UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 29, 2017
PRECIPIO, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 001-36439 | 91-1789357 | ||
(State of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
4 Science Park, New Haven, CT 06511
(Address of principal executive offices) (Zip Code)
(203) 787-7888
(Registrants telephone number, including area code)
8813 F Street, Omaha, NE 68127
(402) 452-5400
(Former name, former address and former fiscal year, if changed since last report date)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging growth company ☐
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. ☐
Item 1.01 | Entry into a Material Definitive Agreement |
Pathology Services Agreement
On March 21, 2017, Precipio, Inc. (the Company ) entered into an Amended and Restated Pathology Services Agreement (the Pathology Services Agreement ) which amends and restates in its entirety the Pathology Services Agreement previously entered into between the Company and Yale University ( Yale ). The Pathology Services Agreement governs the general terms under which Yale provides professional pathology services to the Company.
Pursuant to the Pathology Services Agreement, the term was renewed for an additional five-year term and commenced on June 1, 2016 and terminates on June 1, 2021. Under the Pathology Services Agreement, the Yale Department of Pathology may not provide the hematopathology services that it provides to the Company to any other commercial entity that is one of the Companys competitors. The Pathology Services Agreement allows for termination by either party (i) for uncured breach by the other party, (ii) if either party has its respective license suspended or revoked, (iii) if the insurance coverage of either party is canceled or modified, (iv) if the Company fails to maintain or meet the requirements of Medicare conditions of participation, or (v) if the Company declares bankruptcy. The Pathology Services Agreement also provides that if the performance by either party (i) jeopardizes the licensure or accreditation of Yale or any Yale physician, (ii) jeopardizes either partys participation in Medicare, Medicaid or other federal, state or commercial reimbursement programs, (iii) violates any statute, ordinance or otherwise is deemed illegal, (iv) is deemed unethical by any recognized body, agency or association in the medical or laboratory fields, or (v) causes a substantial threat to Yales tax-exempt status, then either party may initiate negotiations to amend the Pathology Services Agreement and the Pathology Services Agreement will terminate if a mutually agreed amendment is not executed by the parties within 30 days.
The foregoing description of the Pathology Services Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the Pathology Services Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference herein.
New Haven Lease
On July 11, 2017, the Company entered into a lease agreement with Science Park Development Corporation (the Landlord ) (the New Haven Lease ) for approximately 7,630 square feet of space located at 375 Winchester Avenue, Building 4, New Haven, Connecticut. This facility is currently used for research, office and laboratory purposes. Under the terms of the New Haven Lease, the lease term is 60 months, commencing on January 1, 2017 and terminating on December 31, 2021. The Company has an option to extend the lease term for an additional 60 months. Monthly rent for the leased premises ranges from $14,351 per month to $14,624 per month.
The foregoing description of the New Haven Lease does not purport to be complete and is subject to and qualified in its entirety by reference to the New Haven Lease which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated by reference herein.
Introduction
On June 30, 2017, the Company filed a Current Report on Form 8-K announcing that on June 29, 2017, Transgenomic, Inc., a Delaware corporation ( Transgenomic ), completed its business combination with Precipio Diagnostics, LLC, a privately held Delaware limited liability company ( Private Precipio ), in accordance with the terms of an Agreement and Plan of Merger, dated as of October 12, 2016, by and among Private Precipio, Transgenomic and New Haven Labs Inc., a Delaware corporation and wholly owned subsidiary of Transgenomic. The Current Report on Form 8-K filed on June 30, 2017 is incorporated herein by reference and this Current Report supplements the information contained in Item 9.01 of that report.
Item 8.01 | Other Events |
During June 2017, prior to the merger, Transgenomic entered into a settlement agreement with Fox Chase (the Agreement) which will resolve all outstanding claims in the litigation brought in April 2016 by Fox Chase against Transgenomic in the Court of Common Pleas of Philadelphia County (the Action). The case will remain pending with the Court until all settlement payments to FCCC have been made. Under the Agreement the Company will make three (3) payments to Fox Chase totaling $175,000.00. The last payment is to be made on or before September 30, 2017, and once received Fox Chase is obligated to cause the Action to be formally dismissed with prejudice. Also, on July 13, 2017 the Company entered into an agreement with its co-Defendant, IDT, regarding the Companys indemnity obligations to IDT for legal fees and expenses incurred in the Action per the July 2014 Purchase Agreement between Transgenomic and IDT (the IDT Agreement). The IDT Agreement provides for monthly payments of $27,800.00 from the Company to IDT, in the total amount of $139,000.00, commencing on August 15, 2017 and concluding on December 15, 2017.
Item 9.01 | Financial Statements and Exhibits. |
The unaudited condensed financial statements of Private Precipio, including Private Precipios condensed balance sheets as of March 31, 2017 (unaudited) and December 31, 2016, condensed statements of operations for the three months ended March 31, 2017 and 2016 (unaudited), condensed statements of cash flows for the three months ended March 31, 2017 and 2016 (unaudited) and the notes related thereto, and managements discussion and analysis of financial condition and results of operations are filed as Exhibit 99.1 and are incorporated herein by reference.
2
The audited financial statements of Private Precipio, including Private Precipios audited balance sheets as of December 31, 2016 and 2015, statements of operations, changes in members deficit and cash flows for the years ended December 31, 2016 and 2015, the notes related thereto and the related independent registered public accounting firms reports are filed as Exhibit 99.2 and are incorporated herein by reference.
The unaudited pro forma combined financial information of the Company and Private Precipio, including the Companys and Private Precipios combined balance sheet as of March 31, 2017, the unaudited pro forma combined statements of operations for the three months ended March 31, 2017, the unaudited pro forma combined statements of operations for the year ended December 31, 2016 and the notes related thereto, are filed as Exhibit 99.3 and are incorporated herein by reference.
(d) | Exhibits. |
Exhibit No. |
Description |
|
10.1# | Amended and Restated Pathology Services Agreement, dated March 21, 2017, by and between Precipio, Inc. and Yale University | |
10.2 | Lease, dated July 11, 2017, by and between Precipio, Inc. and Science Park Development Corporation | |
23.1 | Consent of Independent Registered Public Accounting Firm (Marcum LLP) | |
23.2 | Consent of Independent Registered Public Accounting Firm (Whittlesey & Hadley, P.C.) | |
99.1 | Unaudited Condensed Financial Statements of Precipio Diagnostics, LLC | |
Condensed Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016 | ||
Condensed Statements of Operations for the Three Months Ended March 31, 2017 and 2016 (unaudited) | ||
Condensed Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 (unaudited) | ||
Notes to Unaudited Condensed Financial Statements | ||
Managements Discussion and Analysis of Financial Condition and Results of Operations | ||
99.2 | Audited Financial Statements of Precipio Diagnostics, LLC | |
Report of Independent Registered Public Accounting Firm (Marcum LLP) Report of Independent Registered Public Accounting Firm (Whittlesey & Hadley, P.C.) |
||
Balance Sheets as of December 31, 2016 and 2015 | ||
Statements of Operations for the Years Ended December 31, 2016 and 2015 Statements of Changes in Members Deficit for the Years Ended December 31, 2016 and 2015 |
||
Statement of Cash Flows for the Years Ended December 31, 2016 and 2015 | ||
Notes to Financial Statements | ||
Managements Discussion and Analysis of Financial Condition and Results of Operations | ||
99.3 | Unaudited Pro Forma Combined Financial Information of Precipio, Inc. and Precipio Diagnostics, LLC | |
Balance Sheet as of March 31, 2017 |
||
Statement of Operations for the Three Months Ended March 31, 2017 |
||
Statement of Operations for the Year Ended December 31, 2016 |
||
Notes to the Unaudited Pro Forma Combined Financial Statements |
# | Confidential treatment has been requested or granted for certain information contained in this exhibit. Such information has been omitted and filed separately with the Securities and Exchange Commission. |
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PRECIPIO, INC. | ||
By: | /s/ Ilan Danieli | |
Name: | Ilan Danieli | |
Title: |
Chief Executive Officer |
Date: July 31, 2017
4
Exhibit 10.1
AMENDED AND RESTATED
PATHOLOGY SERVICES AGREEMENT
This PATHOLOGY SERVICES AGREEMENT (Agreement) is made and entered into on the 21 st day of March, 2017 with an effective date of the renewal on June 1, 2016 (Effective Date), by and between YALE UNIVERSITY, a Connecticut domestic non-stock corporation, acting in behalf of its School of Medicine, Department of Pathology of its School of Medicine (Yale), and PRECIPIO DIAGNOSTICS, LLC., and Precipio Diagnostics, Inc., both Delaware corporations, collectively (Precipio). Yale and Precipio sometimes are referred to herein collectively as the Parties and individually as a Party.
RECITALS
Precipio has established a licensed clinical laboratory currently located in New Haven, CT (the Laboratory) and has obtained the necessary licenses to operate a Hematopathology reference laboratory.
Yale operates a School of Medicine located at 333 Cedar Street, New Haven, CT 06510 (YSM), which includes a Department of Pathology (the Department), that employs or contracts with physicians (Yale Physicians) who are licensed to practice medicine in various states, including, without limitation, the State of Connecticut, and who have experience and expertise in the specialty of Hematopathology. Yale also employs or contracts with non-physician laboratory personnel who are qualified and experienced in providing the technical component of pathology services (Yale Personnel).
The Parties are entering into this Agreement to establish a relationship by which Yale, acting at all times as an independent contractor to Precipio, shall provide or arrange for the provision of professional pathology services to Precipio and its clients in accordance with the terms set forth herein, and Precipio shall provide facilities and management and other services in support of the professional pathology services that the Yale Physicians will provide.
Yale Physicians shall retain exclusive authority and discretion in relation to their practice of medicine while performing the services provided hereunder, and nothing in this Agreement is intended to permit, or shall be construed as permitting, Precipio to in any manner control such professional services or shall limit, or shall be construed as limiting, the right and responsibility of Yale Physicians to exercise independent professional judgment in the practice of medicine.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
YALE RESPONSIBILITIES
1.1 Pathology Services . During the term of this Agreement, Yale shall provide the professional pathology services in the subspecialties of Hematopathology and molecular pathology as further set forth in Exhibit 1.1.A, and Schedule 1.1.B attached hereto and
incorporated by this reference herein (the Services). Yale has the right to market its molecular work or partner with any other entity, commercial or otherwise, for molecular technical work and its associated professional component for performance by Yale for such third party. While Yale shall have the right to perform Hematopathology professional services during the term of this Agreement, Precipio reserves the right to expand the technical pathology services it offers, to areas including, but not limited to, Renal Pathology, Neuro Pathology, GI Pathology and Urologic Pathology. For those services, the agreement shall extend so that Precipio will conduct the technical component, and Yale shall provide the professional interpretation component, and such additional services performed by Yale shall be included within the Services. Yale agrees to provide those Yale Physicians listed on Schedule 1.5 to provide the Services set forth in this Agreement. Yale from time to time may engage additional Yale Physicians to furnish Services under this Agreement in Yales sole discretion.
1.2 Consultation . The Services shall include, during Yales normal business hours, (a) telephone and/or video consultations as needed with Precipio personnel by Yale Physicians and Yale Personnel to discuss the Services and to explain test results; and (b) telephone consultations as needed with the physician who ordered the test by the Yale Physician signing out the case or by a covering Yale Physician. For emergency stat cases, Yale physicians will be available on-call 24 hours a day, 365 days a year through a call schedule established by Yale.
1.3 Authority for Yale Physicians and Yale Personnel . Yale shall have authority and responsibility for providing the Yale Physicians and Yale Personnel (including recruiting, hiring, promoting, compensating, and disciplining such individuals) and for establishing the terms of such persons employment with Yale. All Yale Physicians and Yale Personnel shall be employees or contractors of Yale and shall be carried on Yales payroll. Yale may engage additional Yale Personnel to assist with furnishing Services under this Agreement.
1.4 Place of Performance . All Yale Physicians and Yale Personnel designated to provide the Services shall perform their services at Yale facilities or at another location as designated by Yale. Yale shall ensure that all personnel are appropriately trained and certified or licensed as necessary and are covered by Yales insurance or have obtained equivalent coverage. Yale shall be solely responsible for satisfying any and all obligations for any personnel it retains, employs, or contracts with to assist in its performance of the Services under this Agreement. Such obligations shall include, without limitation, paying all federal and state withholding taxes applicable to employees, complying with federal and state wage-hour obligations (including overtime), workers compensation obligations, unemployment insurance obligations, and other applicable taxes and contributions to government-mandated employment-related insurance and similar programs.
1.5 Qualifications . All Yale Physicians who provide Services under this Agreement shall be duly licensed and qualified to practice medicine in the State of Connecticut and, to the extent required by law, in each state in which the patient for whom the Services are being provided is located (Applicable States), shall be licensed in such Applicable States as a physician, and shall be board certified or board eligible in pathology. All Yale Personnel shall be properly trained and qualified to provide Services under this Agreement. Yale shall provide Precipio with a list of the states in which it can provide or arrange for the Services, based on the licensure of the Yale Physicians listed in Schedule 1.5. Precipio shall consult with Yale on an ongoing basis to identify states in which Precipio desires Yale to provide or arrange for the Services, according to Precipios sales and marketing plan.
1.6 Licensing and Certification . Yale shall obtain and maintain all licenses, permits, and certifications required by applicable state and federal government authorities for the provision of the Services hereunder, including without limitation, the Clinical Laboratory Improvement Act of 1998 (CLIA) and the standards and recommendations of the Joint Commission (TJC) and the College of American Pathologists (CAP).
1.7 Professional Standards . At all times during the term of this Agreement, Yale shall provide or arrange for the Services required hereunder, and otherwise shall act, or ensure that Yale Physicians act, in accordance with: (a) the prevailing standards of pathology practice; (b) all federal, state, or local laws and regulations applicable to the provision of pathology services; and (c) such standards of care as are established by medical specialty boards and other private organizations that have established standards applicable to the provision of pathology services. Without limiting the foregoing, the Parties at all times during the term of this Agreement shall comply with all applicable rules and regulations of the medical boards of the Applicable States, and the ethical standards of the American Medical Association and the medical societies of the Applicable States. All professional employees of Yale, and any other professionals otherwise retained to provide the Services by Yale shall be required to comply with the foregoing requirements.
1.8 Performance Standards .
(a) Scheduling and Coverage . Yale shall provide or arrange for the Services during such hours as set forth on Exhibit 1.8, attached hereto and incorporated herein by this reference, or such other hours as the Parties may mutually determine from time to time to be necessary in order for Yale to perform Yales obligations hereunder, including without limitation, to provide Services sufficient to accommodate the estimated case volume set forth on Exhibit 1.8, as such Schedule may be amended from time to time by mutual written agreement of the Parties. Yale shall maintain adequate staffing to provide continuous Services, without any degradation in quality of Services or turnaround times (as such times are set forth in Exhibit 1.8), throughout the term of this Agreement. Except as otherwise provided herein, Yale shall not assign, delegate or otherwise transfer any of Yales duties or obligations hereunder, in whole or in part, to any person or entity.
(b) Personalized Service Teams . Without limiting the provisions of Section 1.8(a), in furtherance of the Parties goal of enabling Precipio customers to foster direct relationships with the Yale Physicians that sign out such customers cases, Yale shall assign Precipio customers for whom Yale provides or arranges Services to teams of at least two (2) Yale Physicians who will be responsible for signing out cases for those clients; provided, however, that Yales obligations under this Section shall be subject to Yales reasonable consideration of operational feasibility, including without limitation, the specific medical licenses held by Yale Physicians.
(c) Turnaround Times . For the purposes of this Agreement, the term Approved Late Cases shall be defined as cases that are delayed due to clinical reasons or that the pathologist has determined, at his or her sole discretion, to be complex cases requiring additional time for review. Following the applicable Yale Physicians receipt of all of the data necessary to render the Services, Yale shall ensure that the Services are provided within the pre-defined turnaround times at least for 90% of all cases, excluding Approved Late Cases, as set forth in Exhibit 1.8, attached hereto and incorporated herein by this reference. Yale and Precipio both acknowledge that the rate of Approved Late Cases shall not exceed ten percent (10%) of the total volume of cases. In the event that Yale does not comply with the standards set forth in Exhibit 1.8 for at least 90% of cases (excluding Approved Late Cases), the cases that are not completed within the defined time period as agreed to in Exhibit 1.8, shall be deemed late delivery cases for the purposes of calculating turnaround times. For each non-Approved Late Case that is delivered after the defined time period as agreed to in Exhibit 1.8, the payment to Yale for such case shall be decreased by twenty percent (20%). If the late delivery cases exceeds 10% of cases reviewed by Yale for Precipio for longer than ninety (90) days, the parties shall meet to discuss the reasons for such non-compliance and to develop a remedial plan to avoid future non-compliance. However, in the event of any such non-compliance and the parties failure to develop a mutually agreeable remedial plan after their having the required meeting, or if Precipio wishes to add additional appropriately qualified physicians, Precipio reserves the right to seek its own resources to conduct the professional interpretation to supplement Yales resources and satisfy Precipio business needs and its customers expectations of level of service. In the event that Precipio obtains services from non-Yale physicians, including any sign off by a non-Yale Medical Director, any report associated with such services must expressly state that the services were not provided by a Yale physician and the report cannot contain Yales name or any reference to Yale.
1.9 Laboratory Information System Access . Precipio has and shall maintain its own laboratory information system (LIS) for the Laboratory, and shall provide Yale, Yale Physicians, and Yale Personnel with access to the LIS for the purpose of providing the Services. Yale shall be responsible for providing the information technology and telecommunications connections necessary to ensure proper and secure connectivity to the LIS. Each Party shall be responsible for such Partys aspect of any interfaces required between Yales information technology systems and those of Precipio. Precipio will provide all training necessary for Yale Physicians and personnel to use the LIS.
1.10 Medical Records and Specimens . Yale shall ensure the timely and accurate completion of records of the Services performed hereunder. Subject to Applicable Laws (defined below) governing the privacy and confidentiality of medical records, Yale shall have access to, and the right to make copies of, all medical records for any proper purpose related to the performance of Services by Yale and/or Yale Physicians hereunder. Yale shall ensure that Yale Physicians and Yale Personnel abide by Precipios document and slide retention policies/protocols, and with the requirements of all Applicable Laws pertaining to document and slide retention. Upon receipt or notice of a request for documents, slides or blocks, Yale shall immediately forward the request to Precipio for response and handling. In addition, Precipio shall maintain ownership of all slides, blocks and records prepared in connection with this Agreement, which shall be maintained and retained in accordance with Applicable Laws. For purposes of this Agreement, Applicable Laws means any and all federal, state, and local laws and regulations applicable to the manufacture, distribution, and use of the Licensed Technology, including, without limitation, state laws governing the corporate practice of medicine, clinical
laboratory licensure and certification, health professional licensure, telemedicine and interstate practice of medicine, Medicare and Medicaid laws, regulations, rules and directives and any amendments thereto, and all other applicable federal, state and local laws and regulations as may be in effect from time to time during the term of this Agreement. Once Precipio no longer wishes to retain archived patient tissues, slides, and other materials and patient records, Yale shall have the rights of first-refusal to take ownership of this material for research and teaching purposes.
1.11 Result Reporting . For each Service ordered, Yale shall provide a professional interpretation of the technical test results, and a finalized sign-out report to be delivered by Precipio to the ordering physician. Yale shall ensure that such professional interpretations and reports are entered into the LIS. Precipio will provide all necessary data entry and transcription services needed to enter the professional interpretation.
1.12 Exclusivity . The Hematopathology Services of Yale hereunder shall be rendered to Precipio on an exclusive basis, in the sense that the Yale Department of Pathology will not provide such services under contract to any other commercial entity that is a competitor to Precipio, including without limitation, any commercial reference laboratory or other entity conducting technical component tests and seeking Yales provision of professional interpretation services. Notwithstanding the foregoing, (i) the Yale Department of Pathology may directly or indirectly enter into contracts with insurers, HMOs and other similar payor entities, as well as any other hospitals or health systems or physician networks, (ii) the Yale Department of Pathology retains the right to accept ad hoc reference testing and consultative requests from any entity, commercial or otherwise (iii) Yale retains the right to directly market its pathology and other medical services without restriction as Yale Medicine, Yale Pathology Labs, Yale or on behalf of the Yale New Haven Hospital or Health System, and (iv) Yale retains the right to enter into contracts with other commercial entities for pathology services unrelated to the Hematopathology services exclusively provided to Precipio. Precipio shall not market its services in the State of Connecticut unless authorized by Yale-New Haven Hospital. In addition, Precipio shall not market its services with Baystate Medical Center, Massachusetts or Westerly Hospital, Rhode Island. Except as provided above, Precipio and Yale may otherwise compete and market services to any customers.
ARTICLE II
PRECIPIO RESPONSIBILITIES
2.1 Customer Acquisition and Retention . Precipio shall be responsible for all sales and marketing efforts regarding the reference lab services that Precipio provides. Precipio shall use its reasonable efforts to generate case volume in amounts at least equal to those listed in Exhibit 1.8.
2.2 Accessioning . Precipio shall be responsible for entering all patient information into the LIS in preparation for Yale Physicians to render the Services. Precipio shall ensure that patient information entered into the LIS is accurate and complete.
2.3 Requisition Forms : Customer requisition forms to be used by Precipio must be approved by Yale Medical Director.
2.4 Triage; Initial Test Orders . Precipio shall conduct the initial review of the specimen aspirate and clinical information and, based on that review and established protocols, select appropriate initial test(s) to perform on the specimen. The protocols for test selection and approval of test selection will be subject to Yale Physician review and approval, and will in all cases be based on medical necessity and current standards of practice.
2.5 Technical Component . Precipio shall be responsible to provide or arrange for all elements of the technical component required to generate testing results from tests performed at the Laboratory.
2.6 Delivery . For each Service ordered, Precipio shall provide delivery of the test data and slides in accordance with the procedures set forth in Exhibit 2.6.
2.7 Report Preparation . Precipio shall be responsible, at Precipios sole cost and expense, for providing or arranging for any transcription services required to prepare the report for Yale Physician review, interpretation, modification, and sign-out. Transcription services provided by Precipio will include transcription of free-text dictation or of electronic notes, provided that Precipio need transcribe no hand-written notes, whether presented by electronic facsimile or otherwise.
2.8 Billing and Collection . Precipio shall provide Yale with the billing and collection services more fully described in ARTICLE III.
2.9 Right to Decline Billing . Precipio will honor pathologist requests not to charge for uninformative tests, including immunohistochemistry, in accord with indications of medical necessity.
2.10 Report Delivery . Precipio shall be responsible, at Precipios sole cost and expense, for transmission or delivery of the final test results and interpretation to the ordering customer.
2.11 Qualifications . All Precipio personnel whom Precipio employs or otherwise retains to conduct operations at the Laboratory shall be duly licensed, trained, and qualified to perform such activities.
2.12 Performance Standards . Precipio shall perform its obligations under this Agreement substantially in accordance with the performance standards set forth in Exhibit 2.12, attached hereto and incorporated herein by this reference.
2.13 Licensing and Certification . Precipio shall obtain and maintain all licenses, permits, and certifications required by applicable state and federal government authorities to operate the Laboratory, including without limitation, CLIA and the standards and recommendations of TJC and CAP.
2.14 Personnel . Precipio shall employ or otherwise retain all professional and non-professional personnel necessary for the proper conduct and operation of the Laboratory, other than Yale Physicians or other Academic Physicians assisting Yale at Yales discretion. Precipio shall ensure that such personnel are appropriately trained and are covered by Precipios
insurance or have obtained equivalent coverage. Precipio shall be solely responsible for satisfying any and all obligations for any personnel it retains, employs or contracts with to assist it to perform this Agreement. Such obligations shall include, but are not limited to, paying all federal and state withholding taxes applicable to employees, complying with federal and state wage-hour obligations (including overtime), workers compensation obligations, unemployment insurance obligations, and other applicable taxes and contributions to government mandated employment related insurance and similar programs. Precipio will designate an in-lab technical director who will be available on a stat basis by telephone or email, as the point of direct contact between Yale physicians and the laboratory.
2.15 Laboratory Rotations . Precipio shall accommodate periodic and rotational visits by Yale Physicians and Yale Personnel to the Laboratory, at such times and for such duration as the Parties may mutually agree, to provide professional and technical education, a better understanding of Precipios business and operations, and to strengthen team working relationships.
2.16 Laboratory Information System . Precipio shall be responsible for installing and maintaining the LIS for the Laboratory, and for having such LIS fully operational as of the Effective Date, and shall provide Yale, Yale Physicians, and Yale Personnel with access to the LIS for the purpose of providing the Services. The LIS used and its capabilities must be approved by Yale.
2.17 Precipio Compliance Program . Precipio will maintain a compliance program designed to promote adherence to applicable federal and state laws, regulations, and interpretations. Precipio shall use its best efforts to ensure that all claims, bills and reports relating to the Services satisfy all Applicable Laws, payor rules, regulations, and instructions. Without limiting the scope of the indemnification provided in Section 6.2 below, Precipio shall indemnify, defend and hold harmless Yale and Yale Physicians, and each of them, from any liability, loss, damage, claim, fine, or expense, including costs and reasonable attorneys fees, arising from any actual or alleged billing errors, false claims, or insurance fraud relating to claims made by Precipio for any Services.
2.18 Third Party Payors . Precipio shall negotiate with all third party payors for the purpose of obtaining managed care, preferred provider and other agreements with such third party payors. To the extent possible, all such agreements shall be held by Precipio in its own name and shall provide for either global or combined billing, with all payments for both Precipios services and Yales Services hereunder being made to Precipio. To the extent any payor requires a direct agreement with Yale and/or Yale Physicians, Yale shall have the right to approve such agreement, which approval shall not be unreasonably withheld or delayed.
2.19 Additional Licensure Of Pathologists . To the extent Precipio wishes to expand its reference laboratory service business to geographic locations that Yale physicians are not currently licensed in, or in subspecialty fields not currently served by Yale (Proposed Expansion States), Precipio shall provide Yale with written notice of Precipios desire to expand (Proposed Expansion Notice), which written notice shall specify the Proposed Expansion State(s). Yale will make reasonable efforts to provide Precipio with all necessary paperwork and credentials needed to apply for licensure on behalf of the Yale Pathologist for
each pathologist on service within thirty (30) days of execution of this Agreement or future request, so that Precipio can file the state license applications necessary at its expense on behalf of the Yale pathologists to secure the necessary capabilities for the proposed Expansion State. To the extent the application process requires Yale pathologists to conduct certain actions to secure the license (such as fingerprinting, or other tasks as required by state authorities), Yale shall make reasonable efforts to ensure that the physician completes those tasks within a reasonable time frame and at its expense, so as not to delay the licensure process. If Yale declines to address such expansion, or is incapable of doing so after sixty (60) days, Precipio reserves the right to independently secure such new services with other providers; provided that any report associated with such services, including any sign-off by a non-Yale Medical Director, must expressly state that the services were not provided by a Yale physician and the report cannot contain Yales name or any reference to Yale. Precipio shall be responsible to pay for the licensing application and processing fees and renewal fees related to the Expansion States; provided however, if the payments to Yale provided under this Agreement exceed ten thousand dollars ($10,000) per year for Services related to such Expansion States, Yale will pay for any and all renewal fees.
ARTICLE III
FINANCIAL ARRANGEMENTS
3.1 Compensation for Services . During the term of this Agreement, Precipio shall compensate Yale for the Services set forth in this Agreement as follows:
(a) Compensation to Yale for Services . Precipio shall compensate Yale for the Services in accordance with Schedule 3.1, attached hereto and incorporated herein by this reference. This fee schedule will be mutually agreed upon, and is based on Yales usual and customary net collections for its professional services. This schedule of compensation will be reviewed semi-annually based on Yales current practice experience.
(b) Calculation of Compensation . Precipio will bill the respective insurance companies of the patients based on the CPT codes for the work carried out by both parties.
(c) Address and Time for Payments to Yale . Yale shall submit invoices on a monthly basis to Precipio at the address provided in Section 9.15 (Notices). Precipio shall make all payments to Yale for Services within ninety (90) days of receipt of Yales invoice. During the first two (2) years of the term of this Agreement, Precipio shall pay Yale a One-Half Percent (1/2%) service charge per month for any payments that are not made within ninety (90) days. Thereafter, the service charge applicable to any late payments shall be One Percent (1%). Precipio shall send payment to Yale, payable to Yale University, at the address provided in Section 9.15 (Notices). Failure by Precipio to bill or collect payment for any Services provided hereunder will not reduce Precipios obligation to pay Yale for such Services.
3.2 Billing and Collection . Precipio will bill patients and payors for its and Yales testing on its own account. In accordance with the provisions of this Section, and consistent with Precipios normal and customary collection policies and procedures, Precipio shall use diligent, good-faith efforts to bill and collect such accounts receivable in a timely manner. Precipio will submit billing in accordance with the following provisions:
(a) Global Bills . To the extent permitted by the rules of applicable payor programs, Precipio shall, in Precipios name, submit global or combined bills to payors that include both the charges for Precipios clinical laboratory services (including histology) and for Yales Services. Precipio shall have the authority to establish the amount of any global bills in its sole discretion, subject to its obligation to comply with all applicable laws.
(b) Separate Bills . To the extent any payor requires that a separate bill be submitted for professional pathology services rendered by Yale Physicians hereunder, Precipio shall prepare, mail and collect all such separate bills and statements for such Services. For any combined or separate billing in which Yale Physician charges are identified separately from Precipio charges, Precipio shall establish the combined or separate amounts to be billed for its own services in its sole discretion.
(c) Accounting . Precipio shall have responsibility for identifying and tracking the Services for purposes of billing and collection, and Precipio shall maintain accounting, billing and collection records for the Services in a form acceptable to both Precipio and Yale. To the extent Yale receives any fees from third parties for services rendered under this Agreement, Yale shall account for and deliver any and all such fees to Precipio. Such obligation shall survive any termination of this Agreement with respect to Services performed during its term.
(d) Avoiding Confusion . In billing on its own behalf for services for services performed by Yale hereunder, Precipio acknowledges that there is the possibility of confusion arising with third-party payors with respect to services that are performed by Yale outside of the scope of this Agreement. Precipio will take all necessary steps to coordinate with Yale and otherwise to ensure that no such confusion occurs, including, but not limited to, advising Yale as to what steps will be taken so as to avoid confusion before Precipio approaches any third party payor. Furthermore, Precipio agrees not to make any use of Yales tax identification number, in billing for services or otherwise, without first providing Yale with a written description of such intended use and obtaining Yales written approval thereof. In the event that Precipio is advised by Yale or otherwise becomes aware that any such confusion has arisen, Precipio will promptly coordinate with Yale and take all steps necessary to resolve such confusion and ensure that its billing activities do not in any manner interfere with the ability of Yale to be separately paid for its services performed outside of the scope of this Agreement.
(e) Billing for Consultations.
(i) Yale agrees to perform consultations requested by Precipio or requested by a referring physician. Precipio agrees to log all such consultation calls and provide a monthly report to Yale so Yale can bill Precipio the agreed upon amount as set forth on Schedule 3.1. Precipio agrees to pay Yales invoices for such consultations within ninety (90) days of receipt of the invoice.
(ii) If Precipio receives a request by a customer for a second opinion on a pathology case which is otherwise outside the scope of this Agreement (meaning that Yale did not provide professional services to render a diagnosis for this case), Precipio agrees to transfer such specimen(s) and any necessary paperwork including patients insurance information, to Yale for review. Yale will perform the review and provide a report to Precipio to transcribe into the LIS system and Precipio agrees to provide the final report to the referring physician. Yale will bill the patients insurance directly for these consultation services.
3.3 Assignment of Claims . Yale hereby irrevocably assigns (or reassigns, as the case may be) exclusively to Precipio all claims, demands and rights of Yale to charge, bill and collect from patients and third-party payors any payment for Services rendered pursuant to this Agreement. Yale shall execute any and all documents necessary to secure and perfect Precipios interest in such revenues and accounts receivable, and shall cooperate with Precipio in any reasonable manner to effectuate an efficient billing process. Notwithstanding the foregoing, the Parties shall at all times comply with the requirements of the Medicare program and of any Medicaid programs relating to the assignment or reassignment of claims or the compensation paid to billing and/or collection agents.
3.4 Billing Exclusivity . Precipio shall have sole and exclusive right and responsibility to bill and collect for all professional and technical fees associated with Services rendered or arranged by Yale pursuant to this Agreement.
3.5 Books and Records .
(a) Records and Claims . Each Party shall maintain financial books and records, and all other medical records and charts, in accordance with industry standards, and in compliance with all Applicable Laws and the regulations and requirements of any applicable, voluntary accrediting institution. Each Party shall maintain and provide all such books, records, and charts to the other Party, and/or to state and federal agencies, as applicable, as may be necessary for either Party to comply with Applicable Laws, with contracts between either Party and any payor, and to ensure compliance with the terms and conditions of this Agreement. Each Party shall retain such records and information for at least six (6) years after the termination of this Agreement, or for such time required by Applicable Laws, whichever is greater.
(b) Access . Each Party shall, in connection with the subject of this Agreement, cooperate fully with the other Party, by, among other things, maintaining and making available all necessary books, documents and records, in order to assure that each Party will be able to meet any and all legal requirements subject, in each case, to Applicable Laws governing health information privacy and security.
3.6 Fair Value Warranty . Each Party represents and warrants to the other that the aggregate benefit given or received under this Agreement has been determined in advance through a process of arms length negotiations that were intended to achieve an exchange of services consistent with fair market value under the circumstances.
3.7 Compensation to Yale Physicians and Yale Personnel . Yale reserves the right, in its sole discretion, to determine the compensation payable to Yale Physicians and Yale Personnel providing Services under this Agreement.
ARTICLE IV
TERM AND TERMINATION
4.1 Term . This Agreement shall have become effective as of June 1, 2016, and, subject to earlier termination and renewal as provided herein, shall remain in effect for an initial period of five (5) years (the Initial Term). Thereafter, this Agreement will continue on the same terms and conditions as applied during the Initial Term for successive renewal terms of five (5) years each (Renewal Term(s)), unless either Party gives the other at least one hundred eighty (180) days prior written notice at any time of its intention to terminate with or without cause or not to renew this Agreement upon expiration of the then current term. References herein to the term of this Agreement shall mean the Initial Term and any Renewal Terms that occur in accordance with the above clause.
4.2 Termination for Breach . Either Party hereto shall have the right to terminate this Agreement immediately in the event that the other Party shall be in violation of, or fails to comply with, any of the requirements of this Agreement, and such violation or failure remains uncured for a period of ninety (90) days after the one party provides notice to the other party of such breach.
4.3 Immediate Termination . Notwithstanding Section 4.2, this Agreement may be terminated immediately:
4.3.1 by either Party if: (a) either Yale or Precipio has their respective license suspended or revoked; (b) if the insurance coverage required of Yale or Precipio is canceled or modified; (c) if Precipio fails to maintain or meet the requirements of Medicare conditions of participation; (d) closure of the Precipio Laboratory; or (e) Precipio declares bankruptcy or is placed into involuntary bankruptcy or receivership.
4.3.2 by Yale if: Precipio does not make within 10 days of the completion of its merger with Transgenomic, Inc. the mutually agreed upon payment in the amount of sixty-two thousand five hundred dollars ($62,500) which is due under the executed settlement and release agreement between the parties.
4.4 Other Grounds for Termination . To the extent the performance by either Party to this Agreement or any provision of this Agreement: (i) jeopardizes the licensure of Yale or any Yale Physician or Yales accreditation by TJC or any other accreditation organization; (ii) jeopardizes either Partys participation in Medicare, Medicaid or other federal, state or commercial reimbursement or payment program; (iii) violates any statute, ordinance or otherwise is deemed illegal; (iv) is deemed unethical by any recognized body, agency or association in the medical or laboratory fields; or (v) causes the continuation hereof to constitute a substantial threat to the tax-exempt status of Yale or any of Yales subsidiaries or affiliates, either Party may by written notice to the other initiate negotiations to amend the Agreement to remove such jeopardy, violation, unethical practice, threat or illegality; and if a mutually agreed upon amendment is not executed by the Parties no later than thirty (30) days from the original notice date, this Agreement shall immediately terminate.
4.5 Tax-Exempt Financing . If Yale or any of Yales subsidiaries or affiliates intends to seek tax-exempt financing that requires a change in Yales relationship to Precipio, Yale shall provide written notice of such intent to Precipio, and the Parties shall negotiate in good faith to amend this Agreement to the extent deemed necessary by bond counsel involved in that financing. In such an event, Yale will pay for all legal and other expenses incurred by Precipio for such amendments. If the Parties are unable to agree upon an amendment within thirty (30) days following Precipios receipt of the notice referred in the preceding sentence, Yale may in its sole discretion elect to immediately terminate this Agreement.
4.6 Obligations Upon Termination . Upon expiration or termination of this Agreement, neither Party shall have any further obligation hereunder except for: (1) obligations due and owing which arose prior to the termination or expiration of the Agreement; and (2) obligations or covenants contained herein which expressly extend beyond the term of this Agreement. In the event of a termination by Yale for any reason other than breach by Precipio, and in the event of a termination by Precipio for a breach by Yale, Yale shall make reasonable efforts to arrange for an alternative service provider of same or higher quality and reputation, who is willing and able to provide the Services on the terms provided herein, so that Precipio business operations are not affected.
4.7 Outstanding Balances . Within thirty (30) days following the expiration or termination of this Agreement, all amounts payable to Yale from Precipio under this Agreement will be paid by Precipio.
ARTICLE V
STATUS OF THE PARTIES
5.1 Independent Contractor Relationship . The Parties are independent contractors. Nothing in this Agreement is intended, and nothing shall be construed, to create a partnership, joint venture, employer-employee relationship, trust, or any other form of legal organization or association between Yale and Precipio or between Yale Physicians and Precipio. Precipio shall not treat Yale or Yale Physicians as an employee or employees for any purpose, including federal tax purposes, and shall not withhold any sums for income tax, unemployment insurance, Social Security, or any other withholding pursuant to any law or requirement of any governmental body. Neither Party shall have the authority to represent the other in any manner or enter into agreements on behalf of the other Party or incur any liability for, or in the name of, the other Party. Precipio shall indemnify, defend, and hold Yale harmless from any and all taxes, liabilities, costs, and expenses incurred by Yale as a result of any audit by any governmental entity relating to Yales employment-related obligations or any action that arises out of Precipios breach of this Section.
5.2 Practice of Medicine . As permitted under Applicable Laws, Yale and/or Yale Physicians shall retain the exclusive authority to direct the methods, means and scope of the practice of medicine as it pertains to the cases sent to Yale for Services under this agreement. In those cases, Precipio shall have no authority, directly or indirectly, to perform or control, and shall not perform or control, any act or activity constituting the practice of medicine, and shall not exercise control or direction over the medical judgment or ethical obligations of Yale and/or Yale Physicians. Nothing herein is intended, or shall be construed or interpreted, as limiting in any manner the right and responsibility of Yale and/or Yale Physicians to exercise independent professional judgment concerning the appropriateness of care and treatment provided to patients in the cases referred to Yale for Services of professional interpretation under this agreement.
ARTICLE VI
INSURANCE AND INDEMNIFICATION
6.1 Insurance .
(a) Minimum Coverages . At a minimum, during the Term of this Agreement, each Party shall, at its sole expense, maintain the following insurance coverages:
(i) Commercial and comprehensive general liability insurance in amounts not less than Two Million Dollars ($2,000,000.00) per occurrence and Five Million Dollars ($5,000,000.00) annual aggregate for all covered claims;
(ii) Professional liability or errors and omissions insurance with limits of liability of not less than Two Million Dollars ($2,000,000.00) per claim and Five Million Dollars ($5,000,000.00) per occurrence;
(iii) Workers compensation insurance and other insurance as required by law.
(b) Additional Insured; Continued Coverage . Each Party shall take reasonable steps to ensure that any of the insurance coverage required by this Section 6.1 will name the other Party as an additional insured. Such insurance coverages shall be primary and noncontributory, and shall be on an occurrence basis. To the extent such insurance coverages are on a claims-made basis, each Party shall, at its sole expense, provide continued coverage, either through renewal of coverage, or through purchase of an extended reporting endorsement (tail) for a period of not less than four (4) years after the year in which this Agreement terminates. Such tail coverage shall be at least in the amounts set forth above. If a Party does not maintain the foregoing group coverage or purchase tail coverage, the other Party shall have the right to purchase such coverage and bill the Party for the premium.
(c) Proof of Insurance . Each Party shall provide proof of the coverages required by this Section 6.1 upon any reasonable request by the other Party. Each Party shall secure an endorsement from its insurer(s) providing that the other Party shall be provided at least thirty (30) calendar days prior written notice of any proposed cancellation or change in insurance carriers or coverage.
6.2 Indemnification by Precipio . To the extent not otherwise covered by insurance and permitted by Applicable Laws, Precipio shall defend, indemnify and hold Yale, Yale Physicians, its officers, employees and agents harmless from and against any and all liability, loss, damage, fine, expense, (including costs and reasonable attorneys fees), or claims for injury or damages arising out of the performance of this Agreement, but only in proportion to and to the extent such liability, loss, expense, attorneys fees or claims for injury or damages are caused by or result from the negligent or intentional acts or omissions of Precipio, its officers, employees, or agents.
6.3 Indemnification by Yale . To the extent not otherwise covered by insurance and permitted by Applicable Laws, Yale shall defend, indemnify and hold Precipio, its officers, employees, and agents harmless from and against any and all liability, loss, expense (including reasonable attorneys fees), or claims for injury or damages arising out of the performance of this Agreement, but only in proportion to and to the extent such liability, loss, expense, attorneys fees or claims for injury or damages are caused by or result from the negligent or intentional acts or omissions of Yale, its officers, employees, or agents.
ARTICLE VII
USE OF NAME
7.1 Use of Name . Neither Party shall use the name of the other without prior written approval of an authorized representative of that Party. Any use of the Yale, or Yale University name or other similar references to Yale University, its physicians or facilities, shall be subject to the prior written approval from Yale in accordance with the provisions of Applicable Laws.
7.2 Marketing of Yale Physicians . Precipio shall not advertise itself as a Yale or Yale affiliated laboratory in any marketing materials without Yales prior written consent. However, Precipio may cite the names of the Yale Physicians, their academic credentials and Yale affiliation of physicians providing the professional component of their service.
ARTICLE VIII
CONFIDENTIALITY
8.1 Confidential Information . For purposes of this Agreement, Confidential Information means any trade secrets or confidential or proprietary information whether in written, digital, oral or other form which is unique, confidential or proprietary to one Party, its suppliers or agents (Disclosing Party), which is disclosed to the other Party (Receiving Party), including without limitation, ideas, technical data, specifications, know-how, product manuals, data sheets, sales and technical bulletins, customer lists and contacts, pricing information, sales and other financial information, marketing information and techniques and any other materials or information related to any aspect of the business or activities of Disclosing Party which are not generally known to others engaged in similar businesses or activities. Notwithstanding the foregoing, Confidential Information shall not include information that: (i) is or becomes generally known to the public not as a result of a disclosure by Receiving Party; (ii) is rightfully in the possession of Receiving Party without an obligation of confidentiality prior to disclosure by Disclosing Party; (iii) is received by Receiving Party in good faith and without restriction from a third party not under a confidentiality obligation to Disclosing Party and having the right to make such disclosure; or (iv) is independently developed by Receiving Party without using the Confidential Information. Disclosing Partys failure to mark any Confidential Information as confidential, proprietary or otherwise shall not affect its status as Confidential Information hereunder.
8.2 Protections . Receiving Party covenants and agrees to Disclosing Party, at all times during the term of this Agreement and at all times thereafter: (i) that Receiving Party shall keep and maintain all Confidential Information of Disclosing Party in strict confidence, using such degree of care as is appropriate to avoid unauthorized use or disclosure, but in no case less than reasonable care; (ii) that it shall not, directly or indirectly, disclose any Confidential Information of Disclosing Party to anyone outside of Receiving Party, except with Disclosing Partys prior written consent; (iii) that Receiving Party shall not make use of any Confidential Information of Disclosing Party for its own purposes or the benefit of anyone or any entity other than Disclosing Party; (iv) that upon termination of this Agreement, or at any time Disclosing Party may so request, Receiving Party shall deliver promptly to Disclosing Party, or, at Disclosing Partys option, shall destroy, all memoranda, notes, records, reports, media and other documents and materials (and all copies thereof) regarding or including any Confidential Information of Disclosing Party which Receiving Party may then possess or have under its control; and (v) Receiving Party shall take no action with respect to the Confidential Information of Disclosing Party that is inconsistent with its confidential and proprietary nature. If Receiving Party is required by law to disclose any Confidential Information, Receiving Party shall notify Disclosing Party in writing in advance of such disclosure, and provide Disclosing Party with copies of any related information so that Disclosing Party may take appropriate action to protect Disclosing Partys Confidential Information.
8.3 Necessary Disclosures . Receiving Party shall be permitted to disclose Disclosing Partys Confidential Information only to its employees, subcontractors and agents (Employees) having a need to know such information in connection with this Agreement. Receiving Party shall instruct all Employees as to their obligations under this Agreement, and shall obtain from such Employees their written acknowledgment and agreement to confidentiality terms and conditions no less favorable to Disclosing Party than this Agreement prior to their being given access to Disclosing Partys Confidential Information. Receiving Party shall be responsible for all Employees compliance with the terms of this Agreement.
8.4 Injunctive Relief . The disclosure of Disclosing Partys Confidential Information may cause irreparable injury to Disclosing Party and damages that may be difficult to ascertain. In the event of the actual or threatened disclosure of Disclosing Partys Confidential Information, Disclosing Party shall, in addition to any other rights or remedies, be entitled to injunctive relief to protect and recover Disclosing Partys Confidential Information, and Receiving Party shall not object to the entry of an injunction or other equitable relief against Receiving Party on the basis of an adequate remedy at law, lack of irreparable harm or any other reason. Receiving Party shall advise Disclosing Party immediately in the event that it learns or has reason to believe that any person or entity that has had access to Disclosing Partys Confidential Information has violated or intends to violate the terms of this Agreement.
8.5 HIPAA Compliance . Each Party is a separate covered entity as such term is defined under HIPAA. As covered entities, each Party shall implement all necessary policies, procedures, and training to comply with HIPAA and other laws, rules and regulations pertaining to the use, maintenance, and disclosure of patient-related information.
(a) Organized Health Care Arrangements . If requested by Yale during the term of this Agreement, Precipio shall participate in an Organized Health Care Arrangement (OHCA), as such term is defined under HIPAA, and comply Yales OHCA-related policies, procedures, and notice of privacy practices.
8.6 Agreement Confidential . The specific terms of this Agreement, including without limitation, any Exhibits or Schedules attached hereto, shall constitute Confidential Information; provided, however, that the general nature of the relationship between Precipio and Yale shall not constitute Confidential Information.
8.7 Effect of Limiting Laws . To the extent that any covenant made in this Section shall be more restrictive than permitted by Applicable Laws, it shall be limited to the extent which is permitted.
8.8 Survival . Each of the provisions of this ARTICLE VIII shall survive termination of the Agreement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Access to Books and Records . Each Party shall, in accordance with 42 U.S.C. Section 1395x(v)(1)(I) and 42 C.F.R. Part 420, Subpart D, Section 420.300 et seq., until the expiration of four (4) years after the furnishing of Medicare-reimbursable services pursuant to this Agreement, upon proper written request, to allow the Comptroller General of the United States General Accountability Office (Comptroller), the Secretary of the United States Department of Health and Human Services (Secretary), and their duly authorized representatives, access to this Agreement and to each Partys books, documents, and records necessary to certify the nature and extent of costs of Medicare-reimbursable services provided under this Agreement. In accordance with such laws and regulations, if Medicare-reimbursable services provided by either Party under this Agreement are carried out by means of a subcontract with an organization related to such Party, and such related organization provides the services at a value or cost of Ten Thousand Dollars ($10,000.00) or more over a twelve (12) month period, then the subcontract between such Party and the related organization shall contain a clause comparable to the clause specified in the preceding sentence.
9.2 Assignment . Neither Party may assign, delegate, or transfer in any manner the duties, obligations, or rights hereunder, in whole or in part, to any person or entity not a Party to this Agreement, without the prior written consent of the other Party. Notwithstanding the foregoing, Precipio shall be obligated to make an assignment of this Agreement to any purchaser or other successor to substantially all of the business or assets of Precipio relating to the subject matter of this Agreement, whether in a merger, sale of stock, sale of assets or other transaction. Such an assignment by Precipio shall not require Yales consent. Yale explicitly acknowledges that the merger between Precipio and Transgenomic does not violate this clause, and the post-merger entity Precipio Diagnostics, Inc. shall be the assignee of this agreement in its entirety provided that the subsequent corporate entity enters into a mutually agreed upon assignment agreement with Yale. Notwithstanding the foregoing, Precipio shall not be permitted to assign this agreement if Yale determines, in its reasonable discretion, that the proposed assignee will not be able to perform the obligations that it would be subject to hereunder or that Precipios proposed assignee does not meet ethical or clinical standards such as are commonly accepted in the clinical laboratory industry. Any such successor or assignee of rights and/or obligations hereunder shall, in writing to Yale, expressly assume performance of such rights and/or obligations. This Agreement shall be binding upon and inure to the benefit of any such successor or permitted assignee of Precipio. Any assignment or attempted assignment by either Party in violation of this Section 9.2 shall be null and void and of no legal effect.
9.3 Authority . Each Party represents and warrants that it has the authority to enter into this Agreement and to perform each of the terms and conditions contained herein.
9.4 Binding Agreement . This Agreement has been duly executed and delivered by each Party and is the legal, valid, and binding obligation of each Party, fully enforceable against each Party in accordance with the terms contained herein. Neither Party is a party to any contract, agreement, or obligation that would prevent or hinder it from entering into this Agreement or performing its duties hereunder; nor is any approval or consent of any person, firm, or other entity required to be obtained for the authorization or execution of this Agreement or the performance of duties hereunder.
9.5 Compliance Obligations .
(a) Compliance with Applicable Laws . Each of the Parties represents and warrants to the other Party that it will comply with all Applicable Laws, including, but not limited to, the federal physician self-referral law, 42 U.S.C. 1395nn, and the regulations promulgated thereunder (together, the Stark Law), similar state physician self-referral laws and regulations (together with the Stark Law, the Self-Referral Laws), the federal Medicare/Medicaid Anti-kickback Law and regulations promulgated there under (the Federal Anti-kickback Law) and similar state Anti-kickback laws and regulations (together with the Federal Anti-kickback Law, the Anti-kickback Laws), and the Health Insurance Portability and Accountability Act of 1996, and the rules and regulations promulgated there under (HIPAA). Failure by either party to comply with any Applicable Law shall be considered a material breach of this Agreement
(b) Legal Compliance; Renegotiation . Notwithstanding any other provision of this Agreement, if the governmental agencies that administer the Medicare, Medicaid, or other federally funded programs (or their representatives or agents), or any other federal, state, or local governmental or nongovernmental agency, or any court or administrative tribunal, pass, issue, or promulgate any law, rule, regulation, standard, interpretation, order, decision, or judgment, including but not limited to those relating to any regulations pursuant to Anti-kickback Laws or Self-Referral Laws (collectively or individually, Legal Event), which, in the good-faith judgment of one Party (the Noticing Party), materially and adversely affects either Partys licensure, accreditation, certification, or ability to refer, to accept any referral, to bill, to claim, to present a bill or claim, or to receive payment or reimbursement from any federal, state, or local governmental or nongovernmental payor, or which subjects the Noticing Party to a risk of prosecution or civil monetary penalty, or if in the good faith opinion of qualified counsel to either Party any term or provision of this Agreement could trigger a Legal Event, then the Noticing Party may give the other Party notice of intent to amend or terminate this Agreement to the extent necessary to address the applicable Legal Event(s). In the event of such notice, the Parties shall have sixty (60) days from the date of such notice (the Renegotiation Period) within which to attempt to amend this Agreement. If this Agreement is not amended to address the Legal Event(s) within the Renegotiation Period, this Agreement shall terminate as of midnight on the sixtieth (60th) day after said notice was given. Except as otherwise required by Applicable Laws, any amounts owing to either Party hereunder shall be paid, or a pro rata basis, up to the date of such termination, and any obligation hereunder that is to continue beyond expiration or termination of this Agreement shall so continue pursuant to its terms.
(c) No Excluded Providers . Each Party represents and warrants to the other that as of the Effective Date, neither it, nor to the best of its knowledge, any of its employees or contractors, is an Excluded Provider. For purposes of this Section, the term Excluded Provider means a person or entity that either (i) has been convicted of a criminal offense related to the provision of healthcare items or services that would lead to a mandatory exclusion from federal healthcare programs, but have not yet been excluded, or (ii) is currently listed by a federal agency as debarred, suspended, excluded or otherwise ineligible for participation in federally funded programs (including without limitation, federally-funded health care programs such as Medicare and Medicaid). Each Party shall notify the other within five (5) business days after receipt of any notice that such Party is an Excluded Provider. Either Party shall have the right to terminate this Agreement at any time after learning that the other Party is an Excluded Provider. For purposes of this Section 9.5(c) only, the term Party shall include, as applicable, the (i) person entering into this Agreement and any partners, associates, or agents of that person, including subcontractors or employees providing services under this Agreement, or (ii) the entity entering into this Agreement and any such entitys principals, shareholders, directors, officers, managing employees, or any similar agents of such entity, including any person who retains an ownership or controlling interest in the entity, and subcontractors or employees providing services under this Agreement.
9.6 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute one and the same instrument.
9.7 Disputes . Yale and Precipio hereby irrevocably waive, to the fullest extent permitted by Applicable Laws, all right to trial by jury in any dispute, action, proceeding or counterclaim (whether in contract, statute, tort, including negligence, or otherwise) relating to or arising from this Agreement. In any litigation relating to or arising from this Agreement, each party shall bear its own fees and expenses, including attorneys fees.
9.8 Entire Agreement; Amendment . This Agreement or any part of it, including without limitation the Exhibits or Schedules hereto, supersedes any and all agreements, written and oral, between the Parties hereto with respect to the providing or arranging for Services by Yale including without limitation the Pathology Services Agreement between the parties dated June 1, 2011 and contains all of the covenants and agreements between the Parties with respect to the providing or arranging for such Services. Any modification of this Agreement shall be effective only if it is in writing signed by both Parties.
9.9 Exhibits . All Exhibits, Schedules, and Attachments hereto (collectively, Exhibits) are hereby incorporated herein. To the extent any provision of this Agreement conflicts with any Exhibit to this Agreement, the Exhibit shall control with respect to the subject matter of such Exhibit.
9.10 Governing Law and Venue . This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut, without regard to its conflict of laws principles. All disputes relating to or arising from this Agreement shall be decided in a court of law sitting in New Haven, Connecticut.
9.11 Headings . The subject headings of the Articles and/or Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.
9.12 No Agreement to Refer . Nothing in this Agreement, or any other written or oral agreement, or any consideration in connection with this Agreement, contemplates or requires the referral of any patient to Precipio.
9.13 No Solicitation . During the term of this Agreement, neither Party shall solicit the services of, employ, or procure on behalf of another person or entity the employment of or a service contract with, any individual currently employed by or under contract with the other Party. Notwithstanding the foregoing, the restriction set forth in this Section 9.13 shall not prevent either Party from so engaging a person who is employed by or under contract with the other Party in response to an unsolicited inquiry from such person, for example, in response to a general advertisement of employment posted by such Party.
9.14 No Third-Party Beneficiaries . The obligations created by this Agreement shall be enforceable only by the Parties hereto, and no provision of this Agreement is intended to, nor shall any provision be construed to, create any rights for the benefit of or enforceable by any third party.
9.15 Notices . Any notices required or permitted to be given hereunder by either Party to the other, may be effected either by personal delivery in writing or by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:
If to Yale: |
Department of Pathology Yale School of Medicine 310 Cedar Street, LH 108 P.O. Box 208023 New Haven, CT 06520-8023 Attn: Department Chair |
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With a copy to: |
Mathew Varughese, , Esq. Associate General Counsel for Health Affairs Yale University Office of the General Counsel 2 Whitney Avenue, 6th Floor New Haven, CT 06501 |
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If to Precipio: |
Precipio Diagnostics, LLC. 4 Science Park, 3 rd Floor New Haven, CT 06511 Attn: Ilan Danieli |
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With a copy to: |
Goodwin Procter Exchange Place 53 State Street Boston, MA 02109 Attn: Christopher Denn |
Each Party may change the address for such notice by written notice given in accordance with this Section. Notices delivered personally shall be deemed delivered upon actual receipt. Mailed notices shall be deemed delivered two (2) days after deposit in the United Stated Mail, as provided above.
9.16 Organization . Each Party is duly organized, validly existing and in good standing under the laws of its state of formation and/or incorporation, as applicable, and has all requisite legal power, licenses, certifications, and permits to enter into this Agreement and to perform its obligations hereunder.
9.17 Severability . If any term, provision, covenant, or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions hereto shall remain in full force and effect and shall not be affected, impaired, or invalidated as a result of such decision.
9.18 Survival of Terms . Notwithstanding anything else herein to the contrary, the covenants and any representations and warranties of the Parties, that by their terms are intended to survive, shall survive the expiration of the term or earlier termination of this Agreement.
9.19 Waiver . Any waiver of any term, covenant or condition of this Agreement by any Party hereto shall not be effective unless set forth in writing signed by the Party granting such waiver, and in no event shall any such waiver be deemed to be a waiver of any other term, covenant or condition of this Agreement, whether or not similar, or to be a continuing waiver.
9.20 Limitations of Liability .
EXCLUSION OF INDIRECT DAMAGES . IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER UNDER THIS AGREEMENT FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL OR PUNITIVE DAMAGES.
CAP ON MONETARY LIABILITY . IN NO EVENT WILL EITHER PARTYS LIABILITY TO THE OTHER ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER ARISING OUT OF OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EXCEED THE AGGREGATE AMOUNTS PAID OR PAYABLE TO YALE ANNUALLY PURSUANT TO THIS AGREEMENT.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first appearing above.
YALE UNIVERSITY, a Connecticut domestic non-stock corporation, acting on behalf of its School of Medicine, Department of Pathology |
PRECIPIO DIAGNOSTICS, LLC., a Delaware corporation |
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By: | /s/ Deborah Armitage | By: | /s/ Ilan Danieli | |||||
Print Name: Deborah A. Armitage | Print Name: Ilan Danieli | |||||||
Its: Associate Controller | Its: CEO |
EXHIBIT 1.1
SERVICES
For purposes of this Agreement, the Services shall include the following services in the subspecialties of hematopathology and molecular pathology:
Providing analysis and evaluation of anatomic pathology and related specimens processed at the Laboratory (Specimens) and rendering diagnoses and opinions with respect thereto, including finalizing a sign-out report to be delivered by Precipio to the ordering client, for all of the tests set forth in Schedule 1.1 hereto, as such Attachment may be amended by mutual written agreement of the Parties from time to time;
Performing both the professional component and technical anatomical component of Specimens at the Department for those tests so identified on Schedule 1.1 hereto, as such Attachment may be amended by mutual written agreement of the Parties from time to time;
Consulting with Precipio regarding the need for additional Services and the recruitment of additional Yale Physicians and Yale Personnel;
Consulting with Precipio as reasonable necessary with respect to quality assurance and utilization review procedures adopted by Precipio;
Consulting with Precipio regarding the development of Precipios laboratory facilities and any other aspect of Precipios laboratory operations, as mutually agreed by the Parties from time to time;
Assisting Precipio, in Yales sole discretion, with Precipios business development efforts to grow Precipios hematopathology reference laboratory business;
Speaking with and meeting with clients, as set forth on Exhibit 1.8, on an as-needed and as appropriate basis, in support of maintaining good client relations and client satisfaction; and
Performing such other services and obligations set forth in or contemplated by this Agreement or as mutually agreed by the Parties.
Consistent with Section 5.2 of the Agreement, nothing herein shall interfere with each physicians independent clinical judgment or be construed as the practice of medicine by Precipio.
SCHEDULE 1.1
PRECIPIO AND YALE TESTS
Test # |
Test Name |
Technical Component (TC)
|
Professional Component (PC)
|
|||
1 |
Flow cytometry | Precipio | Yale | |||
2 |
Histology/IHC | Precipio | Yale | |||
3 |
Karyotyping | Precipio | Yale | |||
4 |
FISH | Precipio | Yale | |||
5 |
All molecular testing | Precipio | Yale |
Any new tests brought in-house to Precipio require validation by a certified technical specialist (a certified molecular pathologist in the case of molecular tests) and the approval of the Medical Director and the Yale Liaison in the event that Yale has not appointed the Medical Director.
SCHEDULE 1.5
YALE PHYSICIANS
As of the Effective Date, the Yale Physicians shall include the following persons:
# |
Yale Physician Name |
States Licensed |
||
1 |
Demetrios Braddock, M.D., Ph.D. | AL, CA, CT, FL, GA, MD, NJ, NY, NC, PA (pending), TN | ||
2 |
S. David Hudnall, M.D. | CA, CT, FL, IL, IN, KY, LA, MI, MO, NJ, NY, NC, OH, PA, RI, SC, TX, VA | ||
3 |
Samuel Katz, M.D. | AL, AK, CT, IL, IN, MA, MI, MS (pending), OH, SC | ||
4 |
Mina Xu, M.D. | AL, CT, FL, MA, IN, NJ, NC, TN |
EXHIBIT 1.8
YALE PERFORMANCE STANDARDS
The following exhibit outlines the performance standards, as defined by turnaround time expected of Yale to provide or arrange for professional interpretation in the form of a completed and signed out case, that is ready to be delivered to the customer. These standards are expected for 90% of the cases excluding those identified as Approved Late Cases. Performance against these standards will be reviewed between Precipio and the Medical Director, or designated Yale Liaison, as applicable, on a quarterly basis.
Turn Around Times for Yale (excluding Approved Late Cases):
Test: |
Results Uploaded/slides delivered to Yale (via LIS)
|
Report signed out by: |
||
All Smears | 12:00 PM | 8:00 PM same day | ||
Flow cytometry All Flow must include aspirates |
12 PM |
8 PM same day Unless additional panel or significant regating is required; if so, expect next day sign-out |
||
After 12 PM | 3 PM next day | |||
Histology/IHC stain order | 12 PM |
5 PM same day *If case is complex, as determined by pathologist, expect next day sign-out |
||
Histology/IHC stain sign out | 12 PM | 8 PM same day | ||
Histology/IHC stain sign out | After 12 PM | 3 PM next day | ||
Cytogenetics (karyotype/FISH)
Results uploaded electronically via LIS |
By 2:00 PM | By 6 PM same day | ||
After 2 PM | BY 12 PM next day |
Add-Ons/repeats Requested by Yale: |
Request Received by Precipio by |
Results Provided by |
||
Flow cytometry | 3 PM | 9 AM Next day | ||
After 3 PM | 3 PM Next day | |||
Histology/IHC | 3 PM | 3 PM Next day | ||
Cytogenetics (FISH) | 3 PM | 3 PM Next day | ||
Cytogenetics (Karyotype) | Culture + 24 hours |
Flow cytometry with smears that are delivered by 12 pm will be due by 8 pm on the same day, unless an additional request is made by the pathologist (such as more markers or significant regating). If either part arrives after 12 pm then the results will be due by 3 pm the following day. If an additional request is made by the pathologist then the case is due byt 8 pm on the day the additional material is received at Yale by 12 pm.
Core biopsies delivered by 12 pm will be due by 8 pm on the same day, unless an additional request for IHC or clinical information is made by the pathologist by 5 pm. The clock resets when the new information arrives. Cases that arrive after 12 pm will be due the following day by 3 pm. Approved Late Cases (~10%) (Complex Cases) may require additional time for review/research. Complex cases shall be designated upon the delivery of flow cytometry results, smears and H&E of core biopsy for the pathologists initial review and initial ordering of ICH stains. They shall be designated as Complex cases within Precipios case tracking system, and the designation shall flag the case for extended TAT.
Cytogenetics delivered by 2 pm will be due by 6 pm on the same day.
In the rare event of vacations, illnesses or other absences of physicians, verbal report by the pathologist to the referring or treating physicians will meet the turn around time standards if the report is co-signed within 24 hours.
General Service Expectations:
Yale Physicians providing services hereunder will be available daily from 8:00 AM 6:00 PM Eastern Time for sign out, client consultation, or lab consultation. Yale will develop a Precipio-specific call schedule (with the necessary contact information) which will designate a primary physician and a secondary physician who will be on call after-hours (nights and weekends) for STAT/emergency cases. In the event that such physicians are not responding, the Medical Director, or as applicable, the designated Yale Liaison should be called.
In cases received that require pathologist consultation on test ordering, the aspirate smears and/or slides will be delivered to Yale for immediate viewing and consultation on tests to be ordered (if specific tests are not ordered by physician and physician requests that the hematopathologist order the necessary tests).
On a quarterly basis, Yale Medical Director, or as applicable, the designated Yale Liaison will meet with Precipio technical team to provide feedback on quality of technical work received. On an annual basis, all Yale pathologists shall meet with the Precipio technical team to provide feedback and discuss issues towards process improvement.
Most calls are expected to be handled by Precipio employees. The Yale physicians agree to participate in calls regarding the following conditions (Urgent Conditions):
| New diagnosis of Burkitt lymphoma/leukemia |
| Large cell transformation (Richters) of low-grade lymphoma |
| New Acute leukemia, as mentioned and New relapse acute leukemia |
| New diagnosis of unsuspected metastatic carcinoma |
| Critical infectious disease finding (HSV lymphadenitis, AFB positivity, fungemia) |
| Other diagnoses or conditions, at the pathologists sole discretion. |
| When a clinician requests to speak to a pathologist regarding a medical matter which cannot be handled by Precipio staff. |
The pathologists agree to respond to calls regarding Urgent Conditions within 2 hours of receiving a request for a call.
In regard to calls that do not meet the definition of Urgent condition, the parties agree that the following process will apply:
(1) | Precipio has initial responsibility to answer the questions, through whatever hierarchy they want to arrange. |
(2) | If Precipio cant answer the question, it should be referred to the Medical Director. To the extent that these calls push the Medical Director above his weekly hour limit, he will be paid at a rate of $600 an hour. |
(3) | Only if the Medical Director is unable to answer the question will it be forwarded to the responsible pathologist. Any call form a clinician taken by a pathologist will be charged at a rate of $600 an hour. This fee will accrue directly to the consulting pathologist. |
EXHIBIT 2.6
PRECIPIO DELIVERY PROCESSES
Data and specimens necessary for Yale to provide or arrange for the Services shall be provided pursuant to the following processes:
Precipio shall provide Yale with access to Precipios LIS;
Aspirate smears shall be delivered by courier to Yale twice a day, at 12:00 PM and a second time determined by the pathologist and the histology lab based on the urgency of the order , to the following address:
Yale University
Department of Pathology
Drop Box, BML First Floor
Cedar Street
New Haven, CT 06520
Precipio shall upload the following technical results via the LIS, and such results shall be accessible via the Internet to Yale and Yale Physicians in the form of a preliminary report, with all test results, images, captions and comments already incorporated:
Flow Cytometry results (Histograms)
Cytogenetics results (scoring sheets)
Molecular results (send-out lab results or raw data produced at Precipio)
Precipio shall ensure that all data necessary for Yale to provide the Services are pre-consolidated into a report ready for the Yale Physician to review, revise as necessary and appropriate, and sign off.
Precipio shall ensure that Yale Physicians have access to Precipios transcription team, and that such transcription team provides prompt and responsive service, to make edits and changes to the report such Yale Physician determines are necessary and/or appropriate. To the extent a final report is delayed in transmission due to failures or delays on the part of Precipios transcription personnel to timely revise reports per reasonable requests from Yale Physicians, such delays shall not constitute a breach by Yale of the turnaround time requirements set forth at Exhibit 1.8 of this Agreement.
Upon the Yale Physicians sign-off of a case, the Yale Physician shall digitally sign off the case in the LIS and Precipio shall transmit the final report directly to the customer.
EXHIBIT 2.12
PRECIPIO PERFORMANCE STANDARDS
1. Adequacy of technical standards . Precipio will provide Yale Physician-acceptable quality of all diagnostic materials, including microscopic tissue sections (marrow biopsy and lymph node), blood smears, marrow aspirate smears, immunohistochemical and in-situ hybridization stains, FISH preps, flow cytometry analyses, banded karyotypes, and PCR assays.
2. Report Generation and LIS Standards . Customization of the LIS to meet the specific needs of the clinical service as required by Yale Physicians will be permitted. The LIS will permit the facile generation of synoptic reports to be compiled from individual tests including (but not limited to) bone marrow morphology, cytogenetics, flow cytometry, molecular diagnostic testing, FISH, and immunophenotyping. The report format of the synoptic reports is subject to approval by Yale physicians. When synoptic reports are required, Precipio will compile all relevant tests into a single document to be used as a reference for the Yale physicians when generating synoptic reports.
3. Customer Relations and Call Handling . Precipio will be responsible for receiving and triaging all customer calls regarding cases signed out by Yale Physicians. The triage procedure will stratify the calls into Urgent Conditions and routine calls (See Exhibit 1.8 for the definition of Urgent Conditions). Prior to contacting the Yale physician on call with a customer question, Precipio will compile all relevant diagnostic tests, submitted patient history, test requests, and any other relevant document into an appropriate summary document, and attempt to handle the call first. If Precipio is not able to handle the call, Precipio will relay this information to the Yale physician.
4. Marketing and Ethical Standards . In all its activities, Precipio will adhere to the highest standards of honesty, ethical conduct, and transparency in its relationships with customers and their patients.
SCHEDULE 3.1
YALE FEE SCHEDULE
[ *** ]
Exhibit 10.2
EXECUTION COPY
LEASE
BETWEEN
SCIENCE PARK DEVELOPMENT CORPORATION
AND
PRECIPIO, INC.
DATE: July 11, 2017
EXECUTION COPY
TABLE OF CONTENTS
Article No. |
Description |
Page | ||||
ARTICLE 1. |
LEASED PREMISES | 4 | ||||
ARTICLE 2. |
TERM | 5 | ||||
ARTICLE 3. |
RENT | 6 | ||||
ARTICLE 4. |
TAXES | 12 | ||||
ARTICLE 5. |
TENANTS USE OF LEASED PREMISES | 12 | ||||
ARTICLE 6. |
ALTERATIONS | 13 | ||||
ARTICLE 7. |
REPAIRS | 14 | ||||
ARTICLE 8. |
COMPLIANCE WITH LAWS; INCREASED INSURANCE RATES; ENVIRONMENTAL LAWS | 15 | ||||
ARTICLE 9. |
FLOOR LOAD; MACHINERY AND EQUIPMENT | 18 | ||||
ARTICLE 10. |
TENANTS OBLIGATIONS TO LANDLORDS LENDERS | 18 | ||||
ARTICLE 11. |
LIMITATIONS ON LANDLORDS LIABILITY | 19 | ||||
ARTICLE 12. |
TENANTS OBLIGATION TO PROTECT LANDLORD AND LANDLORDS LENDERS | 20 | ||||
ARTICLE 13. |
FIRE AND OTHER CASUALTY | 21 | ||||
ARTICLE 14. |
TAKING BY GOVERNMENTAL AUTHORITY | 22 | ||||
ARTICLE 15. |
TENANTS RIGHT TO ENCUMBER, ASSIGN, OR SUBLEASE | 23 | ||||
ARTICLE 16. |
ACCESS TO LEASED PREMISES | 24 | ||||
ARTICLE 17. |
DEFAULT AND TERMINATION | 25 | ||||
ARTICLE 18. |
LANDLORDS PERFORMANCE ON TENANTS BEHALF | 27 | ||||
ARTICLE 19. |
TENANTS QUIET ENJOYMENT OF THE LEASED PREMISES | 28 | ||||
ARTICLE 20. |
NO WAIVER BY LANDLORD | 28 | ||||
ARTICLE 21. |
INABILITY TO PERFORM | 28 | ||||
ARTICLE 22. |
NOTICES AND OTHER COMMUNICATIONS | 29 | ||||
ARTICLE 23. |
RULES AND REGULATIONS | 30 | ||||
ARTICLE 24. |
INTENTIONALLY OMITTED | 30 | ||||
ARTICLE 25. |
INSURANCE | 30 | ||||
ARTICLE 26. |
SERVICES PROVIDED BY LANDLORD | 32 | ||||
ARTICLE 27. |
ADDITIONAL OBLIGATIONS OF TENANT | 33 | ||||
ARTICLE 28. |
SIGNS | 34 | ||||
ARTICLE 29. |
BROKERAGE | 34 | ||||
ARTICLE 30. |
NOTICE OF LEASE | 34 | ||||
ARTICLE 31. |
SURRENDERING OF LEASED PREMISES | 34 | ||||
ARTICLE 32. |
ADDITIONAL OBLIGATIONS OF TENANT | 35 | ||||
ARTICLE 33. |
TENANTS WAIVER OF RIGHTS | 35 | ||||
ARTICLE 34. |
EFFECT OF WRITTEN LEASE AGREEMENT | 36 | ||||
ARTICLE 34A. |
OPTION TO EXTEND; EXPANSION OF LEASED PREMISES | 36 | ||||
ARTICLE 35. |
SECURITY DEPOSIT | 37 | ||||
ARTICLE 36. |
INTERPRETATION OF LEASE | 39 |
EXECUTION COPY
Exhibits
Exhibit A | Legal Property Description Building 4, 375 Winchester Avenue | |
Exhibit B | Cleaning Services | |
Exhibit C | Holidays | |
Exhibit D | Additional Services Contacts | |
Schedules | ||
A | Floor Plan | |
B | Tenants Work | |
C | Tenants Equipment | |
D | Chemicals and Hazardous Materials | |
E | Rules and Regulations |
EXECUTION COPY
This LEASE (this Lease ) is made and entered into as of the 11 th day of July, 2017 by and between SCIENCE PARK DEVELOPMENT CORPORATION , a Connecticut corporation having a principal place of business at 5 Science Park, New Haven, Connecticut 06511 (herein referred to as Landlord ) and Precipio, Inc. , a Delaware corporation, having a principal place of business at 4 Science Park, 3 rd Floor, New Haven, Connecticut 06511 (herein referred to as Tenant ).
W I T N E S S E T H:
Landlord warrants and represents to Tenant that it is a corporation organized and in good standing under the laws of the State of Connecticut and that it has full right, power and authority to enter into this Lease in the manner hereinafter subscribed. Tenant warrants and represents to Landlord that it is a limited liability company organized and in good standing under the laws of the State of Delaware and that it has full right, power and authority to enter into this Lease in the manner hereinafter subscribed. Based upon the foregoing, Landlord hereby Leases to Tenant, and Tenant hereby hires from Landlord, the Leased Premises as hereinafter defined, for the term, rentals, and upon other conditions and covenants as follows:
ARTICLE 1. LEASED PREMISES
1.1. Leased Premises.
(a) Landlord is the owner of the real property located at Science Park, New Haven, Connecticut as described on Exhibit A attached hereto (the Property ). The Tenant shall lease from Landlord the entire third floor of Building 4, consisting of 7,630 rentable square feet, located on the Property ( Building 4 ), as shown on the floor plan attached hereto as Schedule A, (the Leased Premises ). Tenant shall have exclusive use of the Leased Premises.
(b) Tenants rights under this Lease shall include, in common with other tenants of Building 4 or buildings within which the Leased Premises may be located from time to time, use of the land and the facilities, accesses, hallways, common restrooms, elevators, stairways, lobbies, roadways, sidewalks, and like service and scenic improvements and grounds (with the exception of parking areas), which are intended for the common use of tenants of such building or buildings ( Common Facilities ).
1.2. Parking. The rental of the Leased Premises will include the use of up to twenty five (25) parking spaces ( Tenants Parking Spaces ), in parking lots in common with other tenants and in locations in reasonable proximity to Building 4 designated by Landlord.
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ARTICLE 2. TERM
2.1. Term; Rent Commencement Date. The term of this Lease (the Term ) shall commence on January 1, 2017 (the Rent Commencement Date ) and Landlord agrees to deliver to Tenant, and Tenant agrees to accept, exclusive possession of the Leased Premises on said date in its as-is condition. Unless sooner cancelled, terminated or extended in accordance with the terms of this Lease, the Term will expire with respect to the entire Leased Premises on December 31, 2021 (the Expiration Date ).
2.2. Tenant Work. Tenant, at its sole cost, shall be responsible for any construction and alterations within the Leased Premises together with the installation of its furniture, fixtures and business equipment, including telecommunications cabling and equipment, security systems, and any other ancillary systems it may require as set forth on Schedule B (the Tenants Work) , at its sole cost and expense, and in a good and workmanlike manner in accordance with all of its obligations under this Lease including without limitation, Article 6 of this Lease. Tenant shall furnish and install any and all necessary trade fixtures, equipment and other items necessary for the proper conduct of Tenants business subject to the reasonable approval of the Landlord, Tenants work set forth on Schedule B is approved by Landlord pursuant to Article 6.1 of this Lease. Tenant shall have access to the Leased Premises upon execution of this Lease for purposes of performing Tenants Work and preparing the Leased Premises for Tenants operations. All of the foregoing work and all work Tenant may undertake pursuant to Article 6 of this Lease shall be done in accordance with all laws, rules, regulations and ordinances applicable thereto, including, if necessary, compliance with the Americans With Disabilities Act, as amended from time to time, and the acquisition by Tenant of a Building Permit from the municipal department having jurisdiction, if required. In no event shall Landlord be required to provide or install any trade fixtures or equipment. Tenant shall comply and cause all of its contractors to comply with the provisions of Article 6 of this Lease.
Landlord shall continue to maintain the existing computer-based, card reader access system to the elevator serving the Leased Premises that will provide a log of access times to the Leased Premises and permit Tenant to instruct Landlord to disable individual access cards from providing access to the Leased Premises (the Tenant Floor Security System ).
The Landlord will provide all required operating cards for the Tenant Floor Security System. The Tenant Floor Security System shall be accessed by the Tenant and Landlord solely for the Tenants floor. It will be the responsibility of the Tenant to keep track of all key-cards issued at the request of Tenant. All key-cards must be returned to the Landlord upon termination of the Lease or a $15 penalty per item charge will be deducted from the security deposit held by Landlord.
2.3 Condition of Leased Premises. Tenant has inspected and is familiar with the condition of the Leased Premises and Tenant expressly accepts delivery and possession of the Leased Premises in its as-is condition and repair and with all faults. Tenant relies on no warranties or representations, express or implied, of Landlord or any agent or other party associated with Landlord as to the condition or repair, or as to taxes or any other matter relating to the Leased Premises, except as otherwise expressly provided in this Lease.
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EXECUTION COPY
ARTICLE 3. RENT
3.1. Base Rent.
A. As used herein, the term Lease Year shall mean the 12-month period commencing on the Rent Commencement Date and each succeeding 12-month period. During the initial Term, Tenant shall pay to Landlord a base rent ( Base Rent ), as follows:
Period |
Months
of Term |
Base Rent
Per Square Foot |
Total Base
Rent for Period |
Monthly
Base Rent |
||||||||||||
January 1, 2017 December 31, 2017 |
12 | $ | 22.57 | $ | 172,209.10 | $ | 14,350.76 | |||||||||
January 1, 2018 May 31, 2018 |
5 | $ | 22.57 | $ | 71,753.79 | $ | 14,350.76 | |||||||||
June, 2018 |
1 | $ | 22.37 | $ | 14,223.59 | $ | 14,223.59 | |||||||||
July 1, 2018 December 31, 2018 |
6 | $ | 21.00 | $ | 80,115.00 | $ | 13,352.50 | |||||||||
January 1, 2019 December 31, 2019 |
12 | $ | 22.00 | $ | 167,860.00 | $ | 13,988.33 | |||||||||
January 1, 2020 December 31, 2020 |
12 | 22.50 | $ | 171,675.00 | $ | 14,306.25 | ||||||||||
January 1, 2021 December 31, 2021 |
12 | $ | 23.00 | $ | 175,490.00 | $ | 14,624.17 |
B. All Base Rent and Additional Rent (as defined below) shall be payable each month, in advance, by not later than the first day of each month.
3.2. Additional Rent. In addition to Base Rent, Tenant shall pay to Landlord additional rent ( Additional Rent ) consisting of all other sums of money as shall become due and payable by Tenant as expressly set forth in this Lease, including without limitation, amounts due and payable under this Section, for default in the payment of which Landlord shall have the same remedies as for a default in the payment of Base Rent.
A. Definitions. For the purposes of this Agreement, the following terms shall have the meanings indicated:
Base Operating Expense Year shall mean the calendar year 2016.
Base Property Tax Year shall mean the calendar year 2016.
Base Operating Expenses shall mean the amount of Operating Expenses attributable to the Base Operating Expense Year.
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EXECUTION COPY
Base Property Taxes shall mean the amount of Property Taxes attributable to the Base Property Tax Year.
Operating Expenses shall mean all costs and expenses paid or incurred by or on behalf of Landlord: (i) in providing HVAC service to the Leased Premises; and (ii) with respect to the ownership, maintenance, policing, repair, replacement, restoration, management, insurance, security and/or operation of Building 4 and any parking areas serving Building 4 or any part thereof, and are herein deemed to include, but not necessarily be limited to the following:
(a) | the cost of all personnel, including wages, salaries and other compensation and fringe benefits, social security taxes, payroll taxes, unemployment taxes, and any other such taxes; |
(b) | management fees that shall in no event exceed the reasonable and customary management fees charged from time to time for comparable buildings in the greater New Haven Market; |
(c) | the cost of all utilities (excluding electricity but including gas, water, sewer and other utilities), fuel charges and related costs and services attributable to any portion of Building 4, including, but not limited to, all such utilities (excluding electricity) used or consumed in connection with the heating, ventilating, air conditioning, and water heating within Building 4; |
(d) | all office and janitorial supplies and similar materials used in the operation of Building 4; |
(e) | the cost of all services incurred in the operation of Building 4 (and all service agreements and maintenance contracts for same), including, but not limited to, protection and security service, window cleaning, common area cleaning service, plant and landscaping service, including plantings and re-plantings, elevator, HVAC maintenance and repair, ice and snow removal, and trash removal; |
(f) | insurance, including, but not limited to, fire (including, without limitation, endorsements for extended coverage, vandalism and malicious mischief, and theft and mysterious disappearance), public liability, rental interruption, boiler, water damage, sprinkler leakage, workers compensation. health, accident and group insurance; and |
(g) | the cost of all maintenance, repairs, replacements and restorations, whether performed pursuant to obligations under leases, as a result of fire or other casualty or otherwise, including, but not limited to, all maintenance, repairs and replacements (structural or non-structural) to the roof, inundation, exterior and interior walls, floors and covering of same, replacement of plate, and other window glass, repair and replacement of all heating and cooling units and systems, repair and replacement of any portion of the sprinkler system, restrooms and all plumbing facilities, utility conduits, pumping stations and force mains, signs, elevators, sidewalks and steps, all building service equipment, lighting units and fixtures including bulbs and tubes, all other building fixtures and equipment, and all other maintenance, repairs, replacements and restorations of Building 4, all exclusive of items which are the direct responsibility of any other tenant. |
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Notwithstanding anything contained herein to the contrary, Landlord shall with respect to (a) replacement of the roof of Building 4 during the Term and (b) capital expenditures for the purpose of complying with new legal requirements first in effect after the date of this Lease or that will effect savings in Operating Expenses: (i) amortize over the useful life of the applicable expenditure (as reasonably determined by Landlord in accordance with the U.S. Internal Revenue Code and the regulations thereunder in effect from time to time ( IRS Rules )), together with interest at Landlords cost of funds, any expenditure which Landlord determines should be capitalized (rather than immediately expensed) in accordance with applicable IRS Rules, and (ii) include in Operating Expenses (on an annual basis commencing with the year of such expenditure) only the amortized portion of any such expenditure.
Notwithstanding anything to the contrary contained herein, Operating Expenses shall in all cases exclude:
(1) | Items which are the direct responsibility of any tenant or are caused by the intentional or negligent acts of any such tenant, its agents or licensees and the costs of which are recovered from such tenant; |
(2) | Expenses of alterations to the Leased Premises or Building 4 for the accommodation of a specific tenant or tenants, which expenses shall be borne by such tenants; |
(3) | All costs of leasing space in Building 4 including office expenditures, legal fees and brokers commissions; |
(4) | Costs actually covered by Landlords insurance or other manner of reimbursement to the extent that payment is actually received by Landlord, but not excluding the amount of any deductible; |
(5) | Repairs or other work resulting from damage by fire, windstorm or other casualty to the extent covered by insurance in force or required to be carried by Landlord hereunder, or by the exercise of eminent domain; |
(6) | Leasing commissions, attorneys fees, costs and disbursements and other expenses incurred in connection with negotiations or disputes with tenants, other occupants or prospective tenants or other occupants; |
(7) | Landlords cost of utilities (other than electricity) and other services that are sold to tenants and for which Landlord is entitled to be reimbursed by tenants as an additional charge or rental over and above the Base Rent and Operating Expenses payable under the lease with such tenant; |
(8) | Depreciation and amortization of any kind, except as otherwise provided herein; |
(9) | Interest on debt or amortization payments on any mortgage or mortgages and/or rentals under any ground lease or other underlying leases; |
(10) | costs incurred in connection with the sale, financing or refinancing of the Buildings; |
(11) | fines, interest and penalties incurred due to the late payment of Taxes or Operating Expenses; |
(12) | organizational expenses associated with the creation and operation of the entity which constitutes Landlord; |
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(13) | sums paid to subsidiaries or other affiliates of Landlord for services on or to the Property, Buildings and/or Leased Premises, but only to the extent that the costs of such services exceed the competitive cost for such services rendered by persons or entities of similar skill, competence and experience; |
(14) | wages, salaries, fees, and fringe benefits paid to executive personnel or officers or partners or other corporate personnel of Landlord; |
(15) | the cost or expense of any services or benefits provided generally to other tenants in the Buildings and not provided or available to Tenant; |
(16) | expenses for the replacement of any item covered under warranty, unless Landlord has not received payment under such warranty; |
(17) | any cost or expense related to removal, cleaning, abatement or remediation of hazardous materials in or about the Buildings, Common Area or Property, including, without limitation, hazardous substances in the ground water or soil; |
(18) | all costs of purchasing or leasing sculptures, paintings or other works or objects of art; |
(19) | all bad debt loss, rent loss, or reserves for bad debt or rent loss; and |
(20) | all capital expenditures, except as expressly permitted above. |
Property Taxes shall mean all real property taxes and assessments, water and sewer taxes and assessments, and any and all other governmental levies, taxes or charges, general or special, ordinary or extraordinary, unforeseen as well as foreseen, of any kind of nature whatsoever, which may be assessed or imposed from time to time during any part of the Term by the City of New Haven and/or any other governmental taxing authority, upon the Property, Building 4 and/or the parking lot(s) from time to time serving Building 4; provided, however, that Property Taxes shall not include any transfer, excise, income or corporate franchise tax levied on Landlord. If, due to a future change in the method of taxation or in the taxing authority, a tax or governmental imposition, however designated (including, without limitation, any tax measured or payable with respect to income, profits, rents or other charges received by Landlord and levied against Landlord, the Property and/or Building 4) shall be levied against Landlord, the Property and/or Building 4 in substitution, in whole or in part, or as an addition to or in lieu of any Property Taxes, then such tax or governmental imposition shall be deemed to be included within the definition of the term Property Taxes for the purposes hereof.
Tenants Proportionate Share shall mean that fraction, the numerator of which is the number of rentable square feet of floor space in the Premises as set forth in Article I. Premises, and the denominator of which (the Denominator ) is the average of the total rentable square feet of floor space in Building 4 actually under lease to tenants during the calendar year in question (as such number is determined by leases, whether verbal or in writing, and pursuant to the terms of which leases rent has commenced to be payable), (said average being referred to as the Average Occupancy Figure ). Notwithstanding the foregoing, in the event that the Average Occupancy Figure is less than ninety five percent (95%) of the total rentable square footage in Building 4 during the Base Operating Expense Year or any other calendar year, then in such event (i) the Denominator described hereinabove shall be then established during such period in question at ninety five percent (95%) of the total rentable square footage in Building 4, and (ii) those components of Operating Expenses which relate to and are incurred as a consequence of Building 4 tenant use and occupancy (including building maintenance and repair, janitorial and cleaning expenses. building management fