of December 31, 2019, we had 199 employees. We will need to significantly expand our organization, and our future financial performance, ability to develop and commercialize product candidates alone or with collaborators and ability to compete effectively will depend in part on our ability to effectively manage any future growth. We may have difficulty identifying, hiring and integrating new personnel. Many of the biotechnology companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history than we do. If we are unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can identify and develop product candidates, enter into collaborative arrangements and otherwise operate our business will be limited.

Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expected expansion of our operations or recruit and train additional qualified personnel. Moreover, the expected physical expansion of our operations may lead to significant costs and may divert our management and business development resources from other projects, such as the development of product candidates. If we are not able to effectively manage the expansion of our operations, it may result in weaknesses in our infrastructure, increase our expenses more than expected, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity. Our future financial performance, ability to successfully commercialize any of our product candidates and our ability to compete effectively will depend, in part, on our ability to effectively manage any future growth.

We may engage in transactions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.

In the future, we may enter into transactions to acquire or in-license rights to product candidates, products or technologies or to acquire other businesses. If we do identify suitable candidates, we may not be able to enter into such transactions on favorable terms, or at all. Any such acquisitions or in-licenses may not strengthen our competitive position, and these transactions may be viewed negatively by customers or investors. We may decide to incur debt in connection with an acquisition or in-license, which may negatively impact our financial condition and restrict our operations, or issue our common stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We could incur losses resulting from undiscovered liabilities of the acquired business that are not covered by the indemnification we may obtain from the sellers of the acquired business. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and nondisruptive manner. Such transactions may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or in-licenses or the effect that they might have on our operating results.

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Our future success depends on our ability to retain our Chief Executive Officer, Chief Scientific Officer, Chief Technology Officer, Chief Operating Officer, Chief Medical Officer and other key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on the research and development experience, technical skills, leadership and continued service of certain members of our management and scientific teams, including Matthew Kane, our Chief Executive Officer, Derek Jantz, our Chief Scientific Officer, Jeff Smith, our Chief Technology Officer, David Thomson, our Chief Operating Officer and Christopher Heery, our Chief Medical Officer. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time upon thirty days’ written notice. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives.

Recruiting and retaining qualified scientific, clinical, manufacturing and, if we retain commercialization responsibility for any product candidate we develop alone or with collaborators, sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms or at all given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategies. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. The inability to recruit, integrate, motivate and retain additional skilled and qualified personnel, or the loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business.

We are subject to increased costs as a result of operating as a public company, and our management will be required to devote substantial time to maintaining compliance initiatives and corporate governance practices, including establishing and maintaining proper and effective internal control over financial reporting.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. We are subject to the Securities Exchange Act of 1934, as amended, or the Exchange Act, including the reporting requirements thereunder, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Stock Market LLC, or Nasdaq, and other applicable securities rules and regulations, including requirements related to the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs, making some activities more difficult, time consuming or costly, and increasing demand on our systems and resources. When we no longer qualify as an emerging growth company, legal, accounting and other expenses are expected to further increase.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second annual report following the completion of our IPO. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 of the Sarbanes-Oxley Act within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will further increase our costs and expenses. If we fail to implement the requirements of Section 404 of the Sarbanes-Oxley Act in the required timeframe, we may be subject to sanctions or investigations by regulatory authorities, including the SEC and Nasdaq. Furthermore, if we are unable to conclude that our internal control over financial reporting is effective, our investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by regulatory authorities. Failure to implement or maintain an effective internal control system could also restrict our future access to the capital markets.

Our business and operations would suffer in the event of system failures or security breaches.

Despite the implementation of security measures, our computer systems, as well as those of third parties with which we have relationships, are vulnerable to damage from computer viruses, unauthorized access, natural and manmade disasters, terrorism, war and telecommunication and electrical failures. While we do not believe that we have experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our or their operations, it could result in delays and/or material disruptions of our research and development programs. For example, the loss of trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the development of our product candidates could be delayed.

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The U.S. federal and various state and foreign governments have enacted or proposed requirements regarding the collection, distribution, use, security and storage of personally identifiable information and other data relating to individuals, and U.S. federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use and dissemination of data. In the ordinary course of our business, we and third parties with which we have relationships will continue to collect and store sensitive data, including intellectual property, clinical trial data, proprietary business information, personal data and personally identifiable information of our clinical trial subjects and employees, in data centers and on networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our and our collaborators’ security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or internal bad actors, breaches due to employee error, technical vulnerabilities, malfeasance or other disruptions. A number of proposed and enacted federal, state and international laws and regulations obligate companies to notify individuals of security breaches involving particular personally identifiable information, which could result from breaches experienced by us or by third parties, including collaborators, vendors, contractors or other organizations with which we have formed strategic relationships. Although, to our knowledge, neither we nor any such third parties have experienced any material security breach, and even though we may have contractual protections with such third parties, any such breach could compromise our or their networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure, notifications, follow-up actions related to such a security breach or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information and significant costs, including regulatory penalties, fines and legal expenses, and such an event could disrupt our operations, cause us to incur remediation costs, damage our reputation and cause a loss of confidence in us and our or such third parties’ ability to conduct clinical trials, which could adversely affect our reputation and delay our research and development programs.

We or third parties with whom we have relationships may be adversely affected by natural or manmade disasters, public health emergencies and other natural catastrophic events, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Natural or manmade disasters could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, public health emergency, power outage or other event occurred that prevented us from using all or a significant portion of our facilities, that damaged our infrastructure or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time, and our research and development activities could be setback or delayed. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business, and such an event could disrupt our operations, cause us to incur remediation costs, damage our reputation and cause a loss of confidence in us and our or third parties’ ability to conduct clinical trials, which could adversely affect our reputation and delay our research and development programs.

Additionally, in December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. In January 2020, the World Health Organization declared the novel coronavirus outbreak a “Public Health Emergency of International Concern” and the U.S. Department of State instructed travelers to avoid all nonessential travel to China. The coronavirus has impacted the global economy and may impact our operations, including the potential interruption of our clinical trial activities and our supply chain. For example, the coronavirus outbreak may delay enrollment in our clinical trials for PBCAR0191 and PBCAR20A due to prioritization of hospital resources toward the outbreak, and some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to release clinical results and could impact our product candidate testing, development and timelines. Additionally, any required or elective quarantine or other condition that prevents us or the third parties upon whom we depend from using all or a significant portion of our or their offices, manufacturing and/or laboratory spaces or that delays delivery of necessary testing supplies, could adversely impact our product candidate testing, development and timelines. The extent to which the coronavirus will impact our business will depend on future developments and, given the uncertainty around the extent and timing of the potential future spread or mitigation and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our business at this time.

Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter. If we obtain marketing approval for any product candidates that we or our collaborators may develop, we intend to acquire insurance coverage to include the sale of commercial products, but we may be unable to obtain such insurance on commercially reasonable terms or in adequate amounts. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and clinical trials or regulatory approvals for any of our product candidates could be suspended. We also expect that operating as a public company will make it more expensive for us to obtain director and officer liability insurance, and we

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may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors, our board committees or as our executive officers.

Insurance coverage is becoming increasingly expensive, and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. We do not know if we will be able to maintain existing insurance with adequate levels of coverage, and any liability insurance coverage we acquire in the future may not be sufficient to reimburse us for any expenses or losses we may suffer. A successful liability claim or series of claims brought against us could require us to pay substantial amounts and cause our share price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business, including preventing or limiting the development and commercialization of any product candidates that we or our collaborators may develop.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

Global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability, and similar deterioration in the credit and financial markets and confidence in economic conditions may occur in the future. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers or others with whom we have strategic relationships may not survive any difficult economic times, which could directly affect our ability to attain our operating goals.

As of December 31, 2019, we had cash and cash equivalents of $180.9 million. While we are not aware of any downgrades, material losses or other significant deterioration in the fair value of our cash equivalents since December 31, 2019, deterioration of the global credit and financial markets could negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives. Furthermore, our stock price may decline due in part to the volatility of the stock market and any general economic downturn.

If we or any of our contract manufacturers or other suppliers fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur significant costs.

We and any of our contract manufacturers and suppliers are subject to numerous federal, state and local environmental, health and safety laws, regulations and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air and water; and employee health and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. Under certain environmental laws, we could be held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties.

Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our research and product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies (under which we currently have an aggregate of approximately $10 million in coverage) specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals for any product candidate we develop alone or with collaborators could be suspended, which could have a material adverse effect on our business and financial condition.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws, regulations and permitting requirements, and any third-party contract manufacturers and suppliers we engage will also be subject to such current and future regulations and requirements. These current or future laws, regulations and permitting requirements may impair our

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research, development or production efforts. Failure to comply with these laws, regulations and permitting requirements, either by us or by any third-party contract manufacturers and suppliers we engage, also may result in substantial fines, penalties or other sanctions or business disruption.

Our business operations, including our current and future relationships with third parties, will expose us to penalties for potential misconduct or improper activity, including non-compliance with regulatory standards and requirements.

Complex laws constrain our business and the financial arrangements and relationships through which we conduct our operations, including how we may research, market, sell and distribute product candidates alone or with collaborators. We are exposed to the risk of fraud or other misconduct by our employees, consultants and collaborators and, if we or our collaborators commence clinical trials and proceed to commercialization, our principal investigators and commercial partners, as well as healthcare professionals, third-party payors, patient organizations and customers. For example, misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in the EU and other jurisdictions, provide accurate information to the FDA, the European Commission and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, false and/or misleading statements, corruption of government officials, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing, promotion, sales commission and customer incentive programs and other business arrangements. Such misconduct also could involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in preclinical studies or clinical trials, illegal misappropriation of study materials or other property, or improper interactions with the FDA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our or our collaborators’ reputations.

Ensuring that our internal operations and current and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, additional reporting requirements and oversight if subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to similar penalties, such as criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs and imprisonment, which could affect our ability to operate our business. Further, defending against any such actions can be costly and time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.

We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent such activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with applicable laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of any of the penalties discussed above and have a significant impact on our business and financial condition.

We are subject to complex tax rules relating to our business, and any audits, investigations or tax proceedings could have a material adverse effect on our business, results of operations and financial condition.

We are subject to income and non-income taxes in the United States. Income tax accounting often involves complex issues, and judgment is required in determining our provision for income taxes and other tax liabilities. In May 2018 we formed a subsidiary in Australia, in June 2019 we formed a subsidiary in the United Kingdom, and we may operate in other non-US jurisdictions in the future. We could become subject to income and non-income taxes in non-US jurisdictions as well. In addition, many jurisdictions have detailed transfer pricing rules, which require that all transactions with non-resident related parties be priced using arm’s length pricing principles within the meaning of such rules. The application of withholding tax, goods and services tax, sales taxes and other non-income taxes is not always clear and we may be subject to tax audits relating to such withholding or non-income taxes. We believe that our tax positions are reasonable and our tax reserves are adequate to cover any potential liability. We are currently not subject to any tax audits. However, the Internal Revenue Service or other taxing authorities may disagree with our positions. If the Internal Revenue Service or any other tax authorities were successful in challenging our positions, we may be liable for additional tax and penalties and interest related thereto or other taxes, as applicable, in excess of any reserves established therefor, which may have a significant impact on our results and operations and future cash flow.

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We may not be able to utilize all, or any, of our net operating loss carryforwards.

We have incurred substantial losses during our history, do not expect to become profitable in the near future, and we may never achieve profitability. As of December 31, 2019, we had U.S. federal, state, and foreign net operating loss carryforwards of $101.3 million, $101.7 million, and $0.4 million, respectively. Our federal net operating loss carryforwards of $19.7 million will begin to expire in 2030 while the remaining federal net operating loss carryforwards of $81.6 million carry forward indefinitely. The state net operating loss carryforwards begin to expire in 2025. In addition, we have U.S. federal and state research and development tax credits of $7.2 million and an amount less than $0.1 million as of December 31, 2019, respectively, available to offset future U.S. federal and state income taxes, which begin to expire in 2027 and 2030, respectively. At December 31, 2019 and December 31, 2018, we had federal Orphan Drug credits of $1.8 million and $0.7 million, respectively, which begin to expire in 2038. Unused losses generated in taxable years ending after December 31, 2017 will not expire and may be carried forward indefinitely, but will be deductible only to the extent of 80% of current year taxable income (computed without regard to the deduction for the net operating losses) in any given year. It is uncertain if and to what extent various states will conform to the newly enacted federal tax law.

As of December 31, 2019, we have a valuation allowance for the full amount of our net deferred tax assets as the realization of the net deferred tax assets is not determined to be more likely than not. In addition, Sections 382 and 383 of the Code limit a corporation’s ability to utilize its net operating loss carryforwards and certain other tax attributes (including research credits) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50% over any rolling three-year period. State net operating loss carryforwards (and certain other tax attributes) may be similarly limited. A Section 382 ownership change can therefore result in significantly greater tax liabilities than a corporation would incur in the absence of such a change, and any increased liabilities could adversely affect the corporation’s business, results of operations, financial condition and cash flow. We have not yet determined if any prior change in the ownership of our equity or any change in such ownership in connection with our IPO, would trigger a Section 382 ownership change. It is possible that such a Section 382 ownership change has already occurred in prior periods. Furthermore, additional ownership changes may occur in the future as a result of events over which we will have little or no control, including purchases and sales of our equity by our 5% stockholders, the emergence of new 5% stockholders, additional equity offerings or redemptions of our stock or certain changes in the ownership of any of our 5% stockholders. As a result, our pre-2018 net operating loss carryforwards (and research tax credits) may expire prior to being used, and our net operating loss carryforwards and tax credits generated in 2018 and thereafter will be subject to a percentage limitation, upon an ownership change. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. As a result, even if we attain profitability, we may be unable to use all or a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.

Risks Related to Owning Our Common Stock

The market price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock.

The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:

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These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance. These factors may have a material adverse effect on the market price and liquidity of our common stock, which may limit or prevent you from readily selling your shares of common stock and may affect our ability to obtain financing or enter into desired strategic relationships.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

We do not currently intend to pay dividends on our common stock.

We do not intend to pay any dividends to holders of our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. In addition, pursuant to our loan and security agreement with PWB we are prohibited from

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paying cash dividends without the prior written consent of PWB and future debt instruments may materially restrict our ability to pay dividends on our common stock. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future, and the success of an investment in our common stock will depend upon any future appreciation in its value. Consequently, you may need to sell all or part of your common stock after price appreciation, which may never occur, as the only way to realize any future gains on your investment.

If securities or industry analysts issue an adverse or misleading opinion regarding our common stock, our stock price and trading volume could decline.

The trading market for our common stock relies in part on the research and reports that industry or securities analysts publish about us or our business. We do not control these analysts. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our preclinical studies and clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Provisions in our amended and restated certificate of incorporation and restated bylaws or Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and therefore depress the trading price of our common stock.

Provisions in our amended and restated certificate of incorporation and our restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions include those establishing:

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Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, our amended and restated certificate of incorporation or our amended and restated bylaws, (4) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws, or (5) any action asserting a claim governed by the internal affairs doctrine. Under our amended and restated certificate of incorporation, this exclusive forum provision will not apply to claims which are vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have subject matter jurisdiction. For instance, the provision would not apply to actions arising under federal securities laws, including suits brought to enforce any liability or duty created by the Exchange Act or the rules and regulations thereunder. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. For example, stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders.

We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. We will remain an emerging growth company until the earlier of (1) December 31, 2024, (2) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more, (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years, or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30^th. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

We have taken advantage of reduced reporting burdens in this Annual Report on Form 10-K. In particular, we have provided only two years of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, and we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying

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with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have elected to take advantage of this extended transition period.

We are also a smaller reporting company, and we will remain a smaller reporting company until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are more than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. Similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosure and have certain other reduced disclosure obligations, including, among other things, being required to provide only two years of audited financial statements and not being required to provide selected financial data, supplemental financial information or risk factors.

We may choose to take advantage of some, but not all, of the available exemptions for emerging growth companies and smaller reporting companies. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be reduced or more volatile.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We currently occupy approximately 68,000 square feet of office and laboratory space at our corporate headquarters in Durham, North Carolina under a lease that expires in 2024. We also occupy approximately 15,500 square feet of laboratory and office space used by our wholly owned subsidiary, Elo Life Systems, in Durham, North Carolina under a lease that expires in 2026, and we occupy approximately 33,600 square feet of manufacturing, laboratory and office space used for our Manufacturing Center for Advanced Technologies in Research Triangle Park, North Carolina under a lease that expires in 2027.

Item 3. Legal Proceedings.

We are not currently party to any material legal proceedings.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

On March 27, 2019, our common stock began trading on The Nasdaq Global Select Market under the symbol “DTIL.” Prior to that time, there was no public market for our common stock.

 

Holders of Common Stock

 

As of March 2, 2020, there were approximately 221 holders of record of our common stock. This number does not include “street name” or beneficial holders, whose shares are held of record by banks, brokers, financial institutions and other nominees.

 

Dividend Policy

 

We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, pursuant to our loan and security agreement with Pacific Western Bank (“PWB”), we are prohibited from paying cash dividends without the prior written consent of PWB and future debt instruments may materially restrict our ability to pay dividends on our common stock. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors our board of directors deems relevant, and subject to any restrictions applicable to us contained in any future financing instruments.

 

Item 6. Selected Financial Data.

 

The following table sets forth our selected consolidated financial data.  We derived the consolidated statement of operations data for the years ended December 31, 2019 and December 31, 2018 and the consolidated balance sheet data as of December 31, 2019 and December 31, 2018, from our audited consolidated financial statements, included elsewhere in this Annual Report on Form 10-K. We have derived the consolidated statement of operations data for the year ended December 31, 2017 from our audited consolidated financial statements not included in this report. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II to this Annual Report on Form 10-K and our consolidated financial statements and the related notes thereto, included elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of our future results.

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of financial condition and operating results together with the section captioned “Selected Consolidated Financial Data” and our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.  This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of the Annual Report on Form 10-K captioned “Risk Factors” and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

 

We are a life sciences company dedicated to improving life through the application of our pioneering, proprietary ARCUS genome editing platform. We leverage ARCUS in the development of our product candidates, which are designed to treat human diseases and create healthy and sustainable food and agricultural solutions. We are actively developing product candidates in three innovative areas: allogeneic CAR T cell immunotherapy, in vivo gene correction, and food. We are currently conducting a Phase 1/2a clinical trial of PBCAR0191 in adult patients with relapsed or refractory, or R/R, non-Hodgkin lymphoma, or NHL, or R/R B-cell precursor acute lymphoblastic leukemia, or B-ALL. PBCAR0191 is our first gene-edited allogeneic chimeric antigen receptor, or CAR, T cell therapy candidate targeting CD19 and is being developed in collaboration with Les Laboratoires Servier, or Servier. We have received orphan drug designation for PBCAR0191 from the U.S. Food and Drug Administration, or FDA, for the treatment of ALL. Made from donor-derived T cells modified using our ARCUS genome editing technology, PBCAR0191 recognizes the well characterized tumor cell surface protein CD19, an important and validated target in several B-cell cancers, and is designed to avoid graft-versus-host disease, or GvHD, a significant complication associated with donor-derived, cell-based therapies. We believe that this trial, which is designed to assess the safety and tolerability of PBCAR0191 at increasing dose levels, as well as to evaluate anti-tumor activity, is the first U.S.-based clinical trial to evaluate an allogeneic CAR T therapy for R/R NHL. Furthermore, we believe that our proprietary, one-step engineering process for producing allogeneic CAR T cells with a potentially optimized cell phenotype, at large scale in a cost-effective manner, will enable us to overcome the fundamental clinical and manufacturing challenges that have limited the CAR T field to date.

 

In December 2019, we announced initial data from this ongoing Phase 1/2a clinical trial of PBCAR0191 in adult patients with R/R NHL and R/R B-ALL. A total of nine adult patients were reported in these initial Phase 1 trial results, including six with NHL (three treated at Dose Level 1 (3x10⁵ cells/kg), or DL1, and three treated at Dose Level 2 (1x10⁶ cells/kg), or DL2), and three with B-ALL (all treated at DL2). These data indicated no serious adverse events or dose limiting toxicities. In the NHL cohort, four of six patients demonstrated an objective tumor response by Lugano criteria at day 28, for an overall objective response rate of 67%, including three partial responses and one complete response. In the ALL cohort, one of three patients achieved a complete response at day 28 following treatment with PBCAR0191. As of December 31, 2019, dosing of patients at Dose Level 3 (3x10⁶ cells/kg) was underway.  Based on the data observed at DL1 and DL2, we filed a protocol amendment for this trial with the FDA in December 2019.  The amended trial design is intended to specifically address key clinical questions. These include assessing the impact of higher total doses of cells on clinical activity and/or the impact of modified lymphodepletion on the ability to achieve durable clinical benefit with associated CAR T cell expansion and persistence. Following feedback from the FDA in late January 2020, the protocol amendment is now being implemented.

 

In September 2019, the FDA accepted our investigational new drug, or IND, application for our second allogeneic CAR T cell therapy product candidate, PBCAR20A, for which we expect to commence a Phase 1/2a clinical trial in the first quarter of 2020. PBCAR20A is wholly owned by us and targets the validated tumor cell surface target CD20. It will be investigated in subjects with NHL, chronic lymphocytic leukemia, or CLL, and small lymphocytic lymphoma, or SLL. A subset of the NHL patients will have the diagnosis of mantle cell lymphoma, or MCL, and we have received orphan drug designation for PBCAR20A from the FDA for the treatment of this disease.  Based on the adverse events observed to date with PBCAR0191, the FDA has agreed to allow us to commence dosing with PBCAR20A directly at Dose Level 2, which we expect to accelerate the timing for our expected completion of the trial.

 

In January 2020, the FDA accepted our IND application for our third allogeneic CAR T cell therapy product candidate, PBCAR269A, for which we expect to commence a Phase 1/2a clinical trial in 2020. PBCAR269A is wholly owned by us and is designed to target the validated tumor cell surface target BCMA. It will be investigated in subjects with R/R multiple myeloma and we have received orphan drug designation from the FDA for this indication.

Also in January 2020, we announced that we expect to advance a program targeting the rare genetic disease primary hyperoxaluria type 1, or PH1 as our lead wholly owned in vivo gene correction program. PH1 affects approximately 1-3 people per million in the United States and is caused by loss of function mutations in the AGXT gene, leading to the accumulation of calcium oxalate crystals in the kidneys. Patients suffer from painful kidney stones which may ultimately lead to renal failure. Using ARCUS, we are developing a potential therapeutic approach to the treatment of PH1 that involves knocking out a gene called HAO1 which acts upstream of AGXT. Suppressing HAO1 has been shown in preclinical models by us to prevent the formation of calcium oxalate. We therefore believe that a one-time administration of an ARCUS nuclease targeting HAO1 may be a viable strategy for a durable treatment of PH1 patients. In preclinical studies we have demonstrated in a mouse model of PH1 that administration of an ARCUS nuclease targeting HAO1 resulted in approximately 70% reduction in urine calcium oxalate levels. We have also demonstrated that ARCUS efficiently knocked out the HAO1 gene in non-human primates. We plan to select a clinical candidate for this program during 2020.

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During the fiscal year ended December 31, 2019, we opened our Manufacturing Center for Advanced Therapeutics, or MCAT, which we believe is the first in-house current good manufacturing practice, or cGMP, compliant manufacturing facility dedicated to genome-edited, off-the-shelf CAR T cell therapy product candidates in the United States.  MCAT will enable in-house production of three different drug substances: allogeneic CAR T cells, messenger RNA (including formulations development) and adeno-associated viral vectors. We are currently using this new manufacturing center to create clinical trial material to be used in our BCMA targeting allogeneic CAR T clinical trials beginning in 2020.  We believe MCAT confers a number of strategic advantages including cost benefits, control of our manufacturing process and strategic flexibility as we execute our clinical trials. In the longer term, we believe MCAT has the potential to be a commercial launch facility.

 

Since our formation in 2006, we have devoted substantially all of our resources to developing ARCUS, conducting research and development activities, recruiting skilled personnel, developing manufacturing processes, establishing our intellectual property portfolio and providing general and administrative support for these operations. We have financed our operations primarily with proceeds from our IPO, the sale of our convertible preferred stock and upfront payments from licensing arrangements.

On April 1, 2019, we completed our IPO of 9,085,000 shares of common stock, including the underwriters’ full exercise of their option to purchase an additional 1,185,000 additional shares of common stock, at an offering price of $16.00 per share, for net proceeds of approximately $130.5 million after deducting underwriting discounts and commissions and offering expenses payable by us. To date, we have generated approximately $475.4 million from third parties through a combination of financings including through our IPO, preferred stock and convertible note financings, an upfront payment under the Servier Agreement and additional funding from other strategic alliances and grants.

Since our inception, we have incurred significant operating losses and have not generated any revenue from the sale of products. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties. Our net losses were $92.9 million and $46.0 million for the years ended December 31, 2019 and December 31, 2018, respectively. As of December 31, 2019, we had an accumulated deficit of $177.1 million.

We expect our operating expenses to increase substantially in connection with the expansion of our product development programs and capabilities. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution.  In addition, we expect to continue to incur additional costs associated with operating as a public company.

As a result of these anticipated expenditures, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our cash needs through a combination of public equity, debt financings or other sources, which may include current and new collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We cannot assure you that we will ever generate significant revenue to achieve profitability.

Because of the numerous risks and uncertainties associated with the development of therapeutic and agricultural products, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be required to raise additional capital on terms that are unfavorable to us or we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

We currently conduct our operations through two reportable segments: Therapeutics and Food. Our Therapeutics segment is focused on allogeneic CAR T immunotherapy and in vivo gene correction. Our Food segment focuses on applying ARCUS to develop food and nutrition products through collaboration agreements with consumer-facing companies.

Collaborations

Gilead

In September 2018, we and Gilead entered into a collaboration and license agreement, which we refer to as the Gilead Agreement, to develop genome editing tools using ARCUS to target viral DNA associated with the Hepatitis B virus. Pursuant to the terms of the agreement, Gilead received an exclusive license to exploit the resulting synthetic nucleases and products that use them to treat the Hepatitis B virus in humans, and we are entitled to receive up to approximately $40.0 million in research funding over an initial three year term and milestone payments of up to an aggregate of $445.0 million, consisting of up to $105.0 million in development milestone payments and up to $340.0 million in commercial milestone payments. We are also entitled to receive tiered royalties ranging from the high single digit percentages to the mid-teen percentages on worldwide net sales of the products developed through the term of the agreement, subject to customary potential reductions.

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We recognized $13.3 million and $3.7 million in revenues under the Gilead Agreement during the years ended December 31, 2019 and December 31, 2018, respectively, and recorded $1.5 million and $2.3 million in deferred revenue as of December 31, 2019 and December 31, 2018, respectively. We did not receive any milestone payments under the Gilead Agreement during the years ended December 31, 2019 or December 31, 2018.

Servier

In February 2016, we entered into the Servier Agreement, pursuant to which we have agreed to develop allogeneic CAR T cell therapies for up to six unique antigen targets. One target was selected at the agreement’s inception. Upon selection of an antigen target under the agreement, we have agreed to perform early-stage research and development on individual T cell modifications for the selected target, develop the resulting therapeutic product candidates through Phase 1 clinical trials and prepare clinical trial material of such product candidates for use in Phase 2 clinical trials.

We received an upfront payment of $105.0 million under the Servier Agreement. We have the ability to receive total payments, including the upfront payment, option fees and milestone payments, in the aggregate across all six targets, of up to approximately $1.6 billion. This includes up to $1.5 billion in milestone payments, consisting of up to $401.3 million in development milestone payments and up to $1.1 billion in commercial milestone payments. We are also entitled to receive tiered royalties ranging from the mid-single digit percentages to the sub-teen percentages on worldwide net sales, subject to potential customary reductions. We also have the right to participate in the development and commercialization of any licensed products resulting from the collaboration through a 50/50 co-development and co-promotion option in the United States, subject to our payment of an option fee, which is exercisable after Servier’s commercial option exercise.

 

Under the Servier Agreement, we recognized $7.3 million and $5.8 million in revenues during the years ended December 31, 2019 and December 31, 2018, respectively. The amount recorded as deferred revenue was $80.9 million and $88.6 million as of December 31, 2019 and December 31, 2018, respectively. No development or sales-based milestones were received for the fiscal years ended December 31, 2019 or December 31, 2018.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the foreseeable future. We record revenue from collaboration agreements, including amounts related to upfront payments, annual fees for licenses of our intellectual property and research and development funding.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. These include the following:

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We expense research and development costs as incurred. We track external research and development costs, including the costs of laboratory supplies and services, outsourced research and development, clinical trials, contract manufacturing, laboratory equipment and maintenance and certain other development costs, by product candidate when the program IND application is accepted by the FDA. Internal and external costs associated with infrastructure resources, other research and development costs, facility related costs and depreciation and amortization that are not identifiable to a specific product candidate are included in the platform development, early-stage research and unallocated expenses category in the table below. 

The following table summarizes our research and development expenses by product candidate or development program for the periods presented:

 

 

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we continue our Phase 1/2a clinical trial for our CD19 product candidate, commence a Phase 1/2a clinical trial for our CD20 product candidate, commence a Phase 1/2a clinical trial for our BCMA product candidate, and continue to discover and develop additional product candidates.

We cannot determine with certainty the duration and costs of ongoing and future clinical trials of our CD19, CD20, and BCMA product candidates, or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our CD19, CD20, and BCMA product candidates, and any other our product candidate we may develop will depend on a variety of factors, including:

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A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in our executive, finance, business development, operations and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities and development of product candidates.  We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.

Change in Fair Value of Convertible Notes Payable

We elected on issuance to account for the convertible notes payable we issued in March 2019, or the 2019 Notes, at fair value until their settlement.  The change in fair value of the 2019 Notes was recognized through the statement of operations.  The 2019 Notes settled into 2,921,461 shares of common stock on the closing of our IPO on April 1, 2019.

Interest Expense

Interest expense consists of interest from the 2019 Notes at a rate of 6% per annum.

Interest Income

Interest income consists of interest income earned on our cash and cash equivalents.

Income Taxes

Since our inception in 2006, we have generated cumulative federal and state net operating loss and R&D credit carryforwards for which we have not recorded any net tax benefit due to the uncertainty around utilizing these tax attributes within their respective carryforward periods. As of December 31, 2019, we had federal, state, and foreign net operating loss carryforwards of $101.3 million, $101.7 million, and $0.4 million, respectively, which may be available to offset future taxable income. The U.S. federal net operating loss carryforwards of $19.7 million will begin to expire in 2030 while the remaining federal net operating loss carryforwards of $81.6 million carry forward indefinitely. The state net operating loss carryforwards begin to expire in 2025. As of December 31, 2019, we also had federal research and development tax credit carryforwards of $7.2 million, which begin to expire in 2027. As of December 31, 2019 and December 31, 2018, we had federal Orphan Drug credits of $1.8 million and $0.7 million, respectively, which begin to expire in 2038.  As of December 31, 2019, we also have federal contribution carryforwards of $0.1 million, which begin to expire in 2020. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

On December 22, 2017, the TCJA was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from a top marginal tax rate of 35% to a flat rate of 21%, effective as of January 1, 2018, as well as a limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The federal tax rate change resulted in a reduction in the gross amount of our deferred tax assets and liabilities recorded as of December 31, 2017, and a corresponding reduction in our valuation allowance. As a result, no income tax expense or benefit was recognized as of the enactment date of the TCJA.

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Results of Operations

Comparison of the Years Ended December 31, 2019 and December 31, 2018

The following table summarizes our results of operations for the years ended December 31, 2019 and December 31, 2018, together with the changes in those items in dollars:

 

 

Revenue

Revenue for the year ended December 31, 2019 was $22.2 million, compared to $10.9 million for the year ended December 31, 2018. The increase of $11.3 million in revenue during the year ended December 31, 2019 was primarily the result of a $9.6 million increase in research revenue recognized from Gilead as 2019 was the first full year of revenue recognized under the Gilead agreement initiated in September 2018 and a $1.5 million increase in collaboration revenue recognized from Servier.

Research and Development Expenses

 

 

Research and development expenses for the year ended December 31, 2019 were $82.4 million, compared to $45.1 million for the year ended December 31, 2018. The increase of $37.3 million was primarily due to a $31.9 million increase in platform development, early-stage research and unallocated expenses, a $9.4 million and $4.9 million increase in direct research and development expenses related to our CD20 and BCMA programs, respectively, partially offset by a decrease in direct research and development expenses related to our CD19 program of $8.9 million.

The increase in direct research and development expenses for our CD20 and BCMA programs was due to increases in lab services and CMO and research organization costs as we prepare to enter planned Phase 1/2a clinical trials in 2020. This was partially offset by a decrease in our CD19 expenses primarily due to lower spending on CMO and research organization costs.

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Platform development, early-stage research and unallocated expenses increased primarily due to a $11.6 million increase in employee-related costs associated with increased headcount to support our technology platform development and manufacturing capabilities, a $7.6 million increase in laboratory supplies and services, a $5.4 million increase in outsourced research and development spending and $2.4 million increase in depreciation and amortization in the year ended December 31, 2019 compared to the year ended December 31, 2018.

General and Administrative Expenses

General and administrative expenses were $27.0 million for the year ended December 31, 2019 compared to $13.7 million for the year ended December 31, 2018. The increase of $13.3 million was primarily due to an increase of $6.2 million in employee-related costs as we increased our general and administrative headcount, $2.7 million in consulting fees, $2.1 million in increased administrative costs, including insurance, franchise and property taxes, bank fees, and costs related to operating as a public company, and $1.4 million in facility related costs.

Change in Fair Value of Convertible Notes Payable

We elected on issuance to account for the 2019 Notes at fair value until their settlement.  For the year ended December 31, 2019, we recognized $9.8 million of expense as changes in fair value.  The 2019 Notes were settled on the closing of the IPO in April 2019.

Interest Expense

Interest expense of $0.2 million for the year ended December 31, 2019 consists of interest from the 2019 Notes at a rate of 6% per annum.

Interest Income

Interest income was $4.3 million for the year ended December 31, 2019 compared to $1.9 million for the year ended December 31, 2018.  The increase of $2.4 million of interest income generated on our cash and cash equivalent balances was the result of lower interest rates and having higher cash balances invested in the year ended December 31, 2019 compared to the year ended December 31, 2018.

Segment Results

 

The following tables summarize segment revenues and segment operating loss (see Note 13 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding our segments):

 

 

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We evaluate the operating performance of each segment based on segment operating loss. Segment operating loss is derived by deducting operational cash expenditures, net, from GAAP revenue. Operational cash expenditures are cash disbursements made that are specifically identifiable to the reportable segment (including specifically identifiable research and development and property, equipment and software expenditures).  For the year ended December 31, 2018, we allocated centralized research and development expenditures for early stage research, nuclease development and the purchase of general laboratory supplies to the Therapeutics and Food segments based on headcount. In January 2019, the Food segment moved into a new leased facility in Durham, North Carolina.  We have determined that the Food segment is no longer deriving benefit from the Company’s centralized research and development expenditures, thus all these expenditures were allocated to the Therapeutics segment for the year ended December 31, 2019.  The reportable segment and centralized research and development operational cash expenditures include cash disbursements for compensation, laboratory supplies, purchases of property, equipment and software and procuring services from CROs, CMOs and research organizations. We do not allocate general operational expenses or non-cash income statement amounts to our reportable segments.

Therapeutics Segment

Revenue for the year ended December 31, 2019 was $20.6 million, compared to $9.5 million for the year ended December 31, 2018. The increase of $11.1 million was primarily the result of a $9.6 million increase in research funding from Gilead and $1.5 million increase in revenue from Servier. Segment operational cash expenditures for the year ended December 31, 2019 were $45.9 million, compared to $35.0 million for the year ended December 31, 2018. The increase of $10.9 million in operational cash expenditures was primarily due to an increase in payments made to service providers for contract manufacturing and clinical trial research, laboratory supplies and services, employee headcount and fixed assets for the build out of our manufacturing capabilities, offset by a decrease in payments made to the University of Pennsylvania, which is early stage research and not considered specific to any one therapeutic area. As a result, these payments were classified as centralized research and development expenditures in the year ended December 31, 2019 as opposed to being classified as Therapeutics operational cash expenditures in the year ended December 31, 2018. Segment operating loss increased $12.3 million from $37.1 million for the year ended December 31, 2018 to $49.4 million for the year ended December 31, 2019 primarily due to the factors discussed above.

Food Segment

Revenue for the year ended December 31, 2019 was $1.6 million, compared to $1.4 million for the year ended December 31, 2018. The increase of $0.2 million was primarily attributable to $0.4 million from a new customer agreement with a collaboration partner entered into during the year ended December 31, 2019 offset by a $0.2 million decrease in revenue from a collaboration partner. Segment operational cash expenditures for the year ended December 31, 2019 were $7.0 million, compared to $9.1 million for the year ended December 31, 2018. The decrease of $2.1 million was primarily due to a decrease in leasehold improvements, which is attributable to large construction expenditures made in the year ended December 31, 2018 for work done to our leased facility that did not occur in the year ended December 31, 2019, as our Food segment moved into the facility in January 2019. This decrease in spending was offset by increases in laboratory equipment, furniture and fixtures, laboratory supplies, employee headcount and rent. Segment operating loss decreased $5.3 million from $10.7 million for the year ended December 31, 2018 to $5.4 million for the year ended December 31, 2019 primarily due to the factors discussed above.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs will continue to increase, including in connection with conducting preclinical studies and clinical trials for our product candidates, contracting with CROs and CMOs, the addition of laboratory equipment to MCAT in support of preclinical studies and clinical trials, expanding our intellectual property portfolio and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources. We do not currently have any approved products and have never generated any revenue from product sales.

 

We have financed our operations primarily with proceeds from our IPO, the sale of our convertible preferred stock and upfront payments from collaboration and licensing arrangements. On April 1, 2019, we completed our IPO of 9,085,000 shares of common stock, including the underwriters’ full exercise of their option to purchase an additional 1,185,000 additional shares of common stock, at an offering price of $16.00 per share, for net proceeds of approximately $130.5 million after deducting underwriting discounts and commissions and offering expenses payable by us. To date, we have generated approximately $475.4 million from third parties through a combination of financings including through our IPO, preferred stock and convertible note financings, an upfront payment under the Servier Agreement and additional funding from other strategic alliances and grants.  

 

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In May 2019, we entered into a loan and security agreement (the “Pacific Western Loan Agreement”) with PWB pursuant to which we may request advances on a revolving line of credit of up to an aggregate principal of $50.0 million (the “Revolving Line”).  The Pacific Western Loan Agreement was amended (the “PWB Amendment”) in December 2019 to allow the Company to maintain a bank account with a non-affiliated bank in the United Kingdom provided that the account balance does not exceed 1.5 million GBP or its U.S. dollar equivalent at any time. As of December 31, 2019, we had no borrowings under our Revolving Line and were in compliance with its financial covenants.

Cash Flows

Our cash and cash equivalents totaled $180.9 million as of December 31, 2019, compared to $103.2 million as of December 31, 2018. As of December 31, 2019, we had no borrowings under our revolving line of credit.

The following table summarizes our sources and uses of cash for the periods presented:

 

 

Cash Flows for the Year ended December 31, 2019

Operating Activities

Net cash used in operating activities for the year ended December 31, 2019 was $71.0 million, driven primarily by our net loss of $92.9 million as we incurred expenses associated with our CD19, CD20, and BCMA programs, platform development and early-stage research, and general and administrative expenses, and a decrease in operating assets and liabilities of $2.4 million, partially offset by net non-cash expenses of $24.2 million.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2019 was $24.7 million, which was attributable to purchases of property, equipment and software.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2019 was $173.4 million, consisting of $130.5 million in proceeds from our IPO, net of issuance costs, the net proceeds from the issuance of our 2019 Notes of $39.6 million, and $1.3 million in proceeds from stock option exercises.

Debt Obligations

In March 2019, we issued an aggregate principal amount of $39.6 million of 2019 Notes in a private placement transaction.  Upon settlement, the change in fair value of the 2019 Notes was $9.8 million and the accrued interest on the 2019 Notes was $0.2 million.  Pursuant to their terms, the 2019 Notes were settled in 2,921,461 shares of our common stock upon the closing of our IPO at a settlement price of $13.60 per share, which is equal to 85% of the IPO price per share.

In May 2019, we entered into a loan and security agreement with Pacific Western Bank pursuant to which we may request advances on a $50.0 million revolving line of credit.  

Cash Flows for the Year Ended December 31, 2018

Operating Activities

Net cash used in operating activities for the year ended December 31, 2018 was $51.7 million, primarily consisting of our net loss of $46.0 million as we incurred expenses associated with our CD19 program, platform development and early-stage research and general and administrative expenses. In addition, we had non-cash charges of $4.8 million for depreciation and amortization and share-based compensation expense. Net cash used in operating activities was also impacted by $10.5 million in changes in operating assets and liabilities, including $7.5 million in prepaid expenses, $3.2 million in deferred revenue, $0.5 million in accounts receivable, $0.7 million in accounts payable and $0.4 million in other current assets and other assets, which were partially offset by changes of $1.8 million in accrued expenses.

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Investing Activities

Net cash used in investing activities for the year ended December 31, 2018 was $15.7 million, which was attributable to purchases of property, equipment and software of $14.3 million and the acquisition of intellectual property of $1.4 million.

Financing Activities

Net cash provided in financing activities for the year ended December 31, 2018 was $107.8 million, consisting of the net proceeds from the issuance of our Series B convertible preferred stock financing of $109.7 million, net of offering costs, and $0.2 million in proceeds from stock option exercises, partially offset by $2.1 million in payments for deferred offering costs associated with our initial public offering.

Loan and Security Agreement

In May 2019, we entered into the Pacific Western Loan Agreement pursuant to which we may request advances on a $50.0 million Revolving Line. The maturity date of the Revolving Line is May 15, 2022.  The Revolving Line bears interest at an annual rate equal to the greater of (i) 1.25% below the prime rate then in effect, or (ii) 4.25% at all times when we maintain a daily balance of cash in our demand deposit accounts at PWB of at least $25.0 million, and the greater of (i) 0.25% above the prime rate then in effect; or (ii) 5.75% at all times when we do not maintain a daily balance of cash in demand deposit accounts at PWB of at least $25.0 million; provided that, we are permitted to maintain a bank account with a non-affiliated bank in the United Kingdom so long as the account balance does not exceed 1.5 million GBP or its U.S. dollar equivalent at any time, pursuant to the PWB Amendment.  We are required to pay a fee in an amount equal to 0.50% per annum of the unused portion of the Revolving Line each quarter, or the Unused Fee.  The Unused Fee shall be waived for any quarter in which we maintain a daily balance of cash in our demand deposit account at PWB of at least $25.0 million at all times during such quarter. If the Revolving Line is terminated prior to the maturity date, we are required to pay an early termination fee equal to 1.0% of the Revolving Line.

Under the terms of the Pacific Western Loan Agreement, we granted PWB a security interest in substantially all of our assets, excluding any of the intellectual property now or hereafter owned, (but including any rights to payment from the sale or licensing of any such intellectual property). We must maintain an aggregate balance of unrestricted cash and cash equivalents on hand at PWB (or PWB’s affiliates) at least equal to any amounts borrowed under the Revolving Line and any other outstanding obligations the we have to PWB.  The agreement was amended in December 2019 to allow a bank account with a non-affiliated bank in the United Kingdom provided that the account balance does not exceed 1.5 million GBP or its U.S. dollar equivalent at any time.

The Agreement includes customary representations, warranties and covenants (affirmative and negative), and includes standard events of default, including in the event of a material adverse change. Upon the occurrence of an event of default, PWB may declare all outstanding obligations immediately due and payable and take such other actions as are set forth in the loan and security agreement and increase the interest rate otherwise applicable to the amount outstanding under the Revolving Line by an additional 3.00%.

As of December 31, 2019, we had no borrowings under our Revolving Line, and we were in compliance with the financial covenants, under the Pacific Western Loan Agreement.

Funding Requirements

Our operating expenses increased substantially in 2019 and are expected to increase substantially in the future in connection with the initiation of additional human clinical trials and capital expenditures for MCAT.

We believe our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2021. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical and agricultural products, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:

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Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of public or private equity or debt financings, collaboration agreements, other third‑party funding, strategic alliances, licensing arrangements and marketing and/or distribution arrangements.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, shareholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, product development and research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations

The following is a summary of our contractual obligations and commitments as of December 31, 2019:

 

 

 

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In addition, we have entered into the Duke License, under which we are obligated to make aggregate future milestone payments of up to $0.2 million upon the achievement of specified corporate milestones as well as low-single digit percent royalty payments based on future net sales of applicable products and generally mid-teen percent royalties based on sublicensing revenue. See “Business—License and Collaboration Agreements” for more information regarding our payment obligations under the Duke License. We have not included future payments under the Duke License in the table above since the payment obligations under the Duke License are contingent upon future events, such as the achievement of specified milestones or generating product sales, and we are unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.

We also enter into contracts in the normal course of business with CROs, CMOs, universities and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. These payments are not included in the table above as the amount and timing of such payments are not known.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Our revenues are generated primarily through collaborative research, license, development and commercialization agreements. The terms of these agreements generally contain multiple elements, or deliverables, which may include (1) licenses, or options to obtain licenses, to use our technology, (2) research and development activities to be performed on behalf of the collaborative partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments we receive under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales. We classify payments received under these agreements as revenues within our consolidated statements of operations.

We adopted Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers, or ASC 606, on January 1, 2019 using the modified retrospective transition method. Under this method, results for reporting periods beginning on January 1, 2019 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 605, Revenue Recognition (“ASC 605”). ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

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At contract inception, once the contract is determined to be within the scope of ASC 606, we evaluate the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determine whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract. Goods or services that meet these criteria are considered distinct performance obligations. If both these criteria are not met, the goods and services are combined into a single performance obligation. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options.  We assess if these options provide a material right to the customer and, if so, these options are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.

We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method.

Amounts received prior to revenue recognition are recorded as deferred revenue.  Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in our consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue – noncurrent. Amounts recognized as revenue, but not yet received or invoiced are generally recognized as contract assets in the Other line item in our consolidated balance sheets.

Milestone Payments – If an arrangement includes development and regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.

Significant Financing Component – In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing.  We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less.  We assessed each of our revenue arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of our arrangements.

Collaborative Arrangements – We have entered into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use our technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments we receive under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales.

We analyze our collaboration arrangements to assess whether they are within the scope of ASU No. 2018-18 Collaborative Arrangements, or ASC 808, to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, are within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606.  For those elements of the arrangement that are accounted for pursuant to ASC 606, we apply the five-step model described above.

In February 2016, we entered into the Servier Agreement for the licensing of our ARCUS proprietary genome editing platform and the research, development, and manufacturing of product for clinical trials and commercialization of products. In September 2018, we entered into a collaboration and license agreement with Gilead, which we refer to as the Gilead Agreement, to develop genome editing tools using our ARCUS proprietary genome editing platform. Both agreements use our genome editing technology for the treatment of certain diseases. Consideration we received, or may receive, under these collaboration and license agreements include upfront nonrefundable payments, research funding payments and payments based upon the achievement of certain milestones and royalties on any resulting net product sales.

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Under the guidance of ASC 606, certain judgments affect revenue recognition. Our primary performance obligations under our agreements consist of research and development services. Measuring the amount of time it takes for us to complete these services includes estimating our total effort to satisfy our performance obligations at the outset of the agreement and then comparing that amount to the actual effort expended for a given accounting period. In certain instances, significant judgment is required to estimate the timing of satisfying these obligations and timing may change due to efforts beyond our control, such as changes in the customer’s direction of a particular research program or changes to the contractual terms of an agreement. Accordingly, our estimates may change in the future. Such changes to estimates will result in a change in prospective revenue recognition amounts.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to the following:

 

We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct and manage preclinical studies and clinical trials and CMOs that manufacture product for our research and development activities on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may cause us to report amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.

Share-Based Compensation

We measure stock options and other share-based awards granted to our employees, directors, consultants and advisors based on the fair value on the date of the grant and recognize compensation expense for those awards, net of actual forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. As we have limited trading history, we estimate our expected volatility based on the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded share price. The expected term of our options has been determined utilizing a weighted value considering actual history and estimated expected term based on the midpoint of final vest date and expiration date.  The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards. The JOBS Act also exempts us from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b).

We will remain an “emerging growth company” until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (2) the last day of the fiscal year following the fifth anniversary of the completion of our IPO, (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30th, we have been a public company for at least 12 months and have filed one Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. Our interest-earning assets consist of cash and cash equivalents, which are denominated in U.S. dollars. We had cash and cash equivalents of $180.9 million, or 77% of our total assets, at December 31, 2019 and $103.2 million, or 74% of our total assets, at December 31, 2018. Interest income earned on these assets was $4.3 million and $1.9 million for the years ended December 31, 2019 and December 31, 2018, respectively. Our interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates. At December 31, 2019, our cash equivalents consisted of money market funds and repurchase agreements that were collateralized by deposits in the form of government securities and obligations. Such interest-earning instruments carry a degree of interest rate risk; however, we do not anticipate fluctuations in interest rates to have a significant impact on our financial statements. We had no debt outstanding as of December 31, 2019 or 2018.

We are also exposed to foreign exchange rate risk with respect to our global subsidiaries from foreign currency transactions.  We do not anticipate foreign exchange rate risk to have a material impact on our financial statements.

Item 8. Financial Statements and Supplementary Data.

The financial statements required to be filed pursuant to this Item 8 are appended to this report and are incorporated herein by reference. An index of those financial statements is found in Item 15 of Part IV of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.

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Management’s annual report on internal control over financial reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding our internal control over financial reporting or an attestation report of our independent registered accounting firm due to a transition period established by rules of the SEC for newly public companies. Additionally, our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 of Sarbanes-Oxley Act of 2002 until we are no longer an “emerging growth company” as defined in the JOBS Act.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

 

Executive Officers and Directors

The following table sets forth the name, age and position of each of our executive officers and directors as of March 2, 2020.

 

 

 

Executive Officers

Matthew Kane, a co-founder of Precision, has served as our President and Chief Executive Officer and a director since our inception in 2006. Mr. Kane has nearly 20 years of experience in the life sciences industry, most of which has been spent specifically working in genome editing. Prior to co-founding Precision, Mr. Kane was with Suros Surgical Systems. Mr. Kane received a B.S. in mechanical engineering and an M.S. in biomedical engineering from the Rose-Hulman Institute of Technology and an M.B.A. from Duke University.

We believe that Mr. Kane is qualified to serve on our board of directors because of the perspective and experience he provides as one of our founders and as our President and Chief Executive Officer, as well as his many years of experience within the life sciences and agricultural biotechnology industries.

Derek Jantz, Ph.D., a co-founder of Precision, has been our Chief Scientific Officer since August 2013 and has served on our board of directors since January 2006. He previously served as our Vice President of Scientific Development from our inception in 2006 to August 2013. Dr. Jantz is the co-inventor of several of our foundational patents and other intellectual property. As a protein engineer, he was an early developer of zinc finger technology and has spent most of his research career designing proteins for genome editing applications. Dr. Jantz received a B.A. in biology from the University of Colorado at Boulder and a Ph.D. in biophysics from the Johns Hopkins University School of Medicine.

We believe that Dr. Jantz’s extensive experience in genome editing and as an inventor of ARCUS, in addition to his perspective as one of our founders and senior executives, qualifies him to serve on our board of directors.

Abid Ansari has served as our Chief Financial Officer since February 2019. Mr. Ansari previously served as our Vice President, Finance & Operations from July 2016 to February 2019. Prior to joining us, Mr. Ansari served as Senior Director, Deal Finance and M&A from November 2013 to July 2016 and Senior Director, Head of Portfolio Analysis Group from September 2011 to November 2013 for GlaxoSmithKline plc, a multinational pharmaceutical company. Before that, he served for five years in commercial and capital finance roles at MedImmune, LLC and three years as a plant controller at Uniqema (previously a division of Imperial Chemical Industries Plc). Mr. Ansari received a B.S. in chemical engineering and an M.B.A. from Purdue University. Mr. Ansari is also a Certified Public Accountant.

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Christopher Heery, M.D. has served as our Chief Medical Officer since May 2019. Prior to joining us, Dr. Heery served as Chief Medical Officer at Bavarian Nordic A/S, a biotechnology company, from October 2016 to April 2019, where he oversaw clinical development programs for its immune-oncology and infectious disease portfolios. Prior to that, he was a Staff Clinician and then an Associate Research Physician and Head of the Clinical Trials Group of the Laboratory of Tumor Immunology and Biology at the National Cancer Institute, or NCI, a U.S. government health agency, from April 2012 to November 2013 and November 2013 to September 2016, respectively, where he was part of a larger effort to create new immunotherapies for the treatment of cancer.  He joined the NCI Medical Oncology Branch as a Medical Oncology Fellow in 2009 and also served as an Adjunct Appointment in the Genitourinary Malignancies Branch. Dr. Heery is board certified in Medical Oncology and Internal Medicine.  He received a B.A. from Duke University and a M.D. from East Carolina University Brody School of Medicine, and completed his internal medicine residency at the University of Illinois at Chicago.

Dario Scimeca has served as our General Counsel since June 2019. Prior to joining us, Mr. Scimeca served in various roles for Genentech, a biotechnology company, U.S. affiliate of Roche, from January 2013 to June 2019, including most recently as Assistant General Counsel, where he counseled on legal issues associated with the development and commercialization of multiple drug oncology and rare disease products.  Prior to that, he was corporate counsel at Elan Pharmaceuticals where he, among other things, oversaw FDA and EMA regulatory compliance matters.  He has previously worked in both corporate transactional law and patent litigation at three national law firms. Mr. Scimeca received a B.S. from Santa Clara University, his J.D. from the University of California, Berkeley, School of Law, and clerked for Judge James L. Dennis on the United States Fifth Circuit Court of Appeals in New Orleans, Louisiana.  

Fayaz Khazi, Ph.D., has served as the CEO of our food-focused subsidiary, Elo Life Systems, since May 2018 and, prior to that, served as President of Elo Life Systems beginning in May 2017. From May 2014 to April 2017, Dr. Khazi served as the CEO of KeyGene USA, an agricultural biotechnology company. Dr. Khazi also held several executive leadership positions at Intrexon Corporation directing translation programs in the food, human health and agricultural biotechnology sectors, including serving as Vice President, Business Analytics and Strategy from January 2012 to January 2014, and also serving as Intrexon’s founding Director of Translational Medicine. Dr. Khazi received a B.Sc. from the University of Agricultural Sciences, Bangalore, and a Ph.D. in biological sciences from Auburn University. He trained as a Howard Hughes Medical Institute post-doctoral fellow and a senior researcher at the Children’s Hospital of Philadelphia, where he studied the genotoxicity of gene therapy vectors and developed in vivo genome-editing technologies to treat genetic diseases.

David Thomson, Ph.D., has served as our Chief Operating Officer since August 2019 and, prior to that, served as our Chief Development Officer beginning in June 2017. Prior to joining us, he served as Senior Vice President Research and Nonclinical Development for Shire plc, a specialty biopharmaceutical company, beginning in May 2016 until May 2017 where he was responsible for the strategy and operational direction of the Global Research and Nonclinical Development Organization, including transitioning programs from research into clinical development and support of programs through commercialization. Prior to that, he served as Senior Vice President and Global Head, Research and Development Operations for Shire from February 2015 to May 2016. From May 2014 to January 2015, Dr. Thomson served as the Director of the Biomanufacturing Research Institute and Technology Enterprise and a Professor in the Department of Pharmaceutical Sciences of North Carolina Central University. From September 2012 to April 2014, Dr. Thomson served as Vice President, Shire Human Genetic Therapies and later Senior Vice President, Global Head of Research and Nonclinical Development for Shire plc. He received a B.Sc. in chemistry from the University of Strathclyde and a Ph.D. in organic chemistry from the University of Toronto, and he completed post-doctoral work at Yale University.

Non-Employee Directors

Kevin Buehler has served on our board of directors since November 2019. Mr. Buehler has over 30 years of experience in the healthcare industry, having most recently served from April 2011 to May 2014 as the Division Head of Alcon Laboratories, Inc., a division of Novartis AG, a multinational pharmaceutical company. Prior to that, from April 2009 to April 2011, he served as the Chief Executive Officer and President of Alcon Inc., after having served from 2007 to 2009 as Alcon Inc.’s Senior Vice President, Global Markets and Chief Marketing Officer and, from 2006 to 2007, as its Senior Vice President of the U.S. market and the Chief Marketing Officer. Mr. Buehler began his career with Alcon, Inc. in August 1984. Mr. Buehler holds a B.A. degree from Carroll University in Waukesha, WI, with concentrations in Business Administration and Political Science, and is a graduate of the Harvard Executive Program for Management Development.

We believe that Mr. Buehler’s more than 30 years of experience in the healthcare and industry, including both executive and board roles, qualify him to serve as member of our board of directors.

Raymond Schinazi, Ph.D., D.Sc., has served on our board of directors since March 2019. Dr. Schinazi has been the Frances Winship Walters Professor of Pediatrics and the Director of the Laboratory of Biochemical Pharmacology at Emory University, a private research university, since 2008 and 1992 respectively. From November 2014 to January 2019, Dr. Schinazi served on the board of directors of Cocrystal Pharma, Inc. Dr. Schinazi was also instrumental in the founding of a number of biotechnology companies, including Triangle Pharmaceuticals, Idenix Pharmaceuticals and Pharmasset, Inc. Dr. Schinazi currently serves on the board of directors of Brace Pharma Capital, ReViral Pharmaceuticals Ltd, Gliknik Inc., and serves on the board of trustees of amfAR, ICMEC and GVN. Dr. Schinazi is also a Charter Fellow of the National Academy of Inventors and a Fellow of the American Society of Microbiology. Dr. Schinazi received a B.Sc. and Ph.D. in chemistry and D.Sc. in biotechnology from the University of Bath.

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We believe that Dr. Schinazi’s medical background and biotechnology experience qualify him to serve as a member of our board of directors.

Shalini Sharp has served on our board of directors since December 2018. Since 2012, Ms. Sharp has served as Executive Vice President and Chief Financial Officer of Ultragenyx Pharmaceutical Inc., a biopharmaceutical company, holding the position of Chief Financial Officer since May 2012 and the position of Executive Vice President since January 2016. Between May 2012 and January 2016, she served as Senior Vice President of Ultragenyx. Prior to Ultragenyx, Ms. Sharp served in various executive capacities, and ultimately as Chief Financial Officer, of Agenus Inc., a biotechnology company, from August 2003 until May 2012. Ms. Sharp currently serves on the board of directors of Neurocrine Biosciences, Inc.. and Sutro Biopharma, Inc. and previously served on the board of directors of Agenus, Inc. and Array BioPharma Inc. Ms. Sharp received a B.A. in English literature and an M.B.A. from Harvard University.

We believe that Ms. Sharp’s more than 20 years of experience in the life sciences industry including both executive and board roles as well as her expertise in biotechnology, corporate strategy and finance qualify her to serve as a member of our board of directors.

Tony Yao, M.D., Ph.D., has served on our board of directors since May 2018. Since April 2012, Dr. Yao has served as a portfolio manager at ArrowMark Partners, an asset management firm, where he leads the healthcare team and manages the healthcare portfolio. Dr. Yao currently serves on the board of directors of 4D Molecular Therapeutics, Inc. and NexImmune, Inc. Dr. Yao began his investment career in February 2002 as an analyst and later an assistant portfolio manager at Janus Capital Group. Dr. Yao received a Sc.B. in biochemistry from Brown University and a M.D. and Ph.D. in immunology from Stanford University.

We believe that Dr. Yao’s medical background and experience in private equity investing, particularly with healthcare companies, qualify him to serve as a member of our board of directors.

Audit Committee

We have a separately designated standing audit committee. The current members of our audit committee are Kevin J. Buehler, Shalini Sharp and Tony Yao, M.D., Ph.D. Shalini Sharp serves as the chairperson of the committee. All members of our audit committee meet the requirements for financial literacy under the Nasdaq rules. Our board of directors has determined that each of Kevin J. Buehler, Shalini Sharp and Tony Yao, M.D., Ph.D. meet the independence requirements of Rule 10A-3 under the Exchange Act and the applicable Nasdaq rules. Our board of directors has determined that each of Kevin Buehler and Shalini Sharp is an “audit committee financial expert” as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable Nasdaq rules.

Code of Ethics

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of business conduct and ethics is available under the Corporate Governance section of our website at www.precisionbiosciences.com. In addition, we intend to post on our website all disclosures that are required by law or the Nasdaq rules concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report on Form 10-K.

Item 11. Executive Compensation.

This section discusses the material components of our 2019 compensation program for our principal executive officer and next two most highly compensated executive officers who are named in the Summary Compensation Table below. These “named executive officers” and their positions are:

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Summary Compensation Table

The following table sets forth information concerning the compensation of our named executive officers for the years presented:

 

 

Annual Base Salaries

Our named executive officers receive a base salary to compensate them for services rendered to us. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. None of our named executive officers is currently party to an employment agreement or other agreement or arrangement that provides for automatic or scheduled increases in base salary. The following table shows the annual base salaries for 2019 of our named executive officers:

 

 

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Bonuses

 

In addition to base salaries, our named executive officers were eligible to receive a cash bonus based on company and individual performance for 2019. The performance objectives for 2019 cash bonuses related to attaining certain clinical and non-clinical milestones, as well as financial and administrative achievements.  In connection with our IPO, the target bonus amount for Mr. Kane was set at 50% of his base salary.  The target bonus amount for Dr. Heery and Mr. Scimeca is 35% of their respective base salaries.

 

The actual bonus amounts paid to our named executive officers for 2019 are set forth above in the 2019 Summary Compensation Table in the column entitled “Bonus.”

 

In addition to their 2019 annual bonuses, Dr. Heery and Mr. Scimeca received sign-on bonuses of $50,000 and $35,000, respectively, in connection with commencing employment with us during 2019. Each sign-on bonus is subject to repayment in the event the executive voluntarily resigns or is terminated for cause within the first year of employment.

Equity Compensation

Our equity award program is the primary vehicle for offering long-term incentives to our executives. We believe that equity awards provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders. To date, we have used stock option grants for this purpose because we believe they are an effective means by which to align the long-term interests of our executive officers with those of our stockholders. The use of options also can provide tax and other advantages to our executive officers relative to other forms of equity compensation. We believe that our equity awards are an important retention tool for our executive officers, as well as for our other employees.

We award stock options broadly to our employees, including to our non-executive employees. Grants to our executives and other employees are made at the discretion of our board of directors and are not made at any specific time period during a year.

 

In connection with our IPO, we adopted our 2019 Incentive Award Plan, referred to as the 2019 Plan, to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and to enable our company to obtain and retain services of these individuals, which we believe are essential to our long-term success. Following the effectiveness of our 2019 Plan, we ceased making grants under our 2015 Plan. However, our 2015 Plan continues to govern the terms and conditions of the outstanding awards granted under it.

We granted the following stock options to our named executive officers during 2019 under our 2019 Plan:

 

 

Retirement Plans

We currently maintain the Precision BioSciences, Inc. 401(k) Plan, a defined contribution retirement savings plan, or the 401(k) Plan, for the benefit of our employees, including our named executive officers, who satisfy certain eligibility requirements. Our named executive officers are eligible to participate in the 401(k) Plan on the same terms as other full-time employees. The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) Plan. In 2019, we matched participants’ elective salary deferral contributions to the 401(k) Plan up to 100% of the first 4% of the employee’s salary deferred. Matching contributions made by us vest immediately. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) Plan, and making matching contributions, adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.

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Employee Benefits and Perquisites

Our named executive officers are eligible to participate in our employee benefit plans and programs, which include medical, dental and vision benefits, health and flexible spending accounts, life, short-term, long-term and supplemental individual disability, and supplemental insurance and wellness and tuition reimbursement to the same extent as our other full-time employees generally, subject to the terms and eligibility requirements of those plans. We also provide Messrs. Kane and Scimeca and Dr. Heery, along with certain other executive officers and senior employees, with certain supplemental disability insurance benefits. We also provide relocation benefits to our named executive officers as determined in our board’s discretion.

Outstanding Equity Awards at 2019 Fiscal Year-End

The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each of our named executive officers as of December 31, 2019.

 

 

Employment Agreements

We have entered into employment agreements with each of our named executive officers that set forth the terms and conditions of each executive’s employment with us.

Each employment agreement establishes an annual base salary and target bonus opportunity for each named executive officer, the current amounts of which are described above under the headings “Annual Base Salaries” and “Bonuses”.  The named executive officers are eligible to participate in our medical, dental and disability insurance, the 401(k), personal leave and other employee benefit plans and programs for which the named executive officer is eligible, subject to the terms and conditions of such plans and programs.

Each named executive officer’s employment agreement and employment are terminable by either the named executive officer or us without cause on 30-days’ notice. In the event that a named executive officer’s employment is terminated by us without cause or by the executive for good reason, in each case as defined in the employment agreements, then in addition to payment of any accrued amounts and subject to such named executive officer’s timely executing a release of claims and continuing to comply with obligations under his proprietary information agreement, he will be entitled to receive (1) base salary continuation for 12 months in the case of Mr. Kane or nine months in the case of Dr. Heery and Mr. Scimeca, and (2) reimbursement for additional costs the executive incurs for continued coverage under our group health insurance under the Consolidated Budget Reconciliation Act of 1985, or COBRA, for up to 12 months in the case of Mr. Kane or nine months in the case of Dr. Heery and Mr. Scimeca.

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In lieu of the foregoing, the employment agreements provide that, in the event a named executive officer’s employment is terminated by us without cause or by the named executive officer for good reason three months prior to or 12 months after the occurrence of a change in control, then, subject to his timely executing a release of claims and continuing to comply with obligations under his proprietary information agreement, then such named executive officer shall be entitled to (1) a lump sum payment equal to, in the case of Mr. Kane, 18 months of his then current base salary plus 1.5 times his target bonus, and in the case of Dr. Heery and Mr. Scimeca, 12 months of base salary plus one times his target bonus, (2) reimbursement for the additional costs the executive incurs for continued coverage under our group health insurance under COBRA for up to 18 months in the case of Mr. Kane and up to 12 months in the case of Dr. Heery and Mr. Scimeca, and (3) accelerated vesting of all unvested time-based equity grants.

Under the separate proprietary information, inventions, non-competition and non-solicitation agreement with each of Mr. Kane, Dr. Heery and Mr. Scimeca, referred to as the proprietary information agreement above, each named executive officer has agreed to refrain from competing with us or soliciting our employees, independent contractors, customers or suppliers, in each case, while employed and following the termination of his employment for any reason for a period of one year. Notwithstanding the foregoing, no such post-employment restrictions are intended to restrain Mr. Scimeca’s ability to practice law or violate any rules of professional conduct to which he is subject.  Each named executive officer has acknowledged our ownership rights in any intellectual property and assigned any such ownership rights to us.    

Director Compensation

2019 Option Grants to Non-Employee Directors

In connection with our IPO, Dr. Schinazi was granted an option to purchase 34,544 shares, which option will vest as to 34% of the underlying shares on March 27, 2020 and in equal installments at the end of each three-month period over the following 24 months. In November 2019 in connection with his election to our board, Mr. Buehler was granted an option as an initial award under our non-employee director compensation program to purchase 60,776 shares of common stock. This option vests in 36 substantially equal monthly installments following November 8, 2019.

Non-Employee Director Compensation Policy

In connection with our IPO, we adopted and our stockholders approved a compensation program for our non-employee directors under which each non-employee director is eligible to receive the following amounts for their services on our board of directors:

Director fees under the program are payable in arrears in four equal quarterly installments not later than the fifteenth day following the final day of each calendar quarter, provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our board.

 

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Stock options granted to our non-employee directors under the program have an exercise price equal to the fair market value of our common stock on the date of grant and expire not later than ten years after the date of grant. The stock options granted upon a director’s initial election or appointment vest in thirty-six substantially equal monthly installments following the date of grant. The stock options granted annually to directors vest in a single installment on the earlier of the day before the next annual meeting or the first anniversary of the date of grant. In addition, all unvested stock options vest in full upon the occurrence of a change in control.

2019 Director Compensation

The following table sets forth the compensation earned by our non-employee directors for their service on our board during 2019:

 

 

 

The table below shows the aggregate numbers of option awards held as of December 31, 2019 by each non-employee director who was serving as of December 31, 2019.

 

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information

The following table provides information on our equity compensation plans as of December 31, 2019.

 

 

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information with respect to the beneficial ownership of our common stock as of March 2, 2020 by:

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The number of shares beneficially owned by each individual or entity listed in the table below is determined under rules promulgated by the SEC. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of such person, shares of common stock subject to options or other rights held by such person that are currently exercisable or will become exercisable within 60 days of March 2, 2020 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person. Unless otherwise noted, the address of all listed individuals or entities is c/o Precision BioSciences, 302 East Pettigrew St., Suite A-100, Durham, North Carolina 27701. Each of individual and entity listed has sole voting and investment power with respect to the shares beneficially owned by such person unless otherwise noted, subject to community property laws where applicable.

 

 

* Represents less than 1%.

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Item 13. Certain Relationships and Related Transactions, and Director Independence.

Our board of directors recognizes that transactions with related persons present a heightened risk of conflicts of interests and/or improper valuation (or the perception thereof). Our board of directors has adopted a written policy on transactions with related persons, which requires that our audit committee approve or ratify related person transactions required to be disclosed pursuant to Item 404(a) or, if applicable, Item 404(d) of Regulation S-K.  Item 404 of Regulation S-K requires disclosure, subject to certain exceptions, of transactions in which we were or are to be a participant and the amount involved exceeds $120,000 (or such other amount is applicable while we remain a smaller reporting company) and in which any “related person” as defined under Item 404(a) of Regulation S-K had or will have a direct or indirect material interest). It is our policy that directors interested in a related person transaction will recuse themselves from any vote on a related person transaction in which they have an interest. Each of the transactions described below entered into following the adoption of our related person transaction policy was approved in accordance with such policy.

Duke License

As more fully described in Part I, Item 1. “Business—License and Collaboration Agreements—Duke University,” we are party to the Duke License, pursuant to which Duke granted us an exclusive license (subject to certain exceptions) under certain patents owned by Duke related to certain meganucleases and methods of making such meganucleases. The patents in-licensed by us from Duke pursuant to the Duke License were invented by Dr. Jantz, one of our executive officers, a director and a beneficial owner of more than 5% of our common stock, Jeff Smith, Ph.D., one of our employees and formerly a beneficial owner of more than 5% of our common stock, and another inventor who is not affiliated with us.

Pursuant to Duke’s inventors’ policy, inventors of intellectual property invented at Duke, including the inventors of patents licensed to us under the Duke License, are entitled to a portion of the income derived from such inventions. Accordingly, Drs. Jantz and Smith are entitled to receive a portion of the amounts we pay to Duke under the Duke License, together with amounts received by Duke from sales of common stock that we issued to Duke at the inception of the Duke License, are payable by Duke directly to Drs. Jantz and Smith. In connection with the Duke License, Drs. Jantz and Smith each received $284,869 from Duke during the year ended December 31, 2018, and each received $440,625 from Duke during the year ended December 31, 2019.

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Participation in our Initial Public Offering

In connection with our IPO, certain of our stockholders and members of our board of directors purchased shares of our common stock from the underwriters at the initial public offering price of $16.00 per share, and on the same terms as other investors in our IPO. The following table summarizes purchases of shares of our common stock in our IPO by beneficial owners of more than 5% of our capital stock and entities affiliated with members of our board of directors.

 

 

Series B Preferred Stock Financing

From May 2018 to July 2018, we issued and sold to investors in a private placement 21,956,095 shares of our Series B preferred stock at a price per share of $5.01, for aggregate gross proceeds of $110.0 million.

The following table summarizes the Series B preferred stock purchased by directors, executive officers, then beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons.

 

 

Convertible Note Financing

In March 2019, we sold and issued $39.6 million aggregate principal amount of convertible notes payable, or the 2019 Notes, in a private placement transaction. ArrowMark Fundamental Opportunity Fund, L.P. purchased $0.6 million of 2019 Notes, and ArrowMark Life Science Fund, L.P. purchased $0.5 million of 2019 Notes. Tony Yao, M.D., Ph.D. is a current member of our board of directors and is associated with the ArrowMark Funds (as defined below). RFS Partners, LP purchased $0.5 million of 2019 Notes. Raymond Schinazi, Ph.D. is a current member of our board of directors and is associated with RFS Partners, LP.

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The 2019 Notes converted into 2,921,461 shares of common stock immediately prior to the closing of our IPO.

Investors’ Rights Agreement

We are party to an amended and restated investors’ rights agreement, as amended, which we refer to as our investors’ rights agreement, with each holder of our convertible preferred stock and 2019 Notes and certain holders of our common stock (Derek Jantz, Matthew Kane and Jeff Smith), which includes each holder of more than 5% of our capital stock and certain of our directors (Matthew Kane, Derek Jantz, Raymond Schinazi and Tony Yao, M.D., Ph.D.) (or, in some cases, entities affiliated therewith). Our investors’ rights agreement imposes certain affirmative obligations on us and also grants certain rights to the holders, including certain registration rights with respect to the registrable securities held by them that survived our IPO.

Director and Officer Indemnification and Insurance

We have agreed to indemnify each of our directors and executive officers against certain liabilities, costs and expenses and have purchased directors’ and officers’ liability insurance.

Employment Agreements

We have entered into employment agreements with certain of our executive officers, including our named executive officers. For more information regarding the agreements with our named executive officers, see Part III, Item 11, “Executive Compensation—Employment Agreements.”

Stock Option Grants to Executive Officers and Directors

We have granted stock options to our executive officers as more fully described in Part III, Item 11, “Executive Compensation.”

Other Transactions

Chelsea Lynam, Mr. Kane’s wife, serves as our Manager, Facilities Planning & Design. Ms. Lynam earned total compensation of $273,375 in 2018 in respect of base salary, bonus and the grant date fair value of options to purchase 28,106 shares of our common stock. Ms. Lynam earned total compensation of $111,518 in 2019 in respect of base salary and bonus. Ms. Lynam also participates in other employee benefit plans and arrangements that are made generally available to other employees.

Director Independence

Our board of directors has determined that, of our six directors serving as of March 2, 2020, Kevin Buehler, Raymond Schinazi Ph.D., Shalini Sharp and Tony Yao, M.D., Ph.D. do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable listing rules of The Nasdaq Stock Market LLC, or the Nasdaq rules. Furthermore, the board of directors determined that, during his service as a director during 2019, Robert Adelman, M.D., qualified as an independent director under applicable Nasdaq rules. There are no family relationships among any of our directors or executive officers.

Item 14. Principal Accountant Fees and Services.

The following table summarizes the fees of Deloitte & Touche LLP, our independent registered public accounting firm, billed to us in each of the last two fiscal years (in thousands):

 

 

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Audit Fees

Audit fees consisted of the following:

 

 

 

Tax Fees

Tax fees consisted of fees for tax compliance, tax advice, and tax planning services.  

 

All Other Fees

All other fees consisted of subscription fees for accounting research software.

Audit Committee Pre-Approval Policy and Procedures

The formal written charter for our audit committee requires that the audit committee pre-approve all audit services to be provided to us, whether provided by our principal auditor or other firms, and all other services (review, attest and non-audit) to be provided to us by our independent registered public accounting firm, other than de minimis non-audit services approved in accordance with applicable SEC rules.

The audit committee has adopted a policy (the “Pre-Approval Policy”) that sets forth the procedures and conditions pursuant to which audit and non-audit services proposed to be performed by our independent registered public accounting firm may be pre-approved. The Pre-Approval Policy generally provides that the audit committee will not engage an independent registered public accounting firm to render any audit, audit-related, tax or permissible non-audit service unless the service is either (i) explicitly approved by the audit committee (“specific pre-approval”) or (ii) entered into pursuant to the pre-approval policies and procedures described in the Pre-Approval Policy (“general pre-approval”). Unless a type of service to be provided by our independent registered public accounting firm has received general pre-approval under the Pre-Approval Policy, it requires specific pre-approval by the audit committee or by a designated member of the audit committee to whom the committee has delegated the authority to grant pre-approvals.  Any member of the audit committee to whom the committee delegates authority to make pre-approval decisions must report any such pre-approval decisions to the audit committee at its next scheduled meeting. If circumstances arise where it becomes necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories or above the pre-approved amounts, the audit committee requires pre-approval for such additional services or such additional amounts.  Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval.  For both types of pre-approval, the audit committee will consider whether such services are consistent with the SEC’s rules on auditor independence.

On an annual basis, the audit committee reviews and generally pre-approves the services (and related fee levels or budgeted amounts) that may be provided by our independent registered accounting firm without first obtaining specific pre-approval from the Audit Committee.  The audit committee may revise the list of general pre-approved services from time to time, based on subsequent determinations.

The services provided to us by Deloitte & Touche LLP in 2019 and 2018 were provided in accordance with our pre-approval policies and procedures, as then applicable.

 

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements

The following documents are included on pages F-1 through F-24 attached hereto and are filed as part of this Annual Report on Form 10-K.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

(a)(2) Financial Statement Schedules

All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.

(a)(3) Exhibits

The following is a list of exhibits filed as part of this Annual Report on Form 10-K.

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Exhibit Index

 

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Item 16. Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

 

 

 

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Report of Independent Registered Public Accounting Firm

To the stockholders and the Board of Directors of Precision BioSciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Precision BioSciences, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows, for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for revenue from contracts with customers in 2019 due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina

March 9, 2020

We have served as the Company’s auditor since 2017.

 

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PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

PRECISION BIOSCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

See notes to consolidated financial statements

F-2

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PRECISION BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

 

 

See notes to consolidated financial statements

F-3

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PRECISION BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

 

 

See notes to consolidated financial statements

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PRECISION BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

See notes to consolidated financial statements

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Precision BioSciences, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Description of Business

Precision BioSciences, Inc. (the “Company”) was incorporated on January 26, 2006 under the laws of the State of Delaware and is based in Durham, North Carolina. The Company is focused on utilizing its proprietary genome editing platform to help overcome cancers, cure genetic diseases and enable the development of safer, more productive food sources.

The Company’s 100% owned subsidiary, Precision PlantSciences, Inc., was incorporated on January 4, 2012. Precision PlantSciences, Inc. amended its certificate of incorporation on January 16, 2018 to change its name to Elo Life Systems, Inc.  Elo Life Systems Australia Pty Ltd was incorporated on May 29, 2018 as a 100% owned subsidiary of Elo Life Systems, Inc.  The Company’s 100% owned subsidiary, Precision BioSciences UK Limited, was incorporated on June 17, 2019.  The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

Since its inception, the Company has devoted substantially all of its efforts to research and development activities, recruiting skilled personnel, developing manufacturing processes, establishing its intellectual property portfolio and providing general and administrative support for these operations. The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and clinical manufacturing of its product candidates. The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, obtain regulatory approval of its products, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.

On April 1, 2019, the Company completed its initial public offering (“IPO”) in which the Company issued and sold 9,085,000 shares of its common stock at a public offering price of $16.00 per share and received approximately $130.5 million in net proceeds, after deducting underwriting discounts and commission of approximately $10.2 million and issuance costs of approximately $4.6 million.

In connection with the IPO, on March 15, 2019 the Company effected a reverse split of shares of the Company’s common stock on a 1-for-2.134686 basis (the “Reverse Stock Split”) of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for the Company’s Series A and Series B preferred stock.  Accordingly, all common shares, stock option shares, and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect this Reverse Stock Split and adjustment of the preferred stock conversion ratios.  

 

Authorized common shares were not affected by the Reverse Stock Split.  Upon the closing of the IPO, all of the outstanding shares of convertible preferred stock automatically converted into 22,301,190 shares of common stock at the applicable ratio then in effect and the outstanding convertible notes payable, including accrued interest, were settled into 2,921,461 shares of common stock. Subsequent to the closing of the IPO, there were no shares of Series A or Series B convertible preferred stock or convertible notes payable outstanding.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes to the consolidated financial statements. Actual results could differ from those estimates. Significant estimates include recording revenue for performance obligations recognized over time, determination of the fair value of share-based compensation grants and estimating services expended by third-party service providers used to recognize research and development expense.

Basis of Presentation

These financial statements have been prepared in accordance with GAAP. Additionally, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2019, the Company has not generated any revenue from product sales and does not expect to generate any revenue from the sale of product in the foreseeable future. During the year ended December 31, 2019, the Company incurred a net loss of $92.9 million and, as of December 31, 2019, has an accumulated deficit of $177.1 million. The Company has financed operations primarily through its IPO, private placements of convertible preferred stock and convertible debt and with proceeds from its development and commercial license agreement with Les Laboratoires Servier, (“Servier”) and Gilead Sciences, Inc. (“Gilead”) (see Note 12). The Company expects to incur additional operating losses and negative operating cash flows for the foreseeable future.

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Management believes that existing cash and cash equivalents will allow the Company to continue its operations into 2021. In the absence of a significant source of recurring revenue, the continued viability of the Company beyond that point is dependent on its ability to continue to raise additional capital to finance its operations. There can be no assurance that the Company will be able to obtain sufficient capital to cover its costs on acceptable terms, if at all.

 

Reclassifications

Certain reclassifications have been made to the presentation of amounts in our Consolidated Balance Sheet as of December 31, 2019 to conform to the prior year presentation. Specifically, certain current liabilities were reclassified from accrued expenses and other current liabilities and are now presented separately on our Consolidated Balance Sheets.

Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2019 and December 31, 2018, the Company held cash equivalents composed of money market funds and repurchase agreements that were collateralized by deposits in the form of government securities and obligations.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The Company may maintain cash deposits in financial institutions in excess of government insured limits. The Company regularly invests excess cash deposits in money market funds and repurchase agreements. The Company believes that the credit risk arising from the holdings of these financial instruments is mitigated by the fact that these securities are of short duration, government backed and of high credit rating. The Company has not experienced any losses on cash and cash equivalents to date.

Revenue from two development and license agreements accounted for 60% and 33% of revenue during 2019 and 34% and 53% of revenue during 2018, as well as 2% and 98% of deferred revenue as of December 31, 2019.

Deferred Equity Offering Costs

The Company capitalizes incremental legal, professional accounting and other third-party fees directly associated with the Company’s planned equity offerings as other current assets until the equity offering is consummated. After consummation, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital. If the equity offering is not completed, any costs deferred will be expensed immediately.

Property, Equipment and Software

Property, equipment and software are stated at cost, net of depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.

The depreciation and amortization periods for the Company’s significant property, equipment and software categories are as follows:

 

Repairs and maintenance are charged to operations as incurred, and expenditures for additions and improvements that extend the useful life of the asset are capitalized.

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Intangible Assets

Intangible assets primarily include licenses and patents. The Company capitalizes license fees paid to acquire access to proprietary technology if the technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized using the straight-line method over the estimated useful life of the technology. If the access to use the technology rights is one year or less, the cost is recorded as a prepaid expense and amortized over the period identified in the agreement. Amortization expense for licensed technology and capitalized patent costs is included in research and development expenses within the accompanying consolidated statement of operations.

Impairment of Long-Lived Assets

Long-lived assets, such as property, equipment and software and intangible assets, subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is assessed when future undiscounted cash flows are less than the assets’ carrying value and recognized when the carrying value of the asset exceeds fair value. Fair value is calculated by estimating the discounted future cash flows expected to be generated by the asset as well as other valuation techniques. An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset.

Revenue Recognition for Contracts with Customers

The Company’s revenues are generated primarily through collaborative research, license, development and commercialization agreements.

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective transition method. Under this method, results for reporting periods beginning on January 1, 2019 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 605, Revenue Recognition (“ASC 605”). The Company applied the modified retrospective transition method to contracts that were not completed as of January 1, 2019. For the year ended December 31, 2019, the Company reduced revenue recognition by $1.4 million for changes in total estimated time to be incurred in the future to satisfy the performance obligation. ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company evaluates the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determines whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract. Goods or services that meet these criteria are considered distinct performance obligations. If both these criteria are not met, the goods and services are combined into a single performance obligation. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options.  The Company assesses if these options provide a material right to the customer and if so, these options are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.

The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method.

Amounts received prior to revenue recognition are recorded as deferred revenue.  Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue within current liabilities in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue – noncurrent. Amounts recognized as revenue, but not yet received or invoiced are generally recognized as contract assets in the other current assets line item in the accompanying consolidated balance sheets.

F-8

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Milestone Payments – If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment.

Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation linked to some or all of the royalty has been satisfied or partially satisfied. To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.

Significant Financing Component – In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing.  The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less.  The Company assessed each of its revenue arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.

Collaborative Arrangements – The Company has entered into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use the Company’s technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments the Company receives under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales.

The Company analyzes its collaboration arrangements to assess whether the collaboration agreements are within the scope of accounting standards codification (“ASC”) ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, are within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606.  For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above.

For additional discussion of accounting for collaboration revenues, see Note 12, “Collaboration and license agreements.”

 

Research and Development

 

Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities including salaries, benefits, share-based compensation, allocations for rent and facility costs, depreciation, preclinical manufacturing expenses, costs of services provided by contract research organizations (“CROs”) in connection with preclinical trials and contract manufacturing organizations (“CMOs”) engaged to manufacture clinical trial material, costs of licensing technology, and costs of services provided by research organizations and service providers. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed rather than when the payment is made.

F-9

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The Company is required to estimate accrued research and development expenses resulting from its obligations under contracts with CROs, CMOs, research organizations, service providers, vendors and consultants in connection with research and development activities. The financial terms of these contracts are subject to negotiations and vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company’s objective is to reflect the appropriate research and development expenses in its consolidated financial statements by matching those expenses with the period in which the services and efforts are expended. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company adjusts the accrual or amount of prepaid expense accordingly.

Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low in any particular period. To date, the Company has not made any material adjustments to prior estimates of accrued research and development expenses.

Common Stock Valuation

Prior to the IPO, due to the absence of an active market for the Company’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. In determining the exercise prices for stock options granted prior to the IPO, the Company considered the estimated fair value of the common stock as of the measurement date. The estimated fair value of the common stock was determined based upon a variety of factors, including the illiquid nature of the common stock, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s research, the composition and ability of the current research and management team, an evaluation or benchmark of the Company’s competition and the current business climate in the marketplace. Significant changes to the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. For the years ended December 31, 2019 and December 31, 2018, there was no difference between net loss and comprehensive loss in the accompanying consolidated financial statements.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period and, if dilutive, the weighted-average number of potential shares of common stock. Diluted net loss per share is the same as basic net loss per share for the years ended December 31, 2019 and December 31, 2018 since all potential shares of common stock are anti-dilutive as a result of the net loss.

Share-Based Compensation

The Company accounts for all share-based compensation, including stock options and the employee stock purchase plan at fair value and recognizes compensation expense for those equity awards, net of actual forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

The fair value of each equity grant is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of the Company’s common stock and assumptions the Company makes for the volatility of its common stock, the expected term of the stock options, the risk-free interest rate for a period that approximates the expected term of the stock options and the Company’s expected dividend yield. As the Company has limited trading history, expected volatility is estimated based on the historical volatility of publicly traded peer companies and the Company expects to continue to do so until such time as it has adequate historical data regarding the volatility of our traded share price. The expected term of the options has been determined utilizing a weighted value considering actual history and estimated expected term based on the midpoint of final vest date and expiration date.  The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

F-10

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Income Taxes

Deferred tax assets and liabilities are determined based on the temporary differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than the enactment of changes in the tax law or rates. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

Accounting Standards Updates

 

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards. The JOBS Act also exempts the Company from having to provide an auditor attestation of internal controls over financial reporting under Sarbanes-Oxley Act Section 404(b).

 

The Company will remain an “emerging growth company” until the earliest of (i) December 31, 2024, (ii) the last day of the fiscal year in which it has total annual gross revenues of $1.07 billion or more, (iii) the date on which it has issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which it is deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission (“SEC”), which generally is when it has more than $700 million in market value of its stock held by non-affiliates, has been a public company for at least 12 months and have filed one annual report on Form 10-K.

In May 2014, the Financial Accounting Standards Board, or FASB, issued ASC 606, which superseded the revenue requirements in ASC 605. In 2015 and 2016, the FASB issued additional ASUs related to ASC 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identifying performance obligations, and licensing, and they include other improvements and practical expedients. Effective January 1, 2019, the Company adopted ASC 606 using the modified retrospective transition method.

As a result of adopting ASC 606, the Company recorded a $1.0 million transition adjustment in the first quarter of 2019 to reduce the opening balance of accumulated deficit as of January 1, 2019 primarily as a result of the treatment of the up-front consideration received from the Company’s collaboration agreements under prior revenue recognition guidance.

A summary of the amount by which each financial statement line item was affected by the impact of the cumulative adjustment is set forth in the table below:

 

 

F-11

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A summary of the amount by which each financial statement line item was affected in the current reporting period by ASC 606 as compared with the guidance that was in effect prior to adoption is set forth in the tables below:

 

 

 

 

During the year ended December 31, 2019, the Company recorded $9.4 million in revenue that was included in deferred revenue as of December 31, 2018.  The most significant change to the Company’s revenue recognition as a result of the adoption of ASC 606 relates to the accounting for certain option fees and milestone payments in determining the transaction price (step (iii)), and the revenue recognition pattern (step (v)) related to the Company’s development and commercial license agreement with Servier. Under ASC 605, the option fees payable by the Company to exercise the 50/50 co-development and co-promotion option was accounted for as a reduction in the arrangement consideration, and certain development milestones that may be earned for early-stage pre-IND development milestones were included in the arrangement consideration as the early-stage pre-IND development milestones were deemed to be non-substantive. Under ASC 606, the option fees were not accounted for as a reduction in the transaction price as the option fees are contingent upon Servier’s exercise of its commercial (customer) options on licensed product candidates, and the milestone payments were excluded from the transaction price based on the assessment of the most likely amount and application of the variable consideration constraint, since the milestones relate to successful achievement of certain developmental goals, which may not be achieved. In addition, under ASC 605, the Company recognized revenue on a straight‑line basis over the period the Company expected to complete its obligations. Under ASC 606, the Company recognizes revenue based on the proportional performance of the services related to the performance obligation expected. For further discussion of the adoption of ASC 606 see Note 12, “Collaboration and license agreements.”

 

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 substantially aligns accounting for share-based payments to employees and non-employees. This ASU became effective for annual periods beginning after December 15, 2018 including interim periods within that period, and early adoption is permitted.  The Company adopted ASU 2018-07 effective January 1, 2019.  The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of disclosures in the notes to financial statements related to fair value measurements in Topic 820. This ASU will become effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

F-12

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In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and ASC 606 (“ASU 2018-18”). The amendments in ASU 2018-18 make targeted improvements to GAAP for collaborative arrangements by clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in ASC 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. In addition, unit-of-account guidance in ASU 2018-18 was aligned with the guidance in ASC 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606.  ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The amendments should be applied retrospectively to the date of initial application of ASC 606. The Company adopted this guidance effective January 1, 2019 with its initial application of ASC 606. The adoption of the standard did not have an impact on the Company’s consolidated financial statements.

 

In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), which provides a one-year deferral of the effective dates of ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), issued in February 2016.  ASU 2016-02 was issued in order to improve comparability among organizations by recognizing lease assets and liabilities in the consolidated balance sheets for those leases previously classified as operating leases under GAAP. The update requires a lessee to recognize in its consolidated balance sheet a liability to make lease payments and also a right-of-use asset representing its right to use the underlying asset for the lease term.  ASU 2019-10 is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and expects to have an increase in total assets and total liabilities as a result of adopting the lease standard.

Other accounting standards updates issued, but not effective until after December 31, 2019, are not expected to have a material effect on the Company’s consolidated financial position, statements of operations or cash flows.

 

 

Property, equipment and software consisted of the following as of December 31 (in thousands):

 

 

In July 2019, we completed construction and opened our Manufacturing Center for Advanced Therapeutics, or MCAT, a manufacturing facility supporting our therapeutic product development platform, in a leased facility in Research Triangle Park.  Of the $8.6 million construction-in-progress (CIP) balance as of December 31, 2018, $2.5 million related to the MCAT and $4.4 million related to our other leased facilities in Durham was recognized as leasehold improvements in the year ending December 31, 2019.   

Depreciation expense, including amortization of leasehold improvements and software, was $5.3 million and $2.3 million for the years ended December 31, 2019 and December 31, 2018, respectively.

 

 

Intangible assets, net, consisted of the following as of December 31 (in thousands):

 

 

Amortization expense of the intangible assets was $0.1 million for the years ended December 31, 2019 and December 31, 2018.

F-13

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In September 2018, the Company entered into a license agreement to obtain the rights to intellectual property for the production of biological materials for use in its development programs. The Company paid the licensor a one-time, non-refundable license fee of $1.4 million for rights to a cell line that can be used on up to four product candidates. The intellectual property rights are being amortized on a straight-line basis over a period of 216 to 257 months depending on the date the company adds product candidates to the agreement. Amortization expense will be approximately $0.1 million for each of the next five years with the remaining $0.9 million amortized to expense in 2025 and beyond.

Capital Structure

Upon the closing of the IPO, all of the Company’s outstanding shares of the Series A and Series B convertible preferred stock automatically converted into 22,301,190 shares of common stock and the Company’s outstanding convertible notes payable, including accrued interest, converted into 2,921,461 shares of common stock at the applicable conversion ratio. Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding.

On April 1, 2019, the Company filed an amendment to its amended and restated certificate of incorporation pursuant to which, among other things, the Company increased its authorized shares to 210,000,000 shares of capital stock, of which 200,000,000 shares were designated as $0.000005 par value common stock and 10,000,000 shares were designated as $0.0001 par value preferred stock.

 

Under the terms of its equity incentive award plans, the Company’s board of directors may grant equity or equity-based awards to employees, directors and other service providers. The Company granted stock options under the 2006 Stock Incentive Plan (“2006 Plan”) until April 2015 when the 2015 Stock Incentive Plan (“2015 Plan”) was adopted. The 2006 Plan expired in 2016 and there are no remaining shares available to be granted under the 2006 Plan. There were 1,385,203 stock options outstanding under the 2006 Plan as of December 31, 2019.  

 

Upon adoption of the 2015 Plan, there were 5,270,095 shares of common stock reserved for issuance. In May 2018, the Company amended the 2015 Plan to increase the number of shares reserved for issuance to 8,211,980. The 2015 Plan had 5,462,954 stock options outstanding as of December 31, 2019. The Company’s board of directors determined the terms of stock options granted under the 2015 Plan, including option exercise prices and vesting.

 

On March 12, 2019, the Company’s board of directors adopted, and, on or about March 14, 2019 the Company’s stockholders approved, the Precision BioSciences, Inc. 2019 Incentive Award Plan (“2019 Plan”) and the 2019 Employee Stock Purchase Plan (“2019 ESPP”), both of which became effective on March 27, 2019. On March 27, 2019, the Company ceased granting new awards under the 2015 Plan.

 

The 2019 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other share-based awards initially equal to 4,750,000 shares of common stock.  The 2019 Plan provides for an annual increase to the number of shares of common stock available for issuance on the first day of each calendar year beginning January 1, 2020 and ending on and including January 1, 2029 by an amount equal to the lesser of (i) 4% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the board of directors.  The number of shares available for issuance under the 2019 Plan was increased by 2,046,209 on January 1, 2020 pursuant to this provision. Any shares that are subject to awards outstanding under the Company’s 2006 Plan and 2015 Plan as of the effective date of the 2019 Plan that expire, lapse, or are terminated, exchanged for cash, surrendered, repurchased, or canceled without having been fully exercised or forfeited, to the extent so unused, will become available for award grants under the 2019 Plan.  The 2019 Plan had 2,070,959 stock options outstanding as of December 31, 2019.

 

Up to 525,000 shares of the Company’s common stock were initially reserved for issuance under the 2019 ESPP.  The 2019 ESPP provides for an annual increase to the number of shares available for issuance on the first day of each calendar year beginning January 1, 2020 and ending on and including January 1, 2029 by an amount equal to the lesser of (i) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by our board of directors.  The number of shares available for issuance under the 2019 ESPP was increased by 511,552 shares on January 1, 2020 pursuant to this provision. No more than 5,250,000 shares of our common stock may be issued under our 2019 ESPP. The purchase price of the shares, in the absence of a contrary designation, will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the purchase date.  The first ESPP offering period commenced on October 21, 2019 and ended on February 29, 2020; 44,197 shares were issued with respect to this offering period.  The next ESPP offering period commenced on March 1, 2020 and will end on August 31, 2020.

F-14

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The Company recorded employee and nonemployee share-based compensation expense as follows (in thousands):

 

 

Share-based compensation expense related to stock options is included in the following line items in the consolidated statements of operations (in thousands):

 

 

Determining the appropriate fair value model to measure the fair value of the stock option grants on the date of grant and the related assumptions requires judgment. The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model on the date of grant as follows:

 

 

The expected volatility rates are estimated based on the actual volatility of comparable public companies over the expected term. The expected term represents the average time that stock options that vest are expected to be outstanding. The Company does not have sufficient history of exercising stock options to estimate the expected term of employee stock options and thus utilizes a weighted value considering actual history and estimated expected term based on the midpoint of final vest date and expiration date. The risk-free rate is based on the United States Treasury yield curve during the expected life of the option.

The following table summarizes activity in the Company’s stock option plans for the years ended December 31, 2019 and December 31, 2018:

 

 

The intrinsic value of stock options exercised was $10.6 million and $2.7 million during the years ended December 31, 2019 and December 31, 2018, respectively.

There was approximately $29.0 million of total unrecognized compensation cost related to unvested stock options as of December 31, 2019, which is expected to be recognized over a weighted-average period of 2.9 years.

F-15

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The following table summarizes certain information about stock options granted under the stock option plans which are vested or expected to vest as of December 31, 2019 and December 31, 2018.

 

 

The following table summarizes certain information about stock options outstanding under the stock option plans for the years ending December 31, 2019 and December 31, 2018, respectively:

 

 

 

 

In January 2011, the Company established a defined contribution 401(k) retirement savings plan (the “Retirement Plan”) to all full-time employees. Employee contributions to the Retirement Plan can be 100% of annual compensation up to the prescribed annual maximum under the Internal Revenue Code. Administrative fees of less than $0.1 million were paid by the Company for the years ended December 31, 2019 and December 31, 2018.

The Retirement Plan includes a safe-harbor matching employer contribution equal to 100% of participants’ deferral contributions up to 4%. The Company made contributions of $0.6 million and $0.4 million to the Retirement Plan during the years ended December 31, 2019 and December 31, 2018, respectively.

Litigation

 

The Company is subject to various legal matters and claims in the ordinary course of business. Although the results of legal proceedings and claims cannot be predicted with certainty, in the opinion of management, there are currently no such known matters that will have a material effect on the consolidated financial condition, results of operations or cash flows of the Company.

F-16

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Leases

The Company leases office and laboratory space under long-term operating leases.  These leases provide tenant improvement allowances and rent abatements as incentives for the Company to either enter into the initial lease agreement or expand within existing premises already under lease and represent all of the Company’s lease obligations as of December 31, 2019.  These leases include the following:

The following is a schedule of future minimum lease payments for all leases as of December 31, 2019 (in thousands):

 

 

Supply Agreements

The Company enters into contracts in the normal course of business with CMOs for the manufacture of clinical trial materials and CROs for clinical trial services. These agreements provide for termination at the request of either party with less than one-year notice and are, therefore, cancelable contracts and, if canceled, are not anticipated to have a material effect on the consolidated financial condition, results of operations, or cash flows of the Company.

 

The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

The Company excluded the following potential shares of common stock from the computation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect:

 

 

 

In March 2019, the Company entered into a note purchase agreement pursuant to which it sold and issued an aggregate of $39.6 million of convertible notes payable (the “2019 Notes”).

 

F-17

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The 2019 Notes accrued interest at a rate of 6% per annum.  The 2019 Notes were settled in 2,921,461 shares of common stock in connection with the closing of the Company’s IPO (see Note 1) at a settlement price of $13.60 per share (equal to 85% of the IPO price per share).  

 

On issuance, the Company elected to account for the 2019 Notes at fair value with any changes in fair value being recognized through the consolidated statements of operations until the 2019 Notes were settled. The fair value of the 2019 Notes was determined to be $39.6 million on issuance and $49.4 million as of April 1, 2019, the settlement date. For the year ended December 31, 2019, the Company recognized $9.8 million of expense as changes in fair value and $0.2 million of interest expense.

Revolving Line

In May 2019, the Company entered into a loan and security agreement with Pacific Western Bank (the “Pacific Western Loan Agreement”) pursuant to which the Company may request advances on a revolving line of credit of up to an aggregate principal of $50.0 million (the “Revolving Line”). The maturity date of the Revolving Line is May 15, 2022.  

The Revolving Line bears interest at an annual rate equal to the greater of (i) 1.25% below the prime rate then in effect, or (ii) 4.25% at all times when the Company maintains a daily balance of cash in its demand deposit accounts at Pacific Western Bank of at least $25.0 million, and the greater of (i) 0.25% above the prime rate then in effect; or (ii) 5.75% at all times when the Company does not maintain a daily balance of cash in demand deposit accounts at Pacific Western Bank of at least $25.0 million.  The Pacific Western Loan Agreement requires that the Company pay a quarterly fee in an amount equal to 0.50% per annum of the unused portion of the Revolving Line. The unused fee shall be waived for any quarter the Company maintains a daily balance in its demand deposit accounts of at least $25.0 million. If the Revolving Line is terminated prior to the maturity date, the Company is required to pay an early termination fee equal to 1.0% of the Revolving Line.

The Company granted Pacific Western Bank a security interest in substantially all of its assets, excluding any of the intellectual property now or hereafter owned, but including any rights to payment from the sale or licensing of any such intellectual property. The Company is prohibited from paying cash dividends without the prior written consent of Pacific Western Bank. The Pacific Western Loan Agreement includes customary representations, warranties and covenants (affirmative and negative) and was amended in December 2019 to allow the Company to maintain a bank account with a non-affiliated bank in the United Kingdom provided that the account balance does not exceed 1.5 million GBP or its U.S. dollar equivalent at any time.

There were no borrowings, and the Company was in compliance with its financial covenants, under the Pacific Western Loan Agreement as of December 31, 2019.

The Company recorded no income tax expense due to the operating losses incurred for the years ended December 31, 2019 and December 31, 2018.

Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows (in thousands):

 

 

F-18

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As of December 31, 2019 and December 31, 2018, the Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the net deferred tax assets is not determined to be more likely than not. The net increase in the valuation allowance for the year ended December 31, 2019 of $25.0 million is comprised of an increase in deferred tax assets, primarily related to deferred revenue and net operating loss carryforwards, for the year.

The reasons for the difference between actual income tax benefit for the years ended December 31, 2019 and December 31, 2018 and the amount computed by applying the statutory federal income tax rate to losses before income tax benefit are as follows (in thousands):

 

 

As of December 31, 2019, the Company had federal, state, and foreign net operating loss (“NOL”) carryforwards of approximately $101.3 million, $101.7 million, and $0.4 million respectively. At December 31, 2018, the Company had federal and state NOL carryforwards of approximately $40 million and $39.8 million, respectively. Federal NOL carryforwards of $19.7 million begin to expire in 2030 while the remaining federal NOL carryforward of $81.6 million carries forward indefinitely. The state NOL carryforwards begin to expire in 2025. The foreign NOLs carryforward indefinitely. At December 31, 2019, the Company had federal and state research and development (“R&D”) tax credits of $7.2 million and an amount less than $0.1 million, which begin to expire in 2027 and 2030, respectively. At December 31, 2018, the Company had federal and state tax R&D credits of $3.6 million and an amount less than $0.1 million which begin to expire in 2027 and 2030, respectively. At December 31, 2019 and December 31, 2018, the Company had federal Orphan Drug credits of $1.8 million and $0.7 million, respectively, which begin to expire in 2038. At December 31, 2019 and December 31, 2018, the Company had federal contribution carryforwards of $0.1 million and an amount less than $0.1 million, respectively, which begin to expire in 2020.

 

 

The Company incorporated a subsidiary in Australia in 2018. However, the subsidiary has had minimal losses since inception. As such, there are no undistributed earnings as of December 31, 2019.  The Company incorporated a subsidiary in the United Kingdom in 2019. However, the subsidiary has had minimal activity since inception. As such, there are no undistributed earnings as of December 31, 2019.

 

The Company’s ability to utilize its NOL and R&D credit carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups. The Company has not completed a study to assess whether one or more ownership changes have occurred since the Company became a loss corporation under the definition of Section 382. If the Company has experienced an ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any such limitation may result in the expiration of a portion of the NOL or R&D credit carryforwards before utilization. Until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on the results of operations of the Company.

 

The Company reflects in the accompanying consolidated financial statements the benefit of positions taken in a previously filed tax return or expected to be taken in a future tax return only if it is considered ‘more-likely-than-not’ that the position taken will be sustained by the appropriate taxing authority. As of December 31, 2019 and December 31, 2018, the Company had no unrecognized income tax benefits. The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying consolidated statements of operations. As of December 31, 2019 and December 31, 2018, the Company had no such accruals.

 

F-19

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The Tax Cuts and Jobs Act of 2017 subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognized deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred. The Company does not have a GILTI inclusion in years ends December 31, 2019 or December 31, 2018 and therefore, no GILTI tax has been recorded for the years then ended.

 

The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, and accrued expenses and other current liabilities, approximate their respective fair values due to their short-term nature. The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis and to minimize the use of unobservable inputs when determining their fair value. The three tiers are defined as follows:

Level 1—Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities

Level 2—Inputs, other than quoted prices in active markets, that are observable either directly or indirectly

Level 3—Unobservable inputs for which there is little or no market date, which require the Company to develop its own assumptions

The Company classifies investments in money market funds within Level 1 as the prices are available from quoted prices in active markets. Investments in repurchase agreements are classified within Level 2 as these instruments are valued using observable market inputs including reported trades, broker/dealer quotes, bids and/or offers.

As of December 31, 2019 and December 31, 2018, the Company held cash equivalents which are composed of money market funds and repurchase agreements that were purchased through repurchase intermediary banks and collateralized by deposits in the form of government securities and obligations.

The following represents assets measured at fair value on a recurring basis by the Company (in thousands):

 

 

 

Development and Commercial License Agreement with Servier

On February 24, 2016, the Company entered into a development and commercial license agreement, as subsequently amended, with predecessor entities to Servier. This agreement establishes a collaboration between the Company and Servier to develop allogeneic chimeric antigen receptor T (“CAR T”) cell therapies for up to six unique antigen targets selected by Servier. Servier selected one target at the agreement’s inception. Servier is required to make a milestone payment to the Company upon achievement of an early-stage pre- investigational new drug application (“IND”) development milestone event completed for each of the remaining five targets selected, if any. The Company granted Servier a development license and will perform early-stage R&D on the selected targets and develop the resulting therapeutic product candidates through Phase 1 clinical trials and manufacture clinical trial material for use in Phase 2 clinical trials. Also, the Company and Servier have formed a joint steering committee (“JSC”) to provide high-level oversight and decision making regarding the activities covered under the agreement.

F-20

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The Company received an upfront payment of $105.0 million under the agreement. At the Phase 2 readiness stage for any product candidate, Servier may exercise a commercial option, subject to payment of commercial option exercise fees, to proceed with development and commercialization of the product candidate and perform late-stage R&D, including Phase 2 and Phase 3 clinical trials and obtaining regulatory approvals. The Company has the ability to receive total payments, in the aggregate across all six targets that may be selected by Servier, of up to approximately $1.6 billion, including the upfront payment of $105.0 million and up to $1.5 billion in milestone payments, consisting of up to $401.3 million in development milestone payments and up to $1.1 billion in commercial milestone payments. The Company is also entitled to receive tiered royalties ranging from the mid-single digit percentages to the sub-teen percentages on worldwide net sales of any products developed, subject to customary potential reductions. The Company also has the right to opt in and participate in the development and commercialization of any products resulting from the collaboration through a 50/50 codevelopment and co-promotion option in the United States. This will require the Company to pay a codevelopment and co-promotion option fee on each licensed product for which the Company elects to participate. This option is exercisable at the Phase 2 readiness stage and only after Servier exercises its commercial option.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the promises in the agreement represent transactions with a customer. The Company has determined that the promises associated with the research and development activities for each of the six targets are not distinct because they are all based on the ARCUS proprietary genome editing platform. The Company has concluded that the agreement with Servier contains the following promises: (i) a development license; (ii) performance of early-stage R&D services, (iii) the manufacture of clinical trial material for use in Phase 2 clinical trials, and (iv) JSC participation. The Company determined that the license, manufacture of clinical trial material, and R&D services were not distinct from each other, as the license, pre-clinical and clinical supply, and R&D services are highly interdependent upon one another. Participation on the JSC to oversee the research and development activities are combined into the single performance obligation as these activities are highly interdependent with the other R&D services. As such, the Company determined that these promises should be combined into a single performance obligation.

Under the agreement with Servier, in order to evaluate the appropriate transaction price, the Company determined that the upfront amount of $105.0 million constituted the entire consideration to be included in the transaction price as of the outset of the arrangement.  As such, this amount was allocated to the single performance obligation. The commercial option exercise fees that may be received are excluded from the transaction price until each customer option is exercised as it was determined that the options are not material rights. The potential development milestone payments that the Company is eligible to receive prior to the exercise of the options as well as commercial milestones, were excluded from the transaction price, as all milestone amounts were fully constrained based on the probability of achievement, since the milestones relate to successful achievement of certain developmental goals, which might not be achieved. None of the future royalty payments were included in the transaction price, as the potential payments represent sales-based consideration. The Company will reevaluate the transaction price, including all constrained amounts, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.

The Company recognizes revenue from the upfront payment of $105.0 million based on an input method in the form of research effort relative to expected research effort at the completion of the performance obligation, which is based on the actual time of R&D activities performed relative to expected time to be incurred in the future to satisfy the performance obligation. Management evaluates and adjusts the total expected research effort for the performance obligation on a quarterly basis based upon actual research accomplishments and the probability of continuing research efforts in the future. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The remaining performance obligation associated with the $105.0 million upfront payment is expected to be satisfied over a four year period as of December 31, 2019.

During the years ended December 31, 2019 and December 31, 2018, the Company recognized revenue under the agreement with Servier of approximately $7.3 million and $5.8 million, respectively. Deferred revenue related to the agreement with Servier amounted to $80.9 million and $88.6 million as of December 31, 2019 and December 31, 2018, respectively, of which $15.0 million and $5.8 million, respectively is included in current liabilities. No development or sales-based milestone payments were received during the year ended December 31, 2019 and December 31, 2018.  

Collaboration and License Agreement with Gilead

On September 10, 2018, the Company and Gilead Sciences, Inc. (“Gilead”) entered into a collaboration and license agreement to develop genome editing tools to target viral DNA associated with Hepatitis B. Pursuant to the terms of the agreement, Gilead will receive an exclusive license to exploit the resulting synthetic nucleases and products that use them to treat Hepatitis B in humans (“development license”), and the Company is entitled to receive up to $40.0 million in research funding for early-stage R&D services, paid in semi-annual increments, over an initial three year term and development and commercial milestone payments of up to an aggregate of $445.0 million, consisting of up to $105.0 million in development milestone payments and up to $340.0 million in

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commercial milestone payments. The Company is also entitled to receive tiered royalties ranging from the high single digit percentages to the mid-teen percentages on worldwide net sales of the products developed through the term of the agreement, subject to customary potential reductions. Gilead is responsible for obtaining regulatory approvals and, upon completion of the collaboration, will assume sole responsibility for the development and commercialization of such gene editing therapies and products. The Company will provide technology transfer of its development know-how prior to Gilead assuming responsibility. Also, the Company and Gilead will negotiate a separate supply agreement for the Company to manufacture specifically identified products for Gilead to use in clinical trials at price based on the Company’s costs. The Company and Gilead have formed a joint steering committee (“JSC”) and a joint research and development committee (“JRDC”) that collectively will provide oversight, decision making and implementation guidance regarding the collaboration activities covered under the agreement.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the promises in the agreement represent transactions with a customer. The Company has concluded that the agreement with Gilead contains the following promises: (i) a development license; (ii) performance of early-stage R&D services, including technology transfer services, iii) JSC and JRDC participation, and (iv) regulatory responsibilities related to non-clinical and chemistry, manufacturing and control (“CMC”) reports. The Company determined that the license and R&D services were not distinct from each other, as the license and R&D services are highly interdependent upon one another. Participation on the JSC and JRDC to oversee the research and development activities are combined into the single performance obligation as these activities are highly interdependent with the other R&D services. The regulatory responsibilities related to non-clinical and CMC filings do not represent separate performance obligations based on their dependence on the research and development efforts. As such, the Company determined that these promises should be combined into a single performance obligation.

Under the agreement with Gilead, in order to evaluate the appropriate transaction price, the Company determined that the $40.0 million research funding for early-stage R&D services, paid in semi-annual increments over an initial three-year term, constituted the entire consideration to be included in the transaction price as of the outset of the arrangement. As such, this amount was allocated to the single performance obligation. The potential development and commercial milestone payments that the Company is eligible to receive were excluded from the transaction price, as all milestone amounts were fully constrained based on the probability of achievement, since the milestones relate to successful achievement of certain developmental goals, which might not be achieved. None of the future royalty payments were included in the transaction price, as the potential payments represent sales-based consideration.  The Company will reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.

Revenue associated with the combined performance obligation is being recognized as revenue on a straight-line basis as the R&D services are provided over the initial three-year term.  The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation.

During the years ended December 31, 2019 and December 31, 2018, the Company recognized revenue under the agreement with Gilead of approximately $13.3 million and $3.7 million, respectively. Deferred revenue related to the agreement with Gilead amounted to $1.5 million and $2.3 million as of December 31, 2019 and December 31, 2018, respectively, all of which is included in current liabilities. No development or sales-based milestone payments were received during the year ended December 31, 2019.

 

Research, Collaboration and License Agreement with the Trustees of the University of Pennsylvania

On January 1, 2018, the Company entered into a Research, Collaboration and License Agreement with the University of Pennsylvania (“Penn”) to collaborate on the preclinical development for gene editing products involving the delivery of an ARCUS nuclease. The Company will provide semi-annual research funding payments of up to $5.0 million for a three-year term to fund the cost of research programs as specified in a mutually agreed-upon research budget and be responsible for post-IND enabling study development activities. The research funding payments will be expensed as incurred; however, if payments made by the Company exceed the costs incurred by Penn in the six-month period, the excess amount will be credited to the Company in the next semi-annual period.  

In addition to the research funding payments, if the Company elects to use certain Penn technology, the Company will be required to make development and sales milestone payments totaling up to $16.1 million per product in any one year, assuming the maximum development and sales milestones are met in any one year. An additional $12.3 million per product in sales milestone payments could be payable in other years if other sales thresholds are achieved, thus totaling $28.4 million in aggregate milestone payments per product. Low single-digit royalty percentages are also payable on net sales of certain products.

Penn provided the Company a non-exclusive license for patent rights and know-how to be used in exchange for an upfront payment of $0.3 million. Once the Company has paid $15.0 million in research funding, it then has the option to pay a $1.0 million option fee to obtain a license for additional patent rights.

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In October 2019, both parties agreed to adjust the activities conducted under the agreement to focus exclusively on the collaboration’s program to edit the PCSK9 gene to reduce levels of LDL-C in the blood, commonly known as “bad cholesterol”. The agreement’s termination provisions allow the Company to terminate the agreement by providing written notice at least 60 days prior to the due date of the next semi-annual research funding payment. In this event, the Company would not make termination payments to Penn other than for non-cancelable costs and reasonable wind-down costs.

The Company has developed a genome editing platform and performed related research for human therapeutic and agricultural applications. The Company’s Chief Operating Decision Maker (“CODM”) evaluates the Company’s financial performance based on two reportable segments: Therapeutics and Food. The Therapeutics segment is focused on the development of products in the field of immuno-oncology and of novel products outside immuno-oncology to treat human diseases. The Food segment is focused on applying ARCUS to develop food and nutrition products through collaboration agreements with consumer-facing companies. The CODM reviews segment performance and allocates resources based upon segment revenue and segment operating loss of the Therapeutics and Food reportable segments.

Segment operating loss is derived by deducting operational cash expenditures, net, from GAAP revenue. Operational cash expenditures are cash disbursements made that are directly attributable to the reportable segment (including directly attributable research and development and property, equipment, and software expenditures).  For the year ended December 31, 2018, the Company allocated centralized research and development expenditures for early stage research, nuclease development and the purchase of general laboratory supplies to the Therapeutics and Food segments based on headcount.  In January 2019, the Food segment moved into a new leased facility in Durham, North Carolina. The Company has determined that the Food segment is no longer deriving benefit from the Company’s centralized research and development expenditures, thus all these expenditures are allocated to the Therapeutics segment for the year ended December 31, 2019. The reportable segment and centralized research and development operational cash expenditures include cash disbursements for compensation, laboratory supplies, purchases of property, equipment, and software and procuring services from CROs, CMOs, and research organizations.

 

Certain cost items are not allocated to the Company’s reportable segments. These cost items primarily consist of compensation and general operational expenses associated with the Company’s executive, business development, finance, operations, human resources and legal functions. The Company does not allocate non-cash income statement amounts to its reportable segments, such as share based compensation, depreciation and amortization, intangible asset impairment charges, non-cash interest expense and losses on the disposal of assets. When reconciling segment operating loss to consolidated loss from operations, the Company makes an adjustment to convert the cash expenditures to the accrual basis to reflect GAAP.

All segment revenue is earned in the United States and there are no intersegment revenues. Additionally, the Company reports assets on a consolidated basis and does not allocate assets to its reportable segments for purposes of assessing segment performance or allocating resources.

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Presented below is the financial information with respect to the Company’s reportable segments

 

 

F-24

Exhibit 4.4

DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

As of December 31, 2019, Precision BioSciences, Inc. had one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). References herein to “we,” “us,” “our” and the “Company” refer to Precision BioSciences, Inc. and not to any of its subsidiaries.

The following description of our common stock and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified in their entirety by reference to the full text of our amended and restated certificate of incorporation and our amended and restated bylaws, each of which have been publicly filed with the Securities and Exchange Commission (the “SEC”).  We encourage you to read our amended and restated certificate of incorporation and our amended and restated bylaws and the applicable provisions of the Delaware General Corporation Law (the “DGCL”) for additional information.

Authorized Capital Stock

Our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.000005 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share, all of which are undesignated.

Common Stock

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast. All other elections and questions presented to the stockholders shall be decided by the affirmative vote of the holders of a majority in voting power of the votes cast affirmatively or negatively (excluding abstentions) at the meeting by the holders entitled to vote thereon. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of any series of preferred stock that we may designate and issue in the future.

In the event of our liquidation or dissolution, the holders of our common stock are entitled to receive proportionately our net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Preferred Stock

Under the terms of our amended and restated certificate of incorporation, our board of directors is authorized to direct us to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third‑party to acquire, or could discourage a third‑party from seeking to acquire, a majority of our outstanding voting stock.

Anti‑takeover Provisions

Some provisions of Delaware law and our amended and restated certificate of incorporation and our amended and restated bylaws could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter

 

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transactions that stockholders may otherwise consider to be in their best interests or in our best interests, including transactions that provide for payment of a premium over the market price for our shares.

Undesignated Preferred Stock

The ability of our board of directors, without action by our stockholders, to issue up to 10,000,000 shares of undesignated preferred stock with voting or other rights or preferences as designated by our board of directors could impede the success of any attempt to effect a change in control of the Company. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of the Company.

Stockholder Meetings

Our amended and restated bylaws provide that a special meeting of stockholders may be called only by the chairman of our board of directors, our chief executive officer or president (in the absence of a chief executive officer), or by a resolution adopted by a majority of our board of directors.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors.

Elimination of Stockholder Action by Written Consent

Our amended and restated certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting.

Staggered Board

In accordance with our amended and restated certificate of incorporation, our board of directors is divided into three classes. The directors in each class serve for a three‑year term, with one class being elected each year by our stockholders. Our amended and restated certificate of incorporation and amended and restated bylaws provide that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one‑third of the directors. This system of electing and removing directors may delay or prevent a change of our management or a change in control of our company and may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.

Removal of Directors

Our amended and restated certificate of incorporation provides that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of the holders of at least two‑thirds in voting power of the outstanding shares of stock entitled to vote in the election of directors.

Stockholders not Entitled to Cumulative Voting

Our amended and restated certificate of incorporation does not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the shares of our common stock entitled to vote in any election of directors will be able to elect all of the directors standing for election, if they choose, other than any directors that holders of our convertible preferred stock may be entitled to elect.

Choice of Forum

Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum to the fullest extent permitted by law, the Court of Chancery of the State of

 

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Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the General Corporation Law of the State of Delaware or our certificate of incorporation or bylaws, (4) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws, or (5) any action asserting a claim governed by the internal affairs doctrine. Under our amended and restated certificate of incorporation, this exclusive forum provision does not apply to claims which are vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have subject matter jurisdiction. For instance, the provision would not apply to actions arising under federal securities laws, including suits brought to enforce any liability or duty created by the Exchange Act or the rules and regulations thereunder. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Our amended and restated certificate of incorporation also provides that any person or entity holding, purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and to have consented to this choice of forum provision. It is possible that a court of law could rule that the choice of forum provision contained in our amended and restated certificate of incorporation is inapplicable or unenforceable if it is challenged in a proceeding or otherwise.

Amendment of Charter Provisions

The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock and the provision prohibiting cumulative voting, would require approval by holders of at least two‑thirds in voting power of the outstanding shares of stock entitled to vote thereon.

Section 203 of the Delaware General Corporation Law

We are subject to Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), which prohibits persons deemed to be “interested stockholders” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti‑takeover effect with respect to transactions not approved in advance by our board of directors.

 

 

Exhibit 10.3

SECOND AMENDMENT
TO
LOAN AND SECURITY AGREEMENT

This Second Amendment to Loan and Security Agreement (this “Amendment”) is made and entered into as of December 3, 2019, by and among PACIFIC WESTERN BANK, a California state chartered bank (“Bank”), and PRECISION BIOSCIENCES, inc. and elo life systems, inc. (individually and collectively, jointly and severally, “Borrower”).

RECITALS

Borrower and Bank are parties to that certain Loan and Security Agreement dated as of May 15, 2019 (as amended from time to time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

6.6Primary Depository.  At all times when the aggregate balance of Borrower’s Cash at Bank and Bank’s affiliates is less than the Deposit Account Threshold, Borrower shall maintain, and shall cause all of its Subsidiaries to maintain, all depository and operating accounts with Bank and all investment accounts with Bank or Bank’s affiliates. At all times when the aggregate balance of Borrower’s Cash at Bank and Bank’s affiliates equals or exceeds the Deposit Account Threshold, Borrower and its Subsidiaries may maintain Cash balances that exceed the Deposit Account Threshold in depository, operating, and investments accounts outside of Bank or Bank’s affiliates, so long as each such account outside of Bank is subject to a duly-executed account control agreement in favor of Bank, and in form and substance reasonably satisfactory to Bank. Notwithstanding the foregoing, Precision UK may maintain a bank account in the United Kingdom, with such account not subject to an account control agreement in favor of Bank, so long as the balance in such account does not exceed £1,500,000 (or its US Dollar equivalent) at any time.  Prior to Borrower maintaining any investment accounts with Bank’s affiliates, Borrower, Bank, and any such affiliate shall have entered into a securities account control agreement with respect to any such investment accounts, in form and substance reasonably satisfactory to Bank.  

 

7.13UK Subsidiary.  Permit Precision UK to maintain cash exceeding £1,500,000 or non-cash assets exceeding a book value of $50,000 at any time.

 

 

Precision Biosciences, Inc. – 2^nd Amendment to LSA

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Exhibit 10.3

 

[Signature Page Follows]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Precision Biosciences, Inc. – 2^nd Amendment to LSA

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Exhibit 10.3

 

 

 

 

 

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

 

 

 

 

 

 

[Signature Page to Second Amendment to Loan and Security Agreement]

 

Precision Biosciences, Inc. – 2^nd Amendment to LSA

 

Exhibit 10.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LEASE AGREEMENT BY AND BETWEEN

VENABLE TENANT, LLC, as Landlord

AND

PRECISION BIOSCIENCES, INC., as Tenant

 

 

 

 

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TABLE OF CONTENTS

 

 

 

 

EXHIBITS

 

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(1)Premiums, deductibles, and other charges for insurance;

(2)Real Estate Taxes;

(3)Management fees and personnel costs (including all fringe benefits, workers’ compensation insurance premiums and payroll taxes);

(4)Costs of service, access control, and maintenance contracts;

(5)Maintenance, repair, and replacement expenses and supplies;

(6)Depreciation/amortization for capital repairs or expenditures made by Landlord to reduce operating expenses if Landlord reasonably estimates (and documents) that the annual reduction in Operating Expenses will exceed such depreciation or to comply with legal, insurance, or governmental requirements (or repair/maintenance requirements under the Lease);

(7)Charges for janitorial, window, day porter, and cleaning services and supplies;

(8)Any business, professional, or occupational license tax payable by Landlord or other tax or surcharge (or alternative payment or fee levied, charged, or assessed by a governmental entity in addition to or in lieu of a tax, license, or fee);

(9)Reasonable reserves for such replacements, repairs, and contingencies that would be treated as Operating Expense under this Lease;

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(10)Sales, use, and personal property taxes payable in connection with tangible personal property and services purchased;

(11)Accounting and audit fees relating to the determination of Operating Expenses (and of Tenant’s Proportionate Share thereof) and the preparation of statements required by tenant leases and legal fees (except as provided below);

(12)Expenses incurred in connection with any concierge services;

(13)The rental value of any management office;

(14)Special assessments, fees, charges, levies, penalties, service payments, excises, assessment charges and costs for transit, transit encouragement traffic reduction programs, or any similar purpose;

(15)All costs of operating maintaining, repairing and replacing improvements in any Common Areas; and

(16)Any other reasonable expense actually incurred by Landlord in maintaining, repairing, or operating the Building or the Project.

 

The following costs and expenses will be excluded from Operating Expenses for the Building and the Project:

(1)Costs in connection with any structural repair or major change in the Building;

(2)Costs, including permit, license, and inspection costs, associated with alterations or improvements of the Premises, the premises of other tenants or occupants of the Building or Project, or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Building or Project;

(3)Depreciation of the Building or Project, fixtures or equipment;

(4)Interest, points, fees, and principal payments on mortgages and other debt costs, if any, or amortization on any mortgage or mortgages or any other debt instrument encumbering the Building or Project or the Land;

(5)Costs for which Landlord is reimbursed by its insurance carrier, any tenant’s carrier, any tenant, any warrantor, or any other third party, to the extent of the reimbursement and not including deductibles;

(6)Any bad debt loss, rent loss, reserves for bad debts or rent loss, or legal fees incurred in collecting rent or other obligations from other Building or Project tenants;

(7)The cost of services provided to certain tenants of the Building or Project beyond those provided to all Building or Project tenants, and costs incurred by Landlord in respect of breaches of other leases in the Building or Project;

(8)Costs associated with the operation of the business of the person or entity which constitutes Landlord, as distinguished from the costs of operation of the Building or Project, including accounting and legal matters, costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Building or Project, costs of any disputes between Landlord and its employees, disputes of Landlord with Building or Project management, and outside fees paid in connection with disputes with other tenants and salaries, wages or other compensation above the level of property manager;

(9)Any expenditures which under normal accounting rules should be treated as capital expenditures, except depreciation/amortization for such capital repairs or expenditures made by Landlord for the purpose of reducing Operating Expenses of the Building or Project as set forth above;

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(10)Costs of repairs or replacements caused by the exercise of any condemnation rights by any public or quasi-public authority;

(11)Charitable and political contributions, advertising, marketing, and promotional expenditures, including costs of staging special events (unless applied for the benefit of all tenants or the Building or Project as a whole, or as necessary to provide service in accordance with a first-class standard, e.g., expenses for an annual Building or Project holiday party);

(12)Marketing costs and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Building or Project;

(13)Property management fees in excess of 4% of gross rental receipts;

(14)Costs representing amounts paid to an affiliate of Landlord for services or materials which are in excess of the amounts which would have been paid in the absence of such relationship; and

(15)Any costs, fines, or penalties incurred because Landlord violated any Applicable Law.  

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2.Recitals.  This Lease is made and entered into as of the 5th day of April, 2010, by and between the Landlord and the Tenant.  The parties hereto acknowledge that Landlord has leased the entirety of the Building and the Land from the Prime Tenant pursuant to the Sublease and that the Prime Tenant has leased the Building and the Land from the Prime Landlord pursuant to the Master Lease.  Upon the execution of this instrument, Landlord will sublease the Premises to Tenant.  While the transaction effected hereby would be a sublease, and the Landlord and Tenant are respectively, sublandlord and subtenant, for ease of reference, this instrument is referred to as a Lease, and the parties referred to as Landlord and Tenant, and Landlord hereby confirms that it has authority to sublease the Premises to Tenant.  Now therefore, in consideration of the foregoing and the mutual covenants provided herein, the parties hereto agree as follows:

 

3.Premises.  In consideration of the obligation of Tenant to pay rent as herein provided, and in consideration of the other terms, provisions and covenants hereof, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises for the Permitted Use. The Premises are comprised of the Net Rentable Area in the Building situated on the Land in the County of Durham, City of Durham, State of North Carolina, more particularly described on Exhibit A, attached hereto and incorporated herein by reference, together with all rights, privileges, easements, appurtenances and immunities belonging to or in any way pertaining to the Premises. Except as provided herein (and subject to latent defects not readily apparent through visual inspection and identified “punchlist” items, which Landlord shall repair within a reasonable

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amount of time), Tenant shall lease the Premises “as is” with no representations or warranties made by Landlord as to the condition of the Premises To the best of its knowledge, Landlord represents and warrants that as of this date, the Premises are in material compliance with all Applicable Laws, and are in good condition and repair subject to reasonable wear and tear. In addition, Landlord shall use all reasonable efforts to insure that as of the Commencement Date (modified as provided herein), the Premises will be in material compliance with all Applicable Laws and are in good condition and repair.  To the best of Landlord's knowledge, Applicable Laws and any recorded restrictive covenants permit the Premises to be used for the Permitted Use.

 

The Building is part of the Project and consists of a total of Eighty-Five Thousand Six Hundred and Twenty-Two (85,622) rentable square feet with the Building being comprised of Fifty One Thousand Six Hundred Sixty-Seven (51,667) rentable square feet.  Landlord hereby represents and warrants to Tenant that the foregoing representations regarding rentable square feet are consistent with the definition of rentable area calculated pursuant to Building Owners and Managers Association Standards.  A floor plan of the Premises is attached hereto and made a part hereof as Exhibit B.  As an appurtenance to the Premises, Tenant, its employees and invitees will have the nonexclusive right to use the Common Areas at the Building.

 

Within five business days of the Commencement Date, Tenant will, upon demand of Landlord, execute and deliver to Landlord a letter of acceptance of delivery of the Premises (subject to latent defects not readily apparent through   visual inspection and identified “punchlist” items, which Landlord shall repair within a reasonable amount of time), acknowledging the Commencement and Termination Dates of this Lease.  

 

Except for any items the cost of which is paid out of the Tenant Improvement Allowance, Landlord shall perform, at its sole cost and expense, all work detailed on Exhibit C hereto.  The upfit of the Premises, will be performed by Landlord in accordance with the Premises Specifications in the Work Letter, if applicable attached hereto and made a part hereof Exhibit D.

 

Subject to reasonable rules and regulations as Landlord may from time to time prescribe and subject to rights of ingress and egress of other tenants of the Project, Tenant and its invitees will have the right to the non-exclusive usage of twenty (20) parking spaces.  Landlord will not be responsible for enforcing Tenant’s parking rights against any third parties.

 

Tenant is granted a non-exclusive right to use, in common with the other tenants and users of the Project, all of the Common Areas. Landlord shall have exclusive control and management responsibility of the Common Areas. Landlord may, from time to time, alter the Common Areas, install kiosks, planters, fountains, sculptures, signs, and other structures within the Common Areas provided however that any such alterations shall not materially and adversely interfere with Tenant’s use or enjoyment of the Premises or decrease Tenant’s parking spaces.  Landlord shall have the right to establish, modify, and enforce reasonable rules and regulations with respect to the Common Areas and to grant to individual tenants the right to conduct retail sales within the Common Areas.  Landlord makes no representation or warranty concerning the size of the Common Areas and may, in the future, reduce the size of the Common Areas in its reasonable discretion, provided however that such reduction shall not materially and adversely interfere with

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Tenant’s use or enjoyment of the Premises, and shall result in a commensurate reduction in Tenant’s Proportionate Share.

 

Landlord hereby grants to Tenant a continuing right of first refusal to lease vacant and available space in the Building (the “Additional Space”) under the terms and conditions as provided below:

 

(i) Subordinate to other tenants at the Project with pre-existing First Right of Refusal, and so long as there is no event of default by Tenant hereunder beyond any applicable grace and/or cure period, Landlord will notify Tenant when it has all or a portion of the Additional Space for lease to a third party (the “Third Party”) and the terms and conditions upon which it is willing to lease such space (“Landlord’s Notice”).

(ii) Tenant shall provide written notice to Landlord, as to Tenant’s decision to lease or not to lease the Additional Space within five (5) business days after Landlord’s Notice is received.  If Tenant does provide to Landlord notice to lease the Additional Space, Landlord and Tenant will execute a lease amendment adding the Additional Space to the Premises within twenty (20) days after Landlord’s receipt of Tenant’s notice of intent to lease on all the same terms provided to the Third Party.   If Tenant does not provide written notice to Landlord within five (5) business days after receipt of the Landlord's Notice, Tenant will have been deemed to have waived its right to lease the Additional Space and Landlord shall be free to enter into a lease with the Third Party.  Should all or any portion of the Additional Space become vacant thereafter, Tenant shall again have the right of first refusal provided herein.

(iii) The rights provided to Tenant in this Section are personal to the Tenant and may not be assigned in connection with an assignment of this Lease, subletting of the Premises or otherwise, except for any Permitted Transferee (as hereinafter defined).  

 

4.Term.  The Term of the Lease will begin on the Commencement Date and end on the Termination Date, unless sooner terminated or extended pursuant to the provisions hereof. The Commencement Date and Termination Date will be extended at the option of Landlord due to Force Majeure.  Landlord shall use commercially reasonable measures to ensure that the Commencement Date is no later than October 1, 2010.  In the event that the Commencement Date is later than February 1, 2011 for reasons other than a Tenant Delay or Force Majeure, and provided there is no default or event of default by Tenant hereunder, Tenant shall, by written notice to Landlord on or prior to February 6, 2011 (time being of the essence), have the right to terminate this Lease and all of its obligations hereunder (as of the date of giving such notice), and the parties hereto shall have no further obligation to each other hereunder.

 

Provided there is no default or event of default by Tenant hereunder at the time such rights are exercised or when a Renewal Term will commence, Tenant will have the option to extend the term of this Lease for two (2) Renewal Terms each of three (3) Lease Years by providing Landlord written notice of its desire to do so at least one hundred and eighty (180) days prior to the end of the then current term hereof. The date of the commencement of the Renewal Term will be the day after the expiration of the then current term of the Lease (unless sooner terminated as provided herein).  All terms and conditions of this Lease will be in effect during the Renewal Term, except that (i) the Base Annual Rent will be the lesser of (a) ninety-five percent (95%) of the then market rate for comparable laboratory space in downtown Durham, as determined in accordance with this

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Section 4, or (b) the increase in the CPI with a floor of  two and one-half percent (2.5%) and a ceiling of three percent (3%) but in no event shall Base Annual Rent be less than that paid the previous Lease Year, and (ii) upon the exercise of the right to renew hereunder, a right of Tenant to renew or extend the term hereof will have lapsed.  Failure of Tenant to comply strictly with the provisions of this subparagraph will render the rights of Tenant in this subparagraph null and void.  The rights granted to Tenant in this subparagraph are personal to Tenant and will not inure to the benefit of any successor or assign of Tenant, except for any Permitted Transferee.

 

The market rate shall mean the fair market base rent, without deduction for the cash value of free rent and leasehold improvements, which renewing, non-equity tenants are then receiving in connection with a lease for comparable space in the Durham, North Carolina area.    Promptly following receipt by Landlord of Tenant’s renewal notice, Landlord shall notify Tenant of the amount that, in Landlord’s reasonable opinion, represents the market rate during the Renewal Term.  Within fifteen (15) days of such notice, (a) if Tenant agrees, Tenant shall notify Landlord that Tenant so agrees that the Base Annual Rent therein provided constitutes the market rate, or (b) if Tenant disagrees, Tenant shall specify what Base Annual Rent, in Tenant’s opinion, constitutes the market rate, or (c) if Tenant does not respond, Tenant shall be deemed to agree.  In the event Tenant agrees, then the Base Annual Rent set forth in Landlord’s said notice shall be deemed the market rate.  In the event Tenant disagrees as provided in clause (b) above, the following procedure shall be used in determining the market rate:  The parties shall use due diligence to attempt to agree upon the market rate within seven (7) business days following the foregoing fifteen (15) day period, but, if they do not so agree, then at the request of either party to the other (the “Initial Request”), the parties shall jointly choose a real estate broker (who shall have had at least ten (10) years experience as a broker in commercial office leasing in the Durham, North Carolina area) and who has not been employed by either party, whose decision shall be final and binding.  If the parties do not agree upon such a third party broker and notify in writing the other thereof within seven (7) business days of the Initial Request, then within six (6) additional business days each party shall choose a real estate broker (having the foregoing credentials) and notify in writing the other thereof, and the joint decision of such real estate brokers regarding the market rate shall be final and binding (or, failing such notice, or if such choice is made, failing notice to the other within such six (6) additional business day period, the decision of one such real estate broker timely chosen and noticed shall be final and binding).  If the two (2) real estate brokers timely chosen and noticed do not agree within seven (7) business days of the end of the six (6) business day period mentioned above during which they were chosen, then they shall choose a third such real estate broker (having the foregoing credentials) within five (5) business days, and the decision of such third real estate broker regarding the market rate shall be final and binding.

 

5.Rent.  Beginning on the Rent Commencement Date and continuing thereafter throughout the Term, Tenant will pay the Rent in monthly installments in advance, without demand, deduction or offset, in lawful money of the United States commencing on the Rent Commencement Date, and continuing on the first day of each and every month thereafter until the Termination Date.  Rent payments for any fractional calendar month at the end, or the beginning of the term of the Lease, will be prorated. In the event Tenant fails to pay any installment of Rent hereunder within ten days of the due date of such installment, Tenant will pay to Landlord on demand a late charge in an amount equal to four percent (4%) of such installment. The provision for such late charge will be in addition to all of Landlord’s other rights and remedies hereunder or at law and will not

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be construed as liquidated damages or as limiting Landlord’s remedies in any manner.  Commencing with the second Lease Year hereunder, Base Annual Rent will increase on each anniversary of the Rent Commencement Date by the Base Annual Rent Escalation over the Base Annual Rent paid the previous Lease Year.

 

Commencing January 1 of the year following the Commencement Date and continuing thereafter for each calendar year during the Term, Landlord will present to Tenant Tenant's Forecast Operating Expenses.  Tenant will pay without deduction, offset, or counter claim, and otherwise in the same manner as Base Annual Rent on the first day of each calendar month during the Term, an amount equal to one twelfth (1/12) of Tenant’s Forecast Operating Expenses as Additional Rent.  From time to time during any calendar year, Landlord may revise Tenant’s Forecast Operating Expense and adjust Tenant’s monthly payments to reflect Landlord’s such revisions. Promptly after the full execution of this Lease (and delivery to Tenant of a copy thereof), Tenant shall pay Landlord the first month's Rent due hereunder.

 

Notwithstanding the foregoing, and provided there is no default or event of default hereunder by Tenant, Base Annual Rent (but not Operating Expenses) shall be abated hereunder for the first five (5) months after the Commencement Date (the "Rent Abatement").  Tenant will be responsible for its Proportionate Share of the Operating Expenses for the Building as well as its utilities and janitorial services.  

 

6.Operating Expenses. The accounting of the Operating Expenses will be performed in accordance with Generally Accepted Accounting Principles.  For the purpose of calculating the Operating Expenses, no Controllable Expense will increase more than five percent (5%) over the charge paid by Tenant the previous Lease Year.

 

If the average occupancy rate of the Building Rentable Area will be less than ninety-five percent (95%) during any calendar year, or if any tenant is separately paying for (or does not require) electricity, janitorial, or other services furnished to its premises, then, for purposes of calculating Operating Expenses, the Operating Expenses for such period that vary with the level of occupancy of the Building or Project will be increased by the additional costs and expenses that Landlord reasonably estimates would have been incurred if the average occupancy rate had been ninety-five percent (95%) for such period.  In no event will the Project tenants be required to pay, in the aggregate, more than 100% of the actual Operating Expenses of the Building or Project for any calendar year, and Tenant will not be required to pay more than one hundred percent (100%) of its Proportionate Share of the total increase in Operating Expenses actually incurred for the calendar year, with such actual Operating Expenses to be determined and payments reconciled through the process described above.  At Tenant’s written request, Landlord will provide information sufficient to disclose or quantify adjustments made to each category of Operating Expenses increased pursuant to the provisions of this Section.  For the purpose of this Section, the term “Building” will be deemed to include the roof of the Building and any extensions therefrom, courtyards, sidewalks, landscaping, and all other areas, facilities, improvements, and appurtenances relating to any of the foregoing; provided, however, that Operating Expenses for the Building will not include Operating Expenses for the Project.  

 

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Within 120 days after the end of each calendar year, Landlord will submit to Tenant the Statement showing (i) the actual Tenant’s Proportionate Share of the amount by which Operating Expenses incurred during the preceding calendar year exceed the Tenant's Forecast Operating Expenses, (ii) the amount thereof paid by Tenant, and (iii) the balance due or the overpayment.  If there is a balance due, Tenant will pay the balance due as Additional Rent within thirty (30) days following receipt of such Statement.  If the Statement indicates an overpayment, then Landlord will credit the net overpayment toward Tenant’s next estimated payment(s) pursuant to this Section or if at the end of the Term, will refund such excess to Tenant.  Tenant or its designated representative, at its sole expense, will have the right once per calendar year during the Term to audit Landlord’s books and records relating to the Operating Expenses for the immediately preceding calendar year.  This audit must take place on a mutually agreeable date during reasonable business hours at Landlord’s office at the address stated above and only after Tenant has given Landlord at least fourteen (14) calendar days prior written notice of the date and time Tenant desires to commence such audit.  If Tenant elects to audit Landlord’s books and records, Tenant will have the right to perform an audit of the Operating Expenses for the immediately preceding two (2) calendar years, such audit to be conducted by a reputable accounting firm reasonably approved by Landlord. If any such audit reveals an error by Landlord resulting in an overcharge to Tenant, then Landlord will promptly reimburse Tenant for the amount erroneously charged to Tenant.  Likewise, if any such audit reveals an error resulting in Tenant being undercharged, then Tenant will promptly reimburse Landlord for the amount of such deficiency.  If any audit performed by Tenant reveals that the Operating Expenses in total have been overstated by more than five percent (5%), Landlord will pay and/or reimburse Tenant for the cost of the audit not to exceed Two Thousand, Five Hundred Dollars ($2,500.00).

 

7.Utilities and Services.

 

(a)Landlord shall furnish connections for each utility to the Premises to include electricity, water and sewer, and telephone as specified in Exhibit C. Landlord shall not be liable in any respect for damages to person, property or otherwise due to the interruption in any utility to the Building, nor be construed as an eviction of Tenant, nor work an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof nor give rise to any right or remedy by Tenant unless caused by the gross negligence or willful misconduct of Landlord.  Landlord shall provide conduit and boxes for phone and data at the Premises. Tenant shall bear the costs and be responsible for pulling cable for phone and data from the Demarcation closet (telephone closet) and providing cabling and jacks.

 

(b)Landlord shall provide the following services to Common Areas of the Building:

 

(i)   Common Area Cleaning (M, W, T, F):    (Restrooms, Halls, Stairs, Lobby, Elevator and Entrance):

 

Clean and restock restrooms on 1^st and 2^nd floors

Clean elevator

Sweep stairwell and spot mop for spills

Vacuum carpet

Dust mop hard surface floors and spot mop to remove spills

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Clean entrance glass doors and sills

Dust security desk and Lobby furniture; and

Once Weekly:  Dust and damp wipe stairwell railings.

 

(ii) Lights on throughout Common Areas throughout the business day and parking lot illuminated every night

(iii) Security guard on duty Monday through Friday 8-5

(iv)  HVAC to condition Common Areas during each business day with override after-hours (HVAC annual service contracts included in Operating Expenses)

(v)  Landscaping every 7-10 days with day porter services to patrol, weed and clean site three times week

(vi)  Fire alarm and controlled access door system monitored 24/7 (contract paid through Operating Expenses)

(vii) Elevator preventative maintenance contract and service; and

(viii) Routine maintenance of common areas including, but not limited to, bulb replacements, door adjustments, HVAC adjustments, plumbing repairs, etc.

 

8.Direct Tenant Expenses.  Tenant will arrange for the provision of service and shall pay directly to each service provider all charges for all electricity, gas, and other utilities, janitorial, telephone and internet/data used on or from the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto.

 

9.Security Deposit.  Promptly after the full execution of the Lease (with a copy thereof delivered to Tenant), Tenant will provide Landlord with an amount equal to six (6) months of the Base Annual Rent, Seventy-Three Thousand Eight Hundred Forty-Five and 45/100 dollars ($73,845.45) to be held as Security Deposit.  Provided that Landlord reasonably approves the form and substance of such, Tenant may provide a Letter of Credit in lieu of cash.  Any such Letter of Credit shall be irrevocable, unconditional, payable to the order of Landlord, from an issuer reasonably approved by Landlord, in place for the Term of the Lease and any Renewal Terms hereof, and be for the full amount of the Security Deposit.  Landlord will not be required to apply all or any portion of the Security Deposit with respect to any particular violation or default by Tenant but Landlord may apply all or any portion (as reasonably required to effect a cure) of the Security Deposit to any violation, breach, or default by Tenant hereunder.  Landlord will be entitled to hold the Security Deposit in an account maintained by Landlord for such funds from all tenants of Landlord.  Any interest paid on such an account will become a part of the Security Deposit, accrue to the benefit of the Tenant (less any customary bank fees or charges for maintaining such account), and be delivered to Tenant upon termination of this Lease provided that the Security Deposit and interest thereon have not been applied by Landlord to an event of default hereunder.  Tenant will reimburse Landlord for such portions of the Security Deposit as Landlord will from time to time apply with respect to any violation, breach, or default by Tenant hereunder promptly upon written notice of such application by Landlord.  Any portion of the Security Deposit which has not been appropriated by Landlord in accordance with the provisions hereof will be returned to Tenant within thirty (30) days after the termination of this Lease.

 

If Landlord conveys Landlord’s interest under this Lease, the Security Deposit, or any part thereof not previously applied, shall be released by Landlord to Landlord’s grantee (to the extent not

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applied to any default by Tenant hereunder), and if so released, Tenant agrees to look solely to such grantee for the proper application and return thereof in accordance with the Lease provided that Tenant receives written notice of such conveyance.  Tenant agrees that Tenant will not assign, and that neither Landlord, nor its successors and assigns, will be bound by any such assignment, encumbrance or pledge, attempted assignment, attempted pledge, or attempted encumbrance of the Security Deposit.

 

Any mortgagee or ground lessor will not be responsible to Tenant for the return or application of the Security Deposit, whether or not it succeeds to the position of Landlord hereunder, unless the security deposit will have been received in hand by such mortgagee or ground lessor.

 

Any unperformed obligations of Landlord or Tenant under this Section will survive the termination of the Lease, for whatever reason, or any extension or renewal hereof.

 

Notwithstanding the foregoing and provided there is no default or event of default hereunder by Tenant (or if Tenant has committed a default or event of default more than one (1) time in any twelve (12) month period, then regardless of whether same has been cured), Landlord shall reduce the Security Deposit by the equivalent of one (1) month's Base Annual Rent, Twelve Thousand Three Hundred Seven and 58/100 dollars ($12,307.58) every three (3) months during the Lease Term commencing upon the later of (i) the satisfactory repayment of Tenant’s loan as reported on Precision BioSciences, Inc. Balance Sheet dated January 8, 2010, or (ii) December 31, 2011, until such time that the equivalent of one (1) month's Base Annual Rent, Twelve Thousand Three Hundred Seven and 58/100 dollars ($12,307.58), remains as Security Deposit. With the third reduction of the Security Deposit, if paid as aforesaid, Landlord shall remit to Tenant the net interest that has accrued on the Security Deposit.  Landlord shall provide Tenant written notice of any reduction in the Security Deposit and within five (5) business days thereafter, Tenant will be responsible for the re-issuance of an approved Letter of Credit each time that Security Deposit is eligible for reduction and until Tenant provides a re-issued Letter of Credit, Landlord shall have the right to use and draw upon the currently provided Letter of Credit.  

 

10.Maintenance and Repairs.  Landlord will maintain all Common Areas and Systems serving the Common Areas, the roof, downspouts, gutters, foundation, and the exterior walls (and any structural interior walls or other structural elements) of the Building in good repair, reasonable wear and tear excepted.  Tenant will repair, replace and pay for, any damage to the foregoing caused by the negligence or misconduct of Tenant or any Tenant Party, or caused by Tenant’s default hereunder. The term “walls” as used herein will not include windows, glass or plate glass, doors, special store fronts or office entries.  Tenant will promptly give Landlord written notice of defect or need for repairs, after which Landlord will have reasonable opportunity to repair same or cure such defect. Landlord's liability with respect to any defects, repairs or maintenance for which Landlord is responsible under any of the provisions of this Lease will be limited to the cost of such repairs or maintenance or the curing of such defect.  

 

Tenant will at its own cost and expense maintain, repair and replace the entirety of the Premises (except those for which Landlord is expressly responsible under the terms of this Lease) in  as good condition as received (ordinary wear and tear excepted), promptly making all necessary repairs and replacements, including, but not limited to, heating, ventilation, cooling, plumbing,

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telecommunications, electrical and any other systems (the “Systems”) within or serving the Premises, lighting fixtures, ballasts and bulbs, windows and window treatments, windows, glass and plate glass, doors, any special office entry, interior walls, finish work, and floors and floor coverings within or serving the Premises unless any such damage is caused by parties other than Tenant or a Tenant Party.  Landlord shall insure that the Systems will be in good working order and condition upon the Commencement Date.  Landlord shall assign to Tenant all warranties that are legally assignable, and if not assignable, shall cooperate with Tenant to enforce such warranties. Landlord agrees to assign, to the extent legally assignable, any and all manufacturers’ warranties for the Tenant Improvements, directly to the Tenant, which warranties shall include, but not be limited to, warranties for the Systems, which shall be the standard warranties available from the manufacturers.  Additionally, Landlord acknowledges and agrees that any replacements made to any Systems, or any material components thereof (during the last 24 months of the then-existing Lease Term), shall be made by Landlord, and amortized over its useful life, and charged as a capital expense under the Operating Expense formula.

 

Subject to compliance with any notice and right to cure provisions contained in this Lease, if Tenant shall fail to fulfill its obligations under this Section, the Landlord may enter upon the area of the Building or the Premises as required to perform the obligations of the Tenant, and will be entitled to reimbursement from the Tenant for its actual costs and expenses in conducting such obligations.  The Tenant will reimburse the Landlord for its actual costs and expense promptly upon demand made by the Landlord.  The provisions of this subparagraph will not be interpreted to obligate the Landlord to perform obligations of the Tenant.

 

Tenant will not damage any demising wall of the Building, or disturb the integrity and support provided by any demising wall and will, at its sole cost and expense, promptly repair any damage or injury to any demising wall caused by Tenant or any Tenant Party.

 

11.Alterations. Except for the Tenant Improvements, Tenant will not make any alterations, additions or improvements to the Premises (including, but not limited to, roof and wall penetrations without the prior written consent of Landlord (not to be unreasonably withheld, or delayed). Tenant may, without the consent of Landlord, but at its own cost and expense and in a good workmanlike manner, erect such shelves, bins, machinery, movable lab benches, equipment, trade fixtures (defined as any fixtures used by Tenant in its specific business and not paid for by Landlord) and other non-structural interior improvements as it may deem advisable, without altering the basic character or structure of the Premises or improvements and without overloading or damaging the Premises or Building, and in each case complying with all Applicable Laws. Tenant will not make any alterations, additions or improvements to the Premises which will contravene Landlord’s policies insuring against loss or damage by fire or other hazards, including but not limited to commercial general liability, or which will prevent Landlord from securing such policies in companies reasonably acceptable to Landlord.  If any such alterations, additions or improvements cause the rate of fire or other insurance on the Premises by companies acceptable to Landlord to be increased beyond the minimum rate from time to time applicable to the Premises for permitted uses thereof (as reasonably documented by Landlord), Tenant will pay as Additional Rent the amount of any such increase promptly upon demand by Landlord. Within thirty (30) days receipt of reasonable documentation from Landlord following the completion of any alteration, addition, or improvement at the Premises by Tenant that requires the prior consent of Landlord, Landlord

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will be reimbursed for any reasonable outside consultant or design professional costs actually incurred by Landlord to review any plans or supervise construction work (not to exceed the lesser of $1,500.00 or 5% of Tenant’s “hard” construction costs). No such reimbursement will be required for any alteration, addition or improvement that does not require the consent of Landlord.

 

Any and all alterations, additions, improvements, partitions and fixtures erected by Tenant will be the property of Landlord and will remain at the Premises upon termination of the Lease or upon earlier vacating of the Premises.  All shelves, bins, machinery, trade fixtures, and other interior non-structural improvements installed by Tenant will remain the personal property of Tenant and may be removed by Tenant prior to the termination of this Lease provided such removal may be accomplished without damage to the Premises or Building that cannot be repaired by Tenant as set forth in this subparagraph.  Prior to vacating the Premises, Tenant will repair any damage to the Premises or Building as a result of any alteration, addition, improvement, or repair to the Premises, or the removal of personal property or trade fixtures by Tenant, or any Tenant Party.  Should Tenant fail to conduct any such repair within ten (10) days of written notice from Landlord, Landlord may, at its option, perform same, and Tenant will remit payment to Landlord for the actual cost and expense incurred by Landlord in effecting such repair promptly upon demand.

 

Tenant will have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and each such claim will affect and each such lien will attach to, if at all, only the leasehold interest granted to Tenant by this instrument. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises at the request of Tenant on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises or the improvements thereon and that it will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of Landlord in the Premises or under the terms of this Lease.

 

12.Assignment and Subletting.  Tenant may assign this Lease in its entirety or sublease all or any portion of the Premises without the consent of Landlord to (i) any entity resulting from a merger or consolidation with Tenant, (ii) any entity succeeding to all or substantially all of the business and assets of Tenant, or (iii) any company or professional corporation or association affiliated with, owned by, or under common corporate control with Tenant (each a “Permitted Transferee”); provided, however, that the financial capacity of the Permitted Transferee must be at least equal to that of the Tenant on the date of transfer and the transfer must not be effected by Tenant as a sham transaction or a means to circumvent the intent of this Section or adversely affect the liability of Tenant hereunder. Except as herein otherwise provided, Tenant may not assign or encumber this Lease or its interest in the Premises arising under this Lease, and may not sublet any part or all of the Premises without the prior consent of Landlord, which consent Landlord will not unreasonably withhold, or delay.  For the purpose of the preceding sentence, the word “assign” will be defined and deemed to include the sale or other transfer of a controlling percentage (hereafter defined) of capital stock of Tenant other than to an affiliate or subsidiary or the sale of at least fifty-one percent (51%) of the value of the assets of Tenant.  The phrase “controlling

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percentage” means the ownership of, and the right to vote, stock possessing at least fifty-one percent (51%) of the total combined voting power of all classes of Tenant’s capital stock issued, outstanding and entitled to vote for the election of directors, or such lesser percentage as is required to provide actual control over the affairs of the corporation.  Acceptance of Rent by Landlord after any non-permitted assignment will not constitute approval thereof by Landlord. Notwithstanding any contrary provision contained herein, in no event will any assignment by Tenant of all or any interest in this Lease or any subletting of all or any part of the Premises result in Tenant being released from its obligations hereunder.

 

In no event will this Lease be assignable by operation of any law except as provided herein, and Tenant’s rights hereunder may not become, and will not be listed by Tenant as an asset under any bankruptcy, insolvency or reorganization proceedings.  Tenant is not, may not become, and will never represent itself to be an agent of Landlord, and Tenant acknowledges that Landlord’s title is paramount, and that it can do nothing to affect or impair Landlord’s title.

 

If this Lease will be assigned or the Premises or any portion thereof sublet by Tenant at a rental that exceeds the rentals to be paid to Landlord hereunder, then sixty-five percent (65%) of such excess (after reduction for any expenses incurred by Tenant in conjunction with such assignment or subletting) will be due to the Landlord, upon actual receipt by Tenant.

 

If Tenant desires to enter into any sublease of all or any portion of the Premises or assign its interest in this Lease, Landlord will have the option to exclude from the Premises the space proposed to be sublet by Tenant or if an assignment is proposed, the entire Premises.  Such exclusion or recapture by Landlord will be effective as of the proposed commencement date of the sublease or assignment.  Landlord may exercise said option by giving Tenant written notice within ten (10) business days after receipt by Landlord of Tenant’s request for consent to the proposed sublease or assignment.  If Landlord exercises said option, Tenant will surrender possession of such space to Landlord on the effective date of exclusion or recapture of such space and neither party hereto will have any future rights or liabilities with respect to said space under this Lease.  Effective as of the date of exclusion of any portion of the Premises covered by this Lease pursuant to this paragraph, (i) the Base Annual Rent will be reduced in the same proportion as the number of square feet of Net Rentable Area contained in the portion of the Premises so excluded bears to the number of square feet of Net Rentable Area contained in the Premises immediately prior to such exclusion, and (ii) the Net Rentable Area of the Premises will be decreased by the number of square feet of Net Rentable Area contained in the portion of the Premises so excluded, for all purposes under this Lease.

 

Landlord and Tenant acknowledge and agree that the foregoing provisions have been freely negotiated by the parties hereto and that Landlord would not have entered into this Lease without Tenant’s consent to the terms of this Section.

 

13.Insurance. Landlord agrees to maintain standard fire and extended coverage insurance for the Building (including the Tenant Improvements) in an amount not less than the replacement cost, insuring against special causes of loss, including, the perils of fire, and lightning, such coverages and endorsements to be as defined, provided and limited in the standard bureau forms prescribed

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by the insurance regulatory authority for the State of North Carolina.  Subject to the provisions of this Lease, such insurance will be for the sole benefit of Landlord and under its sole control.

 

If the Premises should be damaged or destroyed by any peril covered by the insurance to be provided by Landlord according to this section, Tenant will give prompt written notice thereof to Landlord. This Lease will not terminate (except as specifically provided herein), and Landlord will, at its sole cost and expense, thereupon proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which they existed prior to such damage, except that Landlord will not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on or about the Premises by Tenant (other than the Tenant Improvements). If the Premises are untenantable for the normal conduct of Tenant’s business in whole or in part following such damage, the rent payable hereunder during the period in which they are untenantable will be reduced proportionately.  If such repair work is not completed within one hundred eighty (180) days of such casualty, and provided there is no default or event of default hereunder by Tenant (or if Tenant has committed a default or event of default more than one (1) time in any twelve (12) month period, then regardless of whether same has been cured), then Tenant shall have the right to terminate this Lease upon written notice to Landlord (prior to actual completion of said work).

 

Landlord shall maintain contractual and comprehensive general liability insurance, including public liability and property damage, with a minimum combined single limit of liability of two million dollars ($2,000,000.00) for personal injuries or deaths of persons occurring in or about the Building and Premises.

 

Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, and Landlord is unable to rebuild as confirmed by Landlord in writing to Tenant, then either Landlord or Tenant will have the right to terminate this Lease by delivering written notice of termination to the other party within fifteen (15) days after such requirement is made by any such holder, whereupon all rights and obligations hereunder thereafter accruing will cease and terminate.

 

Each of Landlord and Tenant hereby waives all rights to recover against each other or against any other tenant or occupant of the Building, or against the officers, directors, shareholders, partners, joint venturers, employees, agents, customers, invitees, or business visitors of each other or of any other tenant or occupant of the Building, for any loss or damage arising from any cause covered by any insurance required to be carried by each of them pursuant to this Lease, or any other insurance actually carried by either of them.  Landlord and Tenant will cause their respective insurers to issue waiver of subrogation rights endorsements to all policies of insurance carried in connection with the Building or the Premises or the contents of either of them, and any cost for the issuance of such endorsements will be borne by the original insured under such policies.

 

The obligation of Landlord in this Section to repair and restore the Premises and the Building as provided herein, does not include an obligation of Landlord to repair the fixtures, equipment, or personal property of Tenant, which Tenant will insure for its benefit, and Tenant will have the obligation to repair and restore in the event of a casualty or other loss.

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The period of time within which repair and restoration of the Premises must be completed will be extended due to delays occasioned by Force Majeure.

 

Tenant will procure and maintain, at its expense, (i) special form property insurance insuring against special causes of loss covering Tenant’s personal property, equipment, trade fixtures and any improvements performed by Tenant (specifically excluding the Tenant Improvements) in the Premises; and (ii) a policy or policies of commercial general liability insurance applying to Tenant’s operations and use of the Premises, providing a minimum limit of $1,000,000.00 per occurrence and $2,000,000.00 in the aggregate, naming Landlord and Landlord’s property manager as additional insureds. Tenant will maintain the foregoing insurance coverages in effect commencing on the earlier to occur of the Commencement Date and the date Tenant takes possession of the Premises, and continuing to the end of the Lease Term.

 

The insurance requirements set forth in this Section are independent of the waiver, indemnification, and other obligations under this Lease and will not be construed or interpreted in any way to restrict, limit or modify the waiver, indemnification and other obligations or to in any way limit any party's liability under this Lease.  In addition to the requirements set forth in this section, (i) the insurance required of Tenant under this Lease must be issued by an insurance company with a rating of no less than A-VIII in the current Best's Insurance Guide or that is otherwise reasonably acceptable to Landlord, and (ii) the company issuing the coverage must be authorized to conduct the business of insurance in the state in which the Building is located; (iii) the insurance must be primary insurance for all claims thereunder and provide that any liability insurance carried by Landlord, Landlord's property manager, and Landlord's lenders is strictly excess, secondary, and noncontributing with any insurance carried by Tenant; (iv) Tenant must insure that its insurance company shall endeavor to provide at least thirty (30) days prior written notice of cancellation or non-renewal of a policy to Landlord and Landlord's lenders; and (v) Tenant shall provide Landlord a copy of any notice of cancellation or non-renewal of a policy immediately upon receipt by Tenant.  Tenant will deliver to Landlord a legally enforceable certificate of insurance on all policies procured by Tenant in compliance with Tenant’s obligations under this Lease on or before the date Tenant first occupies any portion of the Premises, at least ten (10) days before the expiration date of any policy and upon the renewal of any policy.  Landlord will have the right to approve all deductibles and self-insured retentions under Tenant’s policies, which approval will not be unreasonably withheld,  or delayed.

 

14.Condemnation.  If the whole or any substantial portion of the Premises should be taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the use of the Premises by Tenant for the purposes provided herein as mutually and reasonably determined by Landlord and Tenant, each party hereto will have the right to terminate this Lease by notice to the other party hereto within forty-five (45) days after the date of such taking and the Rent will be abated during the unexpired portion of this Lease, effective when the physical taking of the Premises will occur.  If this Lease is not terminated in accordance with the foregoing, this Lease will remain in full force and effect as to the portion of the Premises remaining, except that the Rent will be reduced in the proportion that the taken floor area of the Premises bears to the total floor area of the Premises as reasonably determined by Landlord.

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If a portion of the Premises will be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and there is no material interference with the use by Tenant of the Premises as reasonably determined, this Lease will remain in full force and effect as to the portion of the Premises remaining, except that the Rent will be reduced in the proportion that the taken floor area of the Premises bears to the total floor area of the Premises.

 

In the event of any such taking or private purchase in lieu thereof, Landlord will be entitled to receive and retain all awards as may be awarded in any condemnation proceedings with Tenant hereby expressly waiving all claim thereto other than those specifically awarded Tenant for a taking of Tenant’s personal property, loss of business and moving expenses.

 

15.Default.  The following events will be deemed to be events of default by Tenant under this Lease:

(a) Tenant will fail to pay any installment of the Rent herein reserved, or payment with respect to taxes hereunder, or any other payment or reimbursement to Landlord required herein, within five (5) days of when due; provided, however, on one occasion during each calendar year of the term of this Lease, it shall not be an event of default hereunder if Tenant makes full payment within five (5) days after receipt of written notice from Landlord.

(b) Tenant will become insolvent, or will make a transfer in fraud of creditors, or will make an assignment for the benefit of creditors.

(c) Tenant will file a petition under any section or chapter of the Bankruptcy Reform Act, as amended or under any similar law or statute of the United States or any state thereof; or Tenant will be adjudged bankrupt or insolvent in proceedings filed against Tenant thereunder.

(d) A receiver or trustee will be appointed for all or substantially all of the assets of Tenant.

(e) Tenant will desert or vacate all or a portion of the Premises, and cease paying Rent at the Premises.

(f) Tenant will fail to yield up immediate possession of the Premises to Landlord upon termination of this Lease.

(g) Tenant will fail to comply with any term, provision or covenant of this Lease (other than the provisions of subparagraphs (a), (b), (c), (d), (e) and (f) of this Section  15), and will not cure such failure within thirty (30) days after written notice thereof to Tenant or such additional period of time as will be reasonably granted by Landlord if Tenant is acting in good faith and with diligence to complete such cure.

 

Upon the occurrence of any event of default in the preceding section hereof, Landlord will have the option to pursue any remedy at law or in equity, including, but not limited to, one or more of the following remedies without any separate notice or demand whatsoever:

 

(a) Terminate this Lease, in which event Tenant will immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearage in Rent, enter upon and take possession of the Premises and expel and remove Tenant and any other person who may be occupying the Premises or any part thereof, by any legal means necessary without being liable for prosecution or any claim of damages therefore; secure the Premises against unauthorized entry; and Tenant

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agrees to pay to Landlord on demand the amount of all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise.

 

(b) Enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying such Premises or any part thereof, by any legal means necessary without being liable for prosecution and receive the Rent thereof; secure the Premises against unauthorized entry; store any property located on the Premises at the expense of the owner thereof and Tenant agrees to pay to Landlord on demand any deficiency that may arise by reason of such reletting. In the event Landlord is successful in reletting the Premises at a rental in excess of that agreed to be paid by Tenant pursuant to the terms of this Lease, Landlord and Tenant each mutually agree that Tenant will not be entitled, under any circumstances, to such excess rental, and Tenant does hereby specifically waive any claim to such excess rental.

 

(c) Enter upon the Premises, by any legal means necessary without being liable for prosecution or any claim for damages therefore, secure the Premises against unauthorized entry, remove all property of Tenant from the Premises and store it at the cost and expense of Tenant, and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance with Tenant’s obligations under this Lease, and Tenant further agrees that Landlord will not be liable for any damages resulting to Tenant from such action, whether caused by the negligence of Landlord or otherwise.

 

(d) Subject to the obligation of Landlord to mitigate its damages under Applicable Law, accelerate and demand the payment of all Rent and other charges due and payable hereunder over the term of this Lease to an amount equal to the aggregate sum which at the time of such termination represents the excess, if any, of the present value of the aggregate Rent which would have been payable after the termination date had this Lease not been terminated, including, without limitation, the amount projected by Landlord as Rent for the remainder of the Lease Term, over the then present value of the then aggregate fair rent value of the Premises for the balance of the Lease Term, such present worth to be computed in each case on the basis of the lesser of: (i) the rate on a United States Treasury bill with a maturity date equal to the termination date of the Lease, or (ii) five percent (5%) per annum discount from the respective dates upon which such Rent would have been payable hereunder had this Lease not been terminated.

 

Landlord’s failure to perform or observe any of its Lease obligations after a period of thirty (30) days or the additional time, if any, that is reasonably necessary to promptly and diligently cure the failure after receiving written notice from Tenant is a Landlord Default.  The notice shall reasonably detail the nature and extent of the failure and identify the Lease provision(s) containing the obligation(s).  If Landlord commits a Landlord Default, Tenant may pursue any remedies given in this Lease or under Applicable Law.

 

Pursuit of any of the foregoing remedies will not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law or equity, nor will pursuit of any remedy herein provided constitute a forfeiture or waiver of any Rent due to Landlord hereunder

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or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained.  No act or thing done by Landlord or its agents during the term hereby granted will be deemed a termination of this Lease or an acceptance of the surrender of the Premises, and no agreement to terminate this Lease or accept a surrender of the Premises will be valid unless in writing signed by Landlord. No waiver by Landlord or Tenant of any violation or breach of any of the terms, provisions and covenants herein contained will be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants herein contained. Landlord’s acceptance of the payment of rental or other payments hereunder after the occurrence of an event of default will not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing, and no receipt of money by Landlord from Tenant after the termination of this Lease or after service of any notice or after the commencement of any suit or after final judgment for possession of the Premises will reinstate, continue or extend the term of this Lease or affect any such termination, notice, suit or judgment, unless Landlord so notifies Tenant in writing. Forbearance by Landlord or Tenant to enforce one or more of the remedies herein provided upon an event of default will not be deemed or construed to constitute waiver of such default or of said party’s right to enforce any such remedies with respect to such default or any subsequent default.

 

Notwithstanding any provision contained in this Lease to the contrary, should either party institute any legal proceeding against the other for breach of any provision herein contained and prevail in such action, such other party shall reimburse the prevailing party for the expenses of such prevailing party, including, without limitation, its reasonable attorneys’ fees actually incurred at standard and reasonable billing rates.

 

16.Holding Over and Termination.  Tenant will upon the termination of this Lease by lapse of time or otherwise, yield up immediate possession to Landlord without the requirement of notice by Landlord to Tenant of the termination of this Lease, nor any grace or cure period should Tenant fail to yield up immediate possession to Landlord.  Unless the parties hereto will otherwise agree in writing, if Landlord agrees in writing that Tenant may hold over after the expiration or termination of this Lease, the hold over tenancy will be subject to termination by Landlord at any time upon thirty (30) days advance written notice, or by Tenant at any time upon not less than thirty (30) days advance written notice, and all of the other terms and provisions of this Lease will be applicable during that period, except that Tenant will pay Landlord from time to time upon demand, as rental for the period of any hold over, an amount equal to one and one-half (1-1/2) the Base Annual Rent plus Additional Rent in effect on the Termination Date, computed on a daily basis for each day of the hold over period.  No holding over by Tenant, whether with or without consent of Landlord, will operate to extend this Lease except as otherwise expressly provided. The preceding provisions of this Section 16 will not be construed as Landlord’s consent for Tenant to hold over.

 

Upon the termination of this Lease for whatever reason, Tenant will quit and immediately surrender the Premises to Landlord, broom clean, in as good order and condition as received with all repairs and maintenance required by Tenant hereunder having been performed, ordinary wear and tear excepted, and Tenant will remove its personal property from the Premises in accordance with this Lease.  Should any of the personal property or trade fixtures of Tenant remain upon the

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Premises after the Termination Date, all such property will be deemed abandoned by Tenant, and Landlord may remove same at the cost and expense of Tenant with no liability to Tenant therefore, and Tenant hereby releases Landlord from all liability therefore.

 

17.Compliance with Laws.  The Premises will be used only for the Permitted Use.  Landlord acknowledges that Tenant will be using the Premises as a laboratory for a biotechnology company and is aware that with respect to such usage, Tenant may bring a pre-approved list of Hazardous Materials onto the Premises.   Tenant will conduct no activity that will result in the discharge of harmful gases, effluents or other wastes or toxic substances beyond the Premises or in violation of Applicable Laws.  Outside storage, including, without limitation, trucks and other vehicles, is prohibited without Landlord’s prior written consent.  Tenant will at its sole cost and expense obtain any and all licenses and permits necessary for its use of the Premises.  Tenant will promptly comply with all governmental orders and directives for the correction, prevention, and abatement of nuisances connected with or arising from Tenant's use of the Premises, all at Tenant's sole expense.  During the Term, Landlord shall comply with all Applicable Laws regarding the Premises and Building, except to the extent Tenant must comply under this Section 17.  Except as to pre-existing defects, violations or conditions, Tenant shall comply with all Applicable Laws: (i) regarding the physical condition of the Premises, but only to the extent the Applicable Laws pertain to the particular manner in which Tenant uses the Premises; or (ii) that do not relate to the physical condition of the Premises but relate to the lawful use of the Premises and with which only the occupant can comply, such as laws governing maximum occupancy, workplace smoking, and illegal business operations, such as gambling. Tenant will not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action which would constitute a nuisance, disturb or endanger any other tenants of the Building, or unreasonably interfere with the quiet enjoyment by any tenant of the Building.  Without Landlord’s prior written consent (not to be unreasonably withheld, or delayed), Tenant will not receive, store or otherwise handle any product, material or merchandise which is explosive, inflammable, combustible, corrosive, caustic or poisonous (except as provided herein).  Tenant will not permit the Premises to be used for any purpose or in any manner (including, without limitation, any method of storage) which would render the insurance thereon void or the insurance risk more hazardous or cause the State Board of Insurance or other insurance authority to disallow any sprinkler credits.  Tenant will give notice to Landlord promptly upon the known occurrence of any accident in the Premises or upon Tenant’s discovery of any defects thereon or in any fixtures or equipment located therein or upon the occurrence of any emergency in the Premises, Building, or Project.  Tenant will be permitted to use and store at the Premises in compliance with Hazardous Material Laws and the provisions hereof commercially reasonable quantities of (i) generally available standard office and janitorial supplies that may contain chemicals categorized as Hazardous Material, and (ii) such other substances that are required in the ordinary course of Tenant's business conducted on the Premises. Tenant, at its expense, in its use of the Premises and in making any alterations, renovations, or modifications of the Premises will comply with all Applicable Laws relating to the use, condition and occupancy of the Premises.

 

Tenant agrees that it will not release, discharge, place, hold, or dispose of any Hazardous Material on, under or at the Premises, in the Building, or on the Land, and that it will not use the Premises, the Building, the Land, or any other portion thereof as a site for the treatment, storage (except in accordance with this Section 17), or disposal (whether permanent or temporary) of any Hazardous

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Material.  Tenant further agrees that it will not cause or allow any asbestos to be incorporated into any improvements or alterations which Tenant makes or causes to be made to the Premises, or the Building.

 

Tenant hereby agrees to indemnify, defend (with counsel reasonably approved by Landlord) and hold harmless Landlord of from and against any and all losses, liabilities, damages, injuries, costs, expenses and claims of any and every kind whatsoever (including without limitation, court costs and attorneys’ fees at all tribunal levels) which at any time and from time to time may be paid, incurred or suffered by, or asserted against Landlord for, with respect to, or as a direct or indirect result of any breach or default by Tenant of the provisions of this Section 17.  The provisions of and undertakings and indemnification set forth in this Section will survive the termination or expiration of this Lease, for any reason, and will continue to be the liability, obligation and indemnification of Tenant, binding upon Tenant forever. The provisions of the preceding sentence will govern and control over any inconsistent provision of this Lease.

 

Tenant will provide Landlord with a list of any and all Hazardous Materials released, discharged, placed, held, or disposed of on the Premises, and certification to Landlord of compliance by Tenant with all Applicable Laws, concurrently with the execution of this Lease which shall be attached hereto and made a part as Exhibit G, and thereafter, within ten (10) business days of a request therefore by Landlord (which Landlord shall not request more than four times in any calendar year).

 

Landlord hereby represents and warrants, to the best of Landlord’s actual knowledge, that no Hazardous Materials exist on, under, in or about the Premises as of the Commencement Date except as disclosed in the Phase I Environmental Site Assessment obtained by Landlord for the Building (the “Report”). Tenant shall have the right to review the Report at the offices of Landlord upon written notice to the Landlord.  Landlord shall indemnify, defend and hold harmless Tenant from and against any and all Claims which at any time and from time to time may be paid, incurred or suffered by or assessed against Tenant as a direct or indirect result of the presence of any Hazardous Materials in, on or under the Premises, Building or Project prior to the Commencement Date or after the termination of this Lease so long as such presence was not due to an act or omission of Tenant or a Tenant Party.

 

18.Inspection.  Landlord and Landlord’s agents and representatives will have the right to enter and inspect the Premises at any reasonable time during business hours, for the purpose of ascertaining the condition of the Premises,  in order to make such repairs as may be required or permitted to be made by Landlord to the Building or any adjacent space, under the terms of this Lease, or in order to show the Premises to any prospective purchaser or lender; provided that (i) except in the case of an emergency, Landlord has given Tenant a written or verbal notice of the intent to enter at least two (2) business days in advance of the entry, (ii) such entry and any related inspection or repairs do not unreasonably interfere with Tenant’s business operations, (iii) Landlord complies with Tenant’s reasonable security measures and protocols which are detailed on Exhibit F (as Tenant shall be entitled to reasonably update), attached hereto, and Tenant provides Landlord protective gear, and (iv) Landlord is accompanied by a representative of Tenant at all times, except in an emergency.  During the period that is six (6) months prior to the end of the term hereof (and subject to the same access caveats listed above), Landlord and Landlord’s

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agents and representatives will have the right to enter the Premises at any reasonable time during business hours for the purpose of showing the Premises to any prospective tenant and will have the right to erect on the Premises a suitable sign indicating the Premises are available. Tenant will schedule with Landlord (at Landlord’s request) at least sixty (60) days prior to vacating the Premises a time mutually agreeable to the parties hereto for a joint inspection of the Premises prior to vacating.  In the event of Tenant’s failure to reasonably arrange such joint inspection, Landlord’s inspection at or after Tenant’s vacating the Premises will be conclusively deemed correct for purposes of determining Tenant’s responsibilities for repairs and restoration.

 

19.Tenant Property.  Upon reasonable request, so long as Tenant is not in default under this Lease, Landlord agrees to execute, within twenty (20) days following written request, any commercially reasonable document reflecting the subordination of any such Landlord’s interest to Tenant’s lender(s) and in such event Tenant shall pay Landlord’s reasonable and actual “out-of-pocket” costs therefore.

 

20.[INTENTIONALLY DELETED.]

 

21.Rules and Regulations.  Tenant, at its expense, will comply with the Rules and Regulations of the Building attached hereto and made a part hereof as Exhibit E, as reasonably modified by Landlord from time to time and such other Rules and Regulations adopted by Landlord during the Lease Term and Tenant will use all commercially reasonable efforts to cause all Tenant Parties to do so.  Provided, however, that (a) such rules and regulations do not increase the Rent payable hereunder; (b) such rules and regulations do not unreasonably and materially interfere with Tenant’s conduct of its business or Tenant’s use and enjoyment of the Premises for the Permitted Use; (c) Landlord provides reasonable advance written notice thereof; and (d) such rules and regulations are uniformly enforced in a non-discriminatory manner.  All such additions or changes to Rules and Regulations will be sent by Landlord to Tenant in writing and shall become effective ten (10) days thereafter.  In the event of a conflict between the rules and regulations and the terms of this Lease, the terms of this Lease will control.

 

22.Assignments by Landlord.  Landlord will have the right to transfer and assign, in whole or in part, all its rights and obligations hereunder and in the Building and Project, and in such event and upon its transferee’s assumption of Landlord’s obligations thereafter accruing hereunder, no further liability or obligation will thereafter accrue against Landlord hereunder (provided that any such successor in interest expressly assumes the obligations of Landlord hereunder, in writing).  Upon request by Landlord, Tenant agrees to execute a certificate certifying such facts as Landlord may reasonably require in connection with any such assignment by Landlord.  This paragraph shall not affect Landlord’s liability for matters arising prior to the transfer of the Building including the Security Deposit.

 

23.Quiet Enjoyment.  Landlord represents and warrants that it has full right and authority to enter into this Lease and that Tenant, upon paying the rental herein set forth and performing its other covenants and agreements herein set forth, will peaceably and quietly have, hold and enjoy the Premises for the term hereof without hindrance or molestation from Landlord or any other lawful claimant to ownership or possession of the Premises, subject to the terms and provisions of this Lease.

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24.Liability.  Tenant specifically agrees to look solely to Landlord’s (or its successors’) interest in the Building (including rental income and insurance/condemnation proceeds) for the recovery of any judgment (or other judicial decree) from Landlord.  Landlord (or if Landlord is a limited liability company, its members, or if Landlord is a corporation, its directors, officers or any successors in interest) shall never be personally liable for any such judgment.  In no event shall Landlord be liable under this Lease for any consequential or punitive damages except to the extent caused by the gross negligence or willful misconduct of Landlord.  This exculpation of liability to be absolute and without exception whatsoever.

 

Landlord will not be liable to Tenant or any Tenant Party, or to any other person whomsoever, for any damage to property on or about the Premises belonging to Tenant or any other person, due to any cause whatsoever, unless caused by the gross negligence or willful or intentional misconduct of Landlord.

 

Tenant hereby covenants and agrees that it will at all times indemnify, defend (with counsel reasonably approved by Landlord) and hold safe and harmless Landlord (including, without limitation, its trustees and beneficiaries if Landlord is a trust), and the Landlord Parties from any loss, liability, claims, suits, costs, expenses, including without limitation reasonable attorney’s fees and damages, both real and alleged, incurred by Landlord or a Landlord Party arising out of or resulting from the negligence or misconduct of Tenant, a breach by Tenant of any provision of this Lease, or the conduct by Tenant of its business in the Building.

 

Landlord hereby covenants and agrees that it will at all times indemnify, defend (with counsel reasonably approved by Tenant) and hold safe and harmless Tenant, and the Tenant Parties from any loss, liability, claims, suits, costs, expenses, including without limitation reasonable attorney’s fees and damages, both real and alleged, incurred by Tenant or a Tenant Party arising out of or resulting from the operation by Landlord of the Building, the negligence or misconduct of Landlord, or a breach by Landlord of any provision of this Lease.

 

25.Mortgages.  Tenant accepts this Lease subject and subordinate to any mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a lien or charge upon the Premises or the improvements situated thereon; provided, however, that if the mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Tenant's interest in this Lease superior to any such instrument, then by notice to Tenant from such mortgagee, trustee or holder, this Lease will be deemed superior to such lien, whether this Lease was executed before or after said mortgage or deed of trust. Tenant will at any time hereafter on demand execute and provide to Landlord within ten (10) business days of a request therefore, any commercially reasonable instruments, releases or other documents which may be reasonably required by any mortgagee or trustee for the purpose of further subjecting and subordinating this Lease to the lien of any such mortgage or deed to trust in form and substance as reasonably required by such mortgagee or trustee. Notwithstanding the foregoing, it shall be a condition precedent to any subordination that Tenant be provided with a written non-disturbance agreement in the form stipulated by Landlord’s lender (provided that: (i) Tenant shall be entitled to request of Landlord's lender commercially reasonable revisions to said form at its cost which costs include payment of any attorneys' fees charged to Landlord by Landlord's lender (as reasonably documented by Landlord); and (ii) said form provides that, if the

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holder of any mortgage or deed of trust shall take title to the Premises through foreclosure or deed in lieu of foreclosure or otherwise, Tenant shall be allowed to continue in possession of the Premises as provided in this Lease so long as Tenant is not in default, beyond any applicable cure period).

 

26.Signs.  Tenant will not be permitted any signage visible from outside of its Premises which has not been approved in writing in advance by Landlord in its reasonable discretion.  The cost of or related to any approved signage will be entirely at Tenant’s own expense, and all such signage shall be removed by Tenant, at its cost at the end of the term and any damage due to such removal repaired by Tenant prior to vacating the Premises. Landlord shall provide at its expense signage on the entry door to the Premises, and signage on the directory for the Building.  Landlord shall provide Tenant its exterior signage criteria prior to the execution of this Lease.

 

27.Keys and Locks.  Landlord, at its expense, shall provide Tenant with forty (40) card keys for access to the Building.  Landlord acknowledges that Tenant shall have the right to install its own access control system to the Premises and Tenant shall furnish and provide Landlord with duplicate keys and/or access cards, as applicable, to ensure that Landlord and its representatives can gain access to the Premises when permitted by the terms of this Lease.  Upon termination of this Lease, Tenant shall surrender to Landlord all keys to the Premises and give to Landlord the combination of all locks for safes, safe cabinets and vault doors, if any, remaining in the Premises.  

 

28.Brokers.  Landlord acknowledges that Cassidy Turley (and its successors and assigns) is acting as the sole agent for Tenant in this transaction and shall be paid a brokerage fee by Landlord pursuant to a separate agreement with Landlord. Tenant confirms that no broker other than Cassidy Turley is assisting Tenant in this matter.  Landlord confirms that no broker is assisting Landlord in this matter.  Landlord and Tenant covenant to pay, hold harmless and indemnify the other from and against any and all costs, expenses or liability for any compensation, commissions and charges claimed by any other broker or agent, with respect to the transactions contemplated hereby or the negotiation thereof and arising by virtue of the acts of the indemnifying party.

  

29.Notices. Each provision of this instrument or of any Applicable Law with reference to the sending, mailing, or delivery of any notice by either party, or with reference to the making of any payment by Tenant to Landlord will be deemed to be complied with when and if the following steps are taken:

 

(a)All Rent and other payments required to be made by Tenant to Landlord hereunder will be payable to Landlord at the address below or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith.  Tenant’s obligations to pay Rent and any other amounts to Landlord under the terms of this Lease will not be deemed satisfied until such Rent and other amounts have been actually received by Landlord.

 

(b)Any notice or document required or permitted to be delivered hereunder will be deemed to be delivered upon actual receipt or refusal thereof, and shall be: (i) sent by standard, commercial overnight delivery service, such as Federal Express, or (ii) sent by Certified or Registered Mail, return receipt requested, postage prepaid, and addressed to the parties hereto

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at the respective addresses set out below, or at other such addresses as they have heretofore specified by written notice delivered in accordance therewith.

 

Landlord:

Venable Tenant  LLC

c/o Scientific Properties, LLC

280 Mangum Street, Suite 340

Durham, NC 27701

 

Tenant:

Precision BioSciences, Inc.

104 T. W. Alexander Drive

PO Box 12292

Research Triangle Park, NC  27709

Attention: Todd Melby, Chief Financial Officer/Chief Operations Officer

 

 

30.Miscellaneous.

(a)Words of any gender used in this Lease will be held and construed to include any other gender, and words in the singular number will be held to include the plural, unless the context otherwise requires.

(b)The terms, provisions and covenants and conditions contained in this Lease will apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise herein expressly provided. Landlord will have the right to assign any of its rights and obligations under this Lease. Each party agrees to furnish to the other, promptly upon demand, a resolution, or other appropriate documentation evidencing the due authorization of such party to enter into this Lease.

(c)The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

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(d)Tenant agrees from time to time, within ten (10) business days after request of Landlord, to deliver to Landlord, or Landlord’s designee, an estoppel certificate stating, to the extent true and to Tenant’s actual knowledge, that this Lease is in full force and effect, the date to which Rent has been paid, the unexpired term of this Lease and such other matters pertaining to this Lease as may be reasonably requested by Landlord. It is understood and agreed that Tenant’s obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord’s execution of this Lease.

(e)This Lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto.

(f)All obligations of Landlord and Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this Lease will survive the expiration or earlier termination of the term hereof, including, without limitation, all payment obligations concerning the condition of the Premises and all obligations of Tenant as provided in Section 5 hereof.

(g)In the case of a foreclosure or deed in lieu of foreclosure on a mortgage or deed of trust existing prior to the date of this Lease, in the event of a transfer by Landlord of its interest in the Premises, Landlord will be released from all obligations and liabilities under the terms of this Lease arising subsequent to the date of such transfer. In the event a transferee will agree to assume the obligations and liabilities of Landlord under the Lease prior to the date of the transfer, Landlord will be released from all obligations and liabilities under the Lease.

(h)If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws effective during the term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease will not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.

(i)Because the Premises are on the open market and are presently being shown, this Lease will be treated as an offer with the Premises being subject to prior lease and such offer subject to the withdrawal or non-acceptance by Landlord or to other use of the Premises without notice, and this Lease will not be valid or binding unless and until accepted by Landlord in writing and a fully executed copy delivered to both parties hereto.

(j)All references in this Lease to “the date hereof” or similar references will be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease.

(k)Time is of the essence of this Lease.

(l)Landlord will not be in default in the performance of any of Landlord’s obligations hereunder unless and until Landlord will have failed to perform such duties or obligations within thirty (30) days (or such additional time as is reasonably required to correct any such default) after written notice by Tenant to Landlord properly specifying wherein Landlord has failed to perform any such duty or obligation.  In cases where there is an imminent threat of harm to person or property at the Premises, or if Tenant cannot conduct its business at the

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Premises, Landlord shall effect a cure within a reasonable period of time using all reasonable efforts.  Should a cure be required and Landlord fail to effect a cure within ten (10) business days after the date after receipt by Landlord from Tenant of written notice with respect to such default, Tenant shall have the right to effect such cure.  Except as expressly provided in this Lease to the contrary, Landlord will have no liability for any incidental or consequential damages of Tenant, or anyone claiming by, through or under Tenant, for any reason whatsoever.

(m)This Lease does not create the relationship of partner or joint venturer between Landlord and Tenant.

(n)The laws of the State of North Carolina will govern the interpretation, the validity, performance and enforcement of this Lease.

(o)(i) If Tenant is a corporation, the undersigned officer of Tenant does hereby warrant and certify to Landlord that Tenant is a corporation in good standing and duly organized under the laws of the State of North Carolina, or if chartered in a state other than the State of North Carolina, is a corporation in good standing and duly organized under the laws of such state and is authorized to do business in the State of North Carolina.  The undersigned officer of Tenant hereby further warrants and certifies to Landlord that such officer is authorized and empowered to bind the corporation to the terms of this Lease by such officer’s signature hereto; (ii) If Tenant is a general or limited partnership, the undersigned general partner of Tenant does hereby warrant and certify to Landlord that Tenant is a general partnership or limited partnership, as the case may be, validly existing under the laws of the State of North Carolina, or if formed in a state other than the State of North Carolina, is a general partnership or limited partnership validly existing under the laws of such state and is authorized to do business in the State of North Carolina.  The undersigned general partner of Tenant hereby further warrants and certifies to Landlord that such general partner is authorized and empowered to bind Tenant to the terms of this Lease by such general partner’s signature hereto. (iii) Landlord confirms that those persons signing below on its behalf are duly authorized to do so.

(p)The provisions of any Exhibits referenced herein, whether or not attached hereto, are incorporated herein by reference and made a part of this Lease.

(q)Although the printed provisions of this Lease were drafted by Landlord, such fact will not cause this Lease to be construed either for or against Landlord or Tenant.

(r)This Lease may not be recorded.  Upon the request and at the expense of Tenant, Landlord will execute a memorandum of this Lease suitable for recording which will omit the financial terms herein but which will identify the Premises, the Parties, and the term of this Lease.  Upon the expiration of this Lease, a recorded memorandum of this Lease may be canceled of record by a document executed by Landlord, or its successor in interest for such purpose.

(s)Tenant will provide to Landlord within ninety (90) days of the close of its fiscal year, and thereafter within ten (10 business days of the reasonable request of Landlord, but no more than once per calendar year except during any default or event of default by Tenant when this limitation shall not apply, financial statements of Tenant (consisting of summarized profit and

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loss statement, balance sheet, and cash flow statement) certified by the chief financial officer of Tenant.

(t)No remedy conferred herein is intended to be exclusive of any other remedy and each and every remedy will be cumulative and will be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or otherwise.

(u)  [INTENTIONALLY DELETED.]

(v) Tenant, its employees, and invitees shall have access to the Premises twenty-four (24) hours a day, seven (7) days a week.

(w)  The provisions of this Lease and any information regarding Landlord, including its construction process, and the materials and standards used, will be maintained confidential by Tenant, its agents, employees, officers, and legal and tax advisors.

(x)Tenant shall be responsible for all ad valorem taxes on its personal property and on the value of the leasehold improvements to the extent that such improvements do not constitute fixtures, or additions or improvements to real property (as reasonably documented by Landlord).  Tenant, within thirty (30) days of receipt of an invoice, shall also pay to Landlord all sales or use taxes or excise taxes imposed or levied by the State of North Carolina or any other governmental body or agency, if any, against any rent or any other charge or payment required hereunder to be made by Tenant to Landlord.

(y) This Lease does not grant any rights to light, view or air over adjacent property, and any diminution or shutting off of light, view or air by any structure that may be erected adjacent to the Building shall not affect this Lease or impose any obligation or liability upon Landlord.  

(z) In coordination with the General Contractor and Landlord's Construction Manager and in compliance with the procedures required for them, Tenant shall be permitted reasonable access to the Premises prior to the Commencement Date for the purposes of taking measurements, making plans, installing trade fixtures, and doing such other work as may be appropriate or desirable to enable Tenant to assume possession of and operate in the Premises; provided, however, that such access does not unreasonably interfere with or delay construction work on the Premises and if Tenant shall unreasonably interfere with or delay construction work on the Premises, Landlord shall have the right to deny the Tenant access to the Premises.  Prior to any such entry, Tenant shall comply with all insurance provisions of the Lease.  All waiver and indemnity provisions of the Lease shall apply upon Tenant’s entry onto the Premises.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first set forth above.

LANDLORD:

 

VENABLE TENANT, LLC

 

By: SCIENTIFIC PROPERTIES, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT A

 

THE LAND

 

BEGINNING at an existing PK nail in the western right of way of Pettigrew Street (100’ public r/w) and the eastern right of way of Roxboro Street, thence running south along said western right of way along the arc of a circular curve with a radius of 2125.0 feet, a chord length of 52.03 feet, subtended by a chord that bears S 42º37’26”E, for an arc length of 52.04 feet to an existing iron pipe, thence continuing along said right of way along the arc of a circular curve with a radius of 2125.0 feet, a chord length of 124.74 feet, subtended by a chord that bears S40º30’08”E, for an arc length of 124.76 feet to an existing PK nail, being the northwestern corner of Durham Foundry & Machine property, thence running along said property S45º24’44”W for a distance of 175.48 feet to an existing iron pipe, thence continuing with said property S41’05’06”E for a distance of 71.0 feet to an iron pipe set, thence continuing with said property N47º22’04”E for a distance of 30.62 feet to an iron pipe set, thence continuing with said property S41º29’07”E for a distance of 60.52 feet to an iron pipe set, thence continuing with said property N52º25’05”E for a distance of 133.09 feet to an existing PK nail in the western right of way of Pettigrew Street, thence running along said right of way along the arc of a circular curve with a radius of 2125.0 feet, a chord length of 81.56 feet, subtended by a chord that bears S33’40’35”E, for an arc length of 81.57 feet to an existing iron pipe, thence running  S50º19’45”W for a distance of 151.69 feet to an existing iron pipe, thence running S41º34’48E for a distance of 79.86 feet to an existing iron pipe, thence running along the western 30 foot Ingress/Egress Easement with Hendrick Automotive Group S35º06’35”W for a distance of 119.31 feet to an iron pipe set, thence running with the northern property line of Thomas and Howard of Greensboro N42º54’51”W for a distance of 48.93 feet to an iron pipe set, thence continuing with said property N64º41’55”W for a distance of 246.14 feet to an existing iron rod, thence continuing with said property N64º35’38”W for a distance of 94.86 feet to an existing iron rod in the eastern public right of way of Roxboro Street, thence along said right of way N26º54’18”E for a distance of 99.65 feet to an existing iron rod, thence continuing with said right of way N26º35’12”E for a distance of 39.07 feet to an existing iron pipe, thence continuing with said right of way N29º23’01”E for a distance of 96.73 feet to an existing PK nail, thence continuing with said right of way N28º09’00”E for a distance of 207.93 feet to an iron pipe set, thence running N81º39’58”E for a distance of 14.62 feet to an existing PK nail, the place and point of BEGINNING for the ‘Main Parcel’ and containing117,484 square feet or 2.697 acres, more or less, and being all of the Main parcel of West Property, as appears on map captioned “As- Built Survey of West Property, Pettigrew Street Partners, L.L.C.”

 

BEGINNING at an iron pipe in the western right of way of Pettigrew Street (100’ public r/w) and the northeastern corner of the ‘Main Parcel’ of West Property, thence running with the right of way of Pettigrew Street along the arc of a circular curve with a radius of 2125.00 feet, a delta angle of 03º09’36” for an arc length of 117.20 feet, subtended by a chord that bears S30º59’49”E to an existing iron pipe, thence running along the Hendrick Automotive Group property S52º56’13”W for a distance of 128.22 feet to an iron pipe set, thence running along the western 30 foot Hendrick Automotive Group Ingress/Egress Easement N45º46’23”W for a distance of 30.37 feet to an existing iron pipe, thence running along the property line of the ‘Main Parcel’ of West Property N41º34’48”W for a distance of 79.86 feet to an existing iron pipe, thence continuing with said

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property line N50º19’45”E for a distance of 151.69 feet to an existing iron pipe, the place and point of BEGINNING for the ‘Hatched Parcel’ and containing 15,963 square feet or 0.366 acres, more or less, and being all of tract 2 West Property, as appears on map captioned “As- Built Survey of West Property, Pettigrew Street Partners, L.L.C.”

 

 

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EXHIBIT B

FLOOR PLAN

 

 

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EXHIBIT C

PREMISES SPECIFICATIONS

 

 

FLOORS

 

Existing flooring consists of pine planking and or ¾” sub-flooring installed to provide accessibility for plumbing and electrical rough-ins. Additional sub-flooring required to accommodate Tenant Improvements shall be funded from the Tenant Improvement Allowance.

 

Any demolition of existing flooring required to accommodate Tenant Improvements shall be funded from the Tenant Improvement Allowance.

 

WALLS, DOORS & WINDOWS

 

Common area walls shall consist of hollow metal frames, single pane glazing, and gypsum assemblies (painted or wall covering) typical throughout the Venable campus.

 

All masonry construction/repair is per approved sand blasted and clear finish sealer method. Repairs or replacement of brick as required will be made using existing salvaged brick or new brick to match existing. New mortar is to match existing.

 

Interior corridor doors opening onto Common Areas will be stained birch veneer doors per the Venable Campus Standard. Landlord reserves the right to substitute alternate commercial grade materials. All door locksets will be coded and/or keyed in accordance with the building requirements. Codes and/or keys are to be delivered to tenant properly tested and/or tagged.

 

Exterior perimeter windows will be ½” insulated clear glass in black hollow metal and steel frames.

 

Landlord shall provide for demolition of any existing interior walls.

 

CEILING

 

The ceiling is the existing, historic, natural heart pine.  Any exposed ceilings will be sealed by Landlord in accordance with best practices.

 

PLUMBING

 

All piping and fixtures within the Tenant Improvements shall be funded from the Tenant Improvement Allowance.  The Landlord shall provide water and standard DWV to and from the space.  Any additional piping (specialty water or waste) shall be installed from the Tenant Improvement space to the closest source/sewer, and this piping would be funding from the Tenant Improvement Allowance.

 

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HVAC

 

Premises will be conditioned to office load standards by a rooftop Trane (or equivalent) zoned systems thru rated vertical chases (to lower floors only).  All rooftop units to include minimum fresh air settings for anticipated office load occupancy levels. HVAC controls to be located in tenant space with single zone distribution.  Additional cooling or ventilation requirements will be funded from the Tenant Improvement Allowance.  HVAC distribution within the tenant space and additional control zones shall be funded from the Tenant Improvement Allowance.  

 

ELECTRICAL CAPACITY

 

Building load is calculated on approximately 2 watts per square foot for the base building and approximately 2 watts per square foot for usable tenant space per typical office demand.  Electrical service and meter shall be provided to a subpanel within the tenant space.  The subpanel, circuit distribution (conductors and raceways), and fixtures shall be funded from the Tenant Improvement Allowance.   Voice and Data Conduits will be provided within interior walls and will be funded from the Tenant Improvement Allowance.  The Tenant shall contract directly with a voice/data contractor who will provide and pull cables to the Building Telecommunications Room.  The Tenant’s voice/data contractor will provide and terminate devices and related equipment.  The voice/data contractor and any security work shall not be funded from the Tenant Improvement Allowance.

 

FIRE

 

Wet pipe sprinkler system based on ordinary hazard NFPA 13 design with upright heads.

Adjustment of sprinkler heads specific to Tenant Improvements shall be funded from the Tenant Improvement Allowance.

 

A building standard fire alarm and security system shall be installed and funded from the Tenant Improvement Allowance.

 

[END OF EXHIBIT C]

 

 

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EXHIBIT D

WORK LETTER

 

This Exhibit D sets forth the rights and obligations of Landlord and Tenant with respect to the construction of the improvements to the Premises as described on the Plans ("Tenant Improvements"). This Exhibit contemplates that the following work will be performed, as further described herein, all subject to the prior review and approval by Landlord: (i) preparation of a space plan by the Architect; (ii) final design and engineering and preparation of plans, specifications, and working drawings by the Architect (collectively, the "Plans"); (iii) preparation by the general contractor of Landlord (the "General Contractor") of an estimate of the cost of the Tenant Improvements; (iv) submission to, and approval of Plans by, appropriate governmental authorities; and (v) construction and installation of the Tenant Improvements by the Landlord pursuant to the Plans on or prior to the Commencement Date, subject to Force Majeure and any Tenant Delay.  

1.Allowance/Payment of Construction Costs.

(a)Landlord shall construct the Tenant Improvements in accordance with a milestone schedule (the “Schedule”), a copy of which shall be provided to Tenant for Tenant’s reasonable approval prior to commencement of construction of the Tenant Improvements.  Landlord and Tenant shall prepare and mutually and reasonably approve a budget (the “Budget”) for the costs to construct the Tenant Improvements (the “Construction Costs”) which shall be attached hereto as Exhibit D-3. The Budget does not include any amounts for furniture, fixtures (other than lighting), equipment, voice/data systems, or personal property of Tenant, which items will be paid for by Tenant separately at its expense. The Budget includes a Construction Contingency which shall be 5% of the Construction Costs.  Any unspent Construction Contingency will accrue to the Tenant. Change Orders (as hereinafter defined) shall be funded from increases in the Contract (as hereinafter defined).  Landlord agrees to fund a portion of the Construction Costs through the provision of the Tenant Improvement Allowance.  The Tenant Improvement Allowance shall be used for items specifically outlined in the Budget and mutually agreed upon by both Landlord and Tenant.  The Tenant Improvement Allowance shall be used only for construction, design, and management costs related to fixed improvements to the Building that are part of the Tenant Improvements. The Tenant Improvement Allowance may not be used to offset any Rent payments owed to Landlord by Tenant. Any costs incurred due to a Tenant Delay shall be charged against the Tenant Improvement Allowance; provided, however, Tenant shall be given two (2) days’ notice and opportunity to cure any Tenant Delay (including payment by Tenant of any costs associated with such cure such as higher shipping charges) before any costs are charged against the Tenant Improvement Allowance.  Landlord and Tenant acknowledge and agree that the Construction Costs will be in excess of the Tenant Improvement Allowance, and all costs for the Tenant Improvements in excess of the Tenant Improvement Allowance shall be borne by Tenant.  Therefore, Tenant has agreed to place into an escrow account maintained with Landlord (the "Escrow Account") an amount equal to the Construction Costs as specified in the Budget minus the Tenant Improvement Allowance (the “Tenant Improvement Overage”).  Landlord shall establish the Escrow Account as a separate, interest bearing account in an FDIC insured institution.

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set forth below, Landlord shall have the authority to make periodic deductions from the Escrow Account as payment for the Construction Costs and the Escrow Account shall be funded in full by Tenant prior to Landlord’s issuance of a Notice to Proceed to the General Contractor.  Failure by Tenant to deposit the Tenant Improvement Overage into the Escrow Account within five (5) business days after a request from Landlord hereunder shall be a Tenant Delay and a default in payment hereunder.  Tenant shall receive all interest that accrues under the Escrow Account.  

 

(b)The Tenant Improvement Allowance and Tenant Improvement Overage shall be disbursed by Landlord upon satisfaction of the following conditions precedent: (i) Landlord shall have received applications for payment certified by the Architect, accompanied by evidence of the portion of the Tenant Improvements that have been completed per the Plans, invoices and paid receipts for all such work completed, and copies of executed lien waivers from those persons providing such work; and (ii) all information and documentation provided to Landlord must be in form and substance reasonably approved by Landlord.  Upon Tenant’s request, Landlord shall provide Tenant an opportunity to review such information and documentation.

 

(c)Provided the aforesaid conditions are met, Landlord shall pay the Construction Costs at monthly intervals based upon design and construction billing cycles. Each monthly payment of the Construction Costs shall be paid as follows: fifty percent (50%) of such payment shall be paid from the Tenant Improvement Allowance and the remaining fifty percent (50%) of such payment shall be paid from the Tenant Improvement Overage through the Escrow Account. Within thirty (30) days after the Commencement Date, Landlord shall prepare and submit to Tenant a final statement that illustrates the total cost to construct the Tenant Improvements and the amount paid from and remaining with respect to each of the Tenant Improvement Overage as held in the Escrow Account, and the Tenant Improvement Allowance.  If such statement indicates that Landlord has paid less than the total amount of the Tenant Improvement Allowance, then Landlord shall pay Tenant an amount equal to the Tenant Improvement Allowance minus the total amount previously paid by Landlord within ten (10) days of the date of such statement.  If such statement reflects that the amount deposited into Escrow Account by Tenant as the Tenant Improvement Overage was greater than the amount required to be paid by Tenant, then Tenant shall be entitled to a prompt refund of any such amounts.  

 

(d)Unless otherwise specified in the Plans, materials used for the Tenant Improvements at the Building shall be good quality, new, and customary for the type of upfit contemplated in this Lease and in facilities comparable to the Building and readily available in the market where the Building is located, all as reasonably determined by Landlord.  

 

(e)During construction of the Tenant Improvements, Landlord shall provide weekly written progress reports to Tenant necessary for Tenant to review work schedules, costs, expenses and construction issues regarding the construction of the Tenant Improvements.  The parties will hold periodic meetings, at mutually agreed upon times and locations, to discuss the progress of the construction of the Tenant Improvements. The General Contractor will provide an updated Budget, Schedule, and RFI log every two weeks during construction of the Tenant Improvements.  The General Contractor and Landlord reserve the right to cure self imposed delays in the Schedule.

 

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(f)Should a default or event of default occur by Tenant hereunder prior to the Commencement Date, Landlord shall have the right to cease all construction of the Tenant Improvements, and pursue all of its rights and remedies hereunder, or available at law or in equity for any such default or event of default.

 

2.Space Planning, Design and Working Drawings. Tenant shall engage Integrated Design (the “Architect”) to prepare the Plans. After execution of this Lease, Tenant may seek reimbursement from the Tenant Improvement Allowance for fees paid to the Architect.  The Architect’s fees shall be paid from the Tenant Improvement Allowance by Landlord upon receipt and approval by Landlord of invoices and lien waivers for work performed.  Belk Architecture or another architect with historic tax credit expertise (the “Landlord’s Architect”) shall review the Plans to insure compliance with the requirements of State and Federal law for historic tax credits and all the costs for such review shall be borne by Landlord.  If the Landlord’s Architect identifies any changes that must be made to the Plans solely for the purposes of complying with requirements for historic tax credits, the costs of designing and constructing such changes shall be borne by Landlord provided there has been no material deviation from the Plans attached as Exhibit D-1.  Tenant shall review and respond to any request for approval of the draft plans or final Plans (by U.S. Mail, facsimile, or email) within five (5) business days after a request from either the Architect or Landlord.  Any modifications of the Plans sought by Tenant shall be reviewed and subject to the approval of Landlord prior to the modification of the Plans.  All communication by Tenant to Landlord with respect to the Tenant Improvements shall be in writing. Tenant shall designate an Authorized Representative to work with Landlord with respect to the Tenant Improvements, and Landlord shall not be obligated to respond to any instructions, approvals, changes, or other communications from anyone claiming to act on Tenant's behalf other than Tenant's Authorized Representative.  Review and approval by Landlord of the Plans shall not be construed as any statement by Landlord as to the compliance of the Plans with Applicable Laws.  

 

3.Construction of Tenant Improvements.  Landlord shall obtain all state and local licenses, permits and approvals (whether governmental or non‑governmental) required to construct the Tenant Improvements and for Tenant's occupancy of the Premises.  Landlord shall provide access to the General Contractor for Construction of the Tenant Improvements and to the extent such access requires entry through space occupied by other tenants, Landlord shall provide for such access at its sole cost and expense.  The Landlord shall engage, subject to Tenant’s reasonable approval, a general contractor to construct the Tenant Improvements (the “General Contractor”).  The General Contractor shall construct and install the Tenant Improvements in accordance with the Plans which expense shall be deducted from the Tenant Improvement Allowance. The Tenant Improvements shall be delivered via Associated General Contractors (AGC) Guaranteed Maximum Price Contract (the "Contract") with Liquidated Damages of $500.00 per day for each day of delay in achieving in substantial completion beyond the date specified in the Contract, which date shall be no later than October 1, 2010, and a payment and performance bond.  Any Liquidated Damages (less cost of collection) paid to Landlord shall accrue to the Tenant; provided, however, any paid Liquidated Damages for any Tenant Delay shall accrue to Landlord.  The General Contractor shall obtain at least three (3) bids for all major trade work at the Premises.  Landlord will work with the General Contractor to complete the Tenant Improvements by the Commencement Date.  All contracts with vendors and subcontractors for construction of the Tenant Improvements will be negotiated by the General Contractor.  All work performed in

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connection with the construction of the Premises shall be performed in a good and workmanlike manner, in accordance with all Applicable Laws and the final approved Plans.  If materials are not readily available, require quick ship charges, or require substitution, the Tenant will be given notice and the opportunity to select alternate materials.  Landlord shall insure that the Architect conducts a periodic review (a minimum of once every two weeks) of the progress of construction to ensure compliance with the Plans. Tenant may from time to time request in writing changes to the Plans (a “Change Order”), subject to Landlord’s consent, which shall not be unreasonably withheld.  Landlord shall cause Contractor to provide an estimate of any change in the Construction Cost and/or Schedule.  Tenant shall have the right to elect whether or not to proceed with the Change Order within five (5) business days after receipt of such estimate. Upon such approval by Tenant, or confirmation by Landlord that the Change Order will not result in any change in cost and/or Schedule, Landlord shall implement the Change Order as part of the Tenant Improvements.  

 

Tenant acknowledges that the following items may result in changes to the Budget and/or Schedule:

(i)Municipal or other governmental inspectors require changes to the Premises such as code compliance changes.  In such event, Landlord will notify Tenant of the required changes, but the increased cost of such changes, if any, and any delay associated with such changes shall be the responsibility of Tenant.

(ii) Change Orders approved by Tenant. Any increased costs and delays due to such approved Change Orders shall be the responsibility of Tenant.  Any delays caused by such approved Change Orders shall not delay the Commencement Date of the Lease.  Landlord shall not charge Tenant any administrative fees in respect of any Change Orders.  Tenant shall have five (5) business days to review and approve all Change Orders and any additional review time by Tenant shall be a Tenant Delay.    

 

(iii)If materials are not readily available, require quick ship charges, or require substitution, provided Landlord shall identify any such materials within ten (10) days of final approval of the Plans, and in any such case, Tenant will be given notice and the opportunity to select alternate materials.  

 

(iv)Any Tenant Delay.

 

4.Repairs and Corrections. Landlord shall require of the General Contractor and any subcontractor constructing the Tenant Improvements no less than a one year express repair and/or replacement warranty covering such work.  All manufacturers’ and builders’ warranties with respect to the Tenant Improvements shall be assigned to Tenant to the extent possible and necessary to assist Tenant in effecting any of Tenant’s repair obligations under the Lease without recourse to Landlord.  Landlord agrees to enforce for the benefit of Tenant any warranties or guarantees issued in connection with construction of the Tenant Improvements.  Tenant shall repair or correct any defective work or materials installed by Tenant or any contractor other than the General Contractor (except subcontractors engaged by the General Contractor), or any work or materials that prove defective as a result of any act or omission of Tenant or any Tenant Party, provided that selection of materials by Tenant is not such an act or omission, and provided further that work and materials done or installed by the General Contractor or its vendors and

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subcontractors is not such an act or omission.  For purposes of this Section, Landlord will not be considered to be Tenant’s agent, invitee, licensee, subtenant, customer, client, or guest.  

 

5.Punchlist.  Landlord shall provide Tenant with written notice when Landlord believes that substantial completion of the Tenant Improvements has been achieved.  Promptly following delivery of such notice, Tenant’s Representative and Landlord’s Representative shall jointly inspect the Tenant Improvements, and, Landlord and Tenant shall mutually and reasonably prepare a punchlist of items remaining with respect to the Tenant Improvements that require repair or completion (the “Punchlist”).  Pursuant to its Contract with Landlord, General Contractor shall make all repairs and completions noted on the Punchlist with respect to the Tenant Improvements within forty-five (45) days (extended for Force Majeure and any Tenant Delay) after receipt of the Punchlist, with any Liquidated Damages paid by the General Contractor for a delay in completion of the Punchlist accruing to the benefit of Tenant.  Landlord acknowledges and represents that the Contract will include liquidated damages for delays in final completion (including completion of Punchlist items) in the amount of at least $150.00 per calendar day of delay in completing the Punchlist repairs beyond the time provided in this paragraph.  

 

6.Move-In by Tenant.  Tenant shall schedule its move into the Premises with Landlord prior to occupying any portion of the Premises.

 

7.Tenant Representative.  Whenever Landlord or any contractor responsible for the Tenant Improvements shall need to communicate with Tenant about the Tenant Improvement related matters, including Change Orders, Landlord or such contractor shall contact Todd Melby at todd.melby@precisionbiosciences.com or (330) 329-4015.

 

8.Landlord Representative.  Whenever Tenant or any contractor responsible for the Tenant Improvements shall need to communicate with Landlord about the Tenant Improvement related matters, including Change Orders, Tenant or such contractor shall contact Steven Hess at steven.hess@scientificproperties.com, or (919) 600-3435.

 

 

 

 

 

 

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EXHIBIT D-2

FINAL PLANS

[TO BE ATTACHED UPON THE MUTUAL AND REASONABLE APPROVAL OF LANDLORD AND TENANT]

 

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EXHIBIT E

RULES AND REGULATIONS

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Whenever the above rules conflict with any of the rights or obligations of Tenant pursuant to the provisions of the Lease, the provisions of the Lease will govern. Landlord will not be responsible to Tenant or liable for the non-observance or violation of any of these Rules and Regulations by any other tenant.

 

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EXHIBIT F

 

TENANT SECURITY PROCEDURES

 

 

Precision BioSciences Security Protocol:

 

 

Guests:

 

Invited guests are welcome at Precision BioSciences. All guests must sign into the guest log at the front desk when entering the premises. They will receive a visitor pass from the Executive Assistant which is to be displayed at all times while in the premises.

During their visit, guests must be escorted at all times. While in lab areas, all guests must wear lab coats and safety glasses. Photographs or videos are not allowed unless permission has been granted by an employee. Cell phone use is to be restricted to areas outside of the laboratories and preferably in an office or the conference room.

Upon exit, guests must sign out and return the visitor pass.

 

 

 

 

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EXHIBIT G

 

LIST OF HAZARDOUS

MATERIALS

 

 

 

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FIRST AMENDMENT TO THE LEASE AGREEMENT

THIS FIRST AMENDMENT TO LEASE AGREEMENT (the “Amendment”) is made and entered into as of the 19^th day of August, 2011 by and between VENABLE TENANT, LLC, a North Carolina limited liability company (the “Landlord”), and PRECISION BIOSCIENCES, INC., a Delaware Corporation (the “Tenant”).

WITNESSETH:

WHEREAS, pursuant to that certain Lease Agreement dated April 5, 2010 by and between Landlord and Tenant (the “Lease”), Tenant leased certain premises located in the Dibrell A Warehouse Building at 302 East Pettigrew Street, Durham, North Carolina (the “Building”) and consisting of approximately 8,274 rentable square feet, as more particularly described in the Lease (the “Premises”); and

WHEREAS, the parties desire to modify the Lease as provided herein.

NOW, THEREFORE, in consideration of cash in hand paid and the promises and the provisions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree to amend and modify the Lease as follows:

1.Roof Access.

 

(a)Tenant has requested and Landlord has agreed that Tenant, its agents, employees, and independent contractors (all of the foregoing, together with Tenant shall be referred to herein collectively, as the “Tenant Parties” or each as a “Tenant Party”) may have access to the roof of the Building (the “Roof”) provided that Tenant complies with the following terms and conditions:

 

(i)Tenant shall maintain insurance against loss or damage to person (including death) or property due to any act or omission of any Tenant Party in connection with the access of the Roof and conduct of work thereon;

 

(ii)The sole purpose for access by a Tenant Party to the Roof is the repair, maintenance and replacement of HVAC units, and/or generators owned by Tenant and located on the Roof;

 

(iii)To the extent caused by a Tenant Party’s access to the Roof or conduct of work thereon, Tenant shall promptly repair any damage to the Roof, or any property of Landlord or of any other tenant of the Building located thereon caused by Tenant Party. Landlord reserves the right to make said repairs, at the sole expense of the Tenant, if Tenant repairs do not occur in a timely fashion or in the event other Tenants of the building are negatively impacted as a result of the repair timing and Tenant shall remit payment to the Landlord of its actual and reasonable costs incurred in effecting any such repairs within ten business days after demand made by Landlord and documentation of Landlord’s costs provided to Tenant therefore;

 

 

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(iv)Landlord shall have the right to limit access by Tenant to the Roof in the event of an emergency or other circumstance that requires such limitation;

 

(v)No act or omission by a Tenant Party shall result in penetration of the membrane of the Roof; and

 

(vi)Tenant shall comply with all Applicable Laws (as defined in the Lease) in connection with its access to the Roof and conduct of work thereon.

 

(b)Notwithstanding any provision of this Amendment to the contrary, if any Tenant Party shall fail to comply with the terms and conditions stated herein, Landlord may terminate the right of Tenant to access the Roof upon ten (10) days prior written notice to Tenant specifying the reason for such termination.

 

(c)Tenant acknowledges on behalf of each Tenant Party that there are no walls, railings, barriers, or other structures on the edges of the Roof (defined as the “Roof Condition”), and understands the potential danger and risk associated with its entry thereon, and Tenant acknowledges that Tenant is not aware of any obligation Landlord has to modify the Roof Condition existing as of this date.

 

(d)Landlord shall not be liable and Tenant hereby remises, releases and forever discharges Landlord, and its owners, directors, members, shareholders, members, managers, affiliates, partners, officers, insurers, agents (including, but not limited to, the property manager of Landlord, Scientific Properties, LLC), accountants, employees, attorneys, and assigns of and from any and all claims resulting from a Tenant Party’s breach of the terms of this Amendment.  Tenant shall indemnify, defend and hold Landlord harmless from and against any and all loss, liability, damages (including, but not limited to personal injury, death, or property damage), costs, expenses, and attorneys’ fees incurred by Landlord arising from (i) any breach by a Tenant Party of this Amendment; or (ii) any entry by a Tenant Party upon the Roof, unless any such loss, liability, damages (including, but not limited to, personal injury, death or property damage) is due to a breach by Landlord of this Amendment.

 

2.Acknowledgement.  Landlord acknowledges and agrees that nothing in this Amendment shall limit Landlord’s obligation to maintain and repair the Roof and the Building pursuant to Sections 7 and 10 of the Lease for any maintenance and/or repairs not resulting from damage by a Tenant Party.

 

3.Severability.  In the event any term, covenant or condition of this Amendment, the Lease, or any amendments thereto shall to any extent be invalid or unenforceable, the remainder shall not be affected thereby and each term, covenant or condition shall be valid and enforceable to the full extent permitted by law.

 

4.Successors and Assigns.  This Amendment shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise provided herein.

 

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5.Authority of Parties.  Each party hereto hereby certifies that it is authorized to enter into this Amendment, and that those persons signing below on its behalf are authorized to do so.

 

6.Full Force and Effect.  Except as modified hereby, the Lease is hereby reaffirmed, unmodified and in full force and effect.

 

7.Governing Law.  This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina.

 

8.Mutual Acknowledgment of Non-Existence of Claims.  Except as provided herein, Landlord and Tenant acknowledge and agree that as of the day hereof there are no known claims by either party against the other party hereto arising from the relationship as Landlord and Tenant, respectively, pursuant to the Lease, as amended.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have hereunto executed this Amendment as of the day and year first above written.

 

 

 

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SECOND AMENDMENT TO THE LEASE AGREEMENT

THIS SECOND AMENDMENT TO THE LEASE AGREEMENT (the "Amendment") is made and entered into as of July 13, 2015 by and between VENABLE TENANT, LLC, a North Carolina limited liability company (the "Landlord"), and PRECISION BIOSCIENCES, INC., a Delaware corporation (the "Tenant").

WITNESSETH:

WHEREAS, pursuant to that certain Lease Agreement dated April 5, 2010, as amended by that certain First Amendment to Lease Agreement dated August 19, 2011, by and between Landlord and Tenant, Tenant leased certain premises known as Suite 100 in the Dibrell A Building at 302 East Pettigrew Street, Durham, NC (the Lease Agreement and all amendments thereto shall be referred to herein collectively as the "Lease"); and

WHEREAS, Tenant has requested and Landlord has agreed to modify the Lease as provided herein.  

NOW, THEREFORE, in consideration of cash in hand paid and the promises and the provisions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows:

1.Definition of Terms.  All capitalized terms contained herein and not otherwise defined shall be defined as provided in the Lease.

2.Term.

(a)The term of the Lease currently expires on February 28, 2016.  Landlord has agreed to extend the term of the Lease for a period of sixty-five (65) months (the "Extended Term") for a revised Termination Date of July 31, 2021.  

(b)During the Extended Term, the Premises shall be leased by Tenant "as is" except as expressly provided herein, and subject to Landlord’s continuing Lease obligations (such as repair and maintenance).

3.Premises.

(a)Tenant has requested and Landlord has agreed to an expansion of the Premises (collectively, the "Expansion Space") to include the addition of (i) approximately 8,427 rentable square feet on the second floor of the Building known as Suite 200, and (ii) approximately 2,863 rentable square feet known as Suite 30 in the building known as the Receiving Room.  A floor plan of the Expansion Space is attached hereto and made a part hereof as Exhibit A.

(b)The term of the Lease for the Expansion Space shall commence upon the date that the Expansion Space is substantially complete (as evidenced by a certificate of occupancy issued by the City of Durham and certification of substantial completion by the Architect), which it is estimated shall occur on September 1, 2015 (the "Expansion Commencement Date"), and shall terminate on the revised Termination Date. On the Expansion Commencement Date, the term "Premises" under the Lease shall include the Expansion Premises, and the term "Building" shall be deemed to include the Receiving Room Building. Notwithstanding the foregoing, upon Tenant's

 

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request and within a reasonable timeframe thereafter, Landlord shall advise Tenant if a portion of the Expansion Space (the "Early Portion") may be occupied by Tenant before the entirety of the Expansion Space is completed and Tenant shall advise Landlord if it desires to occupy the Early Portion. Early occupancy of the Early Portion shall not trigger the Expansion Commencement Date or the Expansion Rent Abatement (as defined herein) and for such occupancy, Tenant shall pay an equitable portion of the Base Rent based upon the then current rate for the Premises, and any other charges for the Early Portion (including increased charges for Operating Expenses based upon the increased Tenant's Proportionate Share), with Landlord and Tenant negotiating reasonably and in good faith to determine such charges based on the square footage of the Early Portion and the number of days Tenant occupies the Early Portion for the conduct of its business prior to the actual Expansion Commencement Date at which time, Tenant shall pay the Base Rent set forth in the Landlord's Notice (as defined herein).

(c)Effective upon the Expansion Commencement Date, Tenant's Proportionate Share of the Dibrell A Warehouse Building shall be 32.32431 percent, Tenant’s Proportionate Share of the Receiving Room / Prizery Building shall be 8.41119 percent, and Tenant’s Proportionate Share of the Project shall be 22.82741 percent.  

4.Upfit of Expansion Space. Landlord shall provide an allowance to Tenant for its use in the upfit of the Expansion Space in an amount of up to $250,000 (the "Upfit Allowance").  The Upfit Allowance may be used by Tenant for permitting, construction, architectural and engineering costs, including, costs for cable and information technology. The manner in which Upfit Allowance is to be provided and details of construction of the upfit for the Expansion Space shall proceed per the terms of the Work Letter attached hereto and made a part hereof as Exhibit B.

5.Base Rent.

(a)Commencing upon the Expansion Commencement Date, Base Rent shall be due and payable for the portion of the Premises located in the (i) Dibrell Building of approximately 16,539 rentable square feet (Suites A-100 and A-200) at the rate of $18.50 per rentable square feet, triple-net, with a Base Annual Rent Escalation of 2.75 percent each Lease Year, and (ii) Receiving Room Building (Suite RR-30) of approximately 2,863 rentable square feet at the rate of $21.25 per rentable square feet, full service, with a Base Annual Rent Escalation of 2.75 percent each Lease Year.

(b)Provided there is no event of default under the Lease then in effect, commencing with the Expansion Commencement Date, Base Rent under the Lease shall be abated for a period of five months (the “Expansion Rent Abatement”).

6.Base Year. The Base Year for the purposes of calculating Additional Rent attributable to increases in Operating Expenses for the Receiving Room, Suite 30 shall be 2016.

7.Operating Expenses.  During the Extended Term, Tenant shall continue to pay Tenant's Proportionate Share of Operating Expenses as provided in the Lease, and amended hereby for the portion of the Expansion Space located in the Dibrell Building.  During 2015 and the Base Year of 2016, Tenant will not pay for Operating Expenses attributable to Suite RR-30, as the Base Rent for the Receiving Room space is a full-service rate with a 2016 base stop. In subsequent

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Lease Years, , Tenant will be charged for increases in Operating Expenses attributable to Suite RR-30 over and above the Base Year 2016.

8.Direct Tenant Expenses. Tenant will arrange for the provision of service and shall pay directly to each service provider all charges as follows:

a. Suites A-100 and A-200: all electricity, gas, and other utilities; janitorial, telephone and internet/data used on or from the Premises together with any taxes, penalties, surcharges, or the like pertaining thereto

b. Suite RR-30: all telephone and internet/data used on or from the Premises together with any taxes, penalties, surcharges, or the like pertaining thereto

9.Security Deposit.  Section 9 of the Lease is hereby deleted and the following new Section 9 inserted in lieu thereof:

Promptly upon the full execution of this Amendment (with delivery of a copy thereof to Tenant), Tenant shall deposit the amount required to increase the Security Deposit under the Lease to $123,269.08, four months Base Rent for the Premises on the Expansion Commencement Date.  Provided there is no default or event of default by Tenant under the Lease, the Security Deposit shall be reduced to (i) three months Base Rent on the first anniversary of the Expansion Commencement Date, and (ii) one month Base Rent on the second anniversary of the Expansion Commencement Date.  Landlord will not be required to apply all or any portion of the Security Deposit with respect to any particular violation or default by Tenant but Landlord may apply all or any portion (as reasonably required to effect a cure) of the Security Deposit to any violation, breach, or default by Tenant hereunder.  Landlord will be entitled to hold the Security Deposit in an account maintained by Landlord for such funds from all tenants of Landlord.  Any interest paid on such an account will become a part of the Security Deposit, accrue to the benefit of the Tenant (less any customary bank fees or charges for maintaining such account), and be delivered to Tenant upon termination of this Lease provided that the Security Deposit and interest thereon have not been applied by Landlord to an event of default hereunder.  Tenant will reimburse Landlord for such portions of the Security Deposit as Landlord will from time to time apply with respect to any violation, breach, or default by Tenant hereunder promptly upon written notice of such application by Landlord.  Any portion of the Security Deposit which has not been appropriated by Landlord in accordance with the provisions hereof will be returned to Tenant within thirty (30) days after the termination of this Lease.

If Landlord conveys Landlord’s interest under this Lease, the Security Deposit, or any part thereof not previously applied, shall be released by Landlord to Landlord’s grantee (to the extent not applied to any default by Tenant hereunder), and if so released, Tenant agrees to look solely to such grantee for the proper application and return thereof in accordance with the Lease provided that Tenant receives written notice of such conveyance.  Tenant agrees that Tenant will not assign, and that neither Landlord, nor its successors and assigns, will be bound by any such assignment, encumbrance or pledge, attempted assignment, attempted pledge, or attempted encumbrance of the Security Deposit.

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Any mortgagee or ground lessor will not be responsible to Tenant for the return or application of the Security Deposit, whether or not it succeeds to the position of Landlord hereunder, unless the security deposit will have been received in hand by such mortgagee or ground lessor.

Any unperformed obligations of Landlord or Tenant under this Section will survive the termination of the Lease, for whatever reason, or any extension or renewal hereof.

10.Right of Refusal.   Landlord hereby grants to Tenant a one-time right of first refusal to lease space in the Project (the “Refusal Space”) under the terms and conditions as provided below:

(i) So long as there is no default (beyond any applicable grace and/or cure period) or event of default by Tenant under the Lease, Landlord will notify Tenant when it has all or a portion of the Refusal Space offered for lease to a third party (the “Third Party”) and the terms and conditions upon which Landlord is willing to lease such space (“Landlord’s Notice”) .

(ii) Tenant shall provide written notice to Landlord, as to Tenant’s decision to lease or not to lease the Refusal Space within ten (10) business days after Landlord’s Notice is received.  If Tenant does provide to Landlord notice to lease the Refusal Space, Landlord and Tenant will negotiate in good faith to agree upon an amendment to the Lease to add the Refusal Space within ten (10) business days after Landlord’s receipt of Tenant’s notice of intent to lease on all the same terms provided to the Third-Party.  If Tenant does not provide written notice to Landlord within ten (10) business days after receipt of the Landlord's Notice, Tenant will have been deemed to have waived its right to lease the Refusal Space and Landlord shall be free to enter into a lease with the Third Party (upon substantially the same terms and conditions listed in Landlord’s Notice), and Tenant shall have no further rights with respect to that particular Refusal Space within the Project.  

Once Landlord has offered a specific portion of the Refusal Space to Tenant, and Tenant has not leased such specific portion under the terms and conditions provided in this Section, Tenant shall have no further right to such specific portion; provided, however, the balance of the Refusal Space that has not been offered to Tenant under this section remains subject to Tenant’s Right of First Refusal provided herein.

The rights provided to Tenant in this Section (i) are subject to the pre-existing rights of other tenants of the Building as described on Exhibit C, attached hereto and made a part hereof, and (ii) shall not inure to the benefit of any subtenant of all or a portion of the Premises.

11.Option to Extend.  Tenant shall have the option to extend the term of the Lease for one period of five Lease Years (the "Renewal Term") provided that Tenant shall give written notice to Landlord of its desire to exercise its right to the Renewal Term at least one hundred and eighty days prior to the end of the then current term; failing which the rights of Tenant under this Section shall be null and void and of no further force and effect.  During the Renewal Term, the terms of the Lease shall continue in full force and effect, including, that Base Rent shall continue to increase by the Base Rent Escalation.  During the Renewal Term,  the Premises shall be leased by Tenant "as is,” subject to Landlord’s continuing Lease obligations (such as repair and maintenance).

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12.Parking.  With its lease of the Expansion Space, Tenant shall have the non-exclusive right to the use of up to forty-five (45) parking spaces at the Project.

13.Keys to Premises. Tenant shall be provided one key and/or fob for each of its employees (now or hereafter employed) for use at the Premises. Landlord shall have the right to charge a reasonable fee for replacement of any lost key or fob.      

14.Brokerage.  Tenant and Landlord each warrants and represents to the other that it has had no dealings with any real estate broker or agent in connection with this Lease other than DTZ, the “Tenant Broker,” and Landlord agrees to pay a fee to the Tenant Broker pursuant to separate written agreement.  Tenant and Landlord each covenants to pay, hold harmless, and indemnify the other from and against any and all costs, expenses, liabilities (including reasonable attorneys’ fees), causes of action, claims or suits in connection with any compensation, commission, fee, or charges claimed by any other real estate broker or agent with respect to this Lease or the negotiation thereof, arising out of any act of said party.

15.Severability. In the event any term, covenant or condition of this Amendment, the Lease, or any amendments thereto shall to any extent be invalid or unenforceable, the remainder shall not be affected thereby and each term, covenant or condition shall be valid and enforceable to the full extent permitted by law.

16.Successors and Assigns. This Amendment shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise provided herein.        

17.Authority of Parties.  Each party hereto hereby certifies that it is authorized to enter into this Amendment, and that those persons signing below on its behalf are authorized to do so.

18.Full Force and Effect. Except as modified hereby, the Lease remains unmodified and in full force and effect.

19.Governing Law.  This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina.

20.Mutual Acknowledgment of Non-Existence of Claims.  Except as provided herein, Landlord and Tenant acknowledge and agree that as of the day hereof there are no known claims by either party against the other party hereto arising from the relationship as Landlord and Tenant, respectively, pursuant to the Lease, as amended.

21.Effective Date.  The provisions of this Amendment shall be effective as of the day and year first written above.

22.Rights of Tenant.  Tenant shall have no options to renew or extend the term of the Lease, rights to expand the Premises or rights of refusal except as expressly provided in this Amendment.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have hereunto executed this Amendment as of the day and year first above written.

 

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EXHIBIT A

 

FLOOR PLAN

 

 

Suite A-200

 

 

Receiving Room Suite-30

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EXHIBIT B

 

WORK LETTER

(a)Landlord and Tenant shall mutually-approve and select a General Contractor to construct the Tenant Improvements in accordance with a milestone schedule (the “Schedule”), a copy of which shall be reasonably approved by Landlord and Tenant prior to commencement of construction of the Tenant Improvements.  Landlord acknowledges and agrees that Clancy & Theys is deemed approved as a potential Contractor, should Tenant so choose.  Landlord and Tenant shall prepare and mutually and reasonably approve a budget (the “Budget”) for the costs to construct the Tenant Improvements (the “Construction Costs”). The Budget will not include any amounts for furniture, fixtures (other than lighting), equipment, or personal property of Tenant, which items will be paid for by Tenant separately at its expense.  The Budget shall include a Construction Contingency which shall be 5% of the Construction Costs.  Any unspent Construction Contingency will accrue to the Tenant.  Change Orders (as hereinafter defined) shall be funded from increases in the Contract (as hereinafter defined).  Landlord agrees to fund a portion of the Construction Costs through the provision of the Upfit Allowance of $250,000.  The Upfit Allowance shall be used for items specifically outlined in the Budget and mutually agreed upon by both Landlord and Tenant.  The Upfit Allowance shall be used only for construction, design, and management costs related to fixed improvements to the Building that are part of the Tenant Improvements. The Upfit Allowance may not be used to offset any Rent payments owed to Landlord by Tenant. Any costs incurred due to a Tenant Delay shall be charged against the Upfit Allowance; provided, however, Tenant shall be given two (2) days’ notice and opportunity to cure any Tenant Delay (including payment by Tenant of any costs associated with such cure such as higher shipping charges) before any costs are charged against the Upfit Allowance.  Landlord and Tenant acknowledge and agree that the Construction Costs will be in excess of the Upfit Allowance, and all costs for the Tenant Improvements in excess of the Upfit Allowance shall be borne by Tenant.  Therefore, Tenant has agreed to place into an escrow account maintained with Landlord (the "Escrow Account") an amount equal to the Construction Costs as specified in the Budget minus the Upfit Allowance (the “Tenant Improvement Overage”).  Landlord shall establish the Escrow Account as a separate, interest bearing account in an FDIC insured institution. set forth below, Landlord shall have the authority to make periodic deductions from the Escrow Account as payment for the Construction Costs and the Escrow Account shall be funded in full by Tenant prior to Landlord’s issuance of a Notice to Proceed to the General Contractor. Failure by Tenant

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to deposit the Tenant Improvement Overage into the Escrow Account within five (5) business days after a request from Landlord hereunder shall be a Tenant Delay and a default in payment hereunder.  Tenant shall receive all interest that accrues under the Escrow Account.

 

(b)The Upfit Allowance and Tenant Improvement Overage shall be disbursed by Landlord upon satisfaction of the following conditions precedent: (i) Landlord shall have received applications for payment certified by the Architect, accompanied by evidence of the portion of the Tenant Improvements that have been completed per the Plans, invoices and paid receipts for all such work completed, and copies of executed lien waivers from those persons providing such work; and (ii) all information and documentation provided to Landlord must be in form and substance reasonably approved by Landlord.  Upon Tenant’s request, Landlord shall provide Tenant an opportunity to review such information and documentation.

 

(c)Provided the aforesaid conditions are met, Landlord shall pay the Construction Costs at monthly intervals based upon design and construction billing cycles. Each monthly payment of the Construction Costs shall be paid as follows: fifty percent (50%) of such payment shall be paid from the Upfit Allowance and the remaining fifty percent (50%) of such payment shall be paid from the Tenant Improvement Overage through the Escrow Account. Within thirty (30) days after the Commencement Date, Landlord shall prepare and submit to Tenant a final statement that illustrates the total cost to construct the Tenant Improvements and the amount paid from and remaining with respect to each of the Tenant Improvement Overage as held in the Escrow Account, and the Upfit Allowance.  If such statement indicates that Landlord has paid less than the total amount of the Upfit Allowance, then Landlord shall pay Tenant an amount equal to the Upfit Allowance minus the total amount previously paid by Landlord within ten (10) days of the date of such statement.  If such statement reflects that the amount deposited into Escrow Account by Tenant as the Tenant Improvement Overage was greater than the amount required to be paid by Tenant, then Tenant shall be entitled to a prompt refund of any such amounts.

(d)Unless otherwise specified in the Plans, materials used for the Tenant Improvements at the Building shall be good quality, new, and customary for the type of upfit contemplated in this Lease and in facilities comparable to the Building and readily available in the market where the Building is located, all as reasonably determined by Landlord.

(e)During construction of the Tenant Improvements, Landlord and Tenant or their agents shall, on a weekly basis review work schedules, costs, expenses and construction issues regarding the construction of the Tenant Improvements.  The parties will hold periodic meetings, at mutually agreed upon times and locations, to discuss the progress of the construction of the Tenant Improvements. The General Contractor will provide an updated Budget, Schedule, and RFI log every two weeks during construction of the Tenant Improvements.  The General Contractor and Landlord reserve the right to cure self imposed delays in the Schedule.

(f)Should a default or event of default occur by Tenant hereunder prior to the Commencement Date, Landlord shall have the right to cease all construction of the Tenant Improvements, and pursue all of its rights and remedies hereunder, or available at law or in equity for any such default or event of default.

 

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2.Space Planning, Design and Working Drawings. Tenant shall engage Integrated Design (the “Architect”) to prepare the Plans. Tenant may include fees previously paid to the Architect in the approved Budget.  Any Architect’s fees reimbursed to Tenant from the Upfit Allowance shall be paid from the Upfit Allowance by Landlord upon receipt and approval by Landlord of invoices and lien waivers for work performed.  If the Architect used by Tenant is not qualified with respect to compliance of the Plans with historic tax credit laws, statutes and regulations, Belk Architecture or another architect with historic tax credit expertise shall review the Plans to insure compliance with the requirements of State and Federal law for historic tax credits and all the costs for such review shall be borne by Landlord. Tenant shall review and respond to any request for approval of the draft plans or final Plans (by U.S. Mail, facsimile, or email) within five (5) business days after a request from either the Architect or Landlord.  Any modifications of the Plans sought by Tenant shall be reviewed and subject to the approval of Landlord prior to the modification of the Plans.  All communication by Tenant to Landlord with respect to the Tenant Improvements shall be in writing. Tenant shall designate an Authorized Representative to work with Landlord with respect to the Tenant Improvements, and Landlord shall not be obligated to respond to any instructions, approvals, changes, or other communications from anyone claiming to act on Tenant's behalf other than Tenant's Authorized Representative.  Review and approval by Landlord of the Plans shall not be construed as any statement by Landlord as to the compliance of the Plans with Applicable Laws.  

 

3.Construction of Tenant Improvements.  Landlord shall, via the General Contractor, obtain all state and local licenses, permits and approvals (whether governmental or non‑governmental) required to construct the Tenant Improvements and for Tenant's occupancy of the Expansion Space.  Landlord shall provide access to the General Contractor for Construction of the Tenant Improvements and to the extent such access requires entry through space occupied by other tenants, Landlord shall provide for such access at its sole cost and expense.  The Landlord shall engage, subject to Tenant’s reasonable approval, a general contractor to construct the Tenant Improvements (the “General Contractor”).  The General Contractor shall construct and install the Tenant Improvements in accordance with the Plans which expense shall be deducted from the Upfit Allowance. The Tenant Improvements shall be delivered via Associated General Contractors (AGC) Guaranteed Maximum Price Contract (the "Contract") with Liquidated Damages of $500.00 per day, and a payment and performance bond.  Any Liquidated Damages (less cost of collection) paid to Landlord shall accrue to the Tenant; provided, however, any paid Liquidated Damages for any Tenant Delay shall accrue to Landlord.  The General Contractor shall obtain at least three (3) bids for all major trade work at the Expansion Space.  Landlord will work with the General Contractor to complete the Tenant Improvements by the Commencement Date.  All contracts with vendors and subcontractors for construction of the Tenant Improvements will be negotiated by the General Contractor.  All work performed in connection with the construction of the Expansion Space shall be performed in a good and workmanlike manner, in accordance with all Applicable Laws and the final approved Plans.  If materials are not readily available, require quick ship charges, or require substitution, the Tenant will be given notice and the opportunity to select alternate materials.  Landlord shall insure that the Architect conducts a periodic review (a minimum of once every two weeks) of the progress of construction to ensure compliance with the Plans. Tenant may from time to time request in writing changes to the Plans (a “Change Order”), subject to Landlord’s consent, which shall not be unreasonably withheld.  Landlord shall cause Contractor to provide an estimate of any change in the Construction Cost and/or Schedule.  Tenant

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shall have the right to elect whether or not to proceed with the Change Order within five (5) business days after receipt of such estimate. Upon such approval by Tenant, or confirmation by Landlord that the Change Order will not result in any change in cost and/or Schedule, Landlord shall implement the Change Order as part of the Tenant Improvements.  Landlord acknowledges that Tenant may hire the General Contractor and/or any subcontractors to perform other work items (in accordance with the terms and conditions of the Lease) within the original Premises concurrently with the Tenant Improvements, provided such work does not require changes to the Schedule.

 

Tenant acknowledges that the following items may result in changes to the Budget and/or Schedule:

(i)Municipal or other governmental inspectors require changes to the Expansion Space such as code compliance changes.  In such event, Landlord will notify Tenant of the required changes, but the increased cost of such changes, if any, and any delay associated with such changes shall be the responsibility of Tenant.

(ii) Change Orders approved by Tenant.  Any increased costs and delays due to such approved Change Orders shall be the responsibility of Tenant.  Any delays caused by such approved Change Orders shall not delay the Commencement Date of the Lease.  Landlord shall not charge Tenant any administrative fees in respect of any Change Orders.  Tenant shall have five (5) business days to review and approve all Change Orders and any additional review time by Tenant shall be a Tenant Delay.

 

(iii)If materials are not readily available, require quick ship charges, or require substitution, provided Landlord shall identify any such materials within ten (10) days of final approval of the Plans, and in any such case, Tenant will be given notice and the opportunity to select alternate materials.  

 

(iv)Any Tenant Delay.

 

4.Repairs and Corrections. Landlord shall require of the General Contractor and any subcontractor constructing the Tenant Improvements no less than a one year express repair and/or replacement warranty covering such work.  All manufacturers’ and builders’ warranties with respect to the Tenant Improvements shall be assigned to Tenant to the extent possible and necessary to assist Tenant in effecting any of Tenant’s repair obligations under the Lease without recourse to Landlord.  Landlord agrees to enforce for the benefit of Tenant any warranties or guarantees issued in connection with construction of the Tenant Improvements.  Tenant shall repair or correct any defective work or materials installed by Tenant or any contractor other than the General Contractor (except subcontractors engaged by the General Contractor), or any work or materials that prove defective as a result of any act or omission of Tenant or any Tenant Party, provided that selection of materials by Tenant is not such an act or omission, and provided further that work and materials done or installed by the General Contractor or its vendors and subcontractors is not such an act or omission.  For purposes of this Section, Landlord will not be considered to be Tenant’s agent, invitee, licensee, subtenant, customer, client, or guest.  

 

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5.Punchlist.  Landlord shall provide Tenant with written notice when Landlord believes that substantial completion of the Tenant Improvements has been achieved.  Promptly following delivery of such notice, Tenant’s Representative and Landlord’s Representative shall jointly inspect the Tenant Improvements, and, Landlord and Tenant shall mutually and reasonably prepare a punchlist of items remaining with respect to the Tenant Improvements that require repair or completion (the “Punchlist”).  Pursuant to its contract with Landlord, General Contractor shall make all repairs and completions noted on the Punchlist with respect to the Tenant Improvements within forty-five (45) days (extended for Force Majeure and any Tenant Delay) after receipt of the Punchlist with any Liquidated Damages paid by the General Contractor for a delay in completion of the Punchlist accruing to the benefit of Tenant.  

 

6.Move-In by Tenant.  Tenant shall schedule its move into the Expansion Space with Landlord prior to occupying any portion of the Expansion Space.

 

7.Tenant Representative.  Whenever Landlord or any contractor responsible for the Tenant Improvements shall need to communicate with Tenant about the Tenant Improvement related matters, including Change Orders, Landlord or such contractor shall contact Todd Melby at todd.melby@precisionbiosciences.com or (330) 329-4015.

 

8.Landlord Representative.  Whenever Tenant or any contractor responsible for the Tenant Improvements shall need to communicate with Landlord about the Tenant Improvement related matters, including Change Orders, Tenant or such contractor shall contact David.Green@scientificproperties.com, or (919) 605-0804.

 

 

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EXHIBIT C

 

TENANTS WITH SUPERIOR RIGHTS OF REFUSAL

 

 

 

 

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THIRD AMENDMENT TO THE LEASE AGREEMENT

THIS THIRD AMENDMENT TO THE LEASE AGREEMENT (the "Amendment") is made and entered into as of January 12, 2016 by and between VENABLE TENANT, LLC, a North Carolina limited liability company (the "Landlord"), and PRECISION BIOSCIENCES, INC., a Delaware corporation (the "Tenant").

 

WITNESSETH:

 

WHEREAS, pursuant to that certain Lease Agreement dated April 5, 2010 by and between Landlord and Tenant, as amended by that certain First Amendment to Lease Agreement dated August 19, 2011, Tenant leased certain premises known as Suite 100 in the Dibrell A Building at 302 East Pettigrew Street, Durham, NC (the Lease Agreement and all amendments thereto shall be referred to herein collectively as the "Lease"); and

 

WHEREAS, Landlord and Tenant have amended the Lease by Second Amendment to Lease Agreement dated July 13, 2015 (the "Second Amendment");

 

NOW, THEREFORE, in consideration of cash in hand paid and the promises and the provisions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1.Definition of Terms.  All capitalized terms contained herein and not otherwise defined shall be defined as provided in the Lease.

2.Rent Abatement Payment.  Landlord and Tenant have agreed that in consideration of the payment by Landlord to Tenant of $51,023.00, Tenant hereby waives and releases any and all right Tenant may have for any further abatement of Rent (Landlord having already waived Tenant’s Rent obligation for January, 2016) as described in the Second Amendment with respect to the portion of their Premises located in Suite A-100 in the Dibrell Building at the Project.  For purposes of clarity, Landlord and Tenant acknowledge and agree that the Expansion Commencement Date (as such term is defined in the Second Amendment) shall be January 1, 2016.

3.Dibrell Building.  Notwithstanding any provision in the Second Amendment to the contrary, Landlord and Tenant hereby confirm and agree that the total rentable square footage leased by Tenant in the Dibrell Building is 16,701 rentable square, consisting of Suite A-100 of 8,274 rentable square feet, and Suite A-200 of 8,427 rentable square feet.

4.Brokerage.  Tenant and Landlord each warrants and represents to the other that it has had no dealings with any real estate broker or agent in connection with this Amendment.  Tenant and Landlord each covenants to pay, hold harmless, and indemnify the other from and against any and all costs, expenses, liabilities (including reasonable attorneys’ fees), causes of action, claims or suits in connection with any compensation, commission, fee, or charges claimed by any real estate broker or agent with respect to this Amendment or the negotiation thereof, arising out of any act of said party.

4.Severability. In the event any term, covenant or condition of this Amendment, the Lease, or any amendments thereto shall to any extent be invalid or unenforceable, the remainder

 

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shall not be affected thereby and each term, covenant or condition shall be valid and enforceable to the full extent permitted by law.

5.Successors and Assigns. This Amendment shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise provided herein.        

6.Authority of Parties.  Each party hereto hereby certifies that it is authorized to enter into this Amendment, and that those persons signing below on its behalf are authorized to do so.

7.Full Force and Effect. Except as modified hereby, the Lease remains unmodified and in full force and effect.

8.Governing Law.  This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina.

9.Mutual Acknowledgment of Non-Existence of Claims.  Except as provided herein, Landlord and Tenant acknowledge and agree that as of the day hereof there are no known claims by either party against the other party hereto arising from the relationship as Landlord and Tenant, respectively, pursuant to the Lease, as amended.

10.Effective Date.  The provisions of this Amendment shall be effective as of the day and year first written above.

 

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have hereunto executed this Amendment as of the day and year first above written.

 

 

 

 

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FOURTH AMENDMENT TO lease agreement

 

THIS FOURTH AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made as of the 30^th day of September, 2016 by and between VENABLE CENTER, LLC, a North Carolina limited liability company ("Landlord"), and PRECISION BIOSCIENCES, INC., a Delaware corporation ("Tenant"), with respect to the following recitals:

 

(a)Landlord is the current owner of a group of interconnected buildings situated at 302 East Pettigrew Street, Durham, North Carolina known collectively as “Venable Center” (the “Project”), which comprises Dibrell A (“Dibrell A”), Dibrell B (“Dibrell B”), the Receiving Room (the “Receiving Room”) and the Prizery (the “Prizery”).  The first and second floors of the Prizery are shown in more detail on Exhibit B attached hereto and incorporated herein by reference.

(b)Pursuant to that certain Lease Agreement dated April 5, 2010, as modified by a First Amendment to Lease Agreement dated August 19, 2011 and by a Second Amendment to the Lease Agreement dated July 13, 2015 (the “Second Amendment”) and by a Third Amendment to the Lease Agreement dated January 12, 2016 (collectively, the "Lease"), Landlord (as successor to Venable Tenant LLC) leases to Tenant certain office space in the Project (the "Current Premises") consisting of approximately 16,701 square feet of rentable area in Dibrell A (Suite A-100 = 8,274 RSF; Suite A-200 = 8,427 RSF, collectively referred to herein as the “Current DA Premises”) and 2,863 square feet of rentable area in the Receiving Room (referred to herein as the “Current RR Premises”), as more particularly described in the Lease;

(c)The term of the Lease is currently scheduled to expire July 31, 2021.

(d)Landlord and Tenant have agreed to extend the term of the Lease, to add certain space to the premises demised under the Lease, and to make certain other modifications to the Lease as set forth hereinbelow;

(e)All capitalized terms used in this Amendment that are not otherwise defined herein shall have the meanings ascribed to such terms in the Lease.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:

1.The Term of the Lease is hereby extended through July 31, 2024 (the “Expiration Date”).

2.Effective as of the respective Expansion Dates set forth below, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the following additional premises in the Project, as outlined on Exhibit A attached hereto:

 

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(a)approximately 11,621 Rentable Square Feet (“RSF”) located in the Receiving Room (the “RR Expansion Premises”).  The Expansion Date for the RR Expansion Premises shall be the 150^th day following the date that Landlord delivers possession of the RR Expansion Premises to Tenant (in good and tenantable condition, broom clean, with all systems serving same in good working order), which delivery date is anticipated to be September 15, 2016 (resulting in an anticipated Expansion Date of February 15, 2017);

(b)approximately 7,494 RSF located on the 2^nd floor of the Prizery (the “PR Second Floor Expansion Premises”), as shown on Exhibit B.  Tenant acknowledges that certain portions of the PR Second Floor Expansion Premises are currently vacant and other portions of the PR Second Floor Expansion Premises are currently occupied by various tenants.  Landlord shall deliver possession of each portion of the PR Second Floor Expansion Premises to Tenant as such portion of the PR Second Floor Expansion Premises is vacant and available to be delivered to Tenant (but, so long as Tenant does not commence the conduct of business in any portion of the PR Second Floor Expansion Premises, such partial delivery shall not trigger commencement of the term with respect to the same, nor commencement of the Base Rent “clock,” as Tenant will be unable to commence its construction activities until the full floor is delivered in accordance with this Amendment; however, if Tenant commences the conduct of business in any portion of the PR Second Floor Expansion Premises, then the term will commence with respect to all portions of the PR Second Floor Expansion Premises that have been delivered to Tenant).  Landlord agrees to endeavor in good faith to terminate or relocate the existing tenants of the PR Second Floor Expansion Premises, so as to deliver possession of each portion of the PR Second Floor Expansion Premises to Tenant as promptly as practicable.  The Expansion Date with respect to the entire PR Second Floor Expansion Premises (unless occurring sooner with respect to portions of the PR Second Floor Expansion Premises pursuant to the foregoing provisions of this Section 2(b)) shall be the thirtieth (30^th) day following the date that possession of the entire PR Second Floor Expansion Premises is delivered to Tenant (in good and tenantable condition, broom clean, with all systems serving same in good working order);

(c)approximately 7,416 RSF on the first floor of Dibrell B (the “DB First Floor Expansion Premises”).  Tenant acknowledges that the DB First Floor Expansion Premises is currently occupied by a tenant whose lease term expires June 30, 2019, but that such current tenant may be induced to vacate the DB First Floor Expansion Premises sooner than such scheduled lease expiration date.  Tenant will take possession of the DB First Floor Expansion Premises as soon as such space is vacant and available.  The Expansion Date for the DB First Floor Expansion Premises shall be the 90^th day following the date that Landlord delivers possession of the DB First Floor Expansion Premises to Tenant (in good and tenantable condition, broom clean, with all systems serving same in good working order).  Rent shall be paid on the same terms (on a per square foot basis) as the RR Expansion Premises;

(d)approximately 7,416 RSF on the second floor of Dibrell B (the “DB Second Floor Expansion Premises”).  Tenant acknowledges that the DB Second Floor Expansion Premises is currently occupied by a tenant whose lease term expires June 30, 2019.  Landlord will use best efforts to cause the current tenant of the DB Second Floor Expansion

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Premises to vacate such space as soon as possible; provided that Landlord shall not be obligated to offer such current tenant any payment or other economic inducement to vacate such space prior to the expiration of such current tenant’s lease term.  Tenant will take possession of the DB Second Floor Expansion Premises as soon as such space is vacant and available.  The Expansion Date for the DB Second Floor Expansion Premises shall be the 30^th day following the date that Landlord delivers possession of the DB Second Floor Expansion Premises to Tenant (in good and tenantable condition, broom clean, with all systems serving same in good working order).  Rent shall be paid on the same terms (on a per square foot basis) as the PR Second Floor Expansion Premises;

3.Base Rent with respect to each Expansion Premises shall be as set forth in the following tables:

 

 

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Landlord and Tenant agree to reasonably document (via e-mail or otherwise in writing) the relevant Expansion Date for each of the Expansion Premises, for the avoidance of confusion or misunderstanding.  

 

 

*Base Rent with respect to the DB First Floor Expansion Premises and the DB Second Floor Expansion Premises shall commence to accrue only as of the respective Expansion Dates applicable to each of such spaces.  From and after the respective Expansion Date applicable to each of such spaces, Base Rent shall be payable in the amounts set forth in the foregoing tables (and any rental amounts shown in the foregoing tables as being in effect during the periods preceding such Expansion Dates shall be relevant only for the purpose of determining the applicable escalated rental amounts due from and after such Expansion Dates).  The purpose of measuring the periods in the foregoing tables from the Expansion Dates applicable to the RR Expansion Premises and the PR Second Floor Expansion Premises is so that the Base Rent per rentable square foot in effect from time-to-time with respect to the DB First Floor Expansion Premises will be the same as the Base Rent per rentable square foot

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in effect with respect to the RR Expansion Premises, and the Base Rent per rentable square foot in effect from time-to-time with respect to the DB Second Floor Expansion Premises will be the same as the Base Rent per rentable square foot in effect with respect to the PR Second Floor Expansion Premises.

Notwithstanding anything in the foregoing to the contrary, provided no Event of Default then exists under the Lease, Landlord agrees to grant Tenant an abatement of the Base Rent due with respect to each of the Expansion Premises, in an amount as set forth herein.  With respect to the RR Expansion Premises and the PR Second Floor Expansion Premises, the rental abatement shall be five (5) monthly installments of the Base Rent.  With respect to each Expansion Premises having an Expansion Date later than February 1, 2017 (other than the RR Expansion Premises and the PR Second Floor Expansion Premises), the rental abatement shall be the product of (i) five (5) monthly installments of the Base Rent multiplied by (ii) a fraction, the numerator of which is the number of full calendar months remaining in the Term of this Lease as of the Expansion Date applicable to such Expansion Premises and the denominator of which is eighty-nine (89).  Such abatement shall be applied to the monthly installments of Base Rent that would otherwise be due for the months commencing with January 2018; provided that, with respect to any Expansion Premises whose Expansion Date occurs later than January 1, 2018, the abatement period shall be the first full and partial calendar months following the Expansion Date applicable to such Expansion Premises.

4.Effective as of the Expansion Date for the RR Expansion Premises (which date is referred to herein as the “RR Adjustment Date”), the Base Rent with respect to the Current RR Premises shall be converted to a “triple-net” rental rate, and Tenant shall pay, with respect to the Current RR Premises, its Proportionate Share of all Operating Expenses from and after the Expansion Date for the RR Expansion Premises.  Effective as of the RR Adjustment Date, the Base Rent with respect to the Current RR Premises shall be as set forth in the following table:

5.Effective as of August 1, 2021, Base Rent with respect to the Current RR Premises and the Current DA Premises shall be the then-current rates of the Receiving Room (both on a NNN basis), as illustrated in the following tables:

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*Escalations based on number of months following RR Expansion Premises Expansion Date, consistent with Section 3 of this Amendment.

*Escalations based on number of months following RR Expansion Premises Expansion Date, consistent with Section 3 of this Amendment.

6.Tenant’s Proportionate Share of Operating Expenses with respect to the respective Expansion Premises is as follows:

The Base Rent stated above with respect to the RR Expansion Premises and the DB First Floor Expansion Premises is a “triple-net” rental rate, and Tenant shall pay, with respect to each such Expansion Premises, its Proportionate Share of all Operating Expenses from and after the Expansion Date applicable to each such Expansion Premises.  The Base Rent stated above with

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respect to the PR Second Floor Expansion Premises and the DB Second Floor Expansion Premises is a “full-service” rental rate, and Tenant shall pay, with respect to each such Expansion Premises, from and after January 1, 2018, its Proportionate Share of increases in Operating Expenses over the Operating Expenses incurred in calendar year 2017.

7.Landlord hereby agrees to grant Tenant an allowance (“Improvements Allowance”) with respect to each Expansion Premises.  The Improvements Allowance granted with respect to each Expansion Premises shall be calculated by reference to the Base Improvements Allowance per Rentable Square Foot (“Base Amount”) set forth in the following table:

For the RR Expansion Premises and the PR Second Floor Expansion Premises, the Improvements Allowance shall be the Base Amount set forth in the foregoing table.  For each Expansion Premises having an Expansion Date later than February 1, 2017 (other than the RR Expansion Premises and the PR Second Floor Expansion Premises), the Improvements Allowance shall be the product of (i) the Base Amount set forth in the foregoing table multiplied by (ii) a fraction, the numerator of which is the number of full calendar months remaining in the Term of this Lease as of the Expansion Date applicable to such Expansion Premises and the denominator of which is eighty-nine (89).

The Improvements Allowances shall be applied toward the cost of the design and construction of any alterations Tenant desires to perform in the Expansion Premises in conjunction with Tenant’s initial occupancy of such Expansion Premises.  Any portion of the Improvements Allowances may be applied to pay the fees of the architect and engineers and any project manager employed by Tenant with respect to such alterations, as well as any permit costs and fees.

The cost of Tenant's alterations in each of the Expansion Premises shall be paid first out of the applicable Improvements Allowance until the Improvements Allowance is exhausted.  Tenant shall deliver to Landlord, no more frequently than once per month, invoices for work performed hereunder together with any other supporting documentation reasonably requested by Landlord.  Provided no Event of Default then exists under the Lease, the Improvements Allowance (or portions thereof) shall be disbursed to Tenant within thirty (30) days following Tenant's submission to Landlord of paid invoices for work related to alterations performed by Tenant in the Expansion Premises, accompanied by waivers of liens executed by all contractors employed by Tenant for the performance of such work.  If the cost of Tenant's alterations in the Expansion Premises exceeds the amount of the applicable Improvements Allowance, the excess shall be paid by Tenant after the Improvements Allowance is fully exhausted.  Notwithstanding the foregoing,

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the Improvements Allowance associated with any particular Expansion Premises may be utilized by Tenant in the Expansion Premises with which it is associated and/or in any other Expansion Premises that is delivered to Tenant either concurrently with or following the delivery date of the Expansion Premises with which such Improvements Allowance is associated.  Tenant may also submit invoices for an existing or completed Expansion Premises project when a new Improvements Allowance becomes available.

Any portion of the Improvements Allowance that has not been utilized by the date that is twelve (12) months following the last Expansion Date applicable to any of the Expansion Premises (as referenced in Section 2 of this Amendment) shall revert to Landlord.

In no event may any portion of the Improvements Allowances may be utilized with respect to alterations or refurbishment performed in the Current Premises.

8.Landlord hereby agrees to grant Tenant an allowance in the amount of $97,820.00 (the "Refurbishment Allowance"), to be applied toward the cost of performing alterations and refurbishment in the Current Premises.  Any portion of the Refurbishment Allowances may be applied to pay the fees of the architect and engineers and any project manager employed by Tenant with respect to such alterations, as well as any permit costs and fees.  Provided no Event of Default then exists under the Lease, the Refurbishment Allowance (or portions thereof) shall be disbursed to Tenant within thirty (30) days following Tenant's submission to Landlord of paid invoices for alterations or refurbishment performed by Tenant in the Current Premises after the date of this Amendment, accompanied by waivers of liens executed by all contractors employed by Tenant for the performance of such work (to the extent reasonably required).  Requisitions shall be submitted by Tenant no more frequently than once per month.  If the cost of Tenant's alterations and refurbishment in the Current Premises exceeds the amount of the Refurbishment Allowance, the excess shall be paid by Tenant after the Refurbishment Allowance is exhausted.  Additionally, Tenant may elect to apply any unexpended Refurbishment Allowance toward work in any Expansion Premises, on the same terms and conditions as listed in Section 7 above.

9.Landlord acknowledges that, following delivery of the RR Expansion Premises to Tenant, Tenant will be the exclusive user of the “private shipping and receiving area” of the loading dock in the Receiving Room, as shown on the attached Exhibit A (the “S&R Area”), except as specifically provided herein.  Landlord shall reasonably cooperate with Tenant to facilitate Tenant’s use of the loading dock as the primary user thereof; and Tenant agrees to afford Landlord and other tenants of the Receiving Room reasonable access to and use of such loading dock, provided that such access and use does not materially impair Tenant’s use of such facility. Landlord agrees that it will use best efforts to give Tenant not less than twenty-four (24) hours’ prior notice (which need not be in writing) to access and to use the loading dock so that Tenant can appropriately coordinate (clearance of space and security of items in the space).  Tenant, at Tenant’s sole cost, shall relocate the existing mailboxes in the loading dock to a mutually-agreeable location outside the S&R Area, and shall provide a means of access to the IT cabinet that does not require access through the S&R Area, such work to be subject to Landlord’s reasonable prior approval.

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10.Tenant shall have the right, at Tenant’s expense and for its own use, to purchase, install, maintain and operate at the Project an emergency power generator (the "Generator") and a fuel tank (the "Tank") for the Generator, subject to the following terms and conditions:  

(a)The Generator and Tank and associated wiring shall be installed by contractors reasonably pre-approved by Landlord, in a good and workmanlike manner and in accordance with the reasonable directions of Landlord relative thereto.  Tenant and/or its contractors shall provide all appropriate insurance for such installation.  Tenant shall deliver to Landlord detailed plans and specifications for the Generator and the Tank (including the proposed location of the Generator and the Tank) and a copy of Tenant's contract for installing the Generator and the Tank, which plans and specifications and contract and the location of the Generator and Tank shall be subject to Landlord's reasonable approval.  If deemed desirable by Landlord, Tenant shall cause the space within which the Generator and Tank are located to be screened in a manner that is reasonably acceptable to Landlord.  

 

(b)Tenant shall pay all costs of design, installation, operation, utilization, replacement, maintenance and removal of the Generator and the Tank, including (without limitation) the cost of any piping needed to connect the Generator and the Tank.  Any damage to the Project or other property of Landlord or any other tenant resulting from the installation or maintenance of the Generator and Tank shall be promptly repaired at Tenant's sole cost and expense.

 

(c)Tenant covenants that it will not use its Generator or the Tank in a manner that will unreasonably interfere with Landlord's and/or any current or future tenant's use of the Project.  

 

(d)Tenant shall be responsible for procuring all licenses and permits required for the installation, use or operation of the Generator and the Tank.

 

(e)The Generator and Tank shall be designed, constructed, installed, maintained and operated in strict compliance with all applicable environmental laws.

 

(f)Landlord shall have no liability for any damage to, or caused by, the Generator and Tank.  Tenant hereby indemnifies and agrees to hold Landlord harmless from any loss or damage which Landlord may sustain in connection with the Generator and Tank, including all liabilities, costs or expenses of any kind or nature incurred in connection with any claim or proceeding brought thereon and the defense thereof.

 

(g)Tenant is hereby granted nonexclusive easements and licenses for (i) use of any shafts required to install the electrical wiring for the Generator; and (ii) access to the Generator and the Tank at all reasonable times and in emergencies.  The Generator shall be connected to the Premises by electrical wiring, the installation of which shall be performed by Tenant’s contractor, at Tenant's sole expense.  

(h)At Landlord's request, the Generator and Tank and associated wiring and piping and any screening surrounding the Generator and Tank installed by Tenant hereunder shall be removed by Tenant, by contractors reasonably pre-approved by Landlord, in a good and

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workmanlike manner, upon the expiration or earlier termination of the Lease, at Tenant's sole cost and expense.

11.The parking rights granted to Tenant under the Lease shall increase proportionately upon the Expansion Date applicable to each Expansion Premises.

12.This Amendment and all provisions contained herein are contingent upon an executed lease termination agreement between Landlord and the existing tenant (“Roivant”) for the PR Second Floor Expansion Premises, providing that the PR Second Floor Expansion Premises shall be surrendered to Landlord on or before January 1, 2017 (the “PR Termination Agreement”).  If Landlord does not enter into said PR Termination Agreement within fifteen (15) days of the date of full execution of this Amendment, then Tenant shall be entitled to terminate this Amendment (and all of its obligations hereunder) by written notice delivered to Landlord within thirty (30) days following the date of full execution of this Amendment (unless Landlord has entered into the PR Termination Agreement prior to Tenant’s delivery of its termination notice, in which event this Amendment shall remain in force and effect).

13.The Right of Refusal granted to Tenant pursuant to Paragraph 10 of the Second Amendment shall remain in force and effect during the Term of the Lease as extended by this Amendment.

14.Except to the extent any of such suites are sooner leased by Tenant pursuant to its Right of First Refusal, Landlord and Tenant hereby agree to the following “must-take” expansion provisions with respect to Suites 110, 120, 130, and 140 of the Prizery, as shown on Exhibit B:

(a)Landlord shall deliver Suite 130 and Suite 140, comprising approximately 3,162 rentable square feet (“PR First Floor Expansion Premises A”) to Tenant on or around September 1, 2017 (the PR First Floor Expansion Premises A Target Date”).  Landlord will use commercially reasonable efforts to meet the PR First Floor Expansion Premises A Target Date.  In the event Landlord is unable to deliver possession of the PR First Floor Expansion Premises A to Tenant on the PR First Floor Expansion Premises A Target Date due to an existing tenant’s failure to vacate such space or any other cause beyond Landlord’s reasonable control, Landlord shall have no liability to Tenant, and Tenant’s obligation to lease the PR First Floor Expansion Premises A shall not be nullified, provided Landlord shall use commercially reasonable efforts to deliver possession of the PR First Floor Expansion Premises A to Tenant as soon as possible following the PR First Floor Expansion Premises A Target Date.  The Expansion Date for the PR First Floor Expansion Premises A shall be the 30^th day following the date that Landlord delivers possession of PR First Floor Expansion Premises A to Tenant (in good and tenantable condition, broom clean, with all systems serving same in good working order).  Rent shall be paid on the same terms (on a per square foot basis) as the PR Second Floor Expansion Premises, and Tenant shall receive the same Improvement Allowance as the PR Second Floor Expansion Premises, on a per square foot basis, and prorated in accordance with Section 7 of this Amendment.

(b)Landlord shall deliver Suite 110 and Suite 120, comprising approximately 2,722 rentable square feet (“PR First Floor Expansion Premises B”) to Tenant on or around November 1, 2018 (the “PR First Floor Expansion Premises B Target Date”).  Landlord will use commercially reasonable efforts to meet the PR First Floor Expansion Premises B Target Date.  In

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the event Landlord is unable to deliver possession of the PR First Floor Expansion Premises B to Tenant on the PR First Floor Expansion Premises B Target Date due to an existing tenant’s failure to vacate such space or any other cause beyond Landlord’s reasonable control, Landlord shall have no liability to Tenant, and Tenant’s obligation to lease the PR First Floor Expansion Premises B shall not be nullified, provided Landlord shall use commercially reasonable efforts to deliver possession of the PR First Floor Expansion Premises B to Tenant as soon as possible following the PR First Floor Expansion Premises B Target Date.  The Expansion Date for the PR First Floor Expansion Premises B shall be the 30^th day following the date that Landlord delivers possession of PR First Floor Expansion Premises B to Tenant (in good and tenantable condition, broom clean, with all systems serving same in good working order).  Rent shall be paid on the same terms (on a per square foot basis) as the PR Second Floor Expansion Premises, and Tenant shall receive the same Improvement Allowance as the PR Second Floor Expansion Premises, on a per square foot basis, and prorated in accordance with Section 7 of this Amendment.  Following the addition of PR First Floor Expansion Premises B to the Premises, Landlord agrees that Tenant may add the previously shared “common space” to its secured area, and Landlord and Tenant will mutually, in good faith, enter into a Lease amendment to document same.

(c)Notwithstanding anything in Paragraph 14(b) above, Tenant acknowledges that the current tenant of Suite 110 has the option to renew the term of its lease for an additional period of three (3) years.  In the event the current tenant of Suite 110 timely exercises its renewal option, Landlord shall so notify Tenant in writing (the “Suite 110 Notice”) within fifteen (15) business days of Landlord’s receipt of same.  In the event Landlord does not deliver the Suite 110 Notice to Tenant within fifteen (15) business days of the current tenant’s renewal deadline (which renewal deadline Landlord represents, for the purposes of this Amendment, to be April 30, 2018), Landlord shall be conclusively deemed to have represented that the current Suite 110 tenant no longer has any valid right to renew, and Landlord shall initiate work promptly and diligently to meet the PR First Floor Expansion Premises B Target Date.  Within thirty (30) days following Tenant’s receipt of the Suite 110 Notice, Tenant may elect, by written notice to Landlord, to delete Suite 110 from the expansion space that is subject to the provisions of this Paragraph 14, in which event Landlord shall have no obligation to deliver possession of Suite 110 to Tenant at any time and Tenant shall have no obligation to lease Suite 110 from Landlord at any time.  In the event Tenant does not timely exercise its right to delete Suite 110 from the expansion space under this Paragraph 14, then the delivery date for Suite 110 shall be extended to be the last day of the current tenant’s three-year renewal term.  Tenant’s right pursuant to Paragraph 14(b) above to convert common space into secured area shall be inapplicable unless and until Suite 110 (as well as the remainder of PR First Floor Expansion Premises B) becomes part of the Premises demised to Tenant.

15.The Option to Extend granted to Tenant pursuant to Paragraph 11 of the Second Amendment shall remain in force and effect and shall be applicable to the period immediately following the Term of the Lease as extended by this Amendment.

16.Landlord and Tenant each warrant to the other that in connection with this Amendment neither has employed or dealt with any broker, agent or finder, other than CBRE-Raleigh, LLC and Cushman & Wakefield (the "Brokers").  Landlord acknowledges that it shall pay any commission or fee due to the Brokers, pursuant to a separate written agreement.  Each party shall indemnify and hold the other harmless from and against any claim for brokerage or

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other commissions asserted by any broker, agent or finder employed by the indemnifying party or with whom the indemnifying party has dealt, other than the Brokers.

IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Amendment as of the day and year first above written.

 

 

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EXHIBIT A

FLOOR PLANS OF EXPANSION PREMISES

 

 

 

 

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EXHIBIT B

 

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FIFTH AMENDMENT TO lease agreement

 

 

THIS FIFTH AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made as of the 24^th day of January, 2018 by and between VENABLE CENTER, LLC, a North Carolina limited liability company ("Landlord"), and PRECISION BIOSCIENCES, INC., a Delaware corporation ("Tenant"), with respect to the following recitals:

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:

1.Effective as of a date to be selected by Landlord and falling between May 1, 2018 and May 15, 2018 (the “Third Floor Expansion Date”), Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, Suite 300 (6,358 rsf), Suite 330 (546 rsf) and Suite 340 (202 rsf) in the Prizery (collectively, the “Third Floor Expansion Premises”), as outlined on Exhibit A attached hereto.  

2.Base Rent with respect to the Third Floor Expansion Premises shall commence to be payable on the date which is three (3) months following the Third Floor Expansion Date (the “TFEP Rent Date”), and shall thereafter be as follows:

 

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Notwithstanding anything in the foregoing to the contrary, provided no Event of Default then exists under the Lease, Landlord agrees to grant Tenant an abatement of the Base Rent due with respect to the Third Floor Expansion Premises, in an amount equal to $63,065.73.  Such abatement shall be applied to the first monthly installments of Base Rent that would otherwise be due for the Third Floor Expansion Premises.

3.Tenant’s Proportionate Share of Operating Expenses with respect to the Third Floor Expansion Premises is 20.92770% of the Prizery and 8.25647% of the Project.  Tenant shall pay, with respect to the Third Floor Expansion Premises, from and after the thirtieth (30^th) day following the Third Floor Expansion Date, its Proportionate Share of increases in Operating Expenses over the Operating Expenses incurred in calendar year 2017.

4.Landlord hereby agrees to grant Tenant an allowance (“Third Floor Improvements Allowance”) with respect to the Third Floor Expansion Premises in the amount of $151,701.12.  The Third Floor Improvements Allowance shall be applied toward the cost of the design and construction of any alterations Tenant desires to perform in the Third Floor Expansion Premises in conjunction with Tenant’s initial occupancy of such Third Floor Expansion Premises.  Any portion of the Third Floor Improvements Allowance may be applied to pay the fees of the architect and engineers and any construction supervision, contractors’ overhead and profit charges, along with fees for any project manager employed by Tenant with respect to such alterations, as well as any licensing and permitting costs and fees.

The cost of Tenant's alterations in the Third Floor Expansion Premises shall be paid first out of the Third Floor Improvements Allowance until the Third Floor Improvements Allowance is exhausted.  Tenant shall deliver to Landlord, no more frequently than once per month, invoices for work performed hereunder together with any other supporting documentation reasonably requested by Landlord.  Provided no Event of Default then exists under the Lease, the Third Floor Improvements Allowance (or portions thereof) shall be disbursed to Tenant within thirty (30) days following Tenant's submission to Landlord of paid invoices for work related to alterations performed by Tenant in the Third Floor Expansion Premises, accompanied by waivers of liens executed by all contractors employed by Tenant for the performance of such work.  If the cost of Tenant's alterations in the Third Floor Expansion Premises exceeds the amount of the Third Floor Improvements Allowance, the excess shall be paid by Tenant after the Third Floor Improvements Allowance is fully exhausted.  

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Any portion of the Third Floor Improvements Allowance that has not been utilized by the date that is twelve (12) months following the Third Floor Expansion Date shall revert to Landlord.

5.The parking rights granted to Tenant under the Lease shall increase proportionately upon the Third Floor Expansion Date.

6.Effective as of the “Dibrell Expansion Date” (as defined below), Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, approximately 2,848 rentable square feet of space in the Dibrell C building (collectively, the “Dibrell Expansion Premises”), as outlined on Exhibit B attached hereto.  In the event the final BOMA calculation of the rentable area of the Dibrell Expansion Premises discloses that the rentable area of such space is less than 2,848 rentable square feet, the Monthly Rent set forth in Paragraph 7 below and Tenant’s Proportionate Share of Operating Expenses with respect to the Dibrell Expansion Premises set forth in Paragraph 8 below shall be reduced pro rata. The “Dibrell Expansion Date” shall be the date following the date that the current tenant of a portion of the Dibrell Expansion Premises, One Cow Standing, LLC, vacates the space occupied by such tenant, so that the space may be delivered by Landlord to Tenant.  The Dibrell Expansion Date is anticipated to occur on April 1, 2020, but Landlord shall have no liability to Tenant and this Amendment shall not be rendered void or voidable in the event Landlord is unable to deliver possession of the Dibrell Expansion Premises to Tenant by the anticipated Dibrell Expansion Date because the current tenant fails to vacate by such date (despite Landlord’s commercially reasonable efforts to achieve same).  In the event the current tenant vacates the Dibrell Expansion Premises prior to the anticipated Dibrell Expansion Date (such vacancy Landlord shall use commercially reasonable efforts to notify Tenant of at least thirty (30) days in advance), the Dibrell Expansion Date shall be the 90^th day following the date that Landlord delivers possession of the Dibrell Expansion Premises to Tenant (in good and tenantable condition, broom clean, with all systems serving same in good working order).  Landlord and Tenant agree to reasonably document (via e-mail or otherwise in writing) the Dibrell Expansion Date, for the avoidance of confusion or misunderstanding.

7.Base Rent with respect to the Dibrell Expansion Premises shall commence to be payable on the date which is three months following the Dibrell Expansion Date, and shall thereafter be as follows:

The foregoing rent schedule presumes that the Dibrell Expansion Date will be no earlier than April 1, 2020.  In the event the Dibrell Expansion Date occurs earlier than April 1, 2020, then (i) Annual Base Rent for any period falling between April 1, 2018 and March 31, 2019 for which rent is payable with respect to the Dibrell Expansion Premises shall be calculated based upon an annual rate of $19.78 per rentable square foot, and (ii) Annual Base Rent for any period falling between April 1,

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2019 and March 31, 2020 for which rent is payable with respect to the Dibrell Expansion Premises shall be calculated based upon an annual rate of $20.32 per rentable square foot.  

Notwithstanding anything in the foregoing to the contrary, provided no Event of Default then exists under the Lease, Landlord agrees to grant Tenant an abatement of the Base Rent due with respect to the Dibrell Expansion Premises, in an amount equal to the product of (i) five (5) monthly installments of the Base Rent initially applicable to the Dibrell Expansion Premises multiplied by (ii) a fraction, the numerator of which is the number of full calendar months remaining in the Term of the Lease as of the Dibrell Expansion Date and the denominator of which is eighty-nine (89).  Such abatement shall be applied to the first monthly installments of Base Rent that would otherwise be due for the Dibrell Expansion Premises.

8.Tenant’s Proportionate Share of Operating Expenses with respect to the Dibrell Expansion Premises is 14.19% of Dibrell C and 3.30909% of the Project.  Tenant shall pay, with respect to the Dibrell Expansion Premises, from and after the thirtieth (30^th) day following the Dibrell Expansion Date, its Proportionate Share of increases in Operating Expenses over the Operating Expenses incurred in calendar year 2017.

9.Landlord hereby agrees to grant Tenant an allowance (“Dibrell Improvements Allowance”) with respect to the Dibrell Expansion Premises in an amount (per rentable square foot in the Dibrell Expansion Premises) equal to the product of (i) $45.00 multiplied by (ii) a fraction, the numerator of which is the number of full calendar months remaining in the Term of this Lease as of the Dibrell Expansion Date and the denominator of which is eighty-nine (89).  The Improvements Allowance shall be applied toward the cost of the design and construction of any alterations Tenant desires to perform in the Dibrell Expansion Premises in conjunction with Tenant’s initial occupancy of such Dibrell Expansion Premises.  Any portion of the Dibrell Improvements Allowance may be applied to pay the fees of the architect and engineers and any construction supervision, contractors’ overhead and profit charges, along with fees for any project manager employed by Tenant with respect to such alterations, as well as any licensing and permitting costs and fees.

The cost of Tenant's alterations in the Dibrell Expansion Premises shall be paid first out of the Dibrell Improvements Allowance until the Dibrell Improvements Allowance is exhausted.  Tenant shall deliver to Landlord, no more frequently than once per month, invoices for work performed hereunder together with any other supporting documentation reasonably requested by Landlord.  Provided no Event of Default then exists under the Lease, the Dibrell Improvements Allowance (or portions thereof) shall be disbursed to Tenant within thirty (30) days following Tenant's submission to Landlord of paid invoices for work related to alterations performed by Tenant in the Dibrell Expansion Premises, accompanied by waivers of liens executed by all contractors employed by Tenant for the performance of such work.  If the cost of Tenant's alterations in the Dibrell Expansion Premises exceeds the amount of the Dibrell Improvements Allowance, the excess shall be paid by Tenant after the Dibrell Improvements Allowance is fully exhausted.  

Any portion of the Dibrell Improvements Allowance that has not been utilized by the date that is twelve (12) months following the Dibrell Expansion Date shall revert to Landlord.

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10.The parking rights granted to Tenant under the Lease shall increase proportionately upon the Dibrell Expansion Date.

11.Landlord acknowledges that it is currently still working with Tenant to resolve certain HVAC issues, and will continue to work together with Tenant in good faith to accommodate Tenant’s laboratory requirements related to same.

12.Landlord and Tenant further anticipate that, as previously discussed, a small amount of space may be added to the Dibrell Expansion Premises, after execution of this Amendment (and the parties agree that such space shall be subject to all economic terms and conditions of Section 7, 8, and 9 of this Amendment)  To the extent reasonably requested by Landlord or Tenant, the parties shall enter into a confirmatory amendment or side letter after such space is added.

13.Landlord and Tenant each warrant to the other that in connection with this Amendment neither has employed or dealt with any broker, agent or finder, other than CBRE-Raleigh, LLC and Cushman & Wakefield (the "Brokers").  Landlord acknowledges that it shall pay any commission or fee due to the Brokers, pursuant to a separate written agreement.  Each party shall indemnify and hold the other harmless from and against any claim for brokerage or other commissions asserted by any broker, agent or finder employed by the indemnifying party or with whom the indemnifying party has dealt, other than the Brokers.

14.As modified by this Amendment, the Lease continues in full force and effect.

IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Amendment as of the day and year first above written.

 

 

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EXHIBIT A

FLOOR PLAN OF THIRD FLOOR EXPANSION PREMISES (Suite 300 & Suite 340)

 

 

 

 

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EXHIBIT B

FLOOR PLAN OF DIBRELL EXPANSION PREMISES

 

 

 

 

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SIXTH AMENDMENT TO LEASE AGREEMENT

 

 

THIS SIXTH AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made as of the 06 day of August, 2018 by and between VC OWNER, LLC, a North Carolina limited liability company ("Landlord"), and PRECISION BIOSCIENCES, INC., a Delaware corporation ("Tenant"), with respect to the following recitals:

 

A.  Pursuant to that certain Lease Agreement dated April 5, 2010, as modified by a First Amendment to Lease Agreement dated August 19, 2011, and by a Second Amendment to Lease Agreement dated July 13, 2015, and by a Third Amendment to Lease Agreement dated January 12, 2016, and by a Fourth Amendment to Lease Agreement dated September 30, 2016, and by a Fifth Amendment to Lease Agreement dated January 24, 2018 (collectively, the "Lease"), Landlord (as successor to Venable Tenant LLC) leases to Tenant certain office space in the group of interconnected buildings situated at 302 East Pettigrew Street, Durham, North Carolina known collectively as “Venable Center” (the “Project”), as more particularly described in the Lease;

B.  Landlord and Tenant have agreed to add certain space to the premises demised under the Lease, and to make certain other modifications to the Lease as set forth hereinbelow;

C.  All capitalized terms used in this Amendment that are not otherwise defined herein shall have the meanings ascribed to such terms in the Lease.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:

 

1.Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, approximately 1,626 rentable square feet of space known as Suite C-185 (the "Suite C-185 Premises") in the Dibrell Building (the “Building”) in the Project, as outlined on Exhibit A attached hereto.  The Term of the Lease with respect to the Suite C-185 Premises shall commence as of September 1, 2018, and shall be coterminous with the Term applicable to the remainder of the Premises.  From and after September 1, 2018, the Suite C-185 Premises shall constitute a portion of the "Premises" for all purposes under the Lease.  Landlord shall have no liability to Tenant in the event Landlord is unable to deliver possession of the Suite C-185 Premises to Tenant on September 1, 2018 due to the holding over by the prior tenant thereof or due to any other matter beyond Landlord’s reasonable control; however, in such event, rent with respect to the Suite C-185 Premises will not begin to accrue until the first business day after Landlord is able to deliver possession of the Suite C-185 Premises to Tenant, broom clean and free of any prior tenancy.

2.From and after September 1, 2018, Tenant shall pay monthly Base Rent with respect to the Suite C-185 Premises in the amount of $3,929.50 per month, which amount shall escalate by 3.0% per annum on September 1, 2019 and each September 1^st thereafter.  Notwithstanding the foregoing, provided Tenant is not then in default under the Lease beyond any applicable notice and cure period, Landlord agrees to abate the first four (4) monthly installments of Base Rent with respect to the Suite C-185 Premises (only).

 

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3.Commencing on January 1, 2019, Tenant shall pay Additional Rent with respect to the Suite C-185 Premises pursuant to Section 6 of the Lease.  With respect to the Suite C-185 Premises (only), Tenant's Proportionate Share shall be 3.14714% for the Building and 1.89723% for the Project, and Tenant shall pay its Proportionate Share of increases in Operating Expenses over the Operating Expenses incurred in calendar year 2018.

4.Tenant shall accept the Suite C-185 Premises in their "as is" condition (subject to Landlord’s continuing repair and maintenance obligations, as outlined in Section 10 of the Lease (as may be amended)), and Landlord shall have no obligation to make any alterations or improvements thereto whatsoever.  Any alterations that Tenant desires to make in the Suite C-185 Premises shall be subject to all the terms and conditions set forth in Section 11 of the Lease.  Landlord hereby agrees to grant Tenant an allowance (the "Granted Allowance") in the amount of $32,520.00, to be applied toward the cost (including architectural and engineering fees) of alterations performed by Tenant in the Suite C-185 Premises.  The Granted Allowance will be disbursed to Tenant within thirty (30) days following Tenant's submission to Landlord of paid invoices with respect to such alterations, together with lien releases from Tenant's contractor(s) and any other supporting documentation reasonably required by Landlord.  Any portion of the Granted Allowance that has not been applied (or contracted to be applied) in the manner set forth above by March 1, 2019 shall revert to Landlord, and Tenant shall have no further rights with respect thereto.

5.Concurrently with its execution of this Amendment, Tenant shall deliver to Landlord the sum of $3,929.50, which shall be added to Tenant's existing Security Deposit, and which combined sum shall continue to be held by Landlord throughout the Term pursuant to the provisions of Section 9 of the Lease.

6.Landlord and Tenant each warrant to the other that in connection with this Amendment neither has employed or dealt with any broker, agent or finder, other than CBRE-Raleigh, LLC and Cushman & Wakefield (the "Brokers").  Landlord acknowledges that it shall pay any commission or fee due to the Brokers, pursuant to a separate written agreement.  Each party shall indemnify and hold the other harmless from and against any claim for brokerage or other commissions asserted by any broker, agent or finder employed by the indemnifying party or with whom the indemnifying party has dealt, other than the Brokers.

7.This Amendment and all provisions contained herein are contingent upon an executed lease termination agreement between Landlord and the existing tenant (“RS&H, Inc.”) for the Suite C-185 Premises, providing that the Suite C-185 Premises shall be surrendered to Landlord on or before August 31, 2018 (the “RS&H Termination Agreement”).  If Landlord does not enter into said RS&H Termination Agreement within fifteen (15) days of the date of full execution of this Amendment, then Tenant shall be entitled to terminate this Amendment (and all of its obligations hereunder) by written notice delivered to Landlord within thirty (30) days following the date of full execution of this Amendment (unless Landlord has entered into the RS&H Termination Agreement prior to Tenant’s delivery of its termination notice, in which event this Amendment shall remain in force and effect).

8.As modified by this Amendment, the Lease continues in full force and effect.

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IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Amendment as of the day and year first above written.

 

 

 

 

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EXHIBIT A

FLOOR PLAN OF SUITE C-185 PREMISES

 

 

 

 

 

 

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AMENDED AND RESTATED SEVENTH AMENDMENT TO LEASE AGREEMENT

 

THIS AMENDED AND RESTATED SEVENTH AMENDMENT TO LEASE AGREEMENT (this “Amendment”) is made as of the day of February, 2019 (the “Effective Date”) by and between VC OWNER, LLC, a Delaware limited liability company (“Landlord”), and PRECISION BIOSCIENCES, INC., a Delaware corporation (“Tenant”), with respect to the following recitals:

 

A.Pursuant to that certain Lease Agreement dated April 5, 2010, as modified by a First Amendment to Lease Agreement dated August 19, 2011, and by a Second Amendment to Lease Agreement dated July 13, 2015, and by a Third Amendment to Lease Agreement dated January 12, 2016, and by a Fourth Amendment to Lease Agreement dated September 30, 2016 (the “Fourth Amendment”), and by a Fifth Amendment to Lease Agreement dated January 24, 2018 (the “Fifth Amendment”), by a Sixth Amendment to Lease Agreement dated August 6, 2018, and by a Seventh Amendment to Lease Agreement (the “Seventh Amendment”) dated November 14, 2018 (collectively, the “Lease”), Landlord (as successor to Venable Tenant LLC) leases to Tenant certain office space in the group of interconnected buildings situated at 302 East Pettigrew Street, Durham, North Carolina known collectively as “Venable Center” (the “Project”), as more particularly described in the Lease;

 

B.Landlord and Tenant have agreed to add certain space to the premises demised under the Lease, to amend, restate, supersede, and replace that certain Seventh Amendment, and to make certain other modifications to the Lease as set forth hereinbelow; and

 

C.All capitalized terms used in this Amendment that are not otherwise defined herein shall have the meanings ascribed to such terms in the Lease.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:

 

1.Premises.  Subject to Section 7 of this Amendment, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, (i) approximately 7,416 rentable square feet of space known as Suite WB100 (the “Suite WB100 Premises”) in Dibrell B, which is located within the Dibrell Building (the “Building”) in the Project, as outlined on Exhibit A-1 attached hereto and incorporated herein and (ii) approximately 7,416 rentable square feet of space known as Suite WB200 (the “Suite WB200 Premises”, together with the Suite WB100 Premises, collectively, the “Premises”) in the Building in the Project, as outlined on Exhibit A-2 attached hereto and incorporated herein.  The Term of the Lease with respect to the Suite WB100 Premises shall commence as of March 1, 2019 (the “Suite WB100 Premises Seventh Amendment Commencement Date”) and shall be coterminous with the Term applicable to the remainder of the Premises.  The Term of the Lease with respect to the Suite WB200 Premises shall commence as of May 1, 2019 (the “Suite WB200 Premises Seventh Amendment Commencement Date”, together with the Suite WB100 Premises Seventh Amendment Commencement Date, collectively, the “Seventh Amendment Commencement Date”) and shall be coterminous with the Term applicable to the remainder of the Premises.  From and after the Suite WB100 Premises Seventh

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Amendment Commencement Date and the Suite WB200 Premises Seventh Amendment Commencement Date, respectively, the Suite WB100 Premises and the Suite WB200 Premises, respectively, shall constitute a portion of the “Premises” for all purposes under the Lease. Landlord shall have no liability to Tenant in the event Landlord is unable to deliver possession of the Suite WB100 Premises and the Suite WB200 Premises to Tenant on the Suite WB100 Premises Seventh Amendment Commencement Date and the Suite WB200 Premises Seventh Amendment Commencement Date, respectively, due to the holding over by the prior tenants thereof or due to any other matter beyond Landlord's reasonable control (and further provided that Landlord shall use commercially reasonable efforts to enforce its rights under the existing lease agreements as modified by the Amended and Restated Lease Termination Agreement, as hereinafter defined); however, in such event, Base Rent with respect to the Suite WB100 Premises and the Suite WB200 Premises, respectively, will not begin to accrue until the first business day after Landlord is able to deliver possession of the Suite WB100 Premises and the Suite WB200 Premises to Tenant, broom clean and free of any prior tenancy.  

 

As of the Effective Date, the Suite WB100 Premises and the Suite WB200 Premises are occupied collectively by Hutson Law Office, P.A. (“Hutson Law”) and Richard M. Hutson II, Chapter 13 Standing Trustee (“Chapter 13”) with Hutson Law occupying a portion of Suite WB200 Premises in premises known as of the Effective Date as Suite B-260 and with Chapter 13 occupying Suite WB100 Premises and a portion of Suite WB200 Premises in premises known as of the Effective Date as Suite B-140.  For purposes of clarity, as of the Seventh Amendment Commencement Date, the suites designated as of the Effective Date as Suite B-140 and Suite B-260 shall no longer have such designations and such premises shall be reconfigured and thereafter be known as Suite WB100 Premises and Suite WB200 Premises.  Additionally, for purposes of clarity, Suite WB100 Premises is referred to in the Fourth Amendment as DB First Floor Expansion Premises and Suite WB200 Premises is referred to in the Fourth Amendment as DB Second Floor Expansion Premises.  

 

2.Rent.  

 

(a)Suite WB100 Premises.  Except as set forth in Section 2(c) hereof, from the Suite WB100 Premises Seventh Amendment Commencement Date until the 90^th day thereafter (the “100 Rent Commencement Date”), Tenant shall not be obligated to pay Base Rent or Operating Expenses with respect to the Suite WB100 Premises while it constructs the tenant improvements in Suite WB100 Premises.  From and after the 100 Rent Commencement Date, Tenant shall pay Base Rent with respect to the Suite WB100 Premises only in accordance with the following rent table:  

 

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*100 Rent Commencement Date.  

 

**Notwithstanding anything in the Lease to the contrary (and specifically deleting the reference to the abatement of Base Rent for the DB First Floor Expansion Premises set forth in Section 3 of the Fourth Amendment), Landlord will forebear the obligation of Tenant to pay Base Rent only for the first three (3) months following the 100 Rent Commencement Date and a portion of the fourth (4^th) month following the 100 Rent Commencement Date in the total amount of $39,831.14 (the “Suite WB100 Abated Payments”).  

 

(b)Suite WB200 Premises. Except as set forth in Section 2(c) hereof, from the Suite WB200 Premises Seventh Amendment Commencement Date until the 30^th day thereafter (the “200 Rent Commencement Date”), Tenant shall not be obligated to pay Base Rent or Operating Expenses with respect to the Suite WB200 Premises while it constructs the tenant improvements in Suite WB200 Premises.  From and after the 200 Rent Commencement Date, Tenant shall pay Base Rent with respect to the Suite WB200 Premises only in accordance with the following rent table:

 

 

 

*200 Rent Commencement Date

 

**Notwithstanding anything in the Lease to the contrary (and specifically deleting the reference to the abatement of Base Rent for the DB Second Floor Expansion Premises set forth in Section 3 of the Fourth Amendment), Landlord will forebear the obligation of Tenant to pay Base Rent only for the first three (3) months following the 200 Rent Commencement Date and a portion of the fourth (4^th) month following the 200 Rent Commencement Date in the total amount of $52,078.65 (the “Suite WB200 Abated Payments”).  

 

(c)As a part of Tenant’s willingness to incentivize Hutson Law and Chapter 13’s early terminations of the Premises in order to facilitate Tenant’s own leasing of the Premises, Tenant has agreed to pay a portion of the rent payments owed by Hutson Law and Chapter 13 to Landlord for the Premises.   Notwithstanding anything in the Lease to the contrary, Landlord and Tenant hereby acknowledge and agree that Tenant shall make the following payments for the Premises to Landlord on or before the following dates:

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3.Additional Rent.

 

(a)Suite WB100 Premises.  Commencing on the 100 Rent Commencement Date, Tenant shall pay Additional Rent with respect to the Suite WB100 Premises pursuant to Section 6 of the Lease. With respect to the Suite WB100 Premises only, Tenant’s Proportionate Share shall be (i) 14.36179%, which is the ratio of 7,416 (the rentable square footage of the Suite WB100 Premises) to 51,637 (the rentable square footage of the Building) for the Building, and (ii) 8.66436%, which is the ratio of 7,416 (the rentable square footage of the Suite WB100 Premises) to 85,592 (the rentable square footage of the Project) for the Project. Notwithstanding anything in the Lease to the contrary, with respect to the Suite WB100 Premises only, the Base Rent is a “triple-net” rental rate, and Tenant shall pay its Proportionate Share of all Operating Expenses from and after the Suite WB100 Premises Seventh Amendment Commencement Date.  For purposes of clarity, the percentages set forth in the table in Section 6 of the Fourth Amendment for Tenant’s Proportionate Share of the Building and Tenant’s Proportionate Share of Project for DB First Floor Expansion Premises are hereby deleted in their entirety.

 

(b)Suite WB200 Premises.  Commencing on the 200 Rent Commencement Date, Tenant shall pay Additional Rent with respect to the Suite WB200 Premises pursuant to Section 6 of the Lease. With respect to the Suite WB200 Premises (only), Tenant’s Proportionate Share shall be (i) 14.36179%, which is the ratio of 7,416 (the rentable square footage of the Suite WB200 Premises) to 51,637 (the rentable square footage of the Building) for the Building, and (ii) 8.66436%, which is the ratio of 7,416 (the rentable square footage of the Suite WB200 Premises) to 85,592 (the rentable square footage of the Project) for the Project. Notwithstanding anything in the Lease to the contrary, with respect to the Suite WB200 Premises only, the Base Rent is a modified “full-service” rental rate, and commencing on the Suite WB200 Premises Seventh Amendment Commencement Date, Tenant shall pay its Proportionate Share of increases in Operating Expenses over the Operating Expenses incurred in calendar year 2017.  For purposes of clarity, the percentages set forth in the table in Section 6 of the Fourth Amendment for the Tenant’s Proportionate Share of the Building and Tenant’s Proportionate Share of Project for DB Second Floor Expansion Premises are hereby deleted in their entirety.  

 

4.Tenant Improvements.  Subject to this Section 4, Tenant shall accept the Suite WB100 Premises and Suite WB200 Premises in their “as is” condition (subject to Landlord's continuing repair and maintenance obligations, as outlined in Section 10 of the Lease (as may be amended)), and Landlord shall have no obligation to make any alterations or improvements thereto whatsoever (provided that Landlord shall deliver same in good and tenantable condition, broom clean, with all systems serving same in good working order). Any alterations that Tenant desires to make in the Suite WB100 Premises and Suite WB200 Premises shall be subject to all the terms

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and conditions set forth in Section 11 of the Lease.  Notwithstanding anything in the Lease to the contrary (and specifically deleting the references to the Improvements Allowances (as defined in Section 7 of the Fourth Amendment) for the DB First Floor Expansion Premises and the DB Second Floor Expansion Premises in Section 7 of the Fourth Amendment), Landlord hereby agrees to grant Tenant (i) an allowance in the amount of $217,480.45 (i.e. $29.33 per rentable square foot multiplied by 7,416 rentable square feet) (the “Suite WB100 Granted Allowance”) to be applied toward the cost (including architectural and engineering fees) of alterations performed by Tenant in the Suite WB100 Premises and (ii) an allowance in the amount of $124,988.76 (the “Suite WB200 Granted Allowance”, together with the Suite WB100 Granted Allowance, collectively, the “Granted Allowance”) to be applied toward the cost of the design and construction of any alterations Tenant desires to perform in Suite WB100 Premises and Suite WB200 Premises, respectively, in conjunction with Tenant’s initial occupancy of Suite WB100 Premises and Suite WB200. Any portion of the Granted Allowance may be applied to pay the fees of the architect and engineers and any construction supervision, contractors' overhead and profit charges, along with fees for any project manager employed by Tenant with respect to such alterations, as well as any licensing and permitting costs and fees; provided, the Suite WB100 Granted Allowance may only be used for the Suite WB100 Premises and the Suite WB200 Granted Allowance may only be used for the Suite WB200 Premises.

 

The cost of Tenant’s alterations in the Suite WB100 Premises shall be paid first out the Suite WB100 Granted Allowance until the Suite WB100 Granted Allowance is exhausted (at which time Tenant shall be fully responsible for the cost of any further alterations), and the cost of Tenant’s alteration in the Suite WB200 Premises shall be paid first out the Suite WB200 Granted Allowance until the Suite WB200 Allowance is exhausted (at which time Tenant shall be fully responsible for the cost of any further alterations).  Provided no Event of Default then exists under the Lease, the Granted Allowance (or portions thereof) shall be disbursed to Tenant within thirty (30) days following Tenant's submission to Landlord of paid invoices for work related to alterations performed by Tenant in the Suite WB100 Premises and Suite WB200 Premises, accompanied by waivers of liens executed by all contractors employed by Tenant for the performance of such work. If the cost of Tenant's alterations in the Suite WB100 Premises or the Suite WB200 Premises exceeds the amount of the Suite WB100 Granted Allowance or the Suite WB200 Granted Allowance, the excess shall be paid by Tenant after the Suite WB100 Granted Allowance or the Suite WB200 Granted Allowance is fully exhausted.  Any portion of the (i) Suite WB100 Granted Allowance that has not been applied (or contracted to be applied) in the manner set forth above by the date which is twelve (12) months following the Suite WB100 Premises Seventh Amendment Commencement Date shall revert to Landlord, and Tenant shall have no further rights with respect thereto and (ii) Suite WB200 Granted Allowance that has not been applied (or contracted to be applied) in the manner set forth above by the date which is twelve (12) months following the Suite WB200 Premises Seventh Amendment Commencement Date shall revert to Landlord, and Tenant shall have no further rights with respect thereto.

 

5.Security Deposit.  Concurrently with its execution of this Amendment, Tenant shall deliver the sum of $28,434.18 to Landlord as an additional portion of the Security Deposit, and accordingly the Security Deposit shall be increased by $28,434.18, which shall be held by Landlord throughout the Term pursuant to the provisions of Section 9 of the Lease.

 

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6.Brokers.  Landlord and Tenant each warrant to the other that in connection with this Amendment neither has employed or dealt with any broker, agent or finder, other than CBRE­Raleigh, LLC (the “Landlord’s Broker”) and Cushman & Wakefield (the “Tenant’s Broker”, together with Landlord’s Broker, collectively, “Brokers”). Landlord acknowledges that it shall pay any commission or fee due to the Landlord’s Broker, pursuant to a separate written agreement.  Landlord’s Broker shall pay any commission or fee due to Tenant’s Broker, pursuant to a separate written agreement.  Each party shall indemnify and hold the other harmless from and against any claim for brokerage or other commissions asserted by any broker, agent or finder employed by the indemnifying party or with whom the indemnifying party has dealt, other than the Brokers.

 

7.Contingency.  This Amendment and all provisions contained herein are contingent upon (i) an executed amended and restated lease termination agreement between Landlord and Hutson Law for the premises that Hutson Law leases from Landlord (the “Amended and Restated Hutson Law Lease Termination Agreement”) and (ii) an executed amended and restated lease termination agreement between Landlord and Chapter 13 for the premises that Chapter 13 leases from Landlord (the “Amended and Restated Chapter 13 Lease Termination Agreement”, together with the Amended and Restated Hutson Law Lease Termination Agreement, collectively, the “Amended and Restated Lease Termination Agreement”), providing that the Suite WB100 Premises and the Suite WB200 Premises shall be surrendered to Landlord on or before February 28, 2019 or April 30, 2019, respectively, in accordance with the Amended and Restated Lease Termination Agreement.  In the event Landlord does not obtain the Amended and Restated Lease Termination Agreement by February 28, 2019, Landlord or Tenant shall thereafter have the right to terminate this Amendment (prior to date of receipt of a fully executed Amended and Restated Lease Termination Agreement).  

 

8.Notices.  The Landlord notice information and payment information in Section 29(b) of the Lease is hereby deleted in its entirety and replaced with the following:

 

For Notice Information:  

 

 

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9.Acknowledgement.  Landlord and Tenant acknowledge that, to their actual knowledge, each party has complied with all of its obligations under the Lease to date, and, to the extent not expressly modified hereby, all of the terms and conditions of said Lease shall remain unchanged and in full force and effect.

 

10.Seventh Amendment.  This Amendment amends, restates, supersedes and replaces that certain Seventh Amendment in its entirety.  

 

11.Dibrell Expansion Premises Clarification.  Sections 6 and 7 of the Fifth Amendment are clarified as follows: (i) the Dibrell Expansion Date is agreed to be June 1, 2018; (ii) Base Rent for the Dibrell Expansion Premises, from 1/1/2019 through 3/31/2020 shall be as follows:

 

1/1/2019 – 1/31/2019:$3,708.62 (21% abatement)

2/1/2019 – 3/31/2019:$4,694.45 per month

4/1/2019 – 3/31/2020:$4,822.61 per month.

 

Beginning 4/1/2020, Base Rent for the Dibrell Expansion Premises shall follow the existing table in Section 7 of the Fifth Amendment.

 

12.Miscellaneous.  The foregoing is intended to be an addition and a modification to the Lease.  Except as modified and amended by this Amendment, the Lease shall remain in full force and effect.  If anything contained in this Amendment conflicts with any terms of the Lease, then the terms of this Amendment shall govern and any conflicting terms in the Lease shall be deemed deleted in their entirety.  Each party to this Amendment shall execute all instruments and documents and take such further action as may be reasonably required to effectuate the purposes of this Amendment.  This Amendment may be modified only by a writing executed by the parties hereto.  This Amendment may be executed in multiple counterparts, each of which shall be deemed an original, and all such counterparts shall together constitute one and the same instrument.  The invalidity of any portion of this Amendment shall not have any effect on the balance hereof.  This Amendment shall be binding upon the parties hereto, as well as their successors, heirs, executors and assigns.  This Amendment shall be governed by, and construed in accordance with North Carolina law.

 

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IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Amendment as of the day and year first above written.

 

 

 

 

 

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EXHIBIT A-1

 

FLOOR PLAN OF SUITE WB100 PREMISES

 

 

 

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EXHIBIT A-2

 

FLOOR PLAN OF SUITE WB200 PREMISES

 

 

 

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EIGHTH AMENDMENT TO LEASE AGREEMENT

 

THIS EIGHTH AMENDMENT TO LEASE AGREEMENT (this “Amendment”) is made as of the 03 day of March, 2020 (the “Effective Date”) by and between VC OWNER, LLC, a Delaware limited liability company (“Landlord”), and PRECISION BIOSCIENCES, INC., a Delaware corporation (“Tenant”), with respect to the following recitals:

 

D.Pursuant to that certain Lease Agreement dated April 5, 2010, as modified by a First Amendment to Lease Agreement dated August 19, 2011, and by a Second Amendment to Lease Agreement dated July 13, 2015, and by a Third Amendment to Lease Agreement dated January 12, 2016, and by a Fourth Amendment to Lease Agreement dated September 30, 2016 (the “Fourth Amendment”), and by a Fifth Amendment to Lease Agreement dated January 24, 2018, and by a Sixth Amendment to Lease Agreement dated August 6, 2018, and by a Seventh Amendment to Lease Agreement dated November 14, 2018, and an Amended and Restated Seventh Amendment to Lease Agreement dated February , 2019 (collectively, the “Lease”), Landlord (as successor to Venable Tenant LLC) leases to Tenant certain office space in the group of interconnected buildings situated at 302 East Pettigrew Street, Durham, North Carolina known collectively as “Venable Center” (the “Project”), as more particularly described in the Lease;

 

E.All capitalized terms used in this Amendment that are not otherwise defined herein shall have the meanings ascribed to such terms in the Lease.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:

 

13.Premises.  Subject to Section 6 of this Amendment, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, approximately 1,164 rentable square feet of space known as Suite 110 (the “Suite 110 Premises”) in the Prizery Building (the “Building”) located within the Project, as outlined on Exhibit A attached hereto and incorporated herein.  The Term of the Lease with respect to the Suite 110 Premises shall commence as of April 1, 2020 (the “Eighth Amendment Commencement Date”) and shall be coterminous with the Term applicable to the remainder of the Premises.  From and after the Eighth Amendment Commencement Date, Suite 110 Premises shall constitute a portion of the “Premises” for all purposes under the Lease. Landlord shall have no liability to Tenant in the event Landlord is unable to deliver possession of the Suite 110 Premises to Tenant on the Eighth Amendment Commencement Date due to the holding over by the prior tenant thereof or due to any other matter beyond Landlord's reasonable control (and further provided that Landlord shall use commercially reasonable efforts to enforce its rights under the existing lease agreement as modified by the Lease Termination Agreement, as hereinafter defined); however, in such event, Base Rent with respect to the Suite 110 Premises will not begin to accrue until the first business day after Landlord is able to deliver possession of the Suite 110 Premises, broom clean and free of any prior tenancy.  

 

The Suite 110 Premises was a “must-take” expansion premises as set forth in Section 14 of the Fourth Amendment.  Provided, however, and for purposes of clarity, due to the early termination of Weinstein’s (as hereinafter defined) occupancy of the Suite 110 Premises in order to facilitate Tenant’s own leasing of the Suite 110 Premises, the parties acknowledge and agree that the “must-take provisions” of Section 14 of the Fourth Amendment shall not be applicable to Tenant’s leasing of the Suite 110 Premises, and instead, the terms and conditions of this Eighth Amendment shall govern.  

 

14.Rent.  

 

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(a)Suite 110 Premises.  From and after the Eighth Amendment Commencement Date, Tenant shall pay Base Rent with respect to the Suite 110 Premises only in accordance with the following rent table:  

 

 

* Eighth Amendment Commencement Date.  

 

(b)As a part of Tenant’s willingness to incentivize Weinstein’s early termination of the Suite 110 Premises in order to facilitate Tenant’s own leasing of the Suite 110 Premises, Tenant has agreed to pay a portion of the rent payments owed by Weinstein to Landlord for the Suite 110 Premises.   Notwithstanding anything in the Lease to the contrary, Landlord and Tenant hereby acknowledge and agree that Tenant shall make the following payment for the Premises to Landlord on or before the following date: $19,000.00 on the date that is ten (10) days following the Effective Date.

 

15.Additional Rent.  Commencing on the Eighth Amendment Commencement Date, Tenant shall pay Additional Rent with respect to the Suite 110 Premises pursuant to Section 6 of the Lease. With respect to the Suite 110 Premises (only), Tenant’s Proportionate Share shall be (i) 5.59% which is the ratio of 1,164 (the rentable square footage of the Suite 110 Premises) to 20,814 (the rentable square footage of the Building, and (ii) 1.33%, which is the ratio of 1,164 (the rentable square footage of the Suite 110 Premises) to 87,416 (the rentable square footage of the Project) for the Project. Notwithstanding anything in the Lease to the contrary, with respect to the Suite 110 Premises only, the Base Rent is a modified “full-service” rental rate, and commencing on January 1, 2021, Tenant shall pay its Proportionate Share of increases in Operating Expenses over the Operating Expenses incurred in calendar year 2020.

 

16.Tenant Improvements.  Subject to this Section 4, Tenant shall accept the Suite 110 Premises in its “as is” condition (subject to Landlord's continuing repair and maintenance obligations, as outlined in Section 10 of the Lease (as may be amended)), and Landlord shall have no obligation to make any alterations or improvements thereto whatsoever (provided that Landlord shall deliver same in good and tenantable condition, broom clean, with all systems serving same in good working order). Any alterations that Tenant desires to make in the Suite 110 Premises shall be subject to all the terms and conditions set forth in Section 11 of the Lease.  Notwithstanding anything in the Lease to the contrary, Landlord hereby agrees to grant Tenant an allowance in the amount of $10,000 to be applied toward the cost (including architectural and engineering fees) of alterations performed by Tenant in the Suite 110 Premises (the “Granted Allowance”) in conjunction with Tenant’s initial occupancy of Suite 110 Premises.

 

Provided no Event of Default then exists under the Lease, the Granted Allowance (or portions thereof) shall be disbursed to Tenant within thirty (30) days following Tenant's submission to Landlord of paid invoices for work related to alterations performed by Tenant in the Suite 110 Premises, accompanied by waivers of liens executed by all contractors employed by Tenant for the performance of such work. If the cost of Tenant's alterations in the Suite 110 Premises exceeds the amount of the Granted Allowance, the excess shall be paid by Tenant after the Granted Allowance is fully exhausted.  Any portion of the Granted Allowance that has not been applied (or contracted to be applied) in the manner set forth above by

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the date which is twelve (12) months following the Eighth Amendment Commencement Date shall revert to Landlord, and Tenant shall have no further rights with respect thereto.

 

17.Brokers.  Landlord and Tenant each warrant to the other that in connection with this Amendment neither has employed or dealt with any broker, agent or finder, other than CBRE­Raleigh, LLC (the “Landlord’s Broker”) and Cushman & Wakefield (the “Tenant’s Broker”, together with Landlord’s Broker, collectively, “Brokers”). Landlord acknowledges that it shall pay any commission or fee due to the Landlord’s Broker, pursuant to a separate written agreement.  Landlord’s Broker shall pay any commission or fee due to Tenant’s Broker, pursuant to a separate written agreement.  Each party shall indemnify and hold the other harmless from and against any claim for brokerage or other commissions asserted by any broker, agent or finder employed by the indemnifying party or with whom the indemnifying party has dealt, other than the Brokers.

 

18.Contingency.  This Amendment and all provisions contained herein are contingent upon an executed lease termination agreement between Landlord and Weinstein Friedlein Architects, P.A. (“Weinstein”) for the Suite 110 Premises (the “Lease Termination Agreement”), providing that the Suite 110 Premises shall be surrendered to Landlord on or before March 31, 2020, in accordance with the Lease Termination Agreement.  In the event Landlord does not obtain the Lease Termination Agreement by March 31, 2020, Landlord or Tenant shall thereafter have the right to terminate this Amendment (prior to date of receipt of a fully executed Lease Termination Agreement).  

 

19.Parking.  The parties acknowledge and agree that Landlord (or an affiliate of Landlord) is constructing an office building on a nearby and/or adjacent parcel.  Notwithstanding anything in the Lease to the contrary, during the period of time in which Landlord is constructing said office building, (i) Tenant shall not be able to use the parking lot in front of the Building as shown on Exhibit B and (ii) Landlord shall provide Tenant with off-site parking and transportation to and from said off-site parking area to and from the Building.    

 

20.Acknowledgement.  Landlord and Tenant acknowledge that, to their actual knowledge, each party has complied with all of its obligations under the Lease to date, and, to the extent not expressly modified hereby, all of the terms and conditions of said Lease shall remain unchanged and in full force and effect.

 

21.Miscellaneous.  The foregoing is intended to be an addition and a modification to the Lease.  Except as modified and amended by this Amendment, the Lease shall remain in full force and effect.  If anything contained in this Amendment conflicts with any terms of the Lease, then the terms of this Amendment shall govern and any conflicting terms in the Lease shall be deemed deleted in their entirety.  Each party to this Amendment shall execute all instruments and documents and take such further action as may be reasonably required to effectuate the purposes of this Amendment.  This Amendment may be modified only by a writing executed by the parties hereto.  This Amendment may be executed in multiple counterparts, each of which shall be deemed an original, and all such counterparts shall together constitute one and the same instrument.  The invalidity of any portion of this Amendment shall not have any effect on the balance hereof.  This Amendment shall be binding upon the parties hereto, as well as their successors, heirs, executors and assigns.  This Amendment shall be governed by, and construed in accordance with North Carolina law.

 

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IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Amendment as of the day and year first above written.

 

 

 

 

 

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EXHIBIT A

 

FLOOR PLAN OF SUITE 110 PREMISES

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EXHIBIT B

 

PARKING LOT

 

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Exhibit 10.11

LEASE

  

BIOPOINT INNOVATION LABS

 

 

 

 

DURHAM TW ALEXANDER, LLC,  

a Delaware limited liability company

as Landlord,

and

PRECISION BIOSCIENCES, INC.,

a Delaware corporation,

as Tenant.

 

 

 

 

 

 

 

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TABLE OF CONTENTS

 

 

EXHIBITS

 

 

 

 

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BIOPOINT INNOVATION LABS

LEASE

This Lease (the “Lease”), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the “Summary”), below, is made by and between DURHAM TW ALEXANDER, LLC, a Delaware limited liability company (“Landlord”), and PRECISION BIOSCIENCES, INC., a Delaware corporation (“Tenant”).

SUMMARY OF BASIC LEASE INFORMATION

 

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1.PREMISES, BUILDING, PROJECT, AND COMMON AREAS

1.1Premises, Building, Project and Common Areas.

1.1.1The Premises.  Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 2.2 of the Summary (the “Premises”).  The outline of the Premises is set forth in Exhibit C attached hereto and has the number of rentable square feet as set forth in Section 2.2 of the Summary.  The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance.  The parties hereto hereby acknowledge that the purpose of Exhibit C is to show the approximate location of the Premises in the “Building,” as that term is defined in Section 1.1.2, below, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the “Common Areas,” as that term is defined in Section 1.1.3, below, or the elements thereof or of the accessways to the Premises or the “Project,” as that term is defined in Section 1.1.2, below.  Tenant shall accept the Premises in its presently existing “as-is” condition and Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises except Landlord shall deliver the Premises in broom clean condition, with all currently existing Premises systems in good working order (provided that (i) Tenant acknowledges and agrees that demolition work has been performed to a portion of the space, separating same from the remaining, functioning standard office portion; and (ii) Tenant shall promptly notify Landlord of any known/discovered defects or needed repairs to same so that Landlord may fulfill any repair obligations under Section 7.3 of this Lease), and except as otherwise expressly set forth in this Lease or in the Tenant Work Letter attached hereto as Exhibit D.    

The Premises shall exclude Common Areas, including without limitation exterior faces of exterior walls, the entry, vestibules and main lobby of the Building, lobbies and common lavatories, the common stairways and stairwells, boiler room, sprinkler rooms, mechanical rooms, loading and receiving areas, electric and telephone closets, janitor closets, and pipes, ducts, conduits, wires and appurtenant fixtures and equipment serving exclusively or in common with other parts of the Building..

1.1.2The Building and The Project.  The Premises are a part of the building set forth in Section 2.1 of the Summary (the “Building”).  The term “Project,” as used in this Lease, shall mean (i) the Building and the Common Areas, (ii) the land (which is improved with landscaping, parking facilities and other improvements) upon which the Building and the Common Areas are located, (iii) the other buildings located in the project known as “BioPoint Innovation Labs”, and the land upon which such adjacent buildings are located, and (iv) at Landlord’s discretion, any additional real property, areas, land, buildings or other improvements added thereto outside of the Project. Landlord may only own portions of the Project and any rights granted within portions of the Project not owned by Landlord shall be pursuant to recorded declarations and easements to the extent such documents exist.  

1.1.3Common Areas.  Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the Rules and Regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “Common Areas”).  The Common Areas shall consist of the “Project Common Areas” and the “Building Common Areas.”  The term “Project Common Areas,” as used in this Lease, shall mean the portion of the Project designated as such by Landlord or areas within the Project that the occupants of the Building are permitted to utilize pursuant to a recorded declaration and which areas shall be maintained in accordance with the declaration.  The term “Building Common Areas,” as used in this Lease, shall mean the portions of the Common Areas located within the Building reasonably designated as such by Landlord.  The manner in which the Common Areas are maintained and operated shall be at the reasonable discretion of Landlord and the use thereof shall be subject to the Rules and Regulations as Landlord may make from time to time.  Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas, provided that, in connection therewith, Landlord shall perform such closures, alterations, additions or changes in a commercially reasonable manner and, in connection therewith, shall use commercially reasonable efforts to minimize any material interference with Tenant’s use of and access to the Premises.

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1.2Stipulation of Rentable Square Feet of Premises.  For purposes of this Lease, “rentable square feet” of the Premises shall be deemed as set forth in Section 2.2 of the Summary.  Notwithstanding the foregoing,  the useable area of the Premises shall be determined in accordance with a standard promulgated by the Building Owners and Managers Association which standard is selected by Landlord.  The rentable area of the Premises shall be determined by multiplying the useable area of the Premises by a “core factor”.  Landlord may, at any time, have its architect or engineer measure the actual total usable and rentable square footage of the Premises.  In the event the Premises shall contain an amount of rentable square footage different than the amount of rentable square feet referenced in Section 2.2 of the Summary, the Premises shall be redefined to reflect the actual rentable square footage but the Base Rent and Additional Rent shall not change from/based what is listed in Section 4 of the Summary.

1.3Right of First Offer.  Beginning on the date which is six (6) months after the Rent Commencement Date Landlord hereby grants to the Tenant named in the Summary (the “Original Tenant”) and its “Permitted Assignees”, as defined in Section 14.8, below, a continuing right of first offer with respect to Suite 012 containing approximately 12,128 rentable square feet located in the Building as set forth in Exhibit A attached hereto, (the “First Offer Space”).  Notwithstanding the foregoing, such first offer right of Tenant shall commence only following the expiration or earlier termination of the initial lease (including renewals) of the First Offer Space, and such right of first offer shall be subordinate to all rights of which are set forth in leases of space in the Project as of the date hereof, including any renewal rights set forth in such leases, regardless of whether such renewal rights are executed strictly in accordance with their terms, or pursuant to a lease amendment or a new lease (collectively, the “Superior Right Holders”) with respect to such First Offer Space.  Tenant’s right of first offer shall not be applicable during any Option Term.  Tenant’s right of first offer shall be on the terms and conditions set forth in this Section 1.3.

1.3.1Procedure for Offer.  If Landlord receives a bona fide offer from a third party for the First Offer Space, any portion of the First Offer Space or such larger space that includes the First Offer Space, Landlord shall notify Tenant (the “First Offer Notice”), provided that no Superior Right Holder wishes to lease such space.  Pursuant to such First Offer Notice, Landlord shall offer to lease to Tenant the then available First Offer Space and any additional space noted within the First Offer Notice.  The First Offer Notice shall describe the space so offered to Tenant (which the parties acknowledge may include a portion of the First Offer Space, only the First Offer Space, or the First Offer Space plus additional contiguous space the Landlord is offering for lease) and shall set forth the “First Offer Rent,” as that term is defined in Section 1.3.3 below, and the other economic terms upon which Landlord is willing to lease such space to Tenant.

1.3.2Procedure for Acceptance.  If Tenant wishes to exercise Tenant’s right of first offer with respect to the space described in the First Offer Notice, then within ten (10) business days of delivery of the First Offer Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant’s election to exercise its right of first offer with respect to the entire space described in the First Offer Notice on the terms contained in such notice.  If Tenant does not so notify Landlord within the ten (10) business day period, then Landlord shall be free to lease the space described in the First Offer Notice to anyone to whom Landlord desires on any terms Landlord desires.  Notwithstanding anything to the contrary contained herein, Tenant must elect to exercise its right of first offer, if at all, with respect to all of the space offered by Landlord to Tenant at any particular time, and Tenant may not elect to lease only a portion thereof.

1.3.3First Offer Space Rent.  The “Rent,” as that term is defined in Section 4.1, below, payable by Tenant for the First Offer Space (the “First Offer Rent”) shall be equal to the “Fair Rental Value”, as defined in Section 2.2.2, below, as of the “First Offer Commencement Date,” as that term is defined in Section 1.3.5, below.

1.3.4Construction In First Offer Space.  Tenant shall take the First Offer Space in its “as is” condition, subject to any improvement allowance granted as a component of the Fair Rental Value, and the construction of improvements in the First Offer Space shall comply with the terms of Article 8 of this Lease.

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1.3.5Amendment to Lease.  If Tenant timely exercises Tenant’s right to lease the First Offer Space as set forth herein, Landlord and Tenant shall promptly thereafter execute an amendment to this Lease for such First Offer Space upon the terms and conditions as set forth in the First Offer Notice and this Section 1.3.  Tenant shall commence payment of Rent for the First Offer Space, and the term of the First Offer Space shall commence upon the date of delivery of the First Offer Space to Tenant (the “First Offer Commencement Date”) and terminate on the date set forth in the First Offer Notice.

1.3.6Termination of Right of First Offer.  The rights contained in this Section 1.3 shall be personal to the Original Tenant and its Permitted Assignees, and may only be exercised by the Original Tenant or a Permitted Assignee (and not any other assignee, sublessee or other transferee of the Original Tenant’s interest in this Lease) if the Original Tenant occupies the majority of the Premises.  Tenant shall not have the right to lease First Offer Space, as provided in this Section 1.3, if, as of the date of the attempted exercise of any right of first offer by Tenant, or as of the scheduled date of delivery of such First Offer Space to Tenant, Tenant is in default under this Lease, after the expiration of any applicable notice and cure period, or Tenant has previously been in default, after the expiration of any applicable notice and cure period, under this Lease more than twice.

2.LEASE TERM; OPTION TERM

2.1Lease Term.  The terms and provisions of this Lease shall be effective as of the date of this Lease.  The term of this Lease (the “Lease Term”) shall be as set forth in Section 3.1 of the Summary, shall commence on the date set forth in Section 3.2 of the Summary (the “Lease Commencement Date”), and shall terminate on the date set forth in Section 3.4 of the Summary (the “Lease Expiration Date”) unless this Lease is sooner terminated as hereinafter provided.  For purposes of this Lease, the term “Lease Year” shall mean each consecutive twelve (12) month period during the Lease Term.  At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit B, attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within ten (10) business days of receipt thereof.

2.2Option Term.  

2.2.1Option Right.  Landlord hereby grants to the originally named Tenant herein (“Original Tenant”), and its “Permitted Assignees”, as that term is defined in Section 14.8, below, one (1) option to extend the Lease Term for a period of five (5)  years (the “Option Term”), which option shall be irrevocably exercised only by written notice delivered by Tenant to Landlord not more than eighteen (18) months nor less than nine (9) months prior to the expiration of the initial Lease Term, provided that the following conditions (the “Option Conditions”) are satisfied:  (i) as of the date of delivery of such notice, Tenant is not in default under this Lease, after the expiration of any applicable notice and cure period; (ii) as of the end of the Lease Term, Tenant is not in default under this Lease, after the expiration of any applicable notice and cure period; (iii) Tenant has not previously been in default under this Lease, after the expiration of any applicable notice and cure period, more than twice; and (iv) the Lease then remains in full force and effect and Original Tenant or a Permitted Assignee occupies the majority of the Premises at the time the option to extend is exercised and as of the commencement of the Option Term.  Landlord may, at Landlord’s option, exercised in Landlord’s sole and absolute discretion, waive any of the Option Conditions in which case the option, if otherwise properly exercised by Tenant, shall remain in full force and effect.  Upon the proper exercise of such option to extend, and provided that Tenant satisfies all of the Option Conditions (except those, if any, which are waived by Landlord), the Lease Term, as it applies to the Premises, shall be extended for a period of five (5) years.  The rights contained in this Section 2.2 shall be personal to Original Tenant and any Permitted Assignees, and may be exercised by Original Tenant or such Permitted Assignees (and not by any assignee, sublessee or other “Transferee,” as that term is defined in Section 14.1 of this Lease, of Tenant’s interest in this Lease).

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2.2.2Option Rent.  The annual Rent payable by Tenant during the Option Term (the “Option Rent”) shall be equal to the “Fair Rental Value,” as that term is defined below, for the Premises as of the commencement date of the Option Term.  The “Fair Rental Value,” as used in this Lease, shall be equal to the annual rent per rentable square foot (including additional rent and considering any “base year” or “expense stop” applicable thereto), including all escalations, at which tenants (pursuant to leases consummated within the twelve (12) month period preceding the first day of the Option Term), are leasing non-sublease, non-encumbered, non-equity space which is not significantly greater or smaller in size than the subject space, for a comparable lease term, in an arm’s length transaction, which comparable space is located in the “Comparable Buildings,” as that term is defined in this Section 2.2.2, below (transactions satisfying the foregoing criteria shall be known as the “Comparable Transactions”), taking into consideration the following concessions (the “Concessions”):  (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable space; (b) tenant improvements or allowances provided or to be provided for such comparable space, and taking into account the value, if any, of the existing improvements in the subject space, such value to be based upon the age, condition, design, quality of finishes and layout of the improvements and the extent to which the same can be utilized by a general office user other than Tenant; and (c) other reasonable monetary concessions being granted such tenants in connection with such comparable space; provided, however, that in calculating the Fair Rental Value, no consideration shall be given to (i) the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with Tenant’s exercise of its right to extend the Lease Term, or the fact that landlords are or are not paying real estate brokerage commissions in connection with such comparable space, and (ii) any period of rental abatement, if any, granted to tenants in comparable transactions in connection with the design, permitting and construction of tenant improvements in such comparable spaces.  The Fair Rental Value shall additionally include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant’s Rent obligations in connection with Tenant’s lease of the Premises during the Option Term.  Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Transactions from tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants).  The Concessions (A) shall be reflected in the effective rental rate (which effective rental rate shall take into consideration the total dollar value of such Concessions as amortized on a straight-line basis over the applicable term of the Comparable Transaction (in which case such Concessions evidenced in the effective rental rate shall not be granted to Tenant)) payable by Tenant, or (B) at Landlord’s election, all such Concessions shall be granted to Tenant in kind.  The term “Comparable Buildings” shall mean the Building and those other class A life sciences or class A office buildings which are comparable to the Building in terms of age (based upon the date of completion of construction or major renovation of to the building), quality of construction, level of services and amenities, size and appearance, and are located in Durham, North Carolina  and the surrounding commercial area.

2.2.3Determination of Option Rent.  In the event Tenant timely and appropriately exercises an option to extend the Lease Term, Landlord shall notify Tenant of Landlord’s determination of the Option Rent at least sixty (60) days before the Lease Expiration Date.  If Tenant, on or before the date which is ten (10) business days following the date upon which Tenant receives Landlord’s determination of the Option Rent, in good faith objects to Landlord’s determination of the Option Rent, then Landlord and Tenant shall attempt to agree upon the Option Rent using their best good-faith efforts.  If Landlord and Tenant fail to reach agreement within ten (10) business days following Tenant’s objection to the Option Rent (the “Outside Agreement Date”), then each party shall make a separate determination of the Option Rent, as the case may be, within five (5) business days, and such determinations shall be submitted to arbitration in accordance with Sections 2.2.3.1 through 2.2.3.7, below.  If Tenant fails to object to Landlord’s determination of the Option Rent within the time period set forth herein, then Tenant shall be deemed to have objected to Landlord’s determination of Option Rent.  

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2.2.3.1Landlord and Tenant shall each appoint one arbitrator who shall be, at the option of the appointing party, a real estate broker or appraiser who shall have been active over the five (5) year period ending on the date of such appointment in the leasing or appraisal (not currently or formerly in the employ of Landlord or Tenant), as the case may be, of other class A life sciences buildings located in the Durham, North Carolina market area.  The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Option Rent is the closest to the actual Option Rent, taking into account the requirements of Section 2.2.2 of this Lease, as determined by the arbitrators.  Each such arbitrator shall be appointed within fifteen (15) days after the Outside Agreement Date.  Landlord and Tenant may consult with their selected arbitrators prior to appointment and may select an arbitrator who is favorable to their respective positions.  The arbitrators so selected by Landlord and Tenant shall be deemed “Advocate Arbitrators.”

2.2.3.2The two (2) Advocate Arbitrators so appointed shall be specifically required pursuant to an engagement letter within ten (10) business days of the date of the appointment of the last appointed Advocate Arbitrator to agree upon and appoint a third arbitrator (“Neutral Arbitrator”) who shall be qualified under the same criteria set forth hereinabove for qualification of the two Advocate Arbitrators, except that neither the Landlord or Tenant or either parties’ Advocate Arbitrator may, directly or indirectly, consult with the Neutral Arbitrator prior or subsequent to his or her appearance.  The Neutral Arbitrator shall be retained via an engagement letter jointly prepared by Landlord’s counsel and Tenant’s counsel.

2.2.3.3The three arbitrators shall, within thirty (30) days of the appointment of the Neutral Arbitrator, reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted Option Rent, and shall notify Landlord and Tenant thereof.

2.2.3.4The decision of the majority of the three arbitrators shall be binding upon Landlord and Tenant.  

2.2.3.5If either Landlord or Tenant fails to appoint an Advocate Arbitrator  within fifteen (15) days after the Outside Agreement Date, then either party may petition the presiding judge of the Superior Court of Durham County to appoint such Advocate Arbitrator subject to the criteria in Section 2.2.3.1 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such Advocate Arbitrator.

2.2.3.6If the two (2) Advocate Arbitrators fail to agree upon and appoint the Neutral Arbitrator, then either party may petition the presiding judge of the Superior Court of Durham County to appoint the Neutral Arbitrator, subject to criteria in Section 2.2.3.1 2 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such arbitrator.

2.2.3.7The cost of the arbitration shall be paid by Landlord and Tenant equally.

2.2.3.8In the event that the Option Rent shall not have been determined pursuant to the terms hereof prior to the commencement of the Option Term, Tenant shall be required to pay the Option Rent initially provided by Landlord to Tenant, and upon the final determination of the Option Rent, the payments made by Tenant shall be reconciled with the actual amounts of Option Rent due, and the appropriate party shall make any corresponding payment to the other party.

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3.BASE RENT

3.1Beginning on the Rent Commencement Date, Tenant shall pay, without prior notice or demand, to Landlord or Landlord’s agent at the management office of the Project, or, at Landlord’s option, at such other place as Landlord may from time to time designate in advance and in writing, (i) by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, or (ii) if so elected by Tenant, by electronic funds transfer to the account of Landlord as provided to Tenant, base rent (“Base Rent”) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary  in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever.  The Base Rent for the first full month of the Lease Term shall be paid at the time of Tenant’s execution of this Lease.  If any Rent payment date (including the Rent Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Rent.  All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis. Base Rent and Additional Rent, as defined below, shall together be denominated “Rent.”  Without limiting the foregoing, Tenant’s obligation to pay Rent shall not be discharged or otherwise affected by any law or regulation now or hereafter applicable to the Premises, or any other restriction on Tenant’s use, or (except as expressly provided herein) any casualty or taking, or any failure by Landlord to perform any covenant contained herein, or any other occurrence.  

4.ADDITIONAL RENT

4.1General Terms.  In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay “Tenant’s Share” of the annual “Direct Expenses,” as those terms are defined in Sections 4.2.6 and 4.2.2 of this Lease, respectively.  Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the “Additional Rent”.  All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent.  Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

4.2Definitions of Key Terms Relating to Additional Rent.  As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

4.2.1Intentionally Omitted.

4.2.2“Direct Expenses” shall mean “Operating Expenses” and “Tax Expenses.”

4.2.3“Expense Year” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon advance written notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant’s Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

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4.2.4“Operating Expenses” shall mean all reasonable expenses, costs and amounts of every kind and nature which Landlord actually pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof.  Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following:  (i) the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems (if applicable), and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project as reasonably determined by Landlord; (iv) the cost of landscaping, re-lamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking area operation, repair, restoration, and maintenance; (vi) fees and other costs, including market management and/or incentive fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) subject to item (f), below, wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of the Project (at or below the level of property manager); (ix) costs under any instrument pertaining to the sharing of costs by the Project; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Project; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in Common Areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization (including reasonable interest on the unamortized cost) over such period of time as Landlord shall reasonably determine, of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to reduce expenses in the operation or maintenance of the Project, or any portion thereof, or to reduce current or future Operating Expenses or to enhance the safety or security of the Project or its occupants, (B) that are required to comply with present or anticipated mandatory conservation programs, (C) which are replacements or modifications of nonstructural items located in the Common Areas required to keep the Common Areas in the same good order or condition as on the Commencement Date, or (D) that are required under any governmental law or regulation that was not in force or effect as of the Commencement Date; provided, however, that any capital expenditure shall be amortized (including reasonable interest on the amortized cost as reasonably determined by Landlord) in accordance with IRS regulations; and (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute “Tax Expenses” as that term is defined in Section 4.2.5, below, (xv) cost of tenant relation programs reasonably established by Landlord, and (xvi) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building, including, without limitation, any covenants, conditions and restrictions affecting the property, and reciprocal easement agreements affecting the property, any parking licenses, and any agreements with transit agencies affecting the Property (collectively, “Underlying Documents”).  In the event that Landlord or Landlord’s managers or agents perform services for the benefit of the Building off-site which would otherwise be performed on-site (e.g. accounting), the cost of such services shall be reasonably allocated among the properties benefitting from such service and shall be included in Operating Expenses.  Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

(a)costs, including legal fees, space planners’ fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any common areas of the Project);

(b)except as set forth in items (xii), (xiii), and (xiv) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest, and costs of capital improvements (as distinguished from repairs or replacements);

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(c)costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(d)any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(e)costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project).  Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants;

(f)the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;

(g)amount paid as ground rental for the Project by the Landlord;

(h)except for a property management fee to the extent expressly allowed above, overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(i)any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

(j)rentals and other related expenses incurred in leasing air conditioning systems, elevators (if applicable) or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital improvement, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project ;

(k)all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

(l)any costs expressly excluded from Operating Expenses elsewhere in this Lease;

(m)rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the comparable buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

(n)costs arising from the gross negligence or willful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services;

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(o)costs incurred to comply with laws relating to the removal of hazardous material (as defined under Applicable Law) which was in existence in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto; and costs incurred to remove, remedy, contain, or treat hazardous material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto;

(p)costs incurred to comply with laws relating to the removal of Hazardous Materials (other than Hazardous Materials typically found in first class office buildings, such as recyclable materials and typical construction materials, and costs to comply with the Operation and Maintenance Plan described on Exhibit G);

(q)the cost of special services, goods or materials provided to any other tenant of the Project free of charge, and not provided to Tenant;

(r)Landlord’s general overhead expenses not related to the Project;

(s)legal fees, accountants’ fees (other than normal bookkeeping expenses) and other expenses incurred in connection with disputes of tenants or other occupants of the Project or associated with the enforcement of the terms of any leases with tenants or the defense of Landlord’s title to or interest in the Project or any part thereof;

(t)costs incurred due to a violation by Landlord or any other tenant of the Project of the terms and conditions of a lease; and

(u)any reserve funds.

If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant.  If the Project is not at least one hundred percent (100%) occupied during all or a portion of any Expense Year, Landlord shall make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been incurred had the Project been one hundred percent (100%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year.  

4.2.5Taxes.

4.2.5.1“Tax Expenses” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof.

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4.2.5.2Tax Expenses shall include, without limitation:  (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises or the improvements thereon.

4.2.5.3Any reasonable costs and expenses (including, without limitation, reasonable attorneys’ and consultants’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are incurred.  Tax refunds shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year.  The foregoing sentence shall survive the expiration or earlier termination of this Lease.  If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax Expenses.  Notwithstanding anything to the contrary contained in this Section 4.2.5, there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, transfer tax or fee, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.

4.2.6“Tenant’s Share” is based upon the ratio that the rentable square feet of the Premises bears to the rentable square feet of the Building and, subject to adjustment pursuant to Section 1.2 above, is the percentage set forth in Section 7 of the Summary.  

4.3Intentionally omitted.  .

4.4Calculation and Payment of Additional Rent.  Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional Rent, Tenant’s Share of Direct Expenses for each Expense Year. If the Rent Commencement Date is a day other than the first day of an Expense Year, or if this Lease terminates or expires on a day other than the last day of an Expense Year, then Additional Rent shall be prorated in the manner provided in Section 3.1 above.

4.4.1Statement of Actual Direct Expenses and Payment by Tenant.  Landlord shall use good faith efforts to give to Tenant within six (6) months following the end of each Expense Year, a statement (the “Statement”) which shall state the Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant’s Share of Direct Expenses.  Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, Tenant shall pay, with its next installment of Base Rent due, the full amount of Tenant’s Share of Direct Expenses for such Expense Year, less the amounts, if any, paid during such Expense Year as “Estimated Direct Expenses,” as that term is defined in Section 4.4.2, below, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant’s Share of Direct Expenses, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease.  The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4.  Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Direct Expenses for the Expense Year in which this Lease terminates, Tenant shall pay to Landlord such amount within thirty (30) days, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant’s Share of Direct Expenses, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment.  The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term.  Notwithstanding the immediately preceding sentence, Tenant shall not be responsible for Tenant’s Share of any Direct Expenses attributable to any Expense Year which are first billed to Tenant more than two

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(2) calendar years after the earlier of the expiration of the applicable Expense Year or the Lease Expiration Date, provided that in any event Tenant shall be responsible for Tenant’s Share of Direct Expenses levied by any governmental authority or by any public utility companies at any time following the Lease Expiration Date which are attributable to any Expense Year (provided that Landlord delivers Tenant a bill for such amounts within two (2) years following Landlord’s receipt of the bill therefor).

4.4.2Statement of Estimated Direct Expenses.  In addition, Landlord shall give Tenant a yearly expense estimate statement (the “Estimate Statement”) which shall set forth Landlord’s reasonable estimate (the “Estimate”) of what the total amount of Direct Expenses for the then-current Expense Year shall be and the estimated Tenant’s Share of Direct Expenses (the “Estimated Direct Expenses”).  The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Direct Expenses under this Article 4, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Direct Expenses theretofore delivered to the extent necessary.  Thereafter, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Direct Expenses for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.4.2).  Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator.  Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Direct Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant.

4.4.3Audit Right. In the event the Controllable Operating Expenses (as defined below) increase by more than three percent (3%) in any given Lease Year (as measured against the Controllable Operating Expenses for the immediately preceding Lease Year), or as otherwise reasonably requested by Tenant (or required by Tenant’s business partners and/or applicable law), then Tenant may audit Landlord’s records and all information pertaining to Operating Expenses in order to verify the accuracy of Landlord’s determination of the Tenant’s Share subject to the procedure noted below.  Controllable Operating Expenses shall include all Operating Expenses other than utilities (e.g., electricity, gas, water and sewer), management fees, security expenses, insurance, taxes, assessments, snow and ice removal and other weather related charges, association fees and charges under any declaration, storm water fees and similar governmental or quasi-governmentally imposed fees, and any other expenses which are set or determined by a governmental entity or other third party and non-negotiable, or are otherwise beyond Landlord’s reasonable control including minimum wage increases, hereafter, “Controllable Operating Expenses”.   Tenant must comply with the following in order to audit Landlord’s records and information pertaining to Operating Expenses:

(i)Tenant must give notice to Landlord of its election to undertake said audit within one hundred twenty (120) days after receipt of the statement of the actual amount of Tenant’s Share for the preceding calendar year from Landlord, and with respect to such audit, Tenant may audit the two preceding calendar years;  

(ii)Such audit will be conducted only during regular business hours at the office where Landlord maintains records of Operating Expenses and only after Tenant gives Landlord fourteen (14) days’ advance written notice;

(iii)Tenant shall deliver to Landlord a copy of the results of such audit within fifteen (15) days of its receipt by Tenant and no such audit shall be conducted if any other tenant of the Building has conducted an independent audit for the time period Tenant intends to audit and Landlord furnishes to Tenant a copy of such audit;

(iv)No audit shall be conducted at any time that Tenant is in default (after the expiration of any applicable grace and/or cure period) of any of the terms of this Lease;

(v)No subtenant shall have any right to conduct an audit and no assignee shall conduct an audit for any period during which such assignee was not in possession of the Premises;

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(vi)Such audit review by Tenant shall not postpone or alter the liability and obligation of Tenant to pay any amounts due under the terms of this Lease; and

(vii)Such audit shall be conducted by an independent, reputable accounting firm which is not being compensated by Tenant on a contingency fee basis.

Within thirty (30) days after Tenant’s receipt of such audit, Tenant must give notice to Landlord of any disputed amounts and identify all items being contested in Landlord’s statement of the Tenant Share.  If Landlord and Tenant cannot agree upon any such item as to which Tenant shall have given such notice, the dispute shall be resolved by an audit by a major accounting firm mutually and reasonably acceptable to Landlord and Tenant and the cost of said joint audit shall be paid by the non-prevailing party.

Any adjustment required as a result of any audit shall be paid within 30 days, or adjusted in the next installment(s) of Tenant’s Share.

4.5Taxes and Other Charges for Which Tenant Is Directly Responsible.  Tenant shall be liable for and shall pay before delinquency, taxes levied against Tenant’s equipment, furniture, fixtures and any other personal property located in or about the Premises.  If any such taxes on Tenant’s equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is noticeably increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property (as reasonably documented by Landlord) and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

4.6Limit of Increases in Tenant’s Share of Operating Expenses.  The Controllable Operating Expenses (as hereinafter defined) which may be passed through to Tenant under this Section 4 shall not increase in any year by an amount which exceeds five percent (5%) of such Controllable Operating Expenses for the immediately preceding year (as measured on a cumulative and compounded basis).  For purposes hereof, “Controllable Operating Expenses” shall be deemed to include all Operating Expenses other than utilities (e.g., electricity, gas, water and sewer), management fees, security expenses, insurance, taxes, assessments, snow and ice removal and other weather related charges, association fees and charges under any declaration, storm water fees and similar governmental or quasi-governmentally imposed fees, and any other expenses which are set or determined by a governmental entity or other third party or are otherwise beyond Landlord’s reasonable control including minimum wage increases.

5.USE OF PREMISES

5.1Permitted Use.  Tenant shall use the Premises solely for the Permitted Use set forth in Section 8 of the Summary and Tenant shall not use the Premises or the Project for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord’s sole discretion.  

5.2Prohibited Uses.  Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit E, attached hereto (the “Rules and Regulations”), or in violation of the laws of the United States of America, the State of North Carolina, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project, including, without limitation, any such laws, ordinances, regulations or requirements relating to hazardous materials or substances, as those terms are defined by Applicable Laws now or hereafter in effect, or any Underlying Documents.  Tenant shall not do or permit anything to be done in or about the Premises which will damage the reputation of the Project or obstruct or unreasonably interfere with the rights of other tenants or occupants of the Building, or injure or annoy them or use or allow the Premises to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause or maintain any nuisance in, on or about the Premises.  Tenant shall comply with, and Tenant’s rights and obligations under the Lease and Tenant’s use of the Premises shall be subject and subordinate to, all recorded easements, covenants, conditions, and restrictions now or hereafter affecting the Project.  Provided, however, that (a) in the event of any conflict between any Rules and Regulations and the express terms of this Lease, the Lease terms

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shall control; (b) such Rules and Regulations do not require payment of additional material sum of money; (c) such Rules and Regulations do not unreasonably and materially interfere with Tenant’s conduct of its business or Tenant’s use and enjoyment of the Premises; (d) Landlord provides reasonable advance written notice thereof; and (e) such Rules and Regulations are uniformly enforced in a non-discriminatory manner.

5.3Intentionally Omitted.  

5.4Hazardous Materials.  

5.4.1Tenant’s Obligations.

5.4.1.1Prohibitions.  As a material inducement to Landlord to enter into this Lease with Tenant, Tenant has, to the best of its knowledge, completed Landlord’s Pre-Leasing Environmental Exposure Questionnaire (the “Environmental Questionnaire”), which is attached as Exhibit G.  Tenant hereby represents, warrants and covenants that except for those chemicals or materials, and their respective quantities, specifically listed on the Environmental Questionnaire, neither Tenant nor Tenant’s employees, contractors and subcontractors of any tier, entities with a contractual relationship with Tenant (other than Landlord), or any entity acting as an agent or sub-agent of Tenant (collectively, “Tenant’s Agents”) will produce, use, store or generate any “Hazardous Materials,” as that term is defined below, on, under or about the Premises, nor cause or permit any Hazardous Material to be brought upon, placed, stored, manufactured, generated, blended, handled, recycled, used or “Released,” as that term is defined below, on, in, under or about the Premises.  If any information provided to Landlord by Tenant on the Environmental Questionnaire, or otherwise relating to information concerning Hazardous Materials is knowingly false, incomplete, or misleading in any material respect, the same shall be deemed a default by Tenant under this Lease.  Tenant shall deliver to Landlord an updated Environmental Questionnaire at least once a year, upon Landlord's request, and in the event of any material change in Tenant's use of Hazardous Materials at the Premises.  Landlord’s prior written consent shall be required to any Hazardous Materials use for the Premises not described on the initial Environmental Questionnaire, such consent not to be unreasonably withheld, conditioned, or delayed.  Tenant shall not install or permit any underground storage tank on the Premises.  In addition, Tenant agrees that it:  (i) shall not cause or suffer to occur, the Release of any Hazardous Materials at, upon, under or within the Premises or any contiguous or adjacent premises; and (ii) shall not engage in activities at the Premises that result in, give rise to, or lead to the imposition of liability upon Tenant or Landlord or the creation of an environmental lien or use restriction upon the Premises.  For purposes of this Lease, “Hazardous Materials” means all flammable explosives, petroleum and petroleum products, waste oil, radon, radioactive materials, toxic pollutants, asbestos, polychlorinated biphenyls (“PCBs”), medical waste, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, including without limitation any chemical, element, compound, mixture, solution, substance, object, waste or any combination thereof, which is or may be hazardous to human health, safety or to the environment due to its radioactivity, ignitability, corrosiveness, reactivity, explosiveness, toxicity, carcinogenicity, infectiousness or other harmful or potentially harmful properties or effects, or defined as, regulated as or included in, the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” or “toxic substances” under any Environmental Laws.  The term “Hazardous Materials” for purposes of this Lease shall also include any mold, fungus or spores, whether or not the same is defined, listed, or otherwise classified as a “hazardous material” under any Environmental Laws, if such mold, fungus or spores may pose a risk to human health or the environment or negatively impact the value of the Premises.  For purposes of this Lease, “Release” or “Released” or “Releases” shall mean any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing, or other movement of Hazardous Materials into the environment.

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Any use or storage of Hazardous Materials by Tenant permitted pursuant to this Article 5 shall not exceed Tenant’s proportionate share (measured on a per floor basis), based on the standards of the BMBL (as defined below), of similarly classed Hazardous Materials.  Notwithstanding the foregoing to the contrary, in no event shall Tenant or anyone claiming by through or under Tenant perform work at or above the risk category Biosafety Level 2  as established by the Department of Health and Human Services (“DHHS”) and as further described in the DHHS publication Biosafety in Microbiological and Biomedical Laboratories (5^th Edition) (as it may be or may have been further revised, the “BMBL”) or such nationally recognized new or replacement standards as Landlord may reasonable designate). Tenant shall comply with all applicable provisions of the standards of the BMBL to the extent applicable to Tenant’s operations in the Premises.

5.4.1.2Intentionally Omitted.

5.4.1.3Notices to Landlord.  Unless Tenant is required by Applicable Laws to give earlier notice to Landlord, Tenant shall notify Landlord in writing as soon as reasonably possible but in no event later than five (5) days after knowledge of (i) the occurrence of any actual, alleged or threatened Release of any Hazardous Material in, on, under, from, about or in the vicinity of the Premises (whether past or present), regardless of the source or quantity of any such Release, or (ii) Tenant becomes aware of any regulatory actions, inquiries, inspections, investigations, directives, or any cleanup, compliance, enforcement or abatement proceedings (including any threatened or contemplated investigations or proceedings) relating to or potentially affecting the Premises, or (iii) Tenant becomes aware of any claims by any person or entity relating to any Hazardous Materials in, on, under, from, about or in the vicinity of the Premises, whether relating to damage, contribution, cost recovery, compensation, loss or injury.  Collectively, the matters set forth in clauses (i), (ii) and (iii) above are hereinafter referred to as “Hazardous Materials Claims”.  Tenant shall promptly forward to Landlord copies of all orders, notices, permits, applications and other communications and reports in connection with any Hazardous Materials Claims.  Additionally, Tenant shall promptly advise Landlord in writing of Tenant’s discovery of any occurrence or condition on, in, under or about the Premises that could subject Tenant or Landlord to any liability, or restrictions on ownership, occupancy, transferability or use of the Premises under any “Environmental Laws,” as that term is defined below.  Tenant shall not enter into any legal proceeding or other action, settlement, consent decree or other compromise with respect to any Hazardous Materials Claims without first notifying Landlord of Tenant’s intention to do so and affording Landlord the opportunity to join and participate, as a party if Landlord so elects, in such proceedings and in no event shall Tenant enter into any agreements which are binding on Landlord or the Premises without Landlord’s prior written consent.  Landlord shall have the right to appear at and participate in, any and all legal or other administrative proceedings concerning any Hazardous Materials Claim.  For purposes of this Lease, “Environmental Laws” means all applicable present and future laws, including principles of common law, relating to the protection of human health, safety, wildlife or the environment, including, without limitation, (i) all requirements pertaining to reporting, licensing, permitting, investigation and/or remediation of emissions, discharges, Releases, or threatened Releases of Hazardous Materials, whether solid, liquid, or gaseous in nature, into the air, surface water, groundwater, or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials; and (ii) all requirements pertaining to the health and safety of employees or the public.  Environmental Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 USC § 9601, et seq., the Hazardous Materials Transportation Authorization Act of 1994, 49 USC § 5101, et seq., the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, and Hazardous and Solid Waste Amendments of 1984, 42 USC § 6901, et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USC § 1251, et seq., the Clean Air Act of 1966, 42 USC § 7401, et seq., the Toxic Substances Control Act of 1976, 15 USC § 2601, et seq., the Safe Drinking Water Act of 1974, 42 USC §§ 300f through 300j, the Occupational Safety and Health Act of 1970, as amended, 29 USC § 651 et seq., the Oil Pollution Act of 1990, 33 USC § 2701 et seq., the Emergency Planning and Community Right-To-Know Act of 1986, 42 USC § 11001 et seq., the National Environmental Policy Act of 1969, 42 USC § 4321 et seq., the Federal Insecticide, Fungicide and Rodenticide Act of 1947, 7 USC § 136 et seq., North Carolina Oil Pollution and Hazardous Substances Control Act, N.C. Gen. Stat.  § 143-215.75 et seq., North Carolina Inactive Hazardous Sites Act, N.C. Gen. Stat. § 130A-310, North Carolina Water and Air Resources Act, N.C. Gen. Stat. § 143-211 et seq., 15A N.C. Admin. Code Subchapter 2L, , and any other state or local law counterparts, as amended, as such Applicable Laws, are in effect as of the Lease Commencement Date, or thereafter adopted, published, or promulgated.

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5.4.1.4Releases of Hazardous Materials.  If any Release of any Hazardous Material in, on, under, from or about the Premises shall occur at any time during the Lease and/or if any other Hazardous Material condition exists at the Premises proximately due to the breach of Tenant’s obligations under this Section 5.4 that requires response actions under Environmental Laws, in addition to notifying Landlord as specified above, Tenant, at its own sole cost and expense, shall (i) immediately comply with any and all reporting requirements imposed pursuant to any and all Environmental Laws, (ii) provide a written certification to Landlord indicating that Tenant has complied with all applicable reporting requirements, (iii) take any and all necessary investigation, corrective and remedial action in accordance with any and all applicable Environmental Laws, utilizing an environmental consultant reasonably approved by Landlord, all in accordance with the provisions and requirements of this Section 5.4, including, without limitation, Section 5.4.4, and (iv)  take any such additional investigative, remedial and corrective actions as Landlord shall in its reasonable discretion deem necessary such that the Premises are remediated to a condition allowing unrestricted use of the Premises (i.e. to a level that will allow any future use of the Premises, including residential, without any engineering controls or deed restrictions), all in accordance with the provisions and requirements of this Section 5.4.  Landlord may, as required by any and all Environmental Laws, report the Release of any Hazardous Material to the appropriate governmental authority, identifying Tenant as the responsible party.  Tenant shall deliver to Landlord copies of all administrative orders, notices, demands, directives or other communications directed to Tenant from any governmental authority with respect to any Release of Hazardous Materials in, on, under, from, or about the Premises, together with copies of all investigation, assessment, and remediation plans and reports prepared by or on behalf of Tenant in response to any such regulatory order or directive.  Notwithstanding the foregoing, if Tenant provides Landlord with substantial proof that a Release in the Premises was caused by another tenant or occupant in the Project then Landlord shall use good faith efforts to assist Tenant in pursuing such party to cause it to remediate the Release or pay for such remediation, but ultimately Tenant’s obligations under this Section 5.4 shall remain as stated herein.

5.4.1.5Indemnification.

5.4.1.5.1In General.  Without limiting in any way Tenant’s obligations under any other provision of this Lease, Tenant shall be solely responsible for and shall protect, defend, indemnify and hold the Landlord Parties harmless from and against any and all claims, judgments, losses, damages, costs, expenses, penalties, enforcement actions, taxes, fines, remedial actions, liabilities (including, without limitation, actual attorneys’ fees, litigation, arbitration and administrative proceeding costs, expert and consultant fees and laboratory costs) including, without limitation, consequential damages and sums paid in settlement of claims, which arise during or after the Lease Term, whether foreseeable or unforeseeable, directly or indirectly arising out of or attributable to the presence, use, generation, manufacture, treatment, handling, refining, production, processing, storage, Release or presence of Hazardous Materials in, on, under or about the Premises by Tenant, except to the extent such liabilities result from the gross negligence or willful misconduct of Landlord following the Lease Commencement Date.  The foregoing obligations of Tenant shall include, including without limitation:  (i) the costs of any required or necessary removal, repair, cleanup or remediation of the Premises, and the preparation and implementation of any closure, removal, remedial or other required plans; (ii) judgments for personal injury or property damages; and (iii) all costs and expenses incurred by Landlord in connection therewith.  It is the express intention of the parties to this Lease that Tenant assumes all such liabilities, and holds Landlord harmless from all such liabilities, associated with the environmental condition of the Premises, arising on or after the date Tenant takes possession of the Premises.

5.4.1.5.2Limitations.  Landlord warrants and represents that Landlord has not engaged in the Release of any Hazardous Materials subsequent to the date of the “Phase I Environmental Site Assessment Report” bearing ECS Project No. 49-1782, prepared on behalf of Longfellow Real Estate Ventures, LLC as of April 18, 2016  (“ECS Phase I”) Landlord further warrants and represents that, to Landlord’s knowledge, on or after the effective date of the ECS Phase I report, Landlord has not received a summons, citation, directive, letter or other communication, written or oral, from any state agency or the U.S. Government concerning the Project or any intentional or unintentional action on Landlord or any occupant’s part as a result of a Release of any Hazardous Materials.    

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5.4.1.6Compliance with Environmental Laws.  Without limiting the generality of Tenant’s obligation to comply with Applicable Laws as otherwise provided in this Lease, Tenant shall, at its sole cost and expense, comply with all Environmental Laws.  Tenant shall obtain and maintain any and all necessary permits, licenses, certifications and approvals appropriate or required for the use, handling, storage, and disposal of any Hazardous Materials used, stored, generated, transported, handled, blended, or recycled by Tenant on the Premises.  Landlord shall have a continuing right, without obligation, to require Tenant to obtain, and to review and inspect any and all such permits, licenses, certifications and approvals, together with copies of any and all Hazardous Materials management plans and programs, any and all Hazardous Materials risk management and pollution prevention programs, and any and all Hazardous Materials emergency response and employee training programs respecting Tenant’s use of Hazardous Materials.  Upon request of Landlord, Tenant shall deliver to Landlord a narrative description explaining the nature and scope of Tenant’s activities involving Hazardous Materials and showing to Landlord’s satisfaction compliance with all Environmental Laws and the terms of this Lease.

5.4.2Assurance of Performance.

5.4.2.1Environmental Assessments In General.  Landlord may, but shall not be required to, engage from time to time such contractors as Landlord determines to be appropriate (and with reasonable advance notice to Tenant, not less than 5 business days) to perform “Environmental Assessments,” as that term is defined below, to ensure Tenant’s compliance with the requirements of this Lease with respect to Hazardous Materials.  For purposes of this Lease, “Environmental Assessment” means an assessment including, without limitation:  (i) an environmental site assessment conducted in accordance with the then-current standards of the American Society for Testing and Materials and meeting the requirements for satisfying the “all appropriate inquiries” requirements; and (ii) sampling and testing of the Premises based upon potential recognized environmental conditions or areas of concern or inquiry identified by the environmental site assessment.

5.4.2.2Costs of Environmental Assessments.  All costs and expenses incurred by Landlord in connection with any such Environmental Assessment initially shall be paid by Landlord; provided that if any such Environmental Assessment shows that Tenant has failed to comply with the provisions of this Section 5.4, then all of the costs and expenses of such Environmental Assessment shall be reimbursed by Tenant as Additional Rent within thirty (30) days after receipt of written demand therefor (and reasonable documentation of Tenant’s material breach of its environmental obligations).

5.4.3Tenant’s Obligations upon Surrender.  At the expiration or earlier termination of the Lease Term, Tenant, at Tenant’s sole cost and expense, shall:  (i) cause an Environmental Assessment of the Premises to be conducted in accordance with Section 15.3; (ii) cause all Hazardous Materials to be removed from the Premises and disposed of in accordance with all Environmental Laws and as necessary to allow the Premises to be used for any purpose; and (iii) cause to be removed all containers installed or used by Tenant or Tenant’s Agents to store any Hazardous Materials on the Premises, and cause to be repaired any damage to the Premises caused by such removal.

5.4.4Clean-up.

5.4.4.1Environmental Reports; Clean-Up.  If any written report, including any report containing results of any Environmental Assessment (an “Environmental Report”) shall indicate (i) the presence of any Hazardous Materials as to which Tenant has a removal or remediation obligation under this Section 5.4, and (ii) that as a result of same, the investigation, characterization, monitoring, assessment, repair, closure, remediation, removal, or other clean-up (the “Clean-up”) of any Hazardous Materials is required, Tenant shall promptly prepare and submit to Landlord within thirty (30) days after receipt of the Environmental Report a comprehensive plan, subject to Landlord’s written approval, specifying the actions to be taken by Tenant to perform the Clean-up so that the Premises are restored to the conditions required by this Lease.  Upon Landlord’s approval of the Clean-up plan, Tenant shall, at Tenant’s sole cost and expense, without limitation on any rights and remedies of Landlord under this Lease, immediately implement such plan with a consultant reasonably acceptable to Landlord and proceed to Clean-Up Hazardous Materials in accordance with all Applicable Laws and as required by such plan and this Lease.  If, within thirty (30) days after receiving a copy of such Environmental Report, Tenant fails either (a) to complete such Clean-up, or (b) with respect to any Clean-up that cannot be completed within such thirty-day period, fails to proceed with diligence to prepare the Clean-up plan and complete the Clean-up as promptly as practicable, then Landlord shall have the right, but not the obligation, and without waiving any other rights under this Lease, to carry out any Clean-up recommended by the Environmental Report or required by any governmental authority having jurisdiction over the Premises, and recover all of the costs and expenses thereof from Tenant as Additional Rent, payable within ten (10) business days after receipt of written demand therefor.

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5.4.4.2No Rent Abatement.  Tenant shall continue to pay all Rent due or accruing under this Lease during any Clean-up, and shall not be entitled to any reduction, offset or deferral of any Base Rent or Additional Rent due or accruing under this Lease during any such Clean-up.  

5.4.4.3Surrender of Premises.  Tenant shall complete any Clean-up prior to surrender of the Premises upon the expiration or earlier termination of this Lease, and shall fully comply with all Environmental Laws and requirements of any governmental authority with respect to such completion, including, without limitation, fully comply with any requirement to file a risk assessment, mitigation plan or other information with any such governmental authority in conjunction with the Clean-up prior to such surrender.  Tenant shall obtain and deliver to Landlord a letter or other written determination from the overseeing governmental authority confirming that the Clean-up has been completed in accordance with all requirements of such governmental authority and that no further response action is required for the unrestricted use of the Premises from an Environmental Law standpoint (“Closure Letter”).  Upon the expiration or earlier termination of this Lease, Tenant shall also be obligated to close all permits obtained in connection with Hazardous Materials in accordance with applicable laws.

5.4.4.4Failure to Timely Clean-Up.  Should any Clean-up for which Tenant is responsible not be completed, or should Tenant not receive the Closure Letter and any governmental approvals required under Environmental Laws in conjunction with such Clean-up prior to the expiration or earlier termination of this Lease, and Tenant’s failure to receive the Closure Letter is prohibiting Landlord from leasing the Premises or any part thereof to a third party, or prevents the occupancy or use of the Premises or any part thereof by a third party, then Tenant shall be liable to Landlord as a holdover tenant (as more particularly provided in Article 16) until Tenant has fully complied with its obligations under this Section 5.4.

5.4.5Confidentiality.  Unless compelled to do so by Applicable Law, Tenant agrees that Tenant shall not disclose, discuss, disseminate or copy any information, data, findings, communications, conclusions and reports regarding the environmental condition of the Premises to any Person (other than Tenant’s consultants, attorneys, property managers and employees that have a need to know such information), including any governmental authority, without the prior written consent of Landlord, not to be unreasonably withheld, conditioned, or delayed.  In the event Tenant reasonably believes that disclosure is compelled by Applicable Law, it shall provide Landlord ten (10) days’ advance notice of disclosure of confidential information so that Landlord may attempt to obtain a protective order.  Tenant may additionally release such information to bona fide prospective purchasers or lenders, subject to any such parties’ written agreement to be bound by the terms of this Section 5.4.

5.4.6Copies of Environmental Reports.  Within thirty (30) days of receipt thereof, Tenant shall provide Landlord with a copy of any and all environmental assessments, audits, studies and reports regarding Tenant’s activities with respect to the Premises, or ground water beneath the Land, or the environmental condition or Clean-up thereof.  Tenant shall be obligated to provide Landlord with a copy of such materials without regard to whether such materials are generated by Tenant or prepared for Tenant, or how Tenant comes into possession of such materials.

5.4.7Intentionally Omitted.  

5.4.8Signs, Response Plans, Etc.  Tenant shall be responsible for posting on the Premises any signs required under applicable Environmental Laws.  Tenant shall also complete and file any business response plans or inventories required by any Applicable Laws.  Tenant shall concurrently file a copy of any such business response plan or inventory with Landlord.

5.4.9Survival.  Each covenant, agreement, representation, warranty and indemnification made by Tenant set forth in this Section 5.4 shall survive the expiration or earlier termination of this Lease and shall remain effective until all of Tenant’s obligations under this Section 5.4 have been completely performed and satisfied.

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6.SERVICES AND UTILITIES

6.1Landlord Provided Services.  Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.

6.1.1Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide adequate electrical wiring and facilities for connection to Tenant’s lighting fixtures and incidental use equipment, provided that the connected electrical load of the incidental use equipment and the connected electrical load of Tenant’s lighting fixtures does not exceed Tenant’s Share of the system capacity (as reasonably documented by Landlord).  Tenant shall bear the cost of replacement of lamps, starters and ballasts for lighting fixtures within the Premises.

6.1.2Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in the Building Common Areas and service to the Premises.

6.1.3Landlord shall provide a dumpster and/or trash compactor at the Building for use by Tenant and other tenants for ordinary office waste (and not for Hazardous Materials).

6.1.4Landlord shall provide landscaping, snow and ice removal in the Common Areas.

6.1.5Landlord shall provide access to the rooftop as stated in Section 7.2.  

6.1.6Landlord shall provide Building standard heating, ventilation (including exhaust) and air conditioning (“HVAC”).

6.2Tenant Provided Services and Utilities.  Except as otherwise expressly set forth in Section 6.1, above, Tenant will be responsible, at its sole cost and expense, for the furnishing of all services and utilities to the Premises including internet, telephone, janitorial and interior Building security services.

6.2.1Landlord shall not provide janitorial or trash services for the Premises except as expressly provided in Section 6.1.3, above.  Tenant shall be solely responsible for performing all janitorial and trash services and other cleaning of the Premises, all in compliance with Applicable Laws.  In the event such service is provided by a third party janitorial service, and not by employees of Tenant, such service shall be a janitorial service approved in advance by Landlord, (Landlord shall provide Tenant with a list of approved vendors upon Tenant’s request).  The janitorial and cleaning of the Premises shall be adequate to maintain the Premises in a manner consistent with Comparable Buildings.  

6.2.2Subject to Applicable Laws and the other provisions of this Lease (including, without limitation, the Rules and Regulations, and except in the event of an emergency), Tenant shall have access to the Building, the Premises and the Common Areas of the Building, other than Common Areas requiring access with a Building engineer, twenty-four (24) hours per day, seven (7) days per week, every day of the year; provided, however, that Tenant shall only be permitted to have access to and use of the limited-access areas of the Building during the normal operating hours of such portions of the Building.  

Tenant shall reasonably cooperate with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

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6.2.3Tenant shall pay for all water, gas, heat, light, power, telephone, internet service, cable television, other telecommunications and other utilities supplied to the Premises, together with any fees, surcharges and taxes thereon, whether part of Operating Expenses or as provided under this Article 6.  Tenant shall pay all costs and expenses for any separately metered utilities provided exclusively to the Premises directly to the applicable service provider.  Tenant shall pay all actual out-of-pocket costs and expenses, without mark-up, for utility charges that are based on a check- or sub-metering metering installation based on Landlord’s reading of such meters and directly to Landlord, including without limitation for utility charges for power, gas and water serving the HVAC system of the Building (which are measured by the control management system of the Building based on air volume provided to each tenant space).  Additional Rent for such utilities may be reasonably estimated monthly by Landlord, based on actual readings of sub- and “check” meters where applicable, and shall be paid monthly by Tenant within thirty (30) days after being billed with a final accounting based upon actual bills received from the utility providers following the conclusion of each fiscal year of the Building.

6.3Metering.  If necessary, Landlord may install devices to separately meter any utility use (or use other reasonable industry standard methods to reasonably estimate such use) and in such event Tenant shall pay the cost directly to Landlord, within thirty (30) days after Tenant’s receipt of an invoice therefor, at the rates charged by the public utility company furnishing the same, including the cost of installing, testing and maintaining of such metering devices.  Tenant’s use of electricity and any other utility shall never exceed the capacity of the feeders to the Project or the risers or wiring installation or Tenant’s Share of the per floor limits as reasonably determined and documented by Landlord.  

6.4Interruption of Use.  Tenant agrees that, to the extent permitted pursuant to Applicable Laws, Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause not under Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease.  Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6.

Notwithstanding the foregoing to the contrary, in the event that there shall be an interruption, curtailment or suspension of any service required to be provided by Landlord pursuant to Section 6.1 (and no reasonably equivalent alternative service or supply is provided by Landlord) that shall materially interfere with Tenant’s use and enjoyment of a material portion of the Premises, and Tenant actually ceases to use affected portion of the Premises (any such event, a “Service Interruption”), and if (i) such Service Interruption shall continue for seventy-two (72) consecutive hours following receipt by Landlord of written notice from Tenant describing such Service Interruption (the “Service Interruption Notice”), (ii) such Service Interruption shall not have been caused, in whole or in part, by reasons beyond Landlord’s reasonable control or by an act or omission in violation of this Lease by Tenant or by any negligence of Tenant, or Tenant’s agents, employees, contractors or invitees, and (iii) either (A) Landlord does not diligently commence and pursue to completion the remedy of such Service Interruption or (B) Landlord receives proceeds from its rental interruption insurance that covers such Service Interruption (a Service Interruption that satisfies the foregoing conditions being referred to hereinafter as a “Material Service Interruption”) then, as liquidated damages and Tenant’s sole remedy at law or equity, Tenant shall be entitled to an equitable abatement of Base Rent and Tenant’s Share of Direct Expenses, based on the nature and duration of the Material Service Interruption, the area of the Premises affected, and the then current Rent amounts, for the period that shall begin on the commencement of such Material Service Interruption and that shall end on the day such Material Service Interruption shall cease.  To the extent a Material Service Interruption is caused by an event covered by Articles 11 or 13 of this Lease, then Tenant’s right to abate rent shall be governed by the terms of such Article 11 or 13, as applicable, and the provisions of this paragraph shall not apply

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6.5Responsibility Matrix. The matrix attached hereto as Exhibit H and incorporated by reference provides the maintenance, repair, services, and utilities responsibilities for Landlord and Tenant at the Premises and Building (“Responsibility Matrix”).  Landlord reserves the right at any time to make reasonable changes to the Responsibility Matrix based on current conditions at the Building as in Landlord’s reasonable judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises and Building.  The parties shall perform the obligations as noted in the Responsibility Matrix and to the extent of any discrepancies between this Article 6 and the Responsibility Matrix the details in the Responsibility Matrix shall control.

7.REPAIRS

7.1Tenant Repairs.  Tenant shall, at Tenant’s own expense, keep the Premises, including all improvements, fixtures, furnishings, supplemental/non-Building heating, ventilation (including exhaust) and air conditioning (which Tenant installs as part of the Tenant Improvements) (“Supplemental HVAC”), and systems and equipment therein (including, without limitation, plumbing fixtures and equipment such as dishwashers, garbage disposals, and insta‑hot dispensers), and the floor of the Building on which the Premises are located, in good order, repair and condition as received (ordinary wear and tear and casualty damage excepted) at all times during the Lease Term.  In addition, Tenant shall, at Tenant’s own expense, but under the supervision and subject to the prior reasonable approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, at Landlord’s option, or if Tenant fails to make such repairs (after notice from Landlord a reasonable opportunity to do so), Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord’s involvement with such repairs and replacements forthwith upon being billed for same.  Without limitation, Tenant shall be responsible for the Supplemental HVAC and Tenant shall secure, pay for, and keep in force contracts with appropriate and reputable service companies reasonably approved by Landlord providing for the regular maintenance of such systems.

7.2Riser Room and Rooftop Rights.  Landlord grants Tenant the right, subject to the terms and conditions of this Lease, to access the riser room and the roof of the Building in order to maintain, repair and replace the Supplemental HVAC equipment and any other mechanical equipment located in the riser room or on the roof for which Tenant is responsible to repair, maintain and replace.  Tenant may not install additional locks on any access doors or any equipment in such areas.  In the event the Tenant desires to move any rooftop equipment or install any new rooftop equipment the exact location and layout of such items must be approved in advance in writing by Landlord, such approval not to be unreasonably withheld, conditioned, or delayed.  Tenant’s access to the riser room for the purposes of exercising its rights and obligations under this Section 7.2 shall be limited to Building Hours by prior appointment with the property manager, except in the case of emergencies.  In the event of an emergency Tenant shall utilize Landlord’s after-hours contact information.  Tenant shall be provided access to the rooftop at all times except during an emergency through card access with Tenant’s personnel who are approved in advance by Landlord.  Tenant shall engage Landlord’s roofer before beginning any rooftop installations or repairs which affect the roof whether under this Section 7.2 or otherwise, and shall always comply with the roof warranty governing the protection of the roof and modifications to the roof.  Tenant shall obtain a letter from Landlord’s roofer following completion of such work stating that the roof warranty remains in effect.  Tenant agrees that Tenant’s access to the riser room or roof and any work on the roof shall be at Tenant’s sole risk.  Tenant shall indemnify, defend and hold Landlord harmless against any liability, claim or cost, including reasonable attorneys’ fees, incurred in connection with the loss of life, personal injury, damage to property or business or any other loss or injury (except to the extent due to the grossly negligent act or willful misconduct of Landlord or its employees, agents or contractors) arising out of the access to the riser room or rooftop or any work on the rooftop by Tenant or its employees, agents, or contractors, including any liability arising out of Tenant’s violation of this Section 7.2.  Tenant shall specifically be responsible for Landlord’s costs to repair any damage or remedy any infraction caused by Tenant or Tenant’s vendor in the riser room or on the roof of the Building.  Landlord shall not be responsible for any damage or harm that result from Tenant’s inability or delay to access the riser room or rooftop and Tenant hereby waives any claims against Landlord arising from such delays in access.  The provisions of this paragraph shall survive the expiration or earlier termination of this Lease.  

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7.3Landlord Repairs. Notwithstanding the foregoing, Landlord shall be responsible for repairs to the exterior walls, windows, foundation and roof (including roof membrane) of the Building, the structural portions of the floors of the Building, and the base building systems and equipment of the Building and Common Areas (to the extent not serving Tenant exclusively (but Landlord acknowledges and agrees that the air handler currently serving the Premises constitutes part of the base Building)), except to the extent that such repairs are required due to the gross negligence or willful misconduct of Tenant; provided, however, that if such repairs are due to the gross negligence or willful misconduct of Tenant, Landlord shall nevertheless make such repairs at Tenant’s expense, or, if covered by Landlord’s insurance, Tenant shall only be obligated to pay any deductible in connection therewith.  Subject to the terms of Article 27, below, Landlord may, but shall not be required to, enter the Premises at all reasonable times and upon reasonable prior notice to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall reasonably desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree.

8.ADDITIONS AND ALTERATIONS

8.1Landlord’s Consent to Alterations.  Tenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “Alterations”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than ten (10) business days prior to the commencement thereof, and which consent shall not be unreasonably withheld, conditioned or delayed by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building.  Notwithstanding the foregoing, Tenant shall be permitted to make non-structural Alterations following ten (10) business days’ notice to Landlord, but without Landlord’s prior consent, to the extent that such Alterations (i) do not materially affect the Building roof, systems or equipment, (ii) are not visible from the exterior of the Building, and (iii) cost less than fifty thousand and 00/100 ($50,000.00) per year.  

8.2Prior to commencing any Alterations affecting air distribution or disbursement from ventilation systems serving Tenant or the Building, including without limitation the installation of Tenant’s exhaust systems, Tenant shall provide Landlord with a third party report from a consultant, and in a form reasonably acceptable to Landlord, showing that such work will not materially and adversely affect the ventilation systems or air quality of the Building (or of any other tenant in the Building) and shall, upon completion of such work, provide Landlord with a certification reasonably satisfactory to Landlord from such consultant confirming that no such adverse effects have resulted from such work.

8.3Manner of Construction.  Landlord may impose, as an express condition of its consent (at the time said consent is given) to any and all Alterations (other than the Tenant Improvements) or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Tenant and approved by Landlord (which approval shall not be unreasonably withheld, conditioned or delayed), the requirement that upon Landlord’s request at the time Landlord approves said Alterations (subject to the terms of Section 8.5, below), Tenant shall, at Tenant’s expense, remove such Alterations upon the expiration or any early termination of the Lease Term.  Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the city in which the Building is located (or other applicable governmental authority).  Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord’s reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas.  Upon completion of any Alterations (or repairs), Tenant shall deliver to Landlord final lien waivers from all contractors, subcontractors and materialmen who performed such work.  In addition to Tenant’s obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant shall deliver to the Project construction manager a reproducible copy of the “as built” drawings of the Alterations as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.  Landlord shall make its construction rules and a pre-approved vendor list available to Tenant upon request.

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8.4Payment for Improvements.  If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to four percent (4%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work.  If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord’s reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord’s review of such work including a construction management fee in the amount of two and one-half percent (2.5%) of the total costs of such work, up to but not to exceed a total payment by Tenant to Landlord of Forty Thousand and 00/100 Dollars ($40,000.000).  

8.5Construction Insurance.  In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries “Builder’s All Risk” insurance (to the extent that the cost of the work shall exceed $100,000.00) in an amount approved by Landlord covering the construction of such Alterations, and such other standard and reasonable insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof.  In addition, Tenant’s contractors and subcontractors shall be required to carry Commercial General Liability Insurance in an amount approved by Landlord and otherwise in accordance with the requirements of Article 10 of this Lease and such general liability insurance shall name the Landlord Parties as additional insureds.  In addition, Tenant’s contractors and subcontractors shall be required to carry workers compensation insurance with a waiver of subrogation in favor of Landlord Parties.

9.COVENANT AGAINST LIENS

Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials or services furnished or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys’ fees and costs) arising out of same or in connection therewith.  Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any work, services or obligations related to the Premises giving rise to any such liens or encumbrances (or such additional time as may be necessary under Applicable Laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility (to the extent applicable pursuant to then Applicable Laws).  Tenant shall remove any such lien or encumbrance by statutory lien bond or otherwise within ten (10) business days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof.  

10.INSURANCE

10.1Indemnification and Waiver.  Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever (including, but not limited to, any personal injuries resulting from a slip and fall in, upon or about the Premises) and agrees that Landlord, its lenders, partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, “Landlord Parties”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant.  Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, injury, expense and liability (including without limitation court costs and reasonable attorneys’ fees) during the Lease Term, or any period of Tenant’s occupancy of the Premises prior to the commencement or after the expiration of the Lease Term, incurred in connection with or arising from any cause in, on or about the Premises (including, but not limited to, a slip and fall), any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant or any such person, in, on or about the Project or any breach of the terms of this Lease, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the gross negligence or willful misconduct of Landlord.  Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant’s occupancy of the Premises, Tenant shall pay to Landlord its reasonable costs and expenses incurred in such suit, including without limitation, its actual professional fees such as reasonable appraisers’, accountants’ and attorneys’ fees.  The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination.  

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10.2Tenant’s Compliance With Landlord’s Property Insurance.  Tenant shall, at Tenant’s expense, comply with all reasonable insurance company requirements pertaining to the use of the Premises.  If Tenant’s conduct or use of the Premises for any purpose other than customary, general office use causes any increase in the premium for such insurance policies (as reasonably documented by Landlord) then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.3Tenant’s Insurance.  Tenant shall maintain the following coverages in the following amounts.

10.3.1Commercial General Liability Insurance on an occurrence form covering the insured against claims of bodily injury, personal and advertising injury and property damage (including loss of use thereof) arising out of Tenant’s operations, products/completed operations, and contractual liability including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, and including, solely on a claims-made basis, products and completed operations coverage, for limits of liability of not less than:

 

10.3.2Property Insurance covering (i) all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, and (ii) any other improvements which exist in the Premises as of the Lease Commencement Date (excluding the Base Building) (the “New Improvements”).  Such insurance shall be written on an “all risks” of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion.

10.3.3Business Income Interruption for one (1) year plus Extra Expense insurance in such amounts as will reimburse Tenant for actual direct or indirect loss of earnings attributable to the risks outlined in Section 10.3.2 above.

10.3.4Worker’s Compensation and Employer’s Liability or other similar insurance pursuant to all applicable state and local statutes and regulations.  The policy will include a waiver of subrogation in favor of the Landlord Parties.

10.4Form of Policies.  The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease.  Such insurance shall (i) name Landlord, its subsidiaries and affiliates and any other party the Landlord so specifies, as an additional insured, as applicable, including Landlord’s managing agent, if any; (ii) cover the liability assumed by Tenant under this Lease; (iii) be issued by an insurance company having a rating of not less than A:VIII in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of North Carolina; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance required of Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi) provide that said insurer shall endeavor to provide written notice to Landlord and any mortgagee of Landlord,  to the extent such names are furnished to Tenant prior to the cancellation of such policy.  Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the earlier to occur of (A) the Lease Commencement Date, and (B) the date upon which Tenant is first provided access to the Premises, and at least ten (10) days before the expiration dates thereof.  In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate within ten (10) days after written notice from Landlord, Landlord may, at its option (upon notice to Tenant), procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor.

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10.5Subrogation.  Landlord and Tenant intend that their respective property loss risks shall be borne by reasonable insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder.  The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder.  The parties agree that their respective insurance policies are now, or shall specify that the waiver of subrogation shall not affect the right of the insured to recover thereunder.

10.6Additional Insurance Obligations.  Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of insurance to the extent required by any lender or mortgagee on the Building.

10.7Landlord Insurance Obligations.  Landlord shall keep in force during the term of this Lease at least the following coverage: (i) commercial general liability insurance against any and all claims for bodily injury and property damage occurring in or about the Building or the Common Areas having a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the aggregate, and (ii) property insurance for fire, casualty and special causes of loss in such amounts and coverages as Landlord deems appropriate or is otherwise required of Landlord by its lender or Applicable Law, but in no event less than the lesser of (a) at least one hundred percent (100%) percent of the replacement cost of the Building or (b) the maximum insurable value of the Building.

11.DAMAGE AND DESTRUCTION

11.1Repair of Damage to Premises by Landlord.  Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty.  If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11, restore such Common Areas and the Premises to substantially the same condition as existed prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project, provided that access to the or the use of Premises shall not be materially impaired.  Upon the occurrence of any damage to the Premises, upon notice (the “Landlord Repair Notice”) to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under Section 10.3.2(ii) of this Lease and Landlord’s obligation to restore any Alterations or Tenant Improvements shall be limited to the extent of such proceeds received by Landlord.  To the extent permitted pursuant to Applicable Laws, Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, and the Premises, or a material portion of the Premises, are not occupied by Tenant as a result thereof, then during the time and to the extent the Premises are unfit for occupancy, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the purposes permitted under this Lease bears to the total rentable square feet of the Premises.  

11.2Landlord’s Option to Repair.  Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such termination within forty-five (45) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) at least Ten Thousand and 00/100 Dollars ($10,000.00) of damage is not fully covered by Landlord’s insurance policies; (iv) intentionally omitted; (v) the damage occurs during the last twelve (12) months of the Lease Term; or

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(vi) any owner of any other portion of the Project, other than Landlord, does not intend to repair the damage to such portion of the Project; provided, however, that if Landlord does not elect to terminate this Lease pursuant to Landlord’s termination right as provided above, and the repairs cannot, in the reasonable opinion of Landlord, be completed within one hundred eighty (180) days after the date of the damage, Tenant may elect, no earlier than thirty (30) days after the date of the damage and not later than ninety (90) days after the date of such damage, to terminate this Lease by written notice to Landlord effective as of the date specified in the notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such notice is given by Tenant.  Notwithstanding the provisions of this Section 11.2, Tenant shall have the right to terminate this Lease under this Section 11.2 only if each of the following conditions is satisfied:  (a) the damage to the Project by fire or other casualty was not caused by the gross negligence or intentional act of Tenant or its partners or subpartners and their respective officers, agents, servants, employees, and independent contractors; and (b) as a result of the damage, Tenant cannot reasonably conduct business from the Premises.  In addition, Tenant may terminate this Lease if the damage to the Premises occurs during the last twelve (12) months of the Lease Term and such repair will take more than 10% of the remaining Term to repair.

12.NONWAIVER

No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby.  The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained.  The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent.  No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due.  No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

13.CONDEMNATION

If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority.  Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant.  All Rent shall be apportioned as of the date of such termination.  If any part of the Premises shall be taken, and this Lease shall  not be so terminated, the Rent shall be proportionately abated.  Notwithstanding anything to the contrary contained in this Article 13, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, and provided that such temporary taking does not materially preclude or unreasonably diminish Tenant’s ability to conduct business from the Premises, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises.  Landlord shall be entitled to receive the entire award made in connection with any such temporary taking, provided, however, that Tenant shall be entitled to a share of the award for any loss of fixtures and improvements and for moving and other reasonable expenses that do not otherwise reduce Landlord’s recovery.  

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14.ASSIGNMENT AND SUBLETTING

14.1Transfers.  Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as “Transfers” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “Transferee”).  If Tenant desires Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “Transfer Notice”) shall include (i) the proposed effective date of the Transfer, which shall not be less than twenty (20) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “Subject Space”), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the “Transfer Premium”, as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information reasonably required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee’s business and proposed use of the Subject Space.  Any Transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant under this Lease.  Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord’s reasonable review and processing fees(not to exceed $1,500.00 for Landlord’s internal costs) plus any reasonable professional fees (including, without limitation, attorneys’, accountants’, architects’, engineers’ and consultants’ fees) incurred by Landlord, within thirty (30) days after written request by Landlord.

14.2Landlord’s Consent.  Landlord shall not unreasonably withhold, condition or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice.  Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply:

14.2.1The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project;

14.2.2The Transferee is either a governmental agency or instrumentality thereof;

14.2.3The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested;

14.2.4The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease; or

14.2.5Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, is actively negotiating with Landlord or has negotiated with Landlord during the four (4) month period immediately preceding the date Landlord receives the Transfer Notice, to lease space in the Project (and Landlord has suitable space available in the Project to meet Transferee’s needs).

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14.2.6In Landlord’s reasonable determination, the sub-rent, additional rent or other amounts received or accrued by Tenant from subleasing, assigning or otherwise Transferring all or any portion of the Premises is based on the income or profits of any person, or the assignment of sublease could cause any portion of the amounts received by Landlord pursuant to this Lease to fail to qualify as “rents from real property” within the meaning of section 856(d) of the Internal Revenue Code of 1986, as amended (the “Code”), or any similar or successor provision thereto or which would cause any other income of Landlord to fail to qualify as income described in section 856(c)(2) of the Code.

If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord’s consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any material changes in the terms and conditions from those specified in the Transfer Notice such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord’s right of recapture, if any, under Section 14.4 of this Lease).  Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, their sole remedies shall be a suit for contract damages (other than damages for injury to, or interference with, Tenant’s business including, without limitation, loss of profits, however occurring) or declaratory judgment and an injunction for the relief sought, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all Applicable Laws, on behalf of the proposed Transferee.

14.3Transfer Premium.  If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3, received by Tenant from such Transferee (other than any Permitted Transferee).  “Transfer Premium” shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable third party expenses incurred by Tenant for (i) any design and construction costs incurred on account of changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any free base rent and tenant improvement allowances reasonably provided to the Transferee in connection with the Transfer (provided that such free rent and tenant improvement allowances shall be deducted only to the extent the same is included in the calculation of total consideration payable by such Transferee), (iii) any brokerage commissions in connection with the Transfer, (iv) legal fees and disbursements reasonably incurred in connection with the Transfer, and (v) any unamortized Excess Costs, as defined in Exhibit D (as determined on a straight line basis over the initial term of this Lease, without interest) paid by Tenant for the Tenant Improvements (collectively, “Tenant’s Subleasing Costs”).  “Transfer Premium” shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer.  The determination of the amount of Landlord’s applicable share of the Transfer Premium shall be made on a monthly basis as rent or other consideration is received by Tenant under the Transfer.

14.4Landlord’s Option as to Subject Space.  Notwithstanding anything to the contrary contained in this Article 14, in the event Tenant contemplates a Transfer which, together with all prior Transfers then remaining in effect, would cause seventy-five percent (75%) or more of the Premises to be Transferred for more than fifty percent (50%) of the then remaining Lease Term (assuming all sublease renewal or extension rights are exercised), Tenant shall give Landlord notice (the “Intention to Transfer Notice”) of such contemplated Transfer (whether or not the contemplated Transferee or the terms of such contemplated Transfer have been determined).  The Intention to Transfer Notice shall specify the portion of and amount of rentable square feet of the Premises which Tenant intends to Transfer (the “Contemplated Transfer Space”), the contemplated date of commencement of the Contemplated Transfer (the “Contemplated Effective Date”), and the contemplated length of the term of such contemplated Transfer, and shall specify that such Intention to Transfer Notice is delivered to Landlord pursuant to this Section 14.4 in order to allow Landlord to elect to recapture the Contemplated Transfer Space.  Thereafter, Landlord shall have the option, by giving

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written notice to Tenant within fifteen (15) days after receipt of any Intention to Transfer Notice, to recapture the Contemplated Transfer Space.  Such recapture shall cancel and terminate this Lease with respect to such Contemplated Transfer Space as of the Contemplated Effective Date.  In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same.  

14.5Effect of Transfer.  If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) intentionally omitted, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space.

14.6Sublease/Transfer Restrictions.  Notwithstanding anything contained herein to the contrary and without limiting the generality of Section 14.1 above, Tenant shall not:  (a) sublet all or part of the Premises or assign or otherwise Transfer this Lease on any basis such that the rental or other amounts to be paid by the subtenant or assignee thereunder would be based, in whole or in part, on the income or profits derived by the business activities of the subtenant or assignee; (b) sublet all or part of the Premises or assign this Lease to any person or entity in which, under Section 856(d)(2)(B) of the Code, Longfellow Atlantic REIT, Inc., a Delaware corporation (the “Company”), or any affiliate of the Company owns, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d) (5) of the Code), a ten percent (10%) or greater interest; or (c) sublet all or part of the Premises or assign this Lease in any other manner or otherwise derive any income which could cause any portion of the amounts received by Landlord pursuant hereto or any sublease to fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Code, or which could cause any other income received by Landlord to fail to qualify as income described in Section 856(c) (2) of the Code.  The requirements of this Section 14.4 shall likewise apply to any further subleasing, assignment or other Transfer by any subtenant or assignee.  All references herein to Section 856 of the Code also shall refer to any amendments thereof or successor provisions thereto.

14.7Occurrence of Default.  Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to:  (i) treat such Transfer as cancelled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer.  If Tenant shall be in default under this Lease (beyond applicable notice and cure period), Landlord is hereby irrevocably authorized to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such default is cured.  Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant.  Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease.  No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing.  In no event shall Landlord’s enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord’s right to enforce any term of this Lease against Tenant or any other person.  If Tenant’s obligations hereunder have been guaranteed, Landlord’s consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

14.8Non-Transfers.  Notwithstanding anything to the contrary contained in this Article 14, (i) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant), (ii) an assignment of the Premises to an entity which acquires all or substantially all of the assets or interests (partnership, stock or other) of Tenant, (iii) an assignment of the Premises to an entity which is the resulting entity of a merger or consolidation of Tenant, or (iv) a sale of corporate shares of capital stock in Tenant in connection with an initial public offering of Tenant’s stock on a nationally-recognized stock exchange (collectively, a “Permitted Transferee”), shall not be deemed a Transfer under this Article 14, provided that (A) Tenant notifies Landlord of any such assignment or sublease and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such assignment or sublease or such affiliate,

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(B) such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease, (C) such Permitted Transferee shall be of a character and reputation consistent with the quality of the Building, and (D) such Permitted Transferee shall have a tangible net worth (not including goodwill as an asset) computed in accordance with generally accepted accounting principles (“Net Worth”) at least equal to the Net Worth of Tenant on the day immediately preceding the effective date of such assignment or sublease.  An assignee of Tenant’s entire interest that is also a Permitted Transferee may also be known as a “Permitted Assignee”.  “Control,” as used in this Section 14.8, shall mean the ownership, directly or indirectly, of at least fifty-one percent (51%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty-one percent (51%) of the voting interest in, any person or entity.  No such permitted assignment or subletting shall serve to release Tenant from any of its obligations under this Lease.

15.1Surrender of Premises.  No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord.  The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated.  The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

15.2Removal of Tenant Property by Tenant.  Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted.  Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, movable partitions (not including modular “clean rooms” built into the Premises as part of the Tenant Improvements) and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal. In no event shall any Landlord’s Work be deemed to be Tenant’s personal property, it being the intent that Tenant’s personal property includes only those items that are not built into the Premises and that have not been constructed or installed by Landlord pursuant to the Work Letter.

15.3Environmental Assessment.  Prior to the expiration of the Lease (or within thirty (30) days after any earlier termination), Tenant shall clean and otherwise decommission all interior surfaces (including floors, walls, ceilings, and counters), piping, supply lines, waste lines and plumbing in or serving the Premises, and all exhaust or other ductwork in or serving the Premises, in each case that has carried, released or otherwise been exposed to any Hazardous Materials due to Tenant’s use or occupancy of the Premises, and shall otherwise clean the Premises so as to permit the Environmental Assessment called for by this Section 15.3 to be issued.  Prior to the expiration of this Lease (or within thirty (30) days after any earlier termination), Tenant, at Tenant’s expense, shall obtain for Landlord a report (an “Environmental Assessment”) addressed to Landlord (and, at Tenant’s election, Tenant) by a reputable licensed environmental consultant or industrial hygienist that is designated by Tenant and acceptable to Landlord in Landlord’s reasonable discretion, which report shall be based on the environmental consultant’s inspection of the Premises and shall state, to the Landlord’s reasonable satisfaction, that (a) the Hazardous Materials described in the first sentence of this paragraph, to the extent, if any, existing prior to such decommissioning, have been removed in accordance with Applicable Laws; (b) all Hazardous Materials described in the first sentence of this paragraph, if any, have been removed in accordance with Applicable Laws from the interior surfaces of the Premises (including floors, walls, ceilings, and counters), piping, supply lines, waste lines and plumbing, and all such exhaust or other ductwork in the Premises, may be reused by a subsequent tenant or disposed of in compliance with Applicable Laws without incurring special costs or undertaking special procedures for demolition, disposal, investigation, assessment, cleaning or removal of such Hazardous Materials and without giving notice in connection with such Hazardous Materials; and

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(c) the Premises may be reoccupied for office, research and development, or laboratory use, demolished or renovated without incurring special costs or undertaking special procedures for disposal, investigation, assessment, cleaning or removal of Hazardous Materials described in the first sentence of this paragraph and without giving notice in connection with Hazardous Materials.  Further, for purposes of clauses (b) and (c), “special costs” or “special procedures” shall mean costs or procedures, as the case may be, that would not be incurred but for the nature of the Hazardous Materials as Hazardous Materials instead of non-hazardous materials.  The report shall also include reasonable detail concerning the clean-up measures taken, the clean-up locations, the tests run and the analytic results.  Tenant shall submit to Landlord the scope of the proposed Environmental Assessment for Landlord’s reasonable review and approval at least 30 days prior to commencing the work described therein or at least 60 days prior to the expiration of the Lease Term, whichever is earlier.

If Tenant fails to perform its obligations under this Section 15.3 without limiting any other right or remedy, Landlord may, on five (5) business days’ prior written notice to Tenant perform such obligations at Tenant’s expense if Tenant has not commenced to do so within said five day period, and Tenant shall within 10 days of written demand reimburse Landlord for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with such work.  Tenant’s obligations under this Section 15.3 shall survive the expiration or earlier termination of this Lease.  In addition, at Landlord’s election, Landlord may inspect the Premises and/or the Project for Hazardous Materials at Landlord’s cost and expense within sixty (60) days of Tenant’s surrender of the Premises at the expiration or earlier termination of this Lease.  Tenant shall pay for all such costs and expenses incurred by Landlord in connection with such inspection if such inspection reveals that a release of Hazardous Materials exists at the Project or Premises as a proximate result of the acts or omissions of Tenant, its officers, employees, contractors, and agents (except to the extent resulting from (i) Hazardous Materials existing in the Premises as at the delivery of possession to Tenant (in which event Landlord shall be responsible for any Clean-up, as provided in this Lease), or (ii) the acts or omissions of Landlord or Landlord’s agents, employees or contractors).

16.HOLDING OVER

If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term.  If Tenant holds over after the expiration of the Lease Term of earlier termination thereof, without the express or implied consent of Landlord, such tenancy shall be deemed to be a tenancy by sufferance only, and shall not constitute a renewal hereof or an extension for any further term.  In either case, Base Rent shall be payable at a monthly rate equal to one hundred twenty-five percent (125%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease for the first two (2) months of such holdover with such rate increasing to one hundred fifty percent (150%) of the Base Rent if Tenant holdsover longer than two (2) months.  Such month-to-month tenancy or tenancy by sufferance, as the case may be, shall be subject to every other applicable term, covenant and agreement contained herein.  Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease.  The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law.  If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom.

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17.ESTOPPEL CERTIFICATES

Within ten (10) business days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit F, attached hereto (or such other commercially reasonable form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord’s mortgagee or prospective mortgagee.  Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project.  Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes.  At any time during the Lease Term, but not more often than twice per year, Landlord may require Tenant to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year.  Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant.  Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception.

18.SUBORDINATION

This Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto.  Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as Tenant timely pays the rent and observes and performs the terms, covenants and conditions of this Lease to be observed and performed by Tenant.  Landlord’s delivery to Tenant of commercially reasonable non-disturbance agreement(s) in favor of Tenant from any ground lessors, mortgage holders or lien holders of Landlord who come into existence following the date hereof but prior to the expiration of the Lease Term shall be in consideration of, and a condition precedent to, Tenant’s agreement to subordinate this Lease to any such ground lease, mortgage or lien.  Landlord’s interest herein may be assigned as security at any time to any lienholder.  Tenant shall, within ten (10) business days of request by Landlord, execute such further commercially reasonable instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases.  Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.  

19.DEFAULTS; REMEDIES

19.1Events of Default.  The occurrence of any of the following shall constitute a default of this Lease by Tenant:

19.1.1Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due (provided, however, that it shall not be a default if Tenant makes full payment within five (5) business days after receipt of written notice of any delinquency; provided that Landlord shall not be required to provide more than one (1) such notices in any twelve (12) month period during the Lease Term); or

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19.1.2Except where a specific time period is otherwise set forth for Tenant’s performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2, any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default; or

19.1.3Abandonment of the Premises by Tenant and failure to perform any obligation under this Lease regarding the maintenance, cleanliness or operation of the Premises within five (5) business days after notice from Landlord; or

19.1.4The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease where such failure continues for more than two (2) business days after notice from Landlord.

The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.  

19.2Remedies Upon Default.  Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any separate notice or demand whatsoever.

19.2.1Landlord may, immediately or at any time thereafter, elect to terminate this Lease by notice of termination, by entry, or by any other means available under law and may recover possession of the Premises as provided herein.  Upon termination by notice, by entry, or by any other means available under law, Landlord shall be entitled immediately, in the case of termination by notice or entry, and otherwise in accordance with the provisions of law to recover possession of the Premises from Tenant and those claiming through or under the Tenant.  Such termination of this Lease and repossession of the Premises shall be without prejudice to any remedies which Landlord might otherwise have for arrears of rent or for a prior breach of the provisions of this Lease.  Tenant waives any statutory notice to quit and equitable rights in the nature of further cure or redemption, and Tenant agrees that upon Landlord’s termination of this Lease Landlord shall be entitled to re-entry and possession in accordance with the terms hereof.  Landlord may, without notice, store Tenant’s personal property (and those of any person claiming under Tenant) at the expense and risk of Tenant or, if Landlord so elects, Landlord may sell such personal property at public auction or auctions or at private sale or sales after seven days’ notice to Tenant and apply the net proceeds to the earliest of installments of rent or other charges owing Landlord.  Tenant agrees that a notice by Landlord alleging any default shall, at Landlord’s option (the exercise of such option shall be indicated by the inclusion of the words “notice to quit” in such notice), constitute a statutory notice to quit.  If Landlord exercises its option to designate a notice of default hereunder as a statutory notice to quit, any grace periods provided for herein shall run concurrently with any statutory notice periods.

19.2.2In the case of termination of this Lease pursuant to Section 19.2.1, Tenant shall reimburse Landlord for all expenses arising out of such termination, including without limitation, all reasonable costs incurred in collecting amounts due from Tenant under this Lease (including reasonable attorneys’ fees, costs of litigation and the like); all expenses incurred by Landlord in attempting to relet the Premises or parts thereof (including advertisements, brokerage commissions, Tenant’s allowances, costs of preparing space, and the like); and all Landlord’s other reasonable expenditures necessitated by the termination.  The reimbursement from Tenant shall be due and payable immediately from time to time upon notice from Landlord that an expense has been incurred, without regard to whether the expense was incurred before or after the termination.

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19.2.3Landlord may elect by written notice to Tenant within one year following such termination to be indemnified for loss of rent by a lump sum payment representing the then present value of the amount of Rent that would have been paid in accordance with this Lease for the remainder of the Lease Term minus the then present value of the aggregate fair market rent and additional charges payable for the Premises for the remainder of the Lease Term (if less than the Rent payable hereunder), estimated as of the date of the termination, and taking into account reasonable projections of vacancy and time required to re-lease the Premises.  (For the purposes of calculating the Rent that would have been paid hereunder for the lump sum payment calculation described herein, the last full year’s Additional Rent under Article 4 is to be deemed constant for each year thereafter.  The Federal Reserve discount rate (or equivalent) shall be used in calculating present values.)  Should the parties be unable to agree on a fair market rent, the matter shall be submitted, upon the demand of either party, to the Charlotte, North Carolina office of the American Arbitration Association, with a request for arbitration in accordance with the rules of the Association by a single arbitrator who shall be an MAI appraiser with at least ten years’ experience as an appraiser of life sciences buildings in the Research Triangle Park and Durham markets.  The parties agree that a decision of the arbitrator shall be conclusive and binding upon them.  If, at the end of the Lease Term, the rent that Landlord has actually received from the Premises is less than the aggregate fair market rent estimated as aforesaid, Tenant shall thereupon pay Landlord the amount of such difference.  If and for so long as Landlord does not make the election provided for in this Section 19.2.3, Tenant shall indemnify Landlord for the loss of Rent by a payment at the end of each month which would have been included in the Lease Term, representing the excess of the Rent that would have been paid in accordance with this Lease (Base Rent together with any Additional Rent that would have been payable under Article 4, to be ascertained monthly) over the rent actually derived from the Premises by Landlord for such month (the amount of rent deemed derived shall be the actual amount less any portion thereof attributable to Landlord’s reletting expenses described in Section 19.2.2 that have not been reimbursed by Tenant thereunder).

19.2.4Intentionally Omitted.  

19.2.5In lieu of any other damages or indemnity and in lieu of full recovery by Landlord of all sums payable under all the foregoing provisions of this Section 19.2, Landlord may by written notice to Tenant within six (6) months after termination under any of the provisions contained in Section 19.1 and before such full recovery, elect to recover, and Tenant shall thereupon pay, as minimum liquidated damages under this Section 19.2, an amount equal to the lesser of (i) the aggregate of the Base Rent and Additional Rent for the balance of the Lease Term had it not been terminated or (ii) the aggregate thereof for the 12 months ending one year after the termination date, plus in either case (iii) the amount of Base Rent and Additional Rent of any kind accrued and unpaid at the time of termination and minus (iv) the amount of any recovery by Landlord under the foregoing provisions of this Section 19.2 up to the time of payment of such liquidated damages (but reduced by any amounts of reimbursement under Section 19.2.2).  Liquidated damages hereunder shall not be in lieu of any claims for reimbursement under Section 19.2.2.

19.2.6If Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

19.2.7Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any law or other provision of this Lease), without prior demand or notice except as required by Applicable Law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.  The provisions of this Section 19.2.7 are not dependent upon the occurrence of a default.

19.2.8Any obligation imposed by law upon Landlord to relet the Premises after any termination of the Lease shall be subject to the reasonable requirements of Landlord to lease to high quality tenants on such terms as Landlord may from time to time deem reasonably appropriate and to develop the Building in a harmonious manner with an appropriate mix of uses, tenants, floor areas and terms of tenancies, and the like, and Landlord shall not be obligated to relet the Premises to any party to whom Landlord or its affiliate may desire to lease other available space in the Building.

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19.2.9Nothing herein shall limit or prejudice the right of Landlord to prove and obtain in a proceeding for bankruptcy, insolvency, arrangement or reorganization, by reason of the termination, an amount equal to the maximum allowed by a statute of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount is greater to, equal to, or less than the amount of the loss or damage which Landlord has suffered.

19.3Subleases of Tenant.  Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements.  In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.  

19.4Efforts to Relet.  No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord’s interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant.  Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

19.5Landlord Default.

19.5.1General.  Notwithstanding anything to the contrary set forth in this Lease, Landlord shall not be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease unless Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord’s failure to perform; provided, however, if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursue the same to completion.  Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity.

19.5.2Intentionally Omitted.

20.COVENANT OF QUIET ENJOYMENT

Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord.  The foregoing covenant is in lieu of any other covenant express or implied.

21.SECURITY DEPOSIT

Concurrently with Tenant’s execution and delivery of this Lease, Tenant shall deposit with Landlord cash in the amount set forth in Section 9 of the Summary as security for the faithful performance by Tenant of all of its obligations under this Lease.  The Security Deposit shall be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the period commencing on the Execution Date and ending upon the expiration or termination of Tenant’s obligations under this Lease.  After an Event of Default Landlord may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant’s default as provided in this Lease.  The provisions of this Article shall survive the expiration or earlier termination of this Lease.  In the event of bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit then being held by Landlord shall be deemed

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to be applied first to the payment of Rent and other charges due Landlord for all periods prior to the filing of such proceedings.  Landlord shall deliver or credit to any purchaser of Landlord’s interest in the Premises the funds then held hereunder by Landlord, and thereupon (and upon confirmation by the transferee of such funds, whether expressly or by written assumption of this Lease, generally) Landlord shall be discharged from any further liability with respect to such funds.  This provision shall also apply to any subsequent transfers. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, then the Security Deposit, if any, or any balance thereof, shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within 90 days after the expiration or earlier termination of this Lease. Landlord shall hold the Security Deposit in an account at a banking organization selected by Landlord; provided, however, that Landlord shall not be required to maintain a separate account for the Security Deposit, but may intermingle it with other funds of Landlord.  Landlord shall be entitled to all interest and/or dividends, if any, accruing on such Security Deposit.

22.SUBSTITUTION OF OTHER PREMISES

Intentionally omitted.

23.SIGNS

23.1Interior Signage.  All letters and numerals on doors or other signs on the Premises shall be in the standard form of graphics for the Building, and no others shall be used or permitted without Landlord’s prior written consent, not to be unreasonably withheld, conditioned, or delayed.  Furthermore, Tenant shall not place signs on or in the Premises which are visible from outside the Premises.  Tenant’s name and suite number shall be included by Landlord on the lobby directory for the Building, at Landlord’s cost.

23.2Intentionally omitted.

23.3Prohibited Signage and Other Items.  Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant.  Tenant may not install any signs on the exterior or roof of the Project or the Common Areas.  Any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion.  Tenant shall not place or install any projections, antennae, aerials, or similar devices inside or outside of the Building, without the prior written approval of Landlord (not to be unreasonably withheld, conditioned, or delayed), subject to Tenant’s rights pursuant to Section 23.1, above.

24.COMPLIANCE WITH LAW

Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, “Applicable Laws”).  At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws which relate to (i) Tenant’s use of the Premises, (ii)  any Alterations or Tenant Improvements, or (iii) the Building, but as to the Building (and as to any improvements to exterior walls, structural floors and the portions of the electrical, heating, ventilation and air conditioning and other systems of the Building that serve other tenants and that are located within the Premises), only to the extent such obligations are triggered by Alterations or Tenant Improvements, or Tenant’s use of the Premises for non‑general office and laboratory use. Tenant shall be responsible, at its sole cost and expense, to make all alterations to the Premises as are required to comply with the Applicable Laws to the extent required in this Article 24.  Notwithstanding the foregoing terms of this Article 24 to the contrary, Tenant may defer such compliance with Applicable Laws while Tenant contests, in a court of proper jurisdiction, in good faith, the applicability of such Applicable Laws to the Premises or Tenant’s specific use or occupancy of the Premises; provided, however, Tenant may only defer such compliance if such deferral shall not (a) prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, (b) prohibit Landlord from obtaining or maintaining a certificate of occupancy for the Building or any portion thereof, (c) unreasonably and materially affect the safety of the employees and/or invitees of Landlord or of any tenant in the Building (including Tenant), (d) create a significant health hazard for the employees and/or invitees of Landlord or of any tenant in the Building (including Tenant), (e) otherwise materially and adversely affect Tenant’s use of or access to the Buildings or the Premises, or (f) impose material obligations, liability, fines, or penalties upon

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Landlord or any other tenant of the Building, or would materially and adversely affect the use of or access to the Building by Landlord or other tenants or invitees of the Building.  The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant.  Landlord shall comply with all Applicable Laws relating to the Base Building and the Common Areas, provided that compliance with such Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord’s failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably and materially affect the safety of Tenant’s employees or create a significant health hazard for Tenant’s employees, or would otherwise materially and adversely affect Tenant’s use of or access to the Premises.  Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent not prohibited by the terms of Section 4.2.7 above.

25.LATE CHARGES

If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) business days after Tenant’s receipt of written notice from Landlord that said amount is due, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount plus any reasonable attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder.  Notwithstanding the foregoing, Landlord shall not charge Tenant a late charge for the first (1^st) late payment in any twelve (12) month period (but in no event with respect to any subsequent late payment in any twelve (12) month period) during the Lease Term that Tenant fails to timely pay Rent or another sum due under this Lease, provided that such late payment is made within three (3) days following the expiration of the five (5) business day period set forth in the first sentence of this Article 25.  The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner.  In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid when due shall bear interest from the date when due until paid at a rate per annum equal to the lesser of (i) the annual “Bank Prime Loan” rate cited in the Federal Reserve Statistical Release Publication G.13(415), published on the first Tuesday of each calendar month (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published) plus four (4) percentage points, and (ii) the highest rate permitted by Applicable Law.

26.LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

26.1Landlord’s Cure.  All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein.  If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue after notice in excess of the time allowed under Section 19.1.2, above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant’s part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder.

26.2Tenant’s Reimbursement.  Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, upon delivery by Landlord to Tenant of statements therefor:  (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant’s defaults pursuant to the provisions of Section 26.1; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all reasonable legal fees and other amounts so expended.  Tenant’s obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.

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27.ENTRY BY LANDLORD

Provided, however, that any such entry by Landlord shall (i) remain subject to Tenant’s reasonable security and privacy measures; and (ii) not unreasonably interfere with Tenant’s use and occupancy of the Premises, or the conduct of its business therein, then Landlord reserves the right at all reasonable times and upon not less than one (1) day’s prior written (e-mail is acceptable) notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers or, during the last nine (9) months of the Lease Term, to prospective tenants; (iii) post notices of nonresponsibility (to the extent applicable pursuant to then Applicable Law); or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment.  Provided that Landlord employs commercially reasonable efforts to minimize interference with the conduct of Tenant’s business in connection with entries into the Premises, Landlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and shall take such reasonable steps as required to accomplish the stated purposes.  In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises.  Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.

28.TENANT PARKING

Tenant shall have the right, without the payment of any parking charge or fee (other than as a reimbursement of operating expenses to the extent allowed pursuant to the terms of Article 4 of this Lease, above), commencing on the Lease Commencement Date, to use the amount of unreserved parking spaces set forth in Section 10 of the Summary, on a monthly basis throughout the Lease Term, which parking spaces shall pertain to the on-site and/or off-site, as the case may be, parking facility (or facilities) which serve the Project.  Notwithstanding the foregoing, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking spaces by Tenant or the use of the parking facility by Tenant.  Tenant’s continued right to use the parking spaces is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the parking facility where the parking spaces are located (including any sticker or other identification system established by Landlord and the prohibition of vehicle repair and maintenance activities in the parking facilities), and shall reasonably cooperate in seeing that Tenant’s employees and visitors also comply with such rules and regulations.  Tenant’s use of the Project parking facility shall be at Tenant’s sole risk and Tenant acknowledges and agrees that Landlord shall have no liability whatsoever for damage to the vehicles of Tenant, its employees and/or visitors, or for other personal injury or property damage or theft relating to or connected with the parking rights granted herein or any of Tenant’s, its employees’ and/or visitors’ use of the parking facilities.  

29.MISCELLANEOUS PROVISIONS

29.1Terms; Captions.  The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular.  The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed.  The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

29.2Binding Effect.  Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

29.3No Air Rights.  No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease.  If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the  Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.

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29.4Modification of Lease.  Should any current or prospective mortgagee or ground lessor for the Building or Project require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) business days following a request therefor.  At the request of Landlord or any mortgagee or ground lessor, Tenant agrees to execute a short form of Lease and deliver the same to Landlord within ten (10) business days following the request therefor.

29.5Transfer of Landlord’s Interest.  Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord’s obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee.

29.6Prohibition Against Recording.  In the event this Lease, a copy or any notice or memorandum thereof shall be recorded by Tenant without Landlord’s consent, then such recording shall constitute a default by Tenant under Article 19 hereof entitling Landlord to immediately terminate this Lease.  At the request of either Landlord or Tenant, the parties shall execute a memorandum of lease in recordable form containing such information as is necessary to constitute a notice of lease under North Carolina law.  All costs of preparation and recording such notice shall be borne by the party requesting the memorandum.  At the expiration or earlier termination of this Lease, Tenant shall provide Landlord with an executed termination of the memorandum in recordable form, which obligation shall survive such expiration or earlier termination.

29.7Landlord’s Title.  Landlord’s title is and always shall be paramount to the title of Tenant.  Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

29.8Relationship of Parties.  Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant.

29.9Application of Payments.  Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

29.10Time of Essence.  Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

29.11Partial Invalidity.  If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

29.12No Warranty.  In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.

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29.13Landlord Exculpation.  The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the interest of Landlord in the Building (including rental income and insurance/condemnation proceeds).  Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.  The limitations of liability contained in this Section 29.13 shall inure to the benefit of Landlord’s and the Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns.  Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord’s obligations under this Lease.  Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties, not Tenant (except with respect to any holdover tenancy) shall be liable under any circumstances for consequential or indirect damages, including without limitation injury or damage to, or interference with, Tenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

29.14Entire Agreement.  It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties’ entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease.  None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

29.15Right to Lease.  Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project.  Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

29.16Force Majeure.  Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorist acts, governmental action or inaction, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, a “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

29.17Waiver of Redemption by Tenant.  Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

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29.18Notices.  All notices, demands, statements, designations, approvals  or other communications (collectively, “Notices”) given or required to be given by either party to the other hereunder or by law shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested (“Mail”), (B) delivered by a nationally recognized overnight courier, or (D) delivered personally.  Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 11 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant.  Any Notice will be deemed given (i) upon receipt or refusal, (ii) the date the overnight courier delivery is made, or (iii) the date personal delivery is made.  As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

DURHAM TW ALEXANDER, LLC
c/o Longfellow Real Estate Partners

260 Franklin Street, Suite 1920

Boston, MA 02110

Attention: Asset Management

And

 

David E. Wagner

K&L Gates LLP

4350 Lassiter at North Hills Avenue

Suite 300 (27609)

Post Office Box 17047

Raleigh, North Carolina 27619-7047

29.19Joint and Several.  If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several.  

29.20Authority.  Landlord and Tenant each hereby represents and warrants that it is a duly formed and existing entity qualified to do business in the State of North Carolina and that said party has full right and authority to execute and deliver this Lease and that each person signing on behalf of said party is authorized to do so.

29.21Attorneys’ Fees.  In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

29.22Governing Law; WAIVER OF TRIAL BY JURY.  This Lease shall be construed and enforced in accordance with the laws of the State of North Carolina.  Landlord and Tenant waive trial by jury in any action to which they are parties, and further agree that any action arising out of this Lease (except an action for possession by Landlord, which may be brought in whatever manner or place provided by law) shall be brought in the Trial Court, Superior Court Department, in the county where the Premises are located.

29.23Submission of Lease.  Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

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29.24Brokers.  Landlord and Tenant hereby warrant to each other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 13 of the Summary (the “Brokers”), and that it knows of no other real estate broker or agent which represented said party who is entitled to a commission in connection with this Lease.  Landlord and Tenant each agree to indemnify and defend each other against and hold the indemnified party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party.  The terms of this Section 29.24 shall survive the expiration or earlier termination of the Lease Term.

29.25Independent Covenants.  This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

29.26Project or Building Name, Address and Signage.  Landlord shall have the right at any time to change the name and/or address of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord’s sole discretion, desire.  Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.

29.27Counterparts.  This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document.  Both counterparts shall be construed together and shall constitute a single lease.

29.28Confidentiality.  Tenant acknowledges that the content of this Lease and any related documents are confidential information.  Tenant shall keep such confidential information confidential and shall not disclose such confidential information to any person or entity other than Tenant’s lawyers, accountants, auditors, agents, lenders, and prospective purchasers/investors for reasonable business purposes.

29.29Development of the Project.  

29.29.1Subdivision.  Landlord reserves the right to subdivide all or a portion of the buildings and Common Areas.  Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from a subdivision and any all maps in connection therewith.  Notwithstanding anything to the contrary set forth in this Lease, the separate ownership of any buildings and/or Common Areas by an entity other than Landlord shall not affect the calculation of Direct Expenses or Tenant’s payment of Tenant’s Share of Direct Expenses.

29.29.2Construction of Property and Other Improvements.  Tenant acknowledges that portions of the Project and/or the Other Improvements may be under construction following Tenant’s occupancy of the Premises, and that such construction may result in levels of noise, dust, obstruction of access, etc. which are in excess of that present in a fully constructed project.  Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction.  Provided, however, that Landlord shall use good faith efforts to provide Tenant with fourteen (14) days’ notice, which may be verbal, in advance of commencing any construction activities that Landlord anticipates could disrupt Tenant’s use of the Premises, including a reasonable description of the scope of work to be performed and the anticipated duration of such activity.  At all times Landlord shall use commercially reasonable efforts to minimize any disruption with the conduct of Tenant’s business within the Premises.  Upon request from Tenant Landlord will inform Tenant of the general construction schedule for any work adjacent to the Premises or which adversely affects access to the Premises.

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29.30No Violation.  Landlord and Tenant each hereby warrant and represent that neither its execution of nor performance under this Lease shall cause said party to be in violation of any agreement, instrument, contract, law, rule or regulation by which said party is bound, and said party shall protect, defend, indemnify and hold the indemnified party harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, arising from the indemnifying party’s breach of this warranty and representation.

29.31Communications and Computer Lines.  Tenant may install, maintain, replace, remove or use any communications or computer wires and cables serving the Premises (collectively, the “Lines”), provided that (i) Tenant shall obtain Landlord’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), use an experienced and qualified contractor reasonably approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease.  Tenant shall pay all costs in connection therewith.  Landlord reserves the right, upon notice to Tenant prior to the expiration or earlier termination of this Lease, to require that Tenant, at Tenant’s sole cost and expense, remove any Lines located in or serving the Premises prior to the expiration or earlier termination of this Lease.

29.32Transportation Management.  Tenant shall reasonably comply with all present or future programs intended to manage parking, transportation or traffic in and around the Project and/or the Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.  Such programs may include, without limitation: (i) restrictions on the number of peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy; (iii) implementation of an in-house ridesharing program and an employee transportation coordinator; (iv) working with employees and any Project, Building or area-wide ridesharing program manager; (v) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (vi) utilizing flexible work shifts for employees.

29.33Guarantor.  Intentionally omitted.

29.34REIT.  Tenant acknowledges that the Company, an affiliate of Landlord, elects to be taxed as a real estate investment trust (a “REIT”) under the Code.  Tenant hereby agrees to modifications of this Lease required to retain or clarify the Company’s status as a REIT, provided such modifications: (a) are reasonable, (b) do not adversely affect in a material manner Tenant’s use of the Premises as herein permitted, and (c) do not increase the Base Rent, Additional Rent and other sums to be paid by Tenant or Tenant’s other obligations pursuant to this Lease, or reduce any rights of Tenant under this Lease, then Landlord may submit to Tenant an amendment to this Lease incorporating such required modifications, and Tenant shall execute, acknowledge and deliver such amendment to Landlord within ten (10) business days after Tenant’s receipt thereof.

29.35Additional Storage.  Landlord shall provide Tenant with access to and use an exterior storage area as shown on Exhibit I (“Storage Area”).  Tenant shall use the Storage Area in compliance with all Environmental Laws and in compliance with Section 5.4 of this Lease.  Other tenants may utilize other portions of the structure or area in which the Storage Area is located, provided that Tenant shall always have access to no less than one-half of the capacity of the larger structure (as shown on Exhibit I).  Tenant shall not exceed its share of any storage allocation applicable to the Storage Area, as reasonably determined by Landlord.  

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29.36Generator.  Subject to the provisions of this Section 29.36, Tenant shall be entitled to install, operate and maintain a generator and any other equipment related thereto, including, without limitation, a fuel system, wiring and shaft space (“Generator”) next to the Building at Tenant’s sole cost and expense (without paying any additional fee or rental to Landlord for the use thereof).  Prior to the installation of the Generator, Tenant shall inspect the proposed location to determine a suitable location for the Generator, and Tenant shall submit written plans and specifications relative to the type, size and proposed location (including any proposed screening) of the Generator to Landlord for its review and written approval.  Tenant shall be solely responsible for the cost of acquisition, installation, operation, and maintenance of the Generator; and Tenant shall install, maintain and operate the Generator in accordance with all federal, state, and local laws, statutes, ordinances, rules and regulations, including without limitation, obtaining and maintaining any and all permits, approvals and licenses required to install and operate the Generator by any governmental authority having jurisdiction.  Landlord and Tenant agree that, upon the expiration of earlier termination of the Lease Term, Tenant shall not be required to remove the Generator, any associated cabling, wiring and screening or other improvements.  Tenant shall not be entitled to grant or assign to any third party (other than a permitted assignee of Tenant’s rights under the Lease or a permitted subtenant relative to the Premises (or a portion thereof)) the right to use the Generator without Landlord’s prior written consent (which consent may be granted or withheld in Landlord’s discretion).  Upon reasonable advance notice to Tenant (and provided Landlord reasonably coordinates with Tenant and provides an alternate source of backup generator capacity during said transition), Landlord shall be entitled to cause the Generator to be moved to another location near the Building, at Landlord’s cost and expense. Tenant shall pay all personal property taxes on the Generator.  Tenant shall also pay any increases in the real property taxes of the Building due to the installation of the Generator within thirty (30) days of receipt of notice from Landlord which includes proof of such increase in taxes.  Tenant’s indemnity obligations under Section 5.4.1.5 of the Lease, relating to the use of Hazardous Materials, shall apply to the use and operation of the Generator.  Finally, Tenant’s insurance obligations under Section 10.3 of the Lease shall apply to the Generator.

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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

 

 

 

 

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EXHIBIT A

BioPoint Innovation Labs

FIRST OFFER SPACE

 

 

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EXHIBIT B

NOTICE OF LEASE TERM DATES

 

Gentlemen:

In accordance with the Lease (the “Lease”), we wish to advise you and/or confirm as follows:

 

 

Agreed to and Accepted as

of                , 20_.

 

 

 

 

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EXHIBIT C

PREMISES

 

 

 

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EXHIBIT D

tenant WORK LETTER

This Tenant Work Letter sets forth the terms and conditions relating to the construction of the initial tenant improvements in the Premises.  This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises.  All references in this Tenant Work Letter to Articles or Sections of “this Lease” shall mean the relevant portion of the Lease to which this Tenant Work Letter is attached as Exhibit D and of which this Tenant Work Letter forms a part, and all references in this Tenant Work Letter to Sections of “this Tenant Work Letter” shall mean the relevant portion of this Tenant Work Letter.

1.LANDLORD’S INITIAL CONSTRUCTION IN THE PREMISES

1.1Landlord Work.  Landlord shall, at Landlord’s sole cost and expense, complete the work described on the attached Attachment 1 (collectively, the “Landlord Work”).  The Landlord Work shall be performed in a first-class, workmanlike manner.  

 

2.TENANT IMPROVEMENTS

2.1Tenant Improvements Allowance.  Tenant shall be entitled to a tenant improvement allowance (the “Tenant Improvements Allowance”) in the maximum aggregate amount of  $1,220,720.00 (in a total amount equivolent to $70.58 per rentable square foot of the entire Premises initially leased hereunder)  and adjusted based on the actual square footage) (the “Maximum Allowance Amount”) for the hard costs and customary soft costs, as noted below, incurred by Tenant, including, without limitation,  architectural and engineering fees, construction contractor fees, Tenant’s project management fees, a 2% fee payable to Landlord or its affiliates for oversight and administrative costs related to the Tenant Improvements (“Landlord’s Project Oversight Fee”), permits, and such other costs arising from or relating to the design and construction of Tenant’s improvements which are to be permanently affixed to the Premises in accordance with this Work Letter (the “Tenant Improvements”).  Landlord’s Project Oversight Fee shall be equivolent to, but not exceed, a total of 2% of the Tenant Improvement Allowance paid to Tenant. For the avoidance of any doubt, the purchase and installation of data and telecommunications cabling shall not be included in the definition of Tenant Improvements and there shall not be any Landlord’s Project Oversight Fee payable with respect to costs and expenses related thereto. Tenant agrees to keep the Landlord advised as to the progress of the work by providing copies of the Contractor’s applications for payment.  In no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Maximum Allowance Amount.  All Tenant Improvements for which the Tenant Improvements Allowance has been used to pay shall be deemed Landlord’s property under the terms of the Lease.

2.2Disbursement of the Tenant Improvements Allowance.  Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvements Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord’s reasonable disbursement process) for costs incurred by Tenant related to the design and construction of the Tenant Improvements and for the following items and costs (collectively, the “Tenant Improvements Allowance Items”):  (i) payment of the fees of the “Architect” as that term is defined in Section 3.1 of this Tenant Work Letter in connection with the preparation and review of the “Construction Documents,” as that term is defined in Section 3.1 of this Tenant Work Letter; (ii) payment of the Landlord’s Project Oversight Fee, (iii) the cost of any changes to the Construction Documents or Tenant Improvements required by all applicable building codes (the “Code”) enacted after approval of the Construction Documents, (iv) costs payable to the Contractor and any subcontractors, and (v) other costs incurred in connection with the Tenant Improvements to the extent the same can be paid using the Tenant Improvements Allowance pursuant to the specific provisions of this Tenant Work Letter.

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Once Landlord is required to disburse any portion of the Tenant Improvement Allowance as noted herein, Landlord shall disburse the applicable portion of the Tenant Improvements Allowance within thirty (30) calendar days of receiving from Tenant a Payment Request (as hereinafter defined), an amount equal to the portion of the actual costs and expenses Tenant has incurred and paid in connection with the design and construction of the Tenant Improvements to date, over the amount Tenant is required to pay as noted in Section 4.3.1, which are to be paid for from the Tenant Improvement Allowance provided the following conditions have been satisfied:

(1)Tenant has delivered to Landlord a payment request (“Payment Request”) in a form reasonably satisfactory to Landlord specifying the work which has been completed; and

(2)Tenant’s general contractor and/or architect shall have submitted an application for payment and sworn statement substantially in the form of AIA Document G702 and AIA Document G703; and

(3)Tenant has submitted to Landlord lien waivers or partial lien waivers from all contractors, first tier subcontractors, artchitects, and first tier materialmen who performed such work to cover the work included under the Payment Request and all prior work Tenant was required to pay for before utilizing the Tenant Improvements Allowance.

Notwithstanding anything herein to the contrary, the Tenant Improvements Allowance must be requested by Tenant, if at all, in accordance with this paragraph on or before the date that is one year following the Rent Commencement Date, and any portion not requested by such date may no longer be utilized by Tenant and shall be deemed forfeited to Landlord.

3.CONSTRUCTION DOCUMENTS

3.1Selection of Architect/Construction Documents.  Landlord consents to Tenant retaining Integrated Design, PA  (the “Architect”) to prepare the “Construction Documents,” as that term is defined in this Section 3.1 for the Tenant Improvements, together with the consulting engineers selected by the Architect and reasonably approved by Landlord.  Tenant is not obligated to retain Integrated Design, PA and may retain another Architect or Architects from time to time, provided, however, that any such other Architects shall be subject to Landlord’s reasonable approval.  The plans and drawings to be prepared by Architect hereunder shall be known collectively as the “Construction Documents.”  All Construction Documents shall reasonably comply with the drawing format and specifications as reasonably determined by Landlord, and shall be subject to Landlord’s and Tenant’s approval.  Landlord may hire an architectural firm to conduct a peer review, and the fees associated with this peer review shall be paid from the Landlord’s Project Oversight Fee and shall not result in an additional charge to Tenant.

Landlord has no obligation to approve any Tenant Change or any Tenant Improvements not shown on the plans previously approved by Landlord and Tenant or reasonably inferable therefrom if, in Landlord’s reasonable judgment, such Tenant Improvements (i) would materially increase the cost of performing any other work in the Building, not including the Tenant Improvements, unless in each case Tenant agrees to pay such costs based on Landlord’s Change Estimate Notice (as defined below), (ii) are incompatible with the design, quality, equipment or systems of the Building or otherwise require a change to the existing Building systems or structure, each in a manner that would not otherwise be required in connection with the improvements contemplated by the Fit Plan (as defined below), (iii) is not consistent with the existing quality and nature of the Building, or (iv) otherwise do not comply with the provisions of the Lease.

3.2Final Space Plan.  Landlord and Tenant have reviewed and approved the preliminary space plan prepared by the Architect attached as Attachment 3 hereto (the “Fit Plan”).  Tenant shall use commercially reasonable efforts to cause the Architect to prepare a space plan for the Premises which space plan shall be reasonably consistent with the Fit Plan and shall include a layout and designation of all labs, offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver the space plan to Landlord and Tenant for their approval. Landlord and Tenant shall review and provide any changes to the space plan within five Business Days of receipt thereof.  Once Landlord and Tenant approve the final space plan, the space plan shall be considered final (the “Final Space Plan”).  

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3.3Construction Documents.  Tenant shall cause  the Architect to complete final Construction Documents consistent with the Final Space Plan and shall submit the same to Landlord and Tenant for their approval.  Landlord and Tenant shall review and provide any changes to the construction documents within five (5) Business Days of receipt thereof, and the Tenant shall use reasonable efforts to cause the Architect to prepare and circulate modified documents within ten (10) Business Days of its receipt of any requested changes from Tenant or Landlord. Such process of submittal and response within the time frame specified in the preceding sentence shall continue until each of Landlord and Tenant gives written approval to such documents, and the Construction Documents shall be considered final once approved by the Landlord and the Tenant. In no event may either Tenant or Landlord require any changes that are inconsistent with the Final Space Plan.  The Construction Documents shall comply with Applicable Laws existing on the date of this Tenant Work Letter and which may be enacted prior to approval of completed Construction Documents. Subject to the provisions of Sections 3.1 and 5.4 of this Work Letter, Tenant may, from time to time, by written request to Landlord on a form reasonably specified by Landlord (“Tenant Change”), request a change in the Tenant Improvements shown on the Construction Documents, which Landlord approval shall not be unreasonably withheld or conditioned, and shall be granted or denied within five (5) business days after delivery of such Tenant Change to Landlord.  

3.4Permits.  The Construction Documents as approved (or deemed approved) pursuant to Section 3.3 shall be the “Approved Working Drawings”.  Following approval or deemed approval of the Cost Proposal, as described below, Tenant shall promptly thereafter submit or cause to be submitted, the Approved Working Drawings to the appropriate municipal authorities for all applicable building permits necessary to allow “Contractor,” as that term is defined in Section 4.1, below, to commence and fully complete the construction of the applicable Tenant Improvements (the “Permits”).  

3.5Time Deadlines.  Intentionally omitted.  

4.CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1Contractor.  A contractor designated by Tenant and reasonably approved by Landlord (“Contractor”) shall construct the Tenant Improvements.  

4.2Cost Proposal.  After the Approved Working Drawings are approved by Landlord and Tenant, Tenant shall provide Landlord with a cost proposal (or cost proposals) in accordance with the Approved Working Drawings for Landlord’s approval, which approval shall not be unreasonably withheld, which cost proposal(s) shall include, as nearly as possible, the cost of all Tenant Improvements Allowance Items to be incurred by Tenant in connection with the design and construction of the Tenant Improvements (the “Cost Proposal”).  Tenant will consult with Landlord prior to approving the contractors to whom it will be bid and Landlord may review bid packages at Landlord’s written request.  The date on which Landlord approves the Cost Proposal shall be known hereafter as the “Cost Proposal Delivery Date”.  

4.3Construction of Tenant Improvements by Contractor.

4.3.1Payment of Tenant Improvements Allowance.  Tenant shall be responsible to fund the entire cost of the Tenant Improvements less the amount of the Tenant Improvements Allowance prior to Landlord being required to fund any portion of the Tenant Improvements Allowance.  Once Tenant has funded the required portion of the Tenant Improvements, as verified with paid invoices, then Tenant may submit a Payment Request to Landlord seeking disbursement of the Tenant Improvements Allowance to fund Tenant Improvements costs incurred by Tenant up to but not to exceed the full value of the Tenant Improvements Allowance.  Unless otherwise agreed by the parties, all Tenant Improvements paid for by the Tenant Improvements Allowance shall be deemed Landlord’s property under the terms of the Lease.  Tenant hereby acknowledges and agrees that Tenant shall be responsible for all costs associated with the Tenant Improvements to the extent the same exceed the Tenant Improvements Allowance.

4.3.2Tenant’s Retention of Contractor. Tenant shall independently retain Contractor to construct the Tenant Improvements in accordance with the applicable Approved Working Drawings and the applicable Cost Proposal.  Landlord shall be entitled to review the Tenant’s construction contract with the Contractor upon Landlord’s written request. Tenant shall be responsible to ensure the Contractor performs the construction work in a good and workmanlike manner and shall endeavor to oversee the Contractor’s performance of its work to protect Landlord from construction defects.

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5.COMPLETION OF THE TENANT IMPROVEMENTS;
LEASE COMMENCEMENT DATE

5.1Substantial Completion.  Tenant shall give Landlord at least twenty (20) days prior written notice of the date that Tenant reasonably anticipates that the Tenant Improvements will be Substantially Complete (as defined below).  For purposes of this Lease, “Substantial Completion” shall occur upon the completion of the last of the following to occur: (i) the completion of construction of the Tenant Improvements substantially pursuant to the Approved Working Drawings for such Tenant Improvements (each as reasonably determined by the Architect and Tenant), with the exception of any punch list items which do not impair Tenant’s ability to occupy the Premises for their contemplated use, (ii) the acquisition of a certificate of occupancy or its legal equivalent allowing occupancy of the Premises (a “Sign Off”), and (iii) delivery of a certificate of substantial completion from the Architect confirming the matters set forth in the foregoing clause (i).  In the event that the Sign Off is not a final certificate of occupancy, Tenant shall diligently prosecute the work necessary to achieve a full certificate of occupancy and use commercially reasonable efforts to obtain such full certificate of occupancy as soon as reasonably practicable following Substantial Completion.

 

5.2Intentionally omitted.

5.3Walk-through and Punchlist.  After the Tenant Improvements are Substantially Completed and prior to Tenant’s move-in into the Premises, following two (2) days’ advance written notice from Tenant to Landlord, Tenant shall cause the Contractor to inspect the Premises with a representative of Landlord and complete a punch list of unfinished items of the Tenant Improvements.  After Landlord and Tenant have mutually agreed upon the punch list, authorized representatives for Landlord and Tenant shall execute said punch list.  The items listed on such punch list shall be completed by the Contractor within thirty (30) days after the approval of such punch list or as soon thereafter as reasonably practicable, provided that in the event a punch list item reasonably requires longer than thirty (30) days to complete, then Tenant shall cause Contractor to commence the completion of such particular item within thirty (30) days and diligently pursue the same to completion.  The terms of this Section 5.3 will not affect the occurrence of the Substantial Completion of the Premises or the occurrence of the Rent Commencement Date.

5.4Intentionally omitted.

5.5Delay Not Caused by Parties.  Neither the Landlord nor Tenant shall be considered to be in default of the provisions of this Tenant Work Letter for delays in performance due to Force Majeure.

5.6Intentionally omitted.

5.7Intentionally omitted.  

6.MISCELLANEOUS

6.1Tenant’s Entry Into the Premises.  As a condition to Tenant’s entry into the Premises, Tenant shall comply with and perform, and shall cause its employees, agents, contractors, subcontractors, material suppliers and laborers to comply with and perform, all of Tenant’s insurance and indemnity obligations and other obligations governing the conduct of Tenant at the Property under this Lease.  

Any independent contractor of Tenant (or any employee or agent of Tenant) performing any work or invasive inspections in the Premises shall be reasonably subject to all of the terms, conditions and requirements contained in the Lease (including without limitation the provisions of Article 10) and, prior to such entry, Tenant shall provide Landlord with evidence of the insurance coverages required pursuant to Article 10.  Tenant and any Tenant contractor performing any work or invasive inspections in the Premises shall use reasonable efforts not to interfere in any way with construction of, and shall not damage the Landlord Work or the common areas or other parts of the Building.  

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6.2Tenant’s Representative.  Tenant has designated Sinu Bhandaru and Sam Stubbs as its sole representatives with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

6.3Landlord’s Representative.  Landlord has designated J. Randal Long as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.

6.4Intentionally omitted.  

6.5General.  This Work Letter shall not be deemed applicable to any additional space added to the Premises at any time or from time to time, whether by any options under the Lease or otherwise, or to any portion of the Premises or any additions to the Premises in the event of a renewal or extension of the original Lease Term, whether by any options under the Lease or otherwise, unless and to the extent expressly provided in the Lease or any amendment or supplement to the Lease that such additional space is to be delivered to Tenant in the same condition the initial Premises is to be delivered.

 

6.6Insurance.  In addition to the requirements of Article 8.5 and Article 10 of this Lease, prior to the commencement of the Tenant Improvements, Tenant shall provide Landlord with evidence that Tenant carries Builder’s All Risk insurance in an amount reasonably approved by Landlord covering the construction of such Tenant Improvements, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Tenant Improvements shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Tenant’s contractors, subcontractors, and architects shall be required to carry Commercial General Liability Insurance in an amount approved by Landlord and otherwise in accordance with the requirements of Article 10 of this Lease and such general liability insurance shall name the Landlord Parties as additional insureds. In addition, Tenant’s contractors and subcontractors shall be required to carry workers compensation insurance with a waiver of subrogation in favor of Landlord Parties.

 

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ATTACHMENT 1

 

LANDLORD’S WORK

 

-Add one (1) 7’ x 22’ window to the Building which is similar to existing windows.

-Add one (1) 6’ x 8’ insulated electronically controlled roll-up door exiting onto the loading dock.

 

 

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ATTACHMENT 2

 

Intentionally omitted

 

 

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ATTACHMENT 3

 

PRELIMINARY PLANS

 

[to be attached]

 

 

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EXHIBIT E

RULES AND REGULATIONS

Tenant shall faithfully observe and comply with the following Rules and Regulations.  Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project.  In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.

1.Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed.  If Tenant shall affix additional locks on doors then Tenant shall furnish Landlord with copies of keys or pass cards or similar devices for said locks.  Tenant shall bear the cost of any lock changes or repairs required by Tenant.  Two initial keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord.  Upon the termination of this Lease, Tenant shall restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant and in the event of the loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.

2.All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.

3.Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the vicinity of the Building.  Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building.  Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register.  Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building.  Landlord will furnish passes to persons for whom Tenant requests same in writing.  Tenant shall be responsible for all persons for whom Tenant requests passes and shall be liable to Landlord for all acts of such persons.  The Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person.  In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.

4.Except for shipments by Tenant of its product or receipt by Tenant of goods in the ordinary course of the operation of its business, no furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord.  All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord reasonably designates.  Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building.  Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight.   Landlord will not be responsible for loss of or damage to any such safe or property in any case.  Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.

5.Intentionally omitted.

6.The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord.  Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

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7.No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord.  Tenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same.

8.The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein.  The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.

9. Discharge of industrial sewage to the Building plumbing system shall only be permitted if Tenant, at its sole expense, shall have obtained all necessary permits and licenses therefor, including without limitation permits from state and local authorities having jurisdiction thereof.

10.Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlord’s prior written consent; provided, however, that Landlord’s prior written consent shall not be required for the hanging of normal and customary office artwork and personal items.  Tenant shall not purchase spring water, ice, towel, linen, maintenance or other like services from any person or persons not included on an approved list that Landlord shall provide to Tenant upon request. Landlord reserves the right to have Landlord’s structural engineer review Tenant’s floor loads on the Building at Landlord’s expense, unless such study reveals that Tenant has exceeded the floor loads, in which case Tenant shall pay the cost of such survey.  

11.Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

12.Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline or other inflammable or combustible fluid, chemical, substance or material.

13.Tenant shall not without the prior written consent of Landlord (not to be unreasonably withheld, conditioned, or delayed) use any method of heating or air conditioning other than that supplied by Landlord (other than as part of the Tenant Improvements).

14.Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein, whether by the use of any musical instrument, radio, phonograph, or in any other way.  Tenant shall not throw anything out of doors, windows or skylights or down passageways.

15.Tenant shall not bring into or keep within the Project, the Building or the Premises any animals (other than service animals), birds, aquariums, or, except in areas designated by Landlord, bicycles or other vehicles.

16.No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes.  Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

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17.The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises provided for in the Summary.  Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Landlord.  Tenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.

18.Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

19.Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, vestibules or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises.

20.Tenant shall not waste electricity, water or air conditioning and agrees to reasonably cooperate with Landlord to ensure the most effective operation of the Building’s heating and air conditioning system, and shall refrain from attempting to adjust any controls.

21.Tenant shall store all its trash and garbage within the interior of the Premises.  No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city in which the Building is located without violation of any law or ordinance governing such disposal.  All trash, garbage and refuse disposal shall be made only through entry-ways provided for such purposes at such times as Landlord shall designate.

22.Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

23.Any persons employed by Tenant to do janitorial work shall be subject to the prior written approval of Landlord (not to be unreasonably withheld, conditioned, or delayed), and while in the Building and outside of the Premises, shall be subject to and under the control and direction of the Building manager (but not as an agent or servant of such manager or of Landlord), and Tenant shall be responsible for all acts of such persons.

24.No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord (not to be unreasonably withheld, conditioned, or delayed), and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard drapes.  All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Landlord.  Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord.  Tenant shall abide by Landlord’s regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas.

25.The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

26.Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.

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27.No smoking is permitted in the Building or on the Project.

28.Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project.  Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof.  Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences.  Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by law.

29.All non-standard office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise and annoyance.

30.Tenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.

31.No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Landlord.

32.No tenant shall use or permit the use of any portion of the Premises for living quarters, sleeping apartments or lodging rooms.

Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein.  Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project.  Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

 

 

 

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EXHIBIT F

[Property Center Name]

FORM OF TENANT’S ESTOPPEL CERTIFICATE

The undersigned as Tenant under that certain Lease (the “Lease”) made and entered into as of ___________, 201_ by and between _______________ as Landlord, and the undersigned as Tenant, for Premises on the ______________ floor(s) of the office building located at [INSERT BUILDING ADDRESS], certifies as follows:

1.Attached hereto as Exhibit F is a true and correct copy of the Lease and all amendments and modifications thereto.  The documents contained in Exhibit F represent the entire agreement between the parties as to the Premises.

2.The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on __________, and the Lease Term expires on ___________, and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.

3.Base Rent became payable on ____________.

4.The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit F.

5.Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:

6.Intentionally Omitted.

7.All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through ___________.  The current monthly installment of Base Rent is $_____________________.

8.All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and, to Tenant’s actual knowledge, Landlord is not in default thereunder.  In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder.  

9.No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.  

10.As of the date hereof, there are no existing defenses or offsets, or, to the undersigned’s knowledge, claims or any basis for a claim, that the undersigned has against Landlord.

11.If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in North Carolina and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

12.There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

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13.To Tenant’s actual knowledge, Tenant is in full compliance with all federal, state and local laws, ordinances, rules and regulations affecting its use of the Premises, including, but not limited to, those laws, ordinances, rules or regulations relating to hazardous or toxic materials.  Tenant has never permitted or suffered, nor does Tenant have any knowledge of, the generation, manufacture, treatment, use, storage, disposal or discharge of any hazardous, toxic or dangerous waste, substance or material in, on, under or about the Project or the Premises or any adjacent premises or property in violation of any federal, state or local law, ordinance, rule or regulation.

14.To the undersigned’s knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full.  All work (if any) in the common areas required by the Lease to be completed by Landlord has been completed and all parking spaces required by the Lease have been furnished and/or all parking ratios required by the Lease have been met.

The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

Executed at ______________ on the ____ day of ___________, 201__.

 

 

 

 

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EXHIBIT G

[Property Center Name]

ENVIRONMENTAL QUESTIONNAIRE

ENVIRONMENTAL QUESTIONNAIRE
FOR COMMERCIAL AND INDUSTRIAL PROPERTIES

 

Instructions:  The following questionnaire is to be completed by the Lessee representative with knowledge of the planned operations for the specified building/location.  Please print clearly and attach additional sheets as necessary.

1.0PROCESS INFORMATION

Describe planned use, and include brief description of manufacturing processes employed.

 

 

2.0HAZARDOUS MATERIALS

Are hazardous materials used or stored?  If so, continue with the next question.  If not, go to Section 3.0.

 

 

(A material is handled if it is used, generated, processed, produced, packaged, treated, stored, emitted, discharged, or disposed.)  If so, complete this section.  If this question is not applicable, skip this section and go on to Section 5.0.

 

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3.0HAZARDOUS WASTES

 

 

If yes, continue with the next question.  If not, skip this section and go to section 4.0.

 

 

 

 

 

 

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4.0USTS/ASTS

 

 

If not, continue with section 5.0.  If yes, please describe capacity, contents, age, type of the USTs or ASTs, as well any associated leak detection/spill prevention measures.  Please attach additional pages if necessary.

 

 

 

 

 

 

If yes, please provide any official closure letters or reports and supporting documentation (e.g., analytical test results, remediation report results, etc.).

 

 

For new tenants, are installations of this type required for the planned operations?

 

 

If yes to either question, please describe.

 

 

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5.0ASBESTOS CONTAINING BUILDING MATERIALS

Please be advised that an asbestos survey may have been performed at the Property.  If provided, please review the information that identifies the locations of known asbestos containing material or presumed asbestos containing material.  All personnel and appropriate subcontractors should be notified of the presence of these materials, and informed not to disturb these materials.  Any activity that involves the disturbance or removal of these materials must be done by an appropriately trained individual/contractor.

6.0REGULATORY

 

 

 

CERTIFICATION

I am familiar with the real property described in this questionnaire.  By signing below, I represent and warrant that the answers to the above questions are complete and accurate to the best of my knowledge.  I also understand that Lessor will rely on the completeness and accuracy of my answers in assessing any environmental liability risks associated with the property.

 

 

 

 

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EXHIBIT H  

RESPONSIBILITY MATRIX

 

 

 

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EXHIBIT I

STORAGE AREA

 

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FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (this “Amendment”) is made and entered into as of the 23 day of December 2019 (the “Effective Date”), by and between DURHAM TW ALEXANDER, LLC, a Delaware limited liability company (“Landlord”), and PRECISION BIOSCIENCES, INC., a Delaware corporation (formerly a North Carolina corporation) (“Tenant”).

STATEMENT OF PURPOSE

WHEREAS, Landlord and Tenant entered into that certain Lease dated October 2, 2018 (the “Existing Lease”), for certain premises containing approximately 17,296 rentable square feet on the first (1st) floor (the “Existing Premises”) located in the building known as Biopoint Innovation Labs located at 20 TW Alexander Drive, Research Triangle Park, North Carolina 27709 (the “Building”), as more particularly described in the Lease.

WHEREAS, Landlord and Tenant desire to amend the terms of the Existing Lease: (i) to expand the Existing Premises, (ii) to extend the Lease Term, and (iii) to modify certain other terms of the Lease.  For purposes hereof, the Existing Lease as amended by this Amendment is referred to as the “Lease.”  All capitalized terms not otherwise defined herein shall have the meanings set forth in the Existing Lease.

NOW, THEREFORE, in consideration of the statement of purpose, the mutual covenants contained herein and other valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1.Recitals.  The recitals shall form a part of this Amendment.

2.Expansion of the Premises.  

(a)Tenant desires to expand the Existing Premises to include an additional approximately 16,339 rentable square feet commonly known as Suite 140 located in the first (1st) floor of the Building, all as further shown on Exhibit A attached hereto and incorporated herein by reference (the “Expansion Premises”).  For avoidance of ambiguity, Section 1.2 of the Existing Lease shall also apply to the measurement of the Expansion Premises.  Effective as of the Expansion Premises Rent Commencement Date (as defined in Section 2(b) below), the Existing Premises shall be expanded by adding the Expansion Premises and the term “Premises” under the Lease shall be redefined to be that area shown on Exhibit A as the Existing Premises plus the Expansion Premises, totaling approximately 33,635 rentable square feet of space (the “Revised Premises”).

(b)The Expansion Premises shall be added to the Lease on the “Expansion Premises Rent Commencement Date” which shall be defined as the earlier of: (i) delivery of the certificate of occupancy for the Expansion Premises; or (ii) July 1, 2020.  Notwithstanding the foregoing, Landlord shall allow limited beneficial occupancy of up to ten (10) Tenant employees in that area of the Expansion Premises as shown on Exhibit D (“Limited Occupancy Space”).  Tenant shall ensure that such limited beneficial occupancy falls under an existing certificate of occupancy and complies with any and all occupancy laws and applicable regulations.

3.First Extension Term.  

(a)The Lease Term for the Existing Premises is hereby extended for a period commencing on the Expansion Premises Rent Commencement Date and expiring on August 31, 2027 (the “First Extension Term Expiration Date”), which comprises a period of approximately eighty-six (86) months (the “Existing Premises Extension Term”).

(b)The Lease Term with respect to the Expansion Premises shall commence on the Expansion Premises Rent Commencement Date and shall expire on the First Extension Term Expiration Date (the “Expansion Premises Term” and together with the Existing Premises Extension Term, collectively, the “First Extension Term”).

(c)Landlord and Tenant hereby acknowledge that Tenant’s option to extend the Lease Term as set forth in Section 2.2 of the Lease remains in full force and effect and is not modified by this Amendment.  

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4.Base Rent.  

(a)As of the Effective Date Tenant shall pay Base Rent for the Existing Premises in accordance with the following rent schedule. (The schedule below is the same as the Base Rent schedule listed in the Existing Lease with an extended period added to cover the full First Extension Term):

(b)Notwithstanding anything contained in the Lease to the contrary, commencing on the Expansion Premises Rent Commencement Date and continuing through the First Extension Term Expiration Date, Tenant shall, at the time and in the manner provided in the Lease, pay to Landlord as Base Rent for the Expansion Premises, the amounts set forth in the following rent schedule, plus any applicable tax thereon:

 

*Note:  Notwithstanding the above table, the dates of the time periods set forth therein will be adjusted based on the actual Expansion Premises Rent Commencement Date if such date occurs on a date earlier than July 1, 2020, but the final date shall remain the same.

 

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**Note:  Provided Tenant is not in monetary default of the terms of this Lease, after expiration of any applicable notice and cure period, Tenant shall have no obligation to pay any Base Rent attributable to: (i) the first two (2) months of for the Expansion Premises, and only the Expansion Premises, following the Expansion Premises Rent Commencement Date (the “Expansion Premises Abatement Period”).  Tenant shall be obligated to pay all of Tenant’s Share of Direct Expenses attributable to the Expansion Premises during the Expansion Premises Abatement Period.

5.Additional Rent.  

(a)Tenant shall continue to pay Tenant’s Share of Direct Expenses for the Existing Premises in accordance with the Lease until the Expansion Premises Rent Commencement Date.  

(b)Commencing on the Expansion Premises Rent Commencement Date and continuing until the First Extension Term Expiration Date, as may be extended, Tenant shall pay Tenant’s Share of Direct Expenses for the Revised Premises, as more particularly described in Article 4 of the Lease with an updated Tenant’s Share.  The term “Tenant’s Share” under the Lease shall be redefined to be 22.58% as of the Expansion Premises Rent Commencement Date.  

6.Delivery of Expansion Premises.  Tenant shall accept the Expansion Premises and all components thereof including, but not limited to, electrical and mechanical in its presently existing “as-is”, “where-is”, with all faults condition and Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Expansion Premises except as otherwise expressly set forth in the Tenant Work Letter attached hereto as Exhibit C attached hereto and incorporated herein by reference.  The acceptance of the Expansion Premises in “as-is” condition shall in no way limit Landlord’s repair obligations set forth in the Lease.    

7.Security Deposit.  Prior to the Effective Date, Tenant shall provide an additional One Hundred Fifty-Two Thousand Four Hundred Ninety-Seven and 32/100 Dollars ($152,497.32) (which is four (4) months Base Rent for the Expansion Premises at a rate of $38,124.33 per month) to be added to the Security Deposit under the Lease, which shall mean the total Security Deposit amount required under the Lease shall be Three Hundred Two Thousand Three Hundred Ninety-Six and 00/100 Dollars ($302,396.00) (the “Revised Premises Security Deposit”).  For the avoidance of doubt, the Revised Premises Security Deposit shall be held pursuant to Article 21 of the Lease and this Section 7 shall control future reductions of the Revised Premises Security Deposit.  So long as Tenant has not been in default beyond any applicable notice and cure period at any time during the Term of the Lease, then at the end of the third (3^rd) Lease Year, the Revised Premises Security Deposit shall be reduced to Two Hundred Twenty-Six Thousand Seven Hundred Ninety-Seven and 00/100 Dollars ($226,797.00).  So long as Tenant has not been in default beyond any applicable notice and cure period at any time during the Term of the Lease, then at the end of the fifth (5^th) Lease Year, the Revised Premises Security Deposit shall be reduced to One Hundred Fifty-One Thousand One Hundred Ninety-Eight and 00/100 Dollars ($151,198.00) for the remainder of the Lease Term, as extended.

8.Additional Right of First Offer.  

(a)The right of first offer provided in Section 1.3 of the Existing Lease for Tenant shall continue to apply as stated therein.  

(b)Beginning on the Effective Date, Landlord hereby grants to the Original Tenant, a one-time right of first offer with respect to Suite 100 containing 29,191 rentable square feet located in the Building as set forth in Exhibit B attached hereto, (the “Suite 100 First Offer Space”).  Notwithstanding the foregoing, such first offer right of Tenant shall commence only following the expiration or earlier termination of the initial lease (including renewals) of the Suite 100 First Offer Space, and such right of first offer shall be subordinate to all rights of which are set forth in leases of space in the Project as of the date hereof, including any renewal, extension or expansion rights set forth in such leases, regardless of whether such renewal, extension or expansion rights are executed strictly in accordance with their terms, or pursuant to a lease amendment or a new lease (collectively, the “Superior Right Holders”) with respect to such Suite 100 First Offer Space.  Tenant’s right of first offer shall not be applicable during any Option Term.  Tenant’s right of first offer shall be on the terms and conditions set forth in this Section 8.

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(c)Procedure for Offer.  Landlord shall notify Tenant (the “Suite 100 First Offer Notice”) when the Suite 100 First Offer Space, any portion thereof, or such larger space that includes the Suite 100 First Offer Space becomes available for lease to third parties, provided that no Superior Right Holder wishes to lease such space.  Pursuant to such Suite 100 First Offer Notice, Landlord shall offer to lease to Tenant the then available Suite 100 First Offer Space and any additional space noted within the Suite 100 First Offer Notice.  The Suite 100 First Offer Notice shall describe the space so offered to Tenant (which the parties acknowledge may include a portion of the Suite 100 First Offer Space, only the Suite 100 First Offer Space, or the Suite 100 First Offer Space plus additional contiguous space the Landlord is offering for lease) and shall set forth the “Suite 100 First Offer Rent,” as that term is defined in Section 8(e) below, and the other economic terms upon which Landlord is willing to lease such space to Tenant.

(d)Procedure for Acceptance.  If Tenant wishes to exercise Tenant’s right of first offer with respect to the space described in the Suite 100 First Offer Notice, then within ten (10) business days of delivery of the Suite 100 First Offer Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant’s election to exercise its right of first offer with respect to the entire space described in the Suite 100 First Offer Notice on the terms contained in such notice.  If Tenant does not so notify Landlord within the ten (10) business day period, then Landlord shall be free to lease the space described in the Suite 100 First Offer Notice to anyone to whom Landlord desires on any terms Landlord desires.  Notwithstanding anything to the contrary contained herein, Tenant must elect to exercise its right of first offer, if at all, with respect to all of the space offered by Landlord to Tenant at any particular time, and Tenant may not elect to lease only a portion thereof.  

(e)Suite 100 First Offer Space Rent.  The “Rent” payable by Tenant for the Suite 100 First Offer Space (the “Suite 100 First Offer Rent”) shall be equal to the Fair Rental Value (as defined in Section 2.2.2 of the Lease) as of the “Suite 100 First Offer Commencement Date,” as that term is defined in Section 8(g), below.

(f)Construction In Suite 100 First Offer Space.  Tenant shall take the Suite 100 First Offer Space in its “as is” condition (subject to Landlord’s repair obligations in the Lease), subject to any improvement allowance granted as a component of the Fair Rental Value, and the construction of improvements in the Suite 100 First Offer Space shall comply with the terms of the Lease for Alterations.

(g)Amendment to Lease.  If Tenant timely exercises Tenant’s right to lease the Suite 100 First Offer Space as set forth herein, Landlord and Tenant shall promptly thereafter execute an amendment to this Lease for such Suite 100 First Offer Space upon the terms and conditions as set forth in the Suite 100 First Offer Notice and this Section 8.  Tenant shall commence payment of Rent for the Suite 100 First Offer Space, and the term of the Suite 100 First Offer Space shall commence upon the date of delivery of the Suite 100 First Offer Space to Tenant (the “Suite 100 First Offer Commencement Date”) and terminate on the date set forth in the Suite 100 First Offer Notice.    

(h)Termination of Suite 100 Right of First Offer.  The rights contained in this Section 8 shall be personal to the Original Tenant and its Permitted Assignees, and may only be exercised by the Original Tenant or a Permitted Assignee (and not any other assignee, sublessee or other transferee of the Original Tenant’s interest in this Lease) if the Original Tenant occupies the majority of the Revised Premises.  The right of first offer granted herein shall terminate as to particular Suite 100 First Offer Space upon the failure by Tenant to exercise its right of first offer with respect to such Suite 100 First Offer Space as offered by Landlord.  Tenant shall not have the right to lease Suite 100 First Offer Space, as provided in this Section 8, if, as of the date of the attempted exercise of any right of first offer by Tenant, or as of the scheduled date of delivery of such Suite 100 First Offer Space to Tenant, Tenant is in default under this Lease, after the expiration of any applicable notice and cure period, or Tenant has previously been in default, after the expiration of any applicable notice and cure period, under this Lease more than twice.

9.Brokers.  Landlord and Tenant hereby warrant to each other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Amendment, excepting only the real estate brokers or agents specified in Section 13 of the Existing Lease Summary (the “Brokers”), and that it knows of no other real estate broker or agent which represented said party who is entitled to a commission in connection with this Amendment.  Landlord and Tenant each agree to indemnify and defend each other against and hold the indemnified party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party.

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10.Counterparts/Signatures.  This Amendment may be executed in counterparts.  All executed counterparts shall constitute one agreement, and each counterpart shall be deemed an original.  The parties hereby acknowledge and agree that electronic signatures, facsimile signatures or signatures transmitted by electronic mail in so-called “pdf” format shall be legal and binding and shall have the same full force and effect as if an original of this Amendment had been delivered.  Landlord and Tenant (i) intend to be bound by the signatures (whether original, faxed or electronic) on any document sent by facsimile or electronic mail, (ii) are aware that the other party will rely on such signatures, and (iii) hereby waive any defenses to the enforcement of the terms of this Amendment based on the foregoing forms of signature.

11.Miscellaneous.  This Amendment shall become effective only upon full execution and delivery of this Amendment by Landlord and Tenant.  This Amendment contains the parties’ entire agreement regarding the subject matter covered by this Amendment, and supersedes all prior correspondence, negotiations, and agreements, if any, whether oral or written, between the parties concerning such subject matter.  There are no contemporaneous oral agreements, and there are no representations or warranties between the parties not contained in this Amendment.  This Amendment shall be construed and enforced in accordance with the laws of the State of North Carolina.  Except as modified by this Amendment, the terms and provisions of the Lease shall remain in full force and effect, and the Lease, as modified by this Amendment, shall be binding upon and shall inure to the benefit of the parties hereto, their successors and permitted assigns.

[Signature Page Follows]

[The remainder of this page has been intentionally left blank]

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LANDLORD AND TENANT enter into this Amendment as of the Effective Date above.

 

 

 

 

 

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EXHIBIT A

THE EXPANSION PREMISES

Suite 140

 

 

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EXHIBIT B

FIRST OFFER SPACE

Suite 100

 

 

 

 

 

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EXHIBIT C

 

tenant WORK LETTER

This Tenant Work Letter sets forth the terms and conditions relating to the construction of improvements in the Expansion Premises. All references in this Tenant Work Letter to Articles or Sections of “this Lease” shall mean the relevant portion of the Existing Lease.

1.LANDLORD’S INITIAL CONSTRUCTION IN THE PREMISES

1.1Landlord Work.  None.  There is no Landlord Work.  Tenant accepts the Expansion Premises in its “as-is”, “where-is” condition.   The acceptance of the Expansion Premises in “as-is” condition shall in no way limit Landlord’s repair obligations set forth in the Lease.

2.TENANT IMPROVEMENTS

2.1Tenant Improvements Allowance.  So long as Tenant is not in default, Tenant shall be entitled to an one-time tenant improvements allowance (the “Tenant Improvements Allowance”) in the maximum aggregate amount of: (i) $898,645.00 for the Expansion Premises (i.e., $55.00 per rentable square foot of the Expansion Premises) (the “Maximum Allowance Amount”) for the hard costs and customary soft costs, as noted below, incurred by Tenant including, without limitation out-of-pocket architectural and engineering fees, construction contractor fees, Tenant’s project management fees, and a two percent (2%) project management fee payable to Landlord or its affiliates (“Landlord’s Project Oversight Fee”), and permits, and such other costs arising from or relating to the design and construction of Tenant’s improvements which are to be permanently affixed to the Expansion Premises in accordance with this Work Letter (the “Tenant Improvements”).  Landlord’s Project Oversight Fee shall be equivolent to, but not exceed, a total of 2% of the Tenant Improvement Allowance paid to Tenant.  In no event shall Tenant be permitted to use any excess Tenant Improvements Allowance toward the Base Rent or any soft costs that are not directly related to the design and construction within the Expansion Premises.  For the avoidance of any doubt, the purchase and installation of data and telecommunications cabling shall not be included in the definition of Tenant Improvements and there shall not be any Landlord’s Project Oversight Fee payable with respect to costs and expenses related thereto. The Tenant agrees to keep the Landlord advised as to the progress of the work by providing copies of the Contractor’s applications for payment.  In no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Maximum Allowance Amount and in no event shall Tenant be entitled to any credit for any unused portion of the Tenant Improvements Allowance.  All Tenant Improvements for which the Tenant Improvements Allowance has been made available shall be deemed Landlord’s property under the terms of the Lease.

 

2.2Disbursement of the Tenant Improvements Allowance.  Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvements Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord’s reasonable disbursement process) for costs incurred and paid by Tenant related to the design and construction of the Tenant Improvements and for the following items and costs (collectively, the “Tenant Improvements Allowance Items”):  (i) payment of the fees of the “Architect” as that term is defined in Section 3.1 of this Tenant Work Letter in connection with the preparation and review of the “Construction Documents,” as that term is defined in Section 3.1 of this Tenant Work Letter; (ii) payment of the Landlord’s Project Oversight Fee, (iii) the cost of any changes to the Construction Documents or Tenant Improvements required by all applicable building codes (the “Code”) enacted after approval of the Construction Documents, (iv) costs payable to the Contractor and any subcontractors, and (v) other costs incurred in connection with the Tenant Improvements to the extent the same can be paid using the Tenant Improvements Allowance pursuant to the specific provisions of this Tenant Work Letter.

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Once Landlord is required to disburse any portion of the Tenant Improvements Allowance as noted above, Landlord shall disburse the applicable portion of the Tenant Improvements Allowance within thirty (30) calendar days of receiving from Tenant a Payment Request (as hereinafter defined), an amount equal to the lesser of: (A) the amounts so requested by Tenant of the actual costs and expenses Tenant has incurred and paid in connection with the design and construction of the Tenant Improvements to date less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the “Final Retention”), and (B) the balance of any remaining available portion of the Tenant Improvements Allowance (not including the Final Retention) provided the following conditions have been satisfied:

(1)Tenant has delivered to Landlord a payment request (“Payment Request”) in a form reasonably satisfactory to Landlord specifying the work which has been completed; and

(2)Tenant’s general contractor and/or architect shall have submitted an application for payment and sworn statement substantially in the form of AIA Document G702 and AIA Document G703; and

(3)Tenant has submitted to Landlord lien waivers or partial lien waivers from all contractors, first tier subcontractors, artchitects, and first tier materialmen who performed such work to cover the work included under the Payment Request and all prior work Tenant was required to pay for before utilizing the Tenant Improvements Allowance.

Notwithstanding anything herein to the contrary, the Tenant Improvements Allowance must be requested in writing by Tenant, if at all, in accordance with this paragraph on or before the date that is one year following the Effective Date of this Amendment, and any portion not requested by such date may no longer be utilized by Tenant and shall be deemed forfeited to Landlord.

2.2.1Final Retention. Subject to the provisions of this Tenant Work Letter, a check for the Final Retention payable to Tenant shall be delivered by Landlord to Tenant not later than thirty (30) days following the completion of construction of the Expansion Premises, provided that (i) Tenant delivers to Landlord properly executed mechanics lien releases in compliance with the applicable laws in the state where the Building is located, (ii) Landlord has reasonably determined that no defective work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenant’s use of such other tenant’s leased premises in the Building and (iii) Architect delivers to Landlord a certificate, in a form reasonably acceptable to Landlord, certifying that the construction of the Tenant Improvements in the Expansion Premises has been substantially completed.

3.CONSTRUCTION DOCUMENTS

3.1Selection of Architect/Construction Documents.  Landlord consents to Tenant retaining Integrated Design, PA (collectively, the “Architect”) to prepare the “Construction Documents,” as that term is defined in this Section 3.1 for the Tenant Improvements.  Tenant shall also retain the engineering consultants designated by Landlord (the “Engineers”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC and lifesafety work of the Tenant Improvements.  The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “Construction Documents.”  All Construction Documents shall reasonably comply with the drawing format and specifications as reasonably determined by Landlord, and shall be subject to Landlord’s reasonable approval. Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord’s review of the Construction Documents as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Documents are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Documents.  Landlord may hire an architectural firm to conduct a peer review, and the fees associated with this peer review shall be paid from the Landlord’s Project Oversight Fee and shall not result in an additional charge to Tenant.

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Landlord has no obligation to approve or perform any Tenant Change or any Tenant Improvements not shown on the plans previously approved by Landlord and Tenant or reasonably inferable therefrom if, in Landlord’s reasonable judgment, such Tenant Improvements (i) would materially increase the cost of performing any other work in the Building, not including the Tenant Improvements, unless in each case Tenant agrees to pay such costs based on Landlord’s Change Estimate Notice (as defined below), (ii) are incompatible with the design, quality, equipment or systems of the Building or otherwise require a change to the existing Building systems or structure, each in a manner that would not otherwise be required in connection with the improvements contemplated by the Fit Plan (as defined below), (iii) is not consistent with the existing quality and nature of the Building, or (iv) otherwise do not comply with the provisions of the Lease.  

3.2Final Space Plan.  Tenant has approved the preliminary space plan prepared by the Architect attached as Attachment 1 hereto (the “Fit Plan”).  Tenant shall use commercially reasonable efforts to cause the Architect to prepare a space plan for the Expansion Premises which space plan shall be reasonably consistent with the Fit Plan and shall include a layout and designation of all labs, offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver the space plan to Landlord and Tenant for their approval. Landlord and Tenant shall review and provide any changes to the space plan within five (5) Business Days of receipt thereof.  Once Landlord and Tenant approve the final space plan, the space plan shall be considered final (the “Final Space Plan”).  

3.3Construction Documents.  Tenant shall cause  the Architect to complete final Construction Documents consistent with the Final Space Plan and shall submit the same to Landlord and Tenant for their approval.  Landlord and Tenant shall review and provide any changes to the construction documents within five (5) Business Days of receipt thereof, and the Tenant shall use reasonable efforts to cause the Architect to prepare and circulate modified documents within five (5) Business Days of its receipt of any requested changes from Tenant or Landlord. Such process of submittal and response within the time frame specified in the preceding sentence shall continue until each of Landlord and Tenant gives written approval to such documents, and the Construction Documents shall be considered final once approved by the Landlord and the Tenant. In no event may either Tenant or Landlord require any changes that are inconsistent with the Final Space Plan.  The Construction Documents shall comply with Applicable Laws existing on the date of this Tenant Work Letter and which may be enacted prior to approval of completed Construction Documents. Subject to the provisions of Sections 3.1 and 5.4 of this Work Letter, Tenant may, from time to time, by written request to Landlord on a form reasonably specified by Landlord (“Tenant Change”), request a change in the Tenant Improvements shown on the Construction Documents, which approval shall not be unreasonably withheld or conditioned, and shall be granted or denied within five (5) Business Days after delivery of such Tenant Change to Landlord.  

3.4Permits.  The Construction Documents as approved (or deemed approved) pursuant to Section 3.3 shall be the “Approved Working Drawings”.  Following approval or deemed approval of the Cost Proposal, as described below, Tenant shall promptly thereafter submit or cause to be submitted, the Approved Working Drawings to the appropriate municipal authorities for all applicable building permits necessary to allow “Contractor,” as that term is defined in Section 4.1, below, to commence and fully complete the construction of the applicable Tenant Improvements (the “Permits”).  

3.5Time Deadlines.  Intentionally omitted.  

4.CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1Contractor.  A contractor designated by Tenant and reasonably approved by Landlord (“Contractor”) shall construct the Tenant Improvements.  

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4.2Cost Proposal.  After the Approved Working Drawings are approved by Landlord and Tenant, Tenant shall provide Landlord with a cost proposal (or cost proposals) in accordance with the Approved Working Drawings for Landlord’s approval, which approval shall not be unreasonably withheld, which cost proposal(s) shall include, as nearly as possible, the cost of all Tenant Improvements Allowance Items to be incurred by Tenant in connection with the design and construction of the Tenant Improvements (the “Cost Proposal”).  Tenant will consult with Landlord prior to approving the contractors to whom it will be bid and Landlord may review bid packages at Landlord’s written request.  The date on which Landlord approves the Cost Proposal shall be known hereafter as the “Cost Proposal Delivery Date”.    

4.3Construction of Tenant Improvements by Contractor.

4.3.1Intentionally Deleted.  

4.3.2Tenant’s Retention of Contractor. Tenant shall independently retain Contractor to construct the Tenant Improvements in accordance with the applicable Approved Working Drawings and the applicable Cost Proposal.  Landlord shall be entitled to review the Tenant’s construction contract with the Contractor upon Landlord’s written request. Tenant shall be responsible to ensure the Contractor performs the construction work in a good and workmanlike manner and shall endeavor to oversee the Contractor’s performance of its work to protect Landlord from construction defects.

5.COMPLETION OF THE TENANT IMPROVEMENTS;
LEASE COMMENCEMENT DATE

5.1Substantial Completion.  Tenant shall give Landlord at least twenty (20) days prior written notice of the date that Tenant reasonably anticipates that the Tenant Improvements will be Substantially Complete (as defined below).  For purposes of this Lease, “Substantial Completion” shall occur upon the completion of the last of the following to occur: (i) the completion of construction of the Tenant Improvements substantially pursuant to the Approved Working Drawings for such Tenant Improvements (each as reasonably determined by Tenant and Architect), with the exception of any punch list items which do not impair Tenant’s ability to occupy the Expansion Premises for their contemplated use, (ii) the acquisition of a certificate of occupancy or its legal equivalent allowing occupancy of the Expansion Premises (a “Sign Off”), and (iii) delivery of a certificate of substantial completion from the Architect confirming the matters set forth in the foregoing clause (i).  In the event that the Sign Off is not a final certificate of occupancy, Tenant shall diligently prosecute the work necessary to achieve a full certificate of occupancy and use commercially reasonable efforts to obtain such full certificate of occupancy as soon as reasonably practicable following Substantial Completion.

 

5.2Intentionally omitted.

5.3Walk-through and Punchlist.  After the Tenant Improvements are Substantially Completed and prior to Tenant’s move-in into the Expansion Premises, following two (2) days’ advance written notice from Tenant to Landlord, Tenant shall cause the Contractor to inspect the Expansion Premises with a representative of Landlord and complete a punch list of unfinished items of the Tenant Improvements.  After Landlord and Tenant have mutually agreed upon the punch list, authorized representatives for Landlord and Tenant shall execute said punch list.  The items listed on such punch list shall be completed by the Contractor within thirty (30) days after the approval of such punch list or as soon thereafter as reasonably practicable, provided that in the event a punch list item reasonably requires longer than thirty (30) days to complete, then Tenant shall cause Contractor to commence the completion of such particular item within thirty (30) days and diligently pursue the same to completion.  The terms of this Section 5.3 will not affect the occurrence of the Substantial Completion of the Expansion Premises or the occurrence of the Expansion Premises Rent Commencement Date.

5.4Tenant Changes.  Landlord shall reasonably approve any Tenant Change on the condition that Tenant shall pay in full, in advance (or cause to be paid in full from the Tenant Improvements Allowance), any and all additional costs or expenses associated with the approval of said Tenant Change.

5.5Delay Not Caused by Parties.  Neither the Landlord nor Tenant shall be considered to be in default of the provisions of this Tenant Work Letter for delays in performance due to Force Majeure.

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6.MISCELLANEOUS

6.1Tenant’s Entry Into the Expansion Premises.  As a condition to Tenant’s entry into the Expansion Premises, Tenant shall comply with and perform, and shall cause its employees, agents, contractors, subcontractors, material suppliers and laborers to comply with and perform, all of Tenant’s insurance and indemnity obligations and other obligations governing the conduct of Tenant at the Property under this Lease.  

6.2Tenant’s Representative.  Tenant has designated Sinu Bhandaru as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

6.3Landlord’s Representative.  Landlord has designated Jim McGlade as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.

6.4Intentionally omitted.  

6.5General.  This Work Letter shall not be deemed applicable to any additional space added to the Expansion Premises at any time or from time to time, whether by any options under the Lease or otherwise, or to any portion of the Expansion Premises or any additions to the Expansion Premises in the event of a renewal or extension of the original Lease Term, whether by any options under the Lease or otherwise, unless and to the extent expressly provided in the Lease or any amendment or supplement to the Lease that such additional space is to be delivered to Tenant in the same condition the initial Expansion Premises is to be delivered.

 

6.6Insurance.  In addition to the requirements of Article 8.5 and Article 10 of the Lease, prior to the commencement of the Tenant Improvements, Tenant shall provide Landlord with evidence that Tenant carries Builder’s All Risk insurance in an amount reasonably approved by Landlord covering the construction of such Tenant Improvements, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Tenant Improvements shall be insured by Tenant pursuant to Article 10 of the Lease immediately upon completion thereof. In addition, Tenant’s contractors, subcontractors, and architects shall be required to carry Commercial General Liability Insurance in an amount reasonably approved by Landlord and otherwise in accordance with the requirements of Article 10 of the Lease and such general liability insurance shall name the Landlord Parties as additional insureds. In addition, Tenant’s contractors and subcontractors shall be required to carry workers compensation insurance with a waiver of subrogation in favor of Landlord Parties.

 

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ATTACHMENT 1

FIT PLAN

 

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EXHIBIT D

LIMITED OCCUPANCY SPACE

 

 

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Exhibit 10.19

 

Amended and Restated

Executive EMPLOYMENT AGREEMENT

 

This Amended and Restated Executive Employment Agreement (the “Agreement”) is made and entered into as of this 27th day of February, 2019 (the “Effective Date”), by and between Precision BioSciences, Inc. (the “Company”), and David Thomson (“Executive”).  The Company and Executive are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties.”

BACKGROUND

NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein, and of other good and valuable consideration, including the continued employment of the Executive by the Company and the compensation to be received by the Executive from the Company from time to time, and specifically the compensation to be received by the Executive pursuant to Section 4 hereof, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows:

 

1.EMPLOYMENT.  As of the Effective Date, the Company hereby continues to employ the Executive and Executive hereby accepts employment as the Chief Development Officer of the Company upon the terms and conditions of this Agreement.  As of the Effective Date, the parties agree that the Prior Agreement shall terminate.

2.NATURE OF EMPLOYMENT/DUTIES.  Executive shall serve as the Chief Development Officer of the Company and shall have such responsibilities and authority as the Company may designate from time to time consistent with Executive’s title and position.  

2.1Executive shall perform all duties and exercise all authority in accordance with, and otherwise comply with, all Company policies, procedures, practices and directions.

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2.2Executive shall devote substantially all working time, best efforts, knowledge and experience to perform successfully Executive’s duties and advance the Company’s interests. During Executive’s employment, Executive may, with the Board’s consent (which shall not be unreasonably withheld), engage in other business activities for compensation (including board memberships), provided that, such activities do not present a conflict of interest nor violate the Restrictive Covenant Agreement (defined in Section 6), nor otherwise prohibit Executive from fulfilling Executive’s obligations hereunder.  

3.COMPENSATION.

3.1Base Salary.  Executive’s initial annual base salary for all services rendered shall be Three Hundred Fifty Five Thousand and 00/100 Dollars ($355,000) (less applicable taxes and withholdings) payable in accordance with the Company’s payroll practices as they may exist from time to time (such salary, as adjusted in accordance with this Section 3.1, referred to herein as “Base Salary”).  Effective as of the Effective Date of the IPO, Executive’s Base Salary shall be raised to Three Hundred Seventy Thousand and 00/100 Dollars ($370,000) (less applicable taxes and withholdings).  Base Salary may be reviewed and adjusted by the Company, at its discretion, in accordance with the Company’s policies, procedures, and practices as they may exist from time to time, provided that the Base Salary shall not be decreased unless the decrease is an across-the-board decrease for all senior management employees of the Company.

3.2Business Expenses.  Executive shall be reimbursed for reasonable and necessary expenses actually incurred by Executive in performing services under this Agreement in accordance with and subject to the terms and conditions of the applicable Company reimbursement policies, procedures, and practices as they may exist from time to time.  All such reimbursements shall be made no later than the end of the calendar year following the year in which the expense was incurred.

3.3Bonus.  Executive may participate in any Company bonus plan the Company may adopt for senior management subject to the terms, conditions, and any eligibility requirements that may exist in such plan or plans. Effective as of the Effective Date of the IPO, Executive’s annual incentive compensation under such bonus plan (the “Annual Bonus”) shall be targeted at 35% of Executive’s Base Salary (such target, as may be increased by the Board from time to time, the “Target Annual Bonus”). The Annual Bonus payable under the bonus plan shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the bonus plan shall be subject to Executive’s continued employment with the Company through the date of payment.

3.4Equity. Executive shall be eligible to participate in any equity compensation plan or similar program adopted by the Company when approved by the Board and, if applicable, the Company’s shareholders, for executives at Executive’s level.  The amount awarded, if any, to the Executive under any such plan shall be in the discretion of the Board or any committee administering such plan and shall be subject to the terms and conditions of any plan or program adopted or approved by the Board.  

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3.5Benefits.  Executive may participate in all medical, dental and disability insurance, 401(k), personal leave and other employee benefit plans and programs of the Company for which Executive is eligible, provided, however, that Executive’s participation in benefit plans and programs is subject to the applicable terms, conditions and eligibility requirements of these plans and programs, some of which are within the plan administrator’s discretion, as they may exist from time to time.  The Company shall pay annual dues and expenses for Executive’s membership and participation in such professional organizations as may be approved by the Board.

4.TERM OF EMPLOYMENT AND TERMINATION.  The Company and Executive acknowledge that Executive's employment is and shall continue to be “at-will,” as defined under applicable law, and that Executive's employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of this Section 4). This "at-will" nature of Executive's employment shall remain unchanged during Executive's tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. The term of this Agreement and Executive’s employment hereunder shall commence on the Effective Date and continue until terminated as set forth in this Section 4.  The date on which Executive’s employment terminates, as determined by the Company, regardless of the reason, shall be referred to herein as the “Separation Date.”  Upon termination of Executive's employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.

4.1Without Cause, Upon Notice.  Either the Company or Executive may terminate Executive’s employment and this Agreement without Cause at any time upon giving the other party thirty (30) days’ written notice.

4.2For Cause.  The Company may terminate Executive’s employment and this Agreement immediately without notice at any time for “Cause,” which shall mean the following:

4.2.1Executive's material failure to perform Executive’s duties or to carryout the reasonable and lawful instructions of the Chief Executive Officer or the Board of Directors (other than any such failure resulting from incapacity due to physical or mental illness);

4.2.2Executive's engagement in dishonesty, illegal conduct, or gross misconduct, which is, in each case, materially injurious to the Company or its affiliates;

4.2.3Executive's embezzlement, misappropriation, or fraud, whether or not related to the Executive's employment with the Company;

4.2.4Executive's conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude;

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4.2.5Executive’s failure to cooperate with the Company in any investigation or formal proceeding;

4.2.6Executive's material breach of any material obligation under this Agreement, the Restrictive Covenant Agreement (as defined in Section 6), or any other written agreement between the Executive and the Company; or

4.2.7any material failure by Executive to comply with the Company's written policies or rules, as they may be in effect from time to time.

Provided, however, that prior to termination based on Sections 4.2.1, 4.2.7 or 4.2.8, Executive shall be given written notice of the facts allegedly constituting Cause and a ten (10) day opportunity to cure.

4.3By Death or Disability.  Executive’s employment and this Agreement shall terminate upon Executive’s Disability or death.  For purposes of this Agreement, “Disability” shall mean Executive's inability, due to physical or mental incapacity, to perform the essential functions of Executive's job, with or without reasonable accommodation, for one hundred eighty (180) days out of any three hundred sixty-five (365) day period; provided however, in the event that the Company temporarily replaces the Executive, or transfers the Executive's duties or responsibilities to another individual on account of the Executive's inability to perform such duties due to a mental or physical incapacity which is, or is reasonably expected to become, a Disability, then the Executive's employment shall not be deemed terminated by the Company. Any question as to the existence of the Executive's Disability as to which the Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to the Executive and the Company. If the Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement. The Company shall give Executive written notice of termination for Disability and the termination shall be effective as of the date specified in such notice.

4.4For Good Reason.  Executive may terminate Executive’s employment for “Good Reason,” which shall mean the occurrence of any of the following, in each case without the Executive's written consent:

4.4.1a material reduction in Executive's Base Salary other than a general reduction in Base Salary that affects all similarly situated executives;

4.4.2an involuntary relocation of the Executive's principal place of employment by more than thirty five (35) miles; or

4.4.3the Company's failure to obtain an agreement from any successor to the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place, except where such assumption occurs by operation of law.

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Executive cannot terminate Executive’s employment for Good Reason unless Executive has provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances. If the Executive does not terminate Executive’s employment for Good Reason within sixty (60) days after the first occurrence of the applicable grounds, then the Executive will be deemed to have waived Executive’s right to terminate for Good Reason with respect to such grounds.

5.COMPENSATION AND BENEFITS UPON TERMINATION. If Executive's employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. Upon termination of Executive's employment pursuant to any of the circumstances listed in Section 4, Executive (or Executive's estate) shall be entitled to receive the sum of: (i) the portion of Executive's Base Salary earned through the Separation Date, but not yet paid to Executive; (ii) any expense reimbursements owed to Executive pursuant to Section 3.2; and (iii) any amount accrued and arising from Executive's participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the "Accrued Obligations"). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive's rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executive's employment hereunder. In the event that Executive's employment is terminated by the Company for any reason, Executive's sole and exclusive remedy shall be to receive the payments and benefits described in this Section 5.

5.1By the Company for Cause or because of Executive’s Death or Disability, or by Executive Without Cause, Upon Notice.  If Executive’s employment and this Agreement are terminated by the Company for Cause or because of Executive’s death or Disability, or by Executive pursuant to Section 4.1 (Without Cause, Upon Notice), then the Company’s obligation to compensate Executive ceases on the Separation Date except for the Accrued Obligations.  

5.2By the Company Without Cause or by Executive for Good Reason.  If the Company terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or Executive terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good Reason), subject to Executive’s continued compliance with Executive’s obligations under the Restrictive Covenant Agreement then the Company shall pay Executive the Accrued Obligations and subject to Section 5.5 (Required Release), Executive shall be entitled to the following:

5.2.1pay Executive an amount equal to nine (9) months of Executive’s then current monthly base salary (less applicable taxes and withholdings (the “Severance Period”), payable in substantially equal monthly installments on the same payroll schedule applicable to Executive immediately prior to Executive’s separation from service and commencing on the first such payroll date on or following the date on which the release of

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claims required by Section 5.5 becomes effective and non-revocable, but not later than ninety (90) days following termination from employment; provided however that if the 90th day following Executive’s termination from employment occurs in the year following the year in which Executive’s termination  occurs, then the payments shall commence no earlier than January 1 of such subsequent year and provided further that if such payments commence in such subsequent year, the first such payment shall be a lump sum in an amount equal to the payments that would have come due since Executive’s separation from service, and

5.2.2If Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), during the Severance Period, the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by the Executive for and the monthly premium amount paid by Executive immediately prior to the date that Executive’s employment terminated.  Such reimbursement shall be paid to the Executive on or before the tenth (10^th) day of the month immediately following the month in which the Executive timely remits the premium payment, with such reimbursements to commence when the payments under Section 5.2.1 commence. Executive shall be eligible to receive such reimbursement until the earliest of: (i) the twelfth-month anniversary of the Separation Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive becomes eligible to receive substantially similar coverage from another employer or other source.  Notwithstanding the foregoing, if the Company's making payments under this Section 5.2.2 would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the "ACA"), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.2.2 in a manner as is necessary to comply with the ACA. Executive shall provide the Company with notice of subsequent employment and comparable coverage within thirty (30) days of commencement of such comparable coverage.  

5.3Following a Change in Control, by the Company Without Cause or by Executive for Good Reason.  If within three (3) month prior to or twelve (12) months following the occurrence of a Change in Control, as defined herein, either the Company terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or Executive terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good Reason), then in lieu of any benefits under Section 5.2, and subject to Executive’s continue compliance with Executive’s obligations under the Restrictive Covenant Agreement, the Company shall pay Executive the Accrued Obligations and, subject to Section 5.5 (Required Release), Executive shall be entitled to the following:

5.3.1The Company shall pay Executive an amount equal to twelve (12) months of Executive’s then current monthly base salary (less applicable taxes and withholdings) (the “CIC Severance Period”) plus 1 times Executive’s target bonus for the year during which the Separation Date occurs, payable in lump sum Seventy-five (75) days following the Separation Date;

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5.3.2If Executive timely and properly elects health continuation coverage under COBRA, during the CIC Severance Period, the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by the Executive for and the monthly premium amount paid by Executive immediately prior to the date that Executive’s employment terminated.  Such reimbursement shall be paid to the Executive on or before the tenth (10^th) day of the month immediately following the month in which Executive timely remits the premium payment, with such reimbursements to commence in the month following the month the release under Section 5.4 becomes effective and non-revocable. Executive shall be eligible to receive such reimbursement until the earliest of: (i) the twelfth-month anniversary of the Separation Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive becomes eligible to receive substantially similar coverage from another employer or other source.  Notwithstanding the foregoing, if the Company's making payments under this Section 5.3.2 would violate the nondiscrimination rules applicable to non-grandfathered plans under the ACA, or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.3.2 in a manner as is necessary to comply with the ACA. Executive shall provide the Company with notice of subsequent employment and comparable coverage within thirty (30) days of commencement of such comparable coverage; and

5.3.3All unvested time-based equity grants shall vest in full as of the Separation Date, provided that such equity shall remain subject to the other terms and conditions of the applicable Company incentive award plan(s) and individual award agreement(s).

5.4Definition of Change in Control.  

5.4.1“Change in Control” means and includes each of the following:

(a)A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; provided, however, that for purposes of this Agreement, “Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain; or

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(b)During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Directors (the “Board”) together with any new director(s) of the Board (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(c)The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(i)which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(ii)after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

5.4.2Notwithstanding the foregoing, (i) a Change in Control shall not include an IPO (referenced in Background, Section B of this Agreement); and (ii) if a Change in Control constitutes a payment event under this Agreement that provides for the deferral of compensation that is subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations thereunder (collectively, “Section 409A”), to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect to such payment (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

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5.4.3The Company shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.

5.5Required Release.  Notwithstanding any provision of this Agreement to the contrary, the Company’s obligation to provide the payments and reimbursements under Sections 5.2.1, 5.2.2, 5.3.1 and 5.3.2 is conditioned upon Executive’s execution of a standard form of an enforceable release of claims and Executive’s compliance with the Restrictive Covenant Agreement.  If Executive chooses not to execute such a release or fails to comply with the Restrictive Covenant Agreement, then the Company’s obligation to compensate Executive ceases on the Separation Date except as to amounts due at the time.  The release of claims shall be provided to Executive within ten (10) days of Executive’s separation from service and Executive must execute it within the time period specified in the release (which shall not be longer than forty-five (45) days from the date of receipt).  Such release shall not be effective until any applicable revocation period has expired.  

5.6Benefits in Lieu of Other Severance.  Executive is not entitled to receive any compensation or benefits upon Executive’s termination except as: (i) set forth in this Agreement; (ii) otherwise required by law; or (iii) otherwise required by any employee benefit plan in which Executive participates. Moreover, the terms and conditions afforded Executive under this Agreement are in lieu of any severance benefits to which Executive otherwise might be entitled pursuant to any severance plan, policy and practice of the Company.

6.Restrictive Covenants. Executive shall continue to be obligated under the Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, dated July 3, 2017 (the “Restrictive Covenant Agreement”). Executive agrees to abide by the terms of the Restrictive Covenant Agreement, or any other subsequent agreement with the Company relating to proprietary information, inventions, intellectual property, non-competition or non-solicitation, the terms of which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant Agreement, or any subsequent similar agreement, will survive the termination of Executive's employment and/or the termination of this Agreement.

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7.Company Property.  Upon the termination of Executive’s employment or upon Company’s earlier request, Executive shall:  (i) deliver to the Company all records, memoranda, data, documents and other property of any description which refer or relate in any way to trade secrets or confidential information, including all copies thereof, which are in Executive’s possession, custody or control; (ii) deliver to the Company all Company property (including, but not limited to, keys, credit cards, customer files, contracts, proposals, work in process, manuals, forms, computer-stored work in process and other computer data, research materials, other items of business information concerning any Company customer, or Company business or business methods, including all copies thereof) which is in Executive’s possession, custody or control; (iii) bring all such records, files and other materials up to date before returning them; and (iv) fully cooperate with the Company in winding up Executive’s work and transferring that work to other individuals designated by the Company.

8.EMPLOYEE REPRESENTATION.  Executive represents and warrants that Executive’s employment and obligations under this Agreement will not (i) breach any duty or obligation Executive owes to another or (ii) violate any law, recognized ethics standard or recognized business custom.

9.Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder will preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

10.ENTIRE AGREEMENT.  Except as expressly provided in this Agreement, this Agreement: (i) supersedes and cancels all other understandings and agreements, oral or written, with respect to Executive’s employment with the Company; (ii) supersedes all other understandings and agreements, oral or written, between the parties with respect to the subject matter of this Agreement; and (iii) constitutes the sole agreement between the parties with respect to this subject matter.  Each party acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement; and (ii) no agreement, statement or promise not contained in this Agreement shall be valid.  No change or modification of this Agreement shall be valid or binding upon the parties unless such change or modification is in writing and is signed by the parties.

11.SEVERABILITY.  If a court of competent jurisdiction holds that any provision or sub-part thereof contained in this Agreement is invalid, illegal, or unenforceable, that invalidity, illegality, or unenforceability shall not affect any other provision in this Agreement.  

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12.Assignment and Successors.  The Company may assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise), and may assign or encumber this Agreement and its rights hereunder as security for  indebtedness of the Company and its affiliates. This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. None of Executive's rights or obligations may be assigned or transferred by Executive, other than Executive's rights to payments hereunder, which may be transferred only by will or operation of law.

13.GOVERNING LAW.  This Agreement shall be construed, interpreted, and governed in accordance with and by North Carolina law and the applicable provisions of federal law (“Applicable Federal Law”).  Any and all claims, controversies, and causes of action arising out of or relating to this Agreement, whether sounding in contract, tort, or statute, shall be governed by the laws of the state of North Carolina, including its statutes of limitations, except for Applicable Federal Law, without giving effect to any North Carolina conflict-of-laws rule that would result in the application of the laws of a different jurisdiction. Both Executive and the Company acknowledge and agree that the state or federal courts located in North Carolina have personal jurisdiction over them and over any dispute arising under this Agreement, and both Executive and the Company irrevocably consent to the jurisdiction of such courts.

14.COUNTERPARTS.  This Agreement may be executed in counterparts, each of which shall be an original, with the same effect as if the signatures affixed thereto were upon the same instrument.

15.Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:

15.1If to the Company, to the Chief Executive Officer of the Company at the Company's headquarters,

15.2If to Executive, to the last address that the Company has in its personnel records for Executive, or

15.3At any other address as any Party shall have specified by notice in writing to the other Party.

16.SECTION 409A OF THE INTERNAL REVENUE CODE.  The parties intend that the provisions of this Agreement comply with Section 409A of the Code and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A. If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause Executive to incur any additional tax or interest under Section 409A, the Company shall, upon the specific request of Executive, use its reasonable business efforts to in good faith reform such provision to comply

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with Code Section 409A; provided, that to the maximum extent practicable, the original intent and economic benefit to Executive and the Company of the applicable provision shall be maintained, and the Company shall have no obligation to make any changes that could create any additional economic cost or loss of benefit to the Company. The Company shall timely use its reasonable business efforts to amend any plans and programs in which Executive participates to bring it in compliance with Section 409A. Notwithstanding the foregoing, the Company shall have no liability with regard to any failure to comply with Section 409A so long as it has acted in good faith with regard to compliance therewith.

16.1Separation from Service.  A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following  a termination of employment unless such termination also constitutes a “Separation from Service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment,” “separation from service” or like terms shall mean Separation from Service.

16.2Separate Payments.  Each installment payment required under this Agreement shall be considered a separate payment for purposes of Section 409A.  

16.3Delayed Distribution to Specified Employee.  If the Company determines in accordance with Sections 409A and 416(i) of the Code and the regulations promulgated thereunder, in the Company’s sole discretion, that Executive is a Specified Employee of the Company on the date Executive’s employment with the Company terminates and that a delay in benefits provided under this Agreement is necessary to comply with Code Section 409A(A)(2)(B)(i), then any severance payments and any continuation of benefits or reimbursement of benefit costs provided by this Agreement, and not otherwise exempt from Section 409A, shall be delayed for a period of six (6) months following the date of termination of Executive’s employment (the “409A Delay Period”).  In such event, any severance payments and the cost of any continuation of benefits provided under this Agreement that would otherwise be due and payable to Executive during the 409A Delay Period shall be paid to Executive in a lump sum cash amount in the month following the end of the 409A Delay Period.  For purposes of this Agreement, “Specified Employee” shall mean an employee who, on an Identification Date (“Identification Date” shall mean each December 31) is a specified employee as defined in Section 416(i) of the Code without regard to paragraph (5) thereof.  If Executive is identified as a Specified Employee on an Identification Date, then Executive shall be considered a Specified Employee for purposes of this Agreement during the period beginning on the first April 1 following the Identification Date and ending on the following March 31.

16.4 Reimbursements.  To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following:  (a) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (b) any reimbursement of an eligible expense shall be paid to Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (c) any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.

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17.Parachute Payments.  Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 5 hereof, being hereinafter referred to as the “Total Payments”), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Total Payments shall be reduced (in the order provided in Section 16.1) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

17.1Order of Reduction.  The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code, (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.

17.2Determinations.  All determinations regarding the application of this Section 17 shall be made by an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax selected by the Company (the “Independent Advisors”). For purposes of determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.

17.3Additional Reductions.  In the event it is later determined that a greater reduction in the Total Payments should have been made to implement the objective and intent of this Section 17, the excess amount shall be returned promptly by Executive to the Company.

 

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[Signature Page for Amended and Restated Executive Employment Agreement]

 

 

IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year first written above.

 

 

 

 

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Amendment to

Amended and Restated Employment Agreement

 

This Amendment to the Amended and Restated Employment Agreement (“Amendment”) is effective on the 30th day of September, 2019 (the “Effective Date”) by and between Precision BioSciences, Inc. (the “Company”), and David Thomson (“Executive”).  The Company and Executive are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties.”  Capitalized terms not defined herein shall have the meaning given to them in the Employment Agreement.

Executive and the Company entered into an Amended and Restated Employment Agreement as of February 27, 2019 (the “Employment Agreement”).  Executive and the Company wish to amend the Employment Agreement to reflect Executive’s appointment as the Chief Operating Officer of the Company.    

NOW, THEREFORE, in consideration of the mutual terms and conditions set forth below and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree that the Employment Agreement is hereby amended as follows:

1.Nature of Employment/Duties.  As of the Effective Date, Section 2 of the Employment Agreement shall be amended to provide that Executive will serve as the “Chief Operating Officer (“COO”)” of the Company and references to “Chief Development Officer” shall be deleted.    

2.Compensation.  Beginning on October 1, 2019, Executive’s Base Salary under Section 3.1 of the Employment Agreement shall be Four Hundred Fifteen Thousand and 00/100 Dollars ($415,000) (less applicable withholdings), and Executive’s Target Annual Bonus shall be 40% of Executive’s Base Salary.

3.Effective Date of this Amendment.  This Amendment will become effective as of the Effective Date.

 

4.Effect of Amendment.  Except as amended by this Amendment, the Employment Agreement shall remain in full force and effect in accordance with its terms.  

 

5.Counterparts.  This Amendment may be executed in more than one counterpart, each of which shall be deemed an original, and all of which shall be deemed a single agreement.

 

(Signature Page Follows)

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(Signature page to Amendment to Amended and Restated Employment Agreement)

 

IN WITNESS WHEREOF, the Parties have entered into this Amendment to Amended and Restated Employment Agreement as of the day and year first written above.

 

 

 

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Exhibit 10.21

 

Executive EMPLOYMENT AGREEMENT

This Executive Employment Agreement (the “Agreement”) is made and entered into as of this 1st day of May, 2019 (the “Effective Date”), by and between Precision BioSciences, Inc. (the “Company”), and Christopher Heery (“Executive”).  The Company and Executive are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties.”

BACKGROUND

The Company wishes to employ Executive on the terms set forth in this Agreement, and Executive wishes to accept such employment on the same terms.

NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows:

1.EMPLOYMENT.  As of the Effective Date, the Company hereby employs Executive and Executive hereby accepts employment as the Chief Medical Officer of the Company upon the terms and conditions of this Agreement.  

2.NATURE OF EMPLOYMENT/DUTIES.  Executive shall serve as the Chief Medical Officer of the Company and shall have such responsibilities and authority as the Company may designate from time to time consistent with Executive’s title and position.  

2.1Executive shall perform all duties and exercise all authority in accordance with, and otherwise comply with, all Company policies, procedures, practices and directions.

2.2Executive shall devote substantially all working time, best efforts, knowledge and experience to perform successfully Executive’s duties and advance the Company’s interests. During Executive’s employment, Executive may, with the Board’s consent (which shall not be unreasonably withheld), engage in other business activities for compensation (including board memberships), provided that, such activities do not present a conflict of interest nor violate the Restrictive Covenant Agreement (defined in Section 6), nor otherwise prohibit Executive from fulfilling Executive’s obligations hereunder.  

3.COMPENSATION.

3.1Base Salary.  Executive’s annual base salary for all services rendered shall be Four Hundred Thirty Thousand and 00/100 Dollars ($430,000.00) (less applicable taxes and withholdings) payable in accordance with the Company’s payroll practices as they may exist from time to time (the “Base Salary”).  Base Salary may be reviewed and adjusted by the Company, at its discretion, in accordance with the Company’s policies, procedures, and practices as they may exist from time to time, provided that the Base Salary shall not be decreased unless the decrease is an across-the-board decrease for all senior management employees of the Company.

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3.2Business Expenses.  Executive shall be reimbursed for reasonable and necessary expenses actually incurred by Executive in performing services under this Agreement in accordance with and subject to the terms and conditions of the applicable Company reimbursement policies, procedures, and practices as they may exist from time to time.  All such reimbursements shall be made no later than the end of the calendar year following the year in which the expense was incurred.

3.3Bonus.  Executive may participate in any Company bonus plan the Company may adopt for senior management subject to the terms, conditions, and any eligibility requirements that may exist in such plan or plans. Executive’s annual incentive compensation under the bonus plan (the “Annual Bonus”) shall be targeted at 35% of Executive’s Base Salary (the “Target Annual Bonus”). The Annual Bonus payable under the bonus plan shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the bonus plan shall be subject to Executive’s continued employment with the Company through the date of payment.

3.4Equity. Executive shall be eligible to participate in any equity compensation plan or similar program adopted by the Company when approved by the Board and, if applicable, the Company’s shareholders, for executives at Executive’s level.  The amount awarded, if any, to the Executive under any such plan shall be in the discretion of the Board or any committee administering such plan and shall be subject to the terms and conditions of any plan or program adopted or approved by the Board. Subject to approval by the Board, the Company will make an initial grant to Executive of no less than 180,000 options to purchase shares of common stock of the Company, priced at fair market value at the time of grant.  Such grant will be effective when made and shall be subject to terms and conditions to be imposed by the Board under the Company’s plans, programs or applicable award agreement.

3.5Benefits.  Executive may participate in all medical, dental and disability insurance, 401(k), personal leave and other employee benefit plans and programs of the Company for which Executive is eligible, provided, however, that Executive’s participation in benefit plans and programs is subject to the applicable terms, conditions and eligibility requirements of these plans and programs, some of which are within the plan administrator’s discretion, as they may exist from time to time.  The Company shall pay annual dues and expenses for Executive’s membership and participation in such professional organizations as may be approved by the Board.

4.TERM OF EMPLOYMENT AND TERMINATION.  The Company and Executive acknowledge that Executive's employment is and shall continue to be “at-will,” as defined under applicable law, and that Executive's employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of this Section 4). This "at-will" nature of Executive's employment shall remain unchanged during Executive's tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. The term of this Agreement and Executive’s employment hereunder shall commence on the Effective Date and continue until terminated as set forth in this Section 4.  The date on which Executive’s employment terminates, as determined by the Company, regardless of the reason, shall be referred to herein as the “Separation Date.”  Upon termination of Executive's employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.

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4.1Without Cause, Upon Notice.  Either the Company or Executive may terminate Executive’s employment and this Agreement without Cause at any time upon giving the other party thirty (30) days written notice.

4.2For Cause.  The Company may terminate Executive’s employment and this Agreement immediately without notice at any time for “Cause,” which shall mean the following:

4.2.1Executive's material failure to perform Executive’s duties or to carryout the reasonable and lawful instructions of the Chief Executive Officer or the Board of Directors (other than any such failure resulting from incapacity due to physical or mental illness);

4.2.2Executive's engagement in dishonesty, illegal conduct, or gross misconduct, which is, in each case, materially injurious to the Company or its affiliates;

4.2.3Executive's embezzlement, misappropriation, or fraud, whether or not related to the Executive's employment with the Company;

4.2.4Executive's conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude;

4.2.5Executive’s failure to cooperate with the Company in any investigation or formal proceeding;

4.2.6Executive's material breach of any material obligation under this Agreement, the Restrictive Covenant Agreement (as defined in Section 6), or any other written agreement between the Executive and the Company; or

4.2.7any material failure by Executive to comply with the Company's written policies or rules, as they may be in effect from time to time.

Provided, however, that prior to termination based on Sections 4.2.1, 4.2.6 or 4.2.7, Executive shall be given written notice of the facts allegedly constituting Cause and a ten (10) day opportunity to cure.

4.3By Death or Disability.  Executive’s employment and this Agreement shall terminate upon Executive’s Disability or death.  For purposes of this Agreement, “Disability” shall mean Executive's inability, due to physical or mental incapacity, to perform the essential functions of Executive's job, with or without reasonable accommodation, for one hundred eighty (180) days out of any three hundred sixty-five (365) day period; provided however, in the event that the Company temporarily replaces the Executive, or transfers the Executive's duties or responsibilities to another individual on account of the Executive's inability to perform such duties due to a mental or physical incapacity which is, or is reasonably expected to become, a Disability, then the Executive's employment shall not be deemed terminated by the Company. Any question as to the existence of the Executive's Disability as to which the Executive and the Company cannot agree shall be determined in writing by a qualified

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independent physician mutually acceptable to the Executive and the Company. If the Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement. The Company shall give Executive written notice of termination for Disability and the termination shall be effective as of the date specified in such notice.

4.4For Good Reason.  Executive may terminate Executive’s employment for “Good Reason,” which shall mean the occurrence of any of the following, in each case without the Executive's written consent:

4.4.1a material reduction in Executive's Base Salary other than a general reduction in Base Salary that affects all similarly situated executives;

4.4.2an involuntary relocation of the Executive's principal place of employment by more than thirty five (35) miles; or

4.4.3the Company's failure to obtain an agreement from any successor to the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place, except where such assumption occurs by operation of law.

Executive cannot terminate Executive’s employment for Good Reason unless Executive has provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances. If the Executive does not terminate Executive’s employment for Good Reason within sixty (60) days after the first occurrence of the applicable grounds, then the Executive will be deemed to have waived Executive’s right to terminate for Good Reason with respect to such grounds.

5.COMPENSATION AND BENEFITS UPON TERMINATION. If Executive's employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. Upon termination of Executive's employment pursuant to any of the circumstances listed in Section 4, Executive (or Executive's estate) shall be entitled to receive the sum of: (i) the portion of Executive's Base Salary earned through the Separation Date, but not yet paid to Executive; (ii) any expense reimbursements owed to Executive pursuant to Section 3.2; and (iii) any amount accrued and arising from Executive's participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the "Accrued Obligations"). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive's rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executive's employment hereunder. In the event that Executive's employment is terminated by the Company for any reason, Executive's sole and exclusive remedy shall be to receive the payments and benefits described in this Section 5.

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5.1By the Company for Cause or because of Executive’s Death or Disability, or by Executive Without Cause, Upon Notice.  If Executive’s employment and this Agreement are terminated by the Company for Cause or because of Executive’s death or Disability, or by Executive pursuant to Section 4.1 (Without Cause, Upon Notice), then the Company’s obligation to compensate Executive ceases on the Separation Date except for the Accrued Obligations.  

5.2By the Company Without Cause or by Executive for Good Reason.  If the Company terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or Executive terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good Reason), subject to Executive’s continued compliance with Executive’s obligations under the Restrictive Covenant Agreement then the Company shall pay Executive the Accrued Obligations and subject to Section 5.5 (Required Release), Executive shall be entitled to the following:

5.2.1pay Executive an amount equal to nine (9) months of Executive’s then current monthly base salary (less applicable taxes and withholdings (the “Severance Period”), payable in substantially equal monthly installments on the same payroll schedule applicable to Executive immediately prior to Executive’s separation from service and commencing on the first such payroll date on or following the date on which the release of claims required by Section 5.5 becomes effective and non-revocable, but not later than ninety (90) days following termination from employment; provided however that if the 90th day following Executive’s termination from employment occurs in the year following the year in which Executive’s termination  occurs, then the payments shall commence no earlier than January 1 of such subsequent year and provided further that if such payments commence in such subsequent year, the first such payment shall be a lump sum in an amount equal to the payments that would have come due since Executive’s separation from service, and

5.2.2If Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), during the Severance Period, the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by the Executive for and the monthly premium amount paid by Executive immediately prior to the date that Executive’s employment terminated.  Such reimbursement shall be paid to the Executive on or before the tenth (10^th) day of the month immediately following the month in which the Executive timely remits the premium payment, with such reimbursements to commence when the payments under Section 5.2.1 commence. Executive shall be eligible to receive such reimbursement until the earliest of: (i) the twelfth-month anniversary of the Separation Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive becomes eligible to receive substantially similar coverage from another employer or other source.  Notwithstanding the foregoing, if the Company's making payments under this Section 5.2.2 would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the "ACA"), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.2.2 in a manner as is necessary to comply with the ACA. Executive shall provide the Company with notice of subsequent employment and comparable coverage within thirty (30) days of commencement of such comparable coverage.  

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5.3Following a Change in Control, by the Company Without Cause or by Executive for Good Reason.  If within three (3) month prior to or twelve (12) months following the occurrence of a Change in Control, as defined herein, either the Company terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or Executive terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good Reason), then in lieu of any benefits under Section 5.2, and subject to Executive’s continue compliance with Executive’s obligations under the Restrictive Covenant Agreement, the Company shall pay Executive the Accrued Obligations and, subject to Section 5.5 (Required Release), Executive shall be entitled to the following:

5.3.1The Company shall pay Executive an amount equal to twelve (12) months of Executive’s then current monthly base salary (less applicable taxes and withholdings) (the “CIC Severance Period”) plus one (1) times Executive’s target bonus for the year during which the Separation Date occurs, payable in lump sum Seventy-five (75) days following the Separation Date;

5.3.2If Executive timely and properly elects health continuation coverage under COBRA, during the CIC Severance Period, the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by the Executive for and the monthly premium amount paid by Executive immediately prior to the date that Executive’s employment terminated.  Such reimbursement shall be paid to the Executive on or before the tenth (10^th) day of the month immediately following the month in which Executive timely remits the premium payment, with such reimbursements to commence in the month following the month the release under Section 5.4 becomes effective and non-revocable. Executive shall be eligible to receive such reimbursement until the earliest of: (i) the twelfth-month anniversary of the Separation Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive becomes eligible to receive substantially similar coverage from another employer or other source.  Notwithstanding the foregoing, if the Company's making payments under this Section 5.3.2 would violate the nondiscrimination rules applicable to non-grandfathered plans under the ACA, or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.3.2 in a manner as is necessary to comply with the ACA. Executive shall provide the Company with notice of subsequent employment and comparable coverage within thirty (30) days of commencement of such comparable coverage; and

5.3.3All unvested time-based equity grants shall vest in full as of the Separation Date, provided that such equity shall remain subject to the other terms and conditions of the applicable Company incentive award plan(s) and individual award agreement(s).

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5.4Definition of Change in Control.  

5.4.1“Change in Control” means and includes each of the following:

(a)A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; provided, however, that for purposes of this Agreement, “Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain; or

(b)During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Directors (the “Board”) together with any new director(s) of the Board (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(c)The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(i)which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

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(ii)after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

5.4.2Notwithstanding the foregoing, (i) a Change in Control shall not include an IPO (referenced in Background, Section B of this Agreement); and (ii) if a Change in Control constitutes a payment event under this Agreement that provides for the deferral of compensation that is subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations thereunder (collectively, “Section 409A”), to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect to such payment (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

5.4.3The Company shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.

5.5Required Release.  Notwithstanding any provision of this Agreement to the contrary, the Company’s obligation to provide the payments and reimbursements under Sections 5.2.1, 5.2.2, 5.3.1 and 5.3.2 is conditioned upon Executive’s execution of a standard form of an enforceable release of claims and Executive’s compliance with the Restrictive Covenant Agreement.  If Executive chooses not to execute such a release or fails to comply with the Restrictive Covenant Agreement, then the Company’s obligation to compensate Executive ceases on the Separation Date except as to amounts due at the time.  The release of claims shall be provided to Executive within ten (10) days of Executive’s separation from service and Executive must execute it within the time period specified in the release (which shall not be longer than forty-five (45) days from the date of receipt).  Such release shall not be effective until any applicable revocation period has expired.  

5.6Benefits in Lieu of Other Severance.  Executive is not entitled to receive any compensation or benefits upon Executive’s termination except as: (i) set forth in this Agreement; (ii) otherwise required by law; or (iii) otherwise required by any employee benefit plan in which Executive participates. Moreover, the terms and conditions afforded Executive under this Agreement are in lieu of any severance benefits to which Executive otherwise might be entitled pursuant to any severance plan, policy and practice of the Company.

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6.Restrictive Covenants. As a condition of employment, Executive will be obligated under the Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, executed simultaneously herewith (the “Restrictive Covenant Agreement”). Executive agrees to abide by the terms of the Restrictive Covenant Agreement, or any other subsequent agreement with the Company relating to proprietary information, inventions, intellectual property, non-competition or non-solicitation, the terms of which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant Agreement, or any subsequent similar agreement, will survive the termination of Executive's employment and/or the termination of this Agreement.

7.Company Property.  Upon the termination of Executive’s employment or upon Company’s earlier request, Executive shall:  (i) deliver to the Company all records, memoranda, data, documents and other property of any description which refer or relate in any way to trade secrets or confidential information, including all copies thereof, which are in Executive’s possession, custody or control; (ii) deliver to the Company all Company property (including, but not limited to, keys, credit cards, customer files, contracts, proposals, work in process, manuals, forms, computer-stored work in process and other computer data, research materials, other items of business information concerning any Company customer, or Company business or business methods, including all copies thereof) which is in Executive’s possession, custody or control; (iii) bring all such records, files and other materials up to date before returning them; and (iv) fully cooperate with the Company in winding up Executive’s work and transferring that work to other individuals designated by the Company.

8.EMPLOYEE REPRESENTATION.  Executive represents and warrants that Executive’s employment and obligations under this Agreement will not (i) breach any duty or obligation Executive owes to another or (ii) violate any law, recognized ethics standard or recognized business custom.

9.Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder will preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

10.ENTIRE AGREEMENT.  Except as expressly provided in this Agreement, this Agreement: (i) supersedes and cancels all other understandings and agreements, oral or written, with respect to Executive’s employment with the Company; (ii) supersedes all other understandings and agreements, oral or written, between the parties with respect to the subject matter of this Agreement; and (iii) constitutes the sole agreement between the parties with respect to this subject matter.  Each party acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement; and (ii) no agreement, statement or promise not contained in this Agreement shall be valid.  No change or modification of this Agreement shall be valid or binding upon the parties unless such change or modification is in writing and is signed by the parties.

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11.SEVERABILITY.  If a court of competent jurisdiction holds that any provision or sub-part thereof contained in this Agreement is invalid, illegal, or unenforceable, that invalidity, illegality, or unenforceability shall not affect any other provision in this Agreement.  

12.Assignment and Successors.  The Company may assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise), and may assign or encumber this Agreement and its rights hereunder as security for  indebtedness of the Company and its affiliates. This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. None of Executive's rights or obligations may be assigned or transferred by Executive, other than Executive's rights to payments hereunder, which may be transferred only by will or operation of law.

13.GOVERNING LAW.  This Agreement shall be construed, interpreted, and governed in accordance with and by North Carolina law and the applicable provisions of federal law (“Applicable Federal Law”).  Any and all claims, controversies, and causes of action arising out of or relating to this Agreement, whether sounding in contract, tort, or statute, shall be governed by the laws of the state of North Carolina, including its statutes of limitations, except for Applicable Federal Law, without giving effect to any North Carolina conflict-of-laws rule that would result in the application of the laws of a different jurisdiction. Both Executive and the Company acknowledge and agree that the state or federal courts located in North Carolina have personal jurisdiction over them and over any dispute arising under this Agreement, and both Executive and the Company irrevocably consent to the jurisdiction of such courts.

14.COUNTERPARTS.  This Agreement may be executed in counterparts, each of which shall be an original, with the same effect as if the signatures affixed thereto were upon the same instrument.

15.Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:

15.1If to the Company, to the Chief Executive Officer of the Company at the Company's headquarters,

15.2If to Executive, to the last address that the Company has in its personnel records for Executive, or

15.3At any other address as any Party shall have specified by notice in writing to the other Party.

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16.SECTION 409A OF THE INTERNAL REVENUE CODE.  The parties intend that the provisions of this Agreement comply with Section 409A of the Code and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A. If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause Executive to incur any additional tax or interest under Section 409A, the Company shall, upon the specific request of Executive, use its reasonable business efforts to in good faith reform such provision to comply with Code Section 409A; provided, that to the maximum extent practicable, the original intent and economic benefit to Executive and the Company of the applicable provision shall be maintained, and the Company shall have no obligation to make any changes that could create any additional economic cost or loss of benefit to the Company. The Company shall timely use its reasonable business efforts to amend any plans and programs in which Executive participates to bring it in compliance with Section 409A. Notwithstanding the foregoing, the Company shall have no liability with regard to any failure to comply with Section 409A so long as it has acted in good faith with regard to compliance therewith.

16.1Separation from Service.  A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following  a termination of employment unless such termination also constitutes a “Separation from Service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment,” “separation from service” or like terms shall mean Separation from Service.

16.2Separate Payments.  Each installment payment required under this Agreement shall be considered a separate payment for purposes of Section 409A.  

16.3Delayed Distribution to Specified Employee.  If the Company determines in accordance with Sections 409A and 416(i) of the Code and the regulations promulgated thereunder, in the Company’s sole discretion, that Executive is a Specified Employee of the Company on the date Executive’s employment with the Company terminates and that a delay in benefits provided under this Agreement is necessary to comply with Code Section 409A(A)(2)(B)(i), then any severance payments and any continuation of benefits or reimbursement of benefit costs provided by this Agreement, and not otherwise exempt from Section 409A, shall be delayed for a period of six (6) months following the date of termination of Executive’s employment (the “409A Delay Period”).  In such event, any severance payments and the cost of any continuation of benefits provided under this Agreement that would otherwise be due and payable to Executive during the 409A Delay Period shall be paid to Executive in a lump sum cash amount in the month following the end of the 409A Delay Period.  For purposes of this Agreement, “Specified Employee” shall mean an employee who, on an Identification Date (“Identification Date” shall mean each December 31) is a specified employee as defined in Section 416(i) of the Code without regard to paragraph (5) thereof.  If Executive is identified as a Specified Employee on an Identification Date, then Executive shall be considered a Specified Employee for purposes of this Agreement during the period beginning on the first April 1 following the Identification Date and ending on the following March 31.

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16.4 Reimbursements.  To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following:  (a) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (b) any reimbursement of an eligible expense shall be paid to Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (c) any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.

17.Parachute Payments.  Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 5 hereof, being hereinafter referred to as the "Total Payments"), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Total Payments shall be reduced (in the order provided in Section 16.1) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

17.1Order of Reduction.  The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code, (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.

17.2Determinations.  All determinations regarding the application of this Section 17 shall be made by an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax selected by the Company (the "Independent Advisors"). For purposes of determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.

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17.3Additional Reductions.  In the event it is later determined that a greater reduction in the Total Payments should have been made to implement the objective and intent of this Section 17, the excess amount shall be returned promptly by Executive to the Company.

 

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[Signature Page for Executive Employment Agreement]

 

 

IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year first written above.

 

 

 

 

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Exhibit 10.22

 

Executive EMPLOYMENT AGREEMENT

This Executive Employment Agreement (the “Agreement”) is made and entered into as of this 15th day of March, 2019 (the “Effective Date”), by and between Precision BioSciences, Inc. (the “Company”), and Dario Scimeca (“Executive”).  The Company and Executive are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties.”

BACKGROUND

The Company wishes to employ Executive on the terms set forth in this Agreement, and Executive wishes to accept such employment on the same terms.

NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows:

1.EMPLOYMENT.  As of the Effective Date, the Company hereby employs Executive and Executive hereby accepts employment as the General Counsel of the Company upon the terms and conditions of this Agreement.  

2.NATURE OF EMPLOYMENT/DUTIES.  Executive shall serve as the General Counsel of the Company and shall have such responsibilities and authority as the Company may designate from time to time consistent with Executive’s title and position.  

2.1Executive shall perform all duties and exercise all authority in accordance with, and otherwise comply with, all Company policies, procedures, practices and directions.

2.2Executive shall devote substantially all working time, best efforts, knowledge and experience to perform successfully Executive’s duties and advance the Company’s interests. During Executive’s employment, Executive may, with the Board’s consent (which shall not be unreasonably withheld), engage in other business activities for compensation (including board memberships), provided that, such activities do not present a conflict of interest nor violate the Restrictive Covenant Agreement (defined in Section 6), nor otherwise prohibit Executive from fulfilling Executive’s obligations hereunder.  

3.COMPENSATION.

3.1Base Salary.  Executive’s annual base salary for all services rendered shall be Three Hundred Ten Thousand and 00/100 Dollars ($310,000.00) (less applicable taxes and withholdings) payable in accordance with the Company’s payroll practices as they may exist from time to time (the “Base Salary”).  Base Salary may be reviewed and adjusted by the Company, at its discretion, in accordance with the Company’s policies, procedures, and practices as they may exist from time to time, provided that the Base Salary shall not be decreased unless the decrease is an across-the-board decrease for all senior management employees of the Company.

3.2Business Expenses.  Executive shall be reimbursed for reasonable and necessary expenses actually incurred by Executive in performing services under this Agreement

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in accordance with and subject to the terms and conditions of the applicable Company reimbursement policies, procedures, and practices as they may exist from time to time.  All such reimbursements shall be made no later than the end of the calendar year following the year in which the expense was incurred.

3.3Bonus.  Executive may participate in any Company bonus plan the Company may adopt for senior management subject to the terms, conditions, and any eligibility requirements that may exist in such plan or plans. Executive’s annual incentive compensation under the bonus plan (the “Annual Bonus”) shall be targeted at 35% of Executive’s Base Salary (the “Target Annual Bonus”). The Annual Bonus payable under the bonus plan shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the bonus plan shall be subject to Executive’s continued employment with the Company through the date of payment.

3.4Equity. Executive shall be eligible to participate in any equity compensation plan or similar program adopted by the Company when approved by the Board and, if applicable, the Company’s shareholders, for executives at Executive’s level.  The amount awarded, if any, to the Executive under any such plan shall be in the discretion of the Board or any committee administering such plan and shall be subject to the terms and conditions of any plan or program adopted or approved by the Board. Subject to approval by the Board, the Company will make an initial grant to Executive of no fewer than 140,000 options to purchase shares of common stock of the Company, priced at fair market value at the time of grant.  Such grant will be effective when made and shall be subject to terms and conditions to be imposed by the Board under the Company’s plans, programs or applicable award agreement.

3.5Benefits.  Executive may participate in all medical, dental and disability insurance, 401(k), personal leave and other employee benefit plans and programs of the Company for which Executive is eligible, provided, however, that Executive’s participation in benefit plans and programs is subject to the applicable terms, conditions and eligibility requirements of these plans and programs, some of which are within the plan administrator’s discretion, as they may exist from time to time.  The Company shall pay annual dues and expenses for Executive’s membership and participation in such professional organizations as may be approved by the Board.

4.TERM OF EMPLOYMENT AND TERMINATION.  The Company and Executive acknowledge that Executive's employment is and shall continue to be “at-will,” as defined under applicable law, and that Executive's employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of this Section 4). This "at-will" nature of Executive's employment shall remain unchanged during Executive's tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. The term of this Agreement and Executive’s employment hereunder shall commence on the Effective Date and continue until terminated as set forth in this Section 4.  The date on which Executive’s employment terminates, as determined by the Company, regardless of the reason, shall be referred to herein as the “Separation Date.”  Upon termination of Executive's employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.

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4.1Without Cause, Upon Notice.  Either the Company or Executive may terminate Executive’s employment and this Agreement without Cause at any time upon giving the other party thirty (30) days written notice.

4.2For Cause.  The Company may terminate Executive’s employment and this Agreement immediately without notice at any time for “Cause,” which shall mean the following:

4.2.1Executive's material failure to perform Executive’s duties or to carryout the reasonable and lawful instructions of the Chief Executive Officer or the Board of Directors (other than any such failure resulting from incapacity due to physical or mental illness);

4.2.2Executive's engagement in dishonesty, illegal conduct, or gross misconduct, which is, in each case, materially injurious to the Company or its affiliates;

4.2.3Executive's embezzlement, misappropriation, or fraud, whether or not related to the Executive's employment with the Company;

4.2.4Executive's conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude;

4.2.5Executive’s failure to cooperate with the Company in any investigation or formal proceeding;

4.2.6Executive's material breach of any material obligation under this Agreement, the Restrictive Covenant Agreement (as defined in Section 6), or any other written agreement between the Executive and the Company; or

4.2.7any material failure by Executive to comply with the Company's written policies or rules, as they may be in effect from time to time.

Provided, however, that prior to termination based on Sections 4.2.1, 4.2.7 or 4.2.8, Executive shall be given written notice of the facts allegedly constituting Cause and a ten (10) day opportunity to cure.

4.3By Death or Disability.  Executive’s employment and this Agreement shall terminate upon Executive’s Disability or death.  For purposes of this Agreement, “Disability” shall mean Executive's inability, due to physical or mental incapacity, to perform the essential functions of Executive's job, with or without reasonable accommodation, for one hundred eighty (180) days out of any three hundred sixty-five (365) day period; provided however, in the event that the Company temporarily replaces the Executive, or transfers the Executive's duties or responsibilities to another individual on account of the Executive's inability to perform such duties due to a mental or physical incapacity which is, or is reasonably expected to become, a Disability, then the Executive's employment shall not be deemed terminated by the Company. Any question as to the existence of the Executive's Disability as to which the Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to the

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Executive and the Company. If the Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement. The Company shall give Executive written notice of termination for Disability and the termination shall be effective as of the date specified in such notice.

4.4For Good Reason.  Executive may terminate Executive’s employment for “Good Reason,” which shall mean the occurrence of any of the following, in each case without the Executive's written consent:

4.4.1a material reduction in Executive's Base Salary other than a general reduction in Base Salary that affects all similarly situated executives;

4.4.2an involuntary relocation of the Executive's principal place of employment by more than thirty five (35) miles; or

4.4.3the Company's failure to obtain an agreement from any successor to the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place, except where such assumption occurs by operation of law.

Executive cannot terminate Executive’s employment for Good Reason unless Executive has provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances. If the Executive does not terminate Executive’s employment for Good Reason within sixty (60) days after the first occurrence of the applicable grounds, then the Executive will be deemed to have waived Executive’s right to terminate for Good Reason with respect to such grounds.

5.COMPENSATION AND BENEFITS UPON TERMINATION. If Executive's employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. Upon termination of Executive's employment pursuant to any of the circumstances listed in Section 4, Executive (or Executive's estate) shall be entitled to receive the sum of: (i) the portion of Executive's Base Salary earned through the Separation Date, but not yet paid to Executive; (ii) any expense reimbursements owed to Executive pursuant to Section 3.2; and (iii) any amount accrued and arising from Executive's participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the "Accrued Obligations"). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive's rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executive's employment hereunder. In the event that Executive's employment is terminated by the Company for any reason, Executive's sole and exclusive remedy shall be to receive the payments and benefits described in this Section 5.

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5.1By the Company for Cause or because of Executive’s Death or Disability, or by Executive Without Cause, Upon Notice.  If Executive’s employment and this Agreement are terminated by the Company for Cause or because of Executive’s death or Disability, or by Executive pursuant to Section 4.1 (Without Cause, Upon Notice), then the Company’s obligation to compensate Executive ceases on the Separation Date except for the Accrued Obligations.  

5.2By the Company Without Cause or by Executive for Good Reason.  If the Company terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or Executive terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good Reason), subject to Executive’s continued compliance with Executive’s obligations under the Restrictive Covenant Agreement then the Company shall pay Executive the Accrued Obligations and subject to Section 5.5 (Required Release), Executive shall be entitled to the following:

5.2.1pay Executive an amount equal to nine (9) months of Executive’s then current monthly base salary (less applicable taxes and withholdings (the “Severance Period”), payable in substantially equal monthly installments on the same payroll schedule applicable to Executive immediately prior to Executive’s separation from service and commencing on the first such payroll date on or following the date on which the release of claims required by Section 5.5 becomes effective and non-revocable, but not later than ninety (90) days following termination from employment; provided however that if the 90th day following Executive’s termination from employment occurs in the year following the year in which Executive’s termination  occurs, then the payments shall commence no earlier than January 1 of such subsequent year and provided further that if such payments commence in such subsequent year, the first such payment shall be a lump sum in an amount equal to the payments that would have come due since Executive’s separation from service, and

5.2.2If Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), during the Severance Period, the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by the Executive for and the monthly premium amount paid by Executive immediately prior to the date that Executive’s employment terminated.  Such reimbursement shall be paid to the Executive on or before the tenth (10^th) day of the month immediately following the month in which the Executive timely remits the premium payment, with such reimbursements to commence when the payments under Section 5.2.1 commence. Executive shall be eligible to receive such reimbursement until the earliest of: (i) the twelfth-month anniversary of the Separation Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive becomes eligible to receive substantially similar coverage from another employer or other source.  Notwithstanding the foregoing, if the Company's making payments under this Section 5.2.2 would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the "ACA"), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.2.2 in a manner as is necessary to comply with the ACA. Executive shall provide

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the Company with notice of subsequent employment and comparable coverage within thirty (30) days of commencement of such comparable coverage.  

5.3Following a Change in Control, by the Company Without Cause or by Executive for Good Reason.  If within three (3) month prior to or twelve (12) months following the occurrence of a Change in Control, as defined herein, either the Company terminates Executive’s employment and this Agreement pursuant to Section 4.1 (Without Cause, Upon Notice) or Executive terminates Executive’s employment and this Agreement pursuant to Section 4.4 (for Good Reason), then in lieu of any benefits under Section 5.2, and subject to Executive’s continue compliance with Executive’s obligations under the Restrictive Covenant Agreement, the Company shall pay Executive the Accrued Obligations and, subject to Section 5.5 (Required Release), Executive shall be entitled to the following:

5.3.1The Company shall pay Executive an amount equal to twelve (12) months of Executive’s then current monthly base salary (less applicable taxes and withholdings) (the “CIC Severance Period”) plus one (1) times Executive’s target bonus for the year during which the Separation Date occurs, payable in lump sum Seventy-five (75) days following the Separation Date;

5.3.2If Executive timely and properly elects health continuation coverage under COBRA, during the CIC Severance Period, the Company shall reimburse Executive for the difference between the monthly COBRA premium paid by the Executive for and the monthly premium amount paid by Executive immediately prior to the date that Executive’s employment terminated.  Such reimbursement shall be paid to the Executive on or before the tenth (10^th) day of the month immediately following the month in which Executive timely remits the premium payment, with such reimbursements to commence in the month following the month the release under Section 5.4 becomes effective and non-revocable. Executive shall be eligible to receive such reimbursement until the earliest of: (i) the twelfth-month anniversary of the Separation Date; (ii) the date the Executive is no longer eligible to receive COBRA continuation coverage; and (iii) the date on which the Executive becomes eligible to receive substantially similar coverage from another employer or other source.  Notwithstanding the foregoing, if the Company's making payments under this Section 5.3.2 would violate the nondiscrimination rules applicable to non-grandfathered plans under the ACA, or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 5.3.2 in a manner as is necessary to comply with the ACA. Executive shall provide the Company with notice of subsequent employment and comparable coverage within thirty (30) days of commencement of such comparable coverage; and

5.3.3All unvested time-based equity grants shall vest in full as of the Separation Date, provided that such equity shall remain subject to the other terms and conditions of the applicable Company incentive award plan(s) and individual award agreement(s).

5.4Definition of Change in Control.  

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5.4.1“Change in Control” means and includes each of the following:

(a)A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; provided, however, that for purposes of this Agreement, “Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain; or

(b)During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Directors (the “Board”) together with any new director(s) of the Board (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(c)The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(i)which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

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(ii)after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

5.4.2Notwithstanding the foregoing, (i) a Change in Control shall not include an IPO (referenced in Background, Section B of this Agreement); and (ii) if a Change in Control constitutes a payment event under this Agreement that provides for the deferral of compensation that is subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations thereunder (collectively, “Section 409A”), to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect to such payment (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

5.4.3The Company shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.

5.5Required Release.  Notwithstanding any provision of this Agreement to the contrary, the Company’s obligation to provide the payments and reimbursements under Sections 5.2.1, 5.2.2, 5.3.1 and 5.3.2 is conditioned upon Executive’s execution of a standard form of an enforceable release of claims and Executive’s compliance with the Restrictive Covenant Agreement.  If Executive chooses not to execute such a release or fails to comply with the Restrictive Covenant Agreement, then the Company’s obligation to compensate Executive ceases on the Separation Date except as to amounts due at the time.  The release of claims shall be provided to Executive within ten (10) days of Executive’s separation from service and Executive must execute it within the time period specified in the release (which shall not be longer than forty-five (45) days from the date of receipt).  Such release shall not be effective until any applicable revocation period has expired.  

5.6Benefits in Lieu of Other Severance.  Executive is not entitled to receive any compensation or benefits upon Executive’s termination except as: (i) set forth in this Agreement; (ii) otherwise required by law; or (iii) otherwise required by any employee benefit plan in which Executive participates. Moreover, the terms and conditions afforded Executive under this Agreement are in lieu of any severance benefits to which Executive otherwise might be entitled pursuant to any severance plan, policy and practice of the Company.

6.Restrictive Covenants. As a condition of employment, Executive will be obligated under the Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, executed simultaneously herewith (the “Restrictive Covenant

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Agreement”). Executive agrees to abide by the terms of the Restrictive Covenant Agreement, or any other subsequent agreement with the Company relating to proprietary information, inventions, intellectual property, non-competition or non-solicitation, the terms of which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant Agreement, or any subsequent similar agreement, will survive the termination of Executive's employment and/or the termination of this Agreement.

7.Company Property.  Upon the termination of Executive’s employment or upon Company’s earlier request, Executive shall:  (i) deliver to the Company all records, memoranda, data, documents and other property of any description which refer or relate in any way to trade secrets or confidential information, including all copies thereof, which are in Executive’s possession, custody or control; (ii) deliver to the Company all Company property (including, but not limited to, keys, credit cards, customer files, contracts, proposals, work in process, manuals, forms, computer-stored work in process and other computer data, research materials, other items of business information concerning any Company customer, or Company business or business methods, including all copies thereof) which is in Executive’s possession, custody or control; (iii) bring all such records, files and other materials up to date before returning them; and (iv) fully cooperate with the Company in winding up Executive’s work and transferring that work to other individuals designated by the Company.

8.EMPLOYEE REPRESENTATION.  Executive represents and warrants that Executive’s employment and obligations under this Agreement will not (i) breach any duty or obligation Executive owes to another or (ii) violate any law, recognized ethics standard or recognized business custom.

9.Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder will preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

10.ENTIRE AGREEMENT.  Except as expressly provided in this Agreement, this Agreement: (i) supersedes and cancels all other understandings and agreements, oral or written, with respect to Executive’s employment with the Company; (ii) supersedes all other understandings and agreements, oral or written, between the parties with respect to the subject matter of this Agreement; and (iii) constitutes the sole agreement between the parties with respect to this subject matter.  Each party acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement; and (ii) no agreement, statement or promise not contained in this Agreement shall be valid.  No change or modification of this Agreement shall be valid or binding upon the parties unless such change or modification is in writing and is signed by the parties.

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11.SEVERABILITY.  If a court of competent jurisdiction holds that any provision or sub-part thereof contained in this Agreement is invalid, illegal, or unenforceable, that invalidity, illegality, or unenforceability shall not affect any other provision in this Agreement.  

12.Assignment and Successors.  The Company may assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise), and may assign or encumber this Agreement and its rights hereunder as security for  indebtedness of the Company and its affiliates. This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. None of Executive's rights or obligations may be assigned or transferred by Executive, other than Executive's rights to payments hereunder, which may be transferred only by will or operation of law.

13.GOVERNING LAW.  This Agreement shall be construed, interpreted, and governed in accordance with and by North Carolina law and the applicable provisions of federal law (“Applicable Federal Law”).  Any and all claims, controversies, and causes of action arising out of or relating to this Agreement, whether sounding in contract, tort, or statute, shall be governed by the laws of the state of North Carolina, including its statutes of limitations, except for Applicable Federal Law, without giving effect to any North Carolina conflict-of-laws rule that would result in the application of the laws of a different jurisdiction. Both Executive and the Company acknowledge and agree that the state or federal courts located in North Carolina have personal jurisdiction over them and over any dispute arising under this Agreement, and both Executive and the Company irrevocably consent to the jurisdiction of such courts.

14.COUNTERPARTS.  This Agreement may be executed in counterparts, each of which shall be an original, with the same effect as if the signatures affixed thereto were upon the same instrument.

15.Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:

15.1If to the Company, to the Chief Executive Officer of the Company at the Company's headquarters,

15.2If to Executive, to the last address that the Company has in its personnel records for Executive, or

15.3At any other address as any Party shall have specified by notice in writing to the other Party.

16.SECTION 409A OF THE INTERNAL REVENUE CODE.  The parties intend that the provisions of this Agreement comply with Section 409A of the Code and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A. If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause Executive to incur any

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additional tax or interest under Section 409A, the Company shall, upon the specific request of Executive, use its reasonable business efforts to in good faith reform such provision to comply with Code Section 409A; provided, that to the maximum extent practicable, the original intent and economic benefit to Executive and the Company of the applicable provision shall be maintained, and the Company shall have no obligation to make any changes that could create any additional economic cost or loss of benefit to the Company. The Company shall timely use its reasonable business efforts to amend any plans and programs in which Executive participates to bring it in compliance with Section 409A. Notwithstanding the foregoing, the Company shall have no liability with regard to any failure to comply with Section 409A so long as it has acted in good faith with regard to compliance therewith.

16.1Separation from Service.  A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following  a termination of employment unless such termination also constitutes a “Separation from Service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment,” “separation from service” or like terms shall mean Separation from Service.

16.2Separate Payments.  Each installment payment required under this Agreement shall be considered a separate payment for purposes of Section 409A.  

16.3Delayed Distribution to Specified Employee.  If the Company determines in accordance with Sections 409A and 416(i) of the Code and the regulations promulgated thereunder, in the Company’s sole discretion, that Executive is a Specified Employee of the Company on the date Executive’s employment with the Company terminates and that a delay in benefits provided under this Agreement is necessary to comply with Code Section 409A(A)(2)(B)(i), then any severance payments and any continuation of benefits or reimbursement of benefit costs provided by this Agreement, and not otherwise exempt from Section 409A, shall be delayed for a period of six (6) months following the date of termination of Executive’s employment (the “409A Delay Period”).  In such event, any severance payments and the cost of any continuation of benefits provided under this Agreement that would otherwise be due and payable to Executive during the 409A Delay Period shall be paid to Executive in a lump sum cash amount in the month following the end of the 409A Delay Period.  For purposes of this Agreement, “Specified Employee” shall mean an employee who, on an Identification Date (“Identification Date” shall mean each December 31) is a specified employee as defined in Section 416(i) of the Code without regard to paragraph (5) thereof.  If Executive is identified as a Specified Employee on an Identification Date, then Executive shall be considered a Specified Employee for purposes of this Agreement during the period beginning on the first April 1 following the Identification Date and ending on the following March 31.

16.4 Reimbursements.  To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following:  (a) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (b) any reimbursement of an eligible expense shall be paid to Executive on or before the last day of the calendar year following the

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calendar year in which the expense was incurred; and (c) any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.

17.Parachute Payments.  Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 5 hereof, being hereinafter referred to as the "Total Payments"), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Total Payments shall be reduced (in the order provided in Section 16.1) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

17.1Order of Reduction.  The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code, (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.

17.2Determinations.  All determinations regarding the application of this Section 17 shall be made by an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax selected by the Company (the "Independent Advisors"). For purposes of determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.

17.3Additional Reductions.  In the event it is later determined that a greater reduction in the Total Payments should have been made to implement the objective and intent of this Section 17, the excess amount shall be returned promptly by Executive to the Company.

 

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[Signature Page for Executive Employment Agreement]

 

IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year first written above.

 

 

 

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Exhibit 21.1

 

SUBSIDIARIES OF PRECISION BIOSCIENCES, INC.

 

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-230671 on Form S-8 of our report dated March 9, 2020, relating to the financial statements of Precision BioSciences, Inc., appearing in this Annual Report on Form 10-K for the year ended December 31, 2019.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
March 9, 2020

 

 

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Matthew Kane, certify that:

 

 

 

 

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Abid Ansari, certify that:

 

 

 

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Precision BioSciences, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

 

 

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Precision BioSciences, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: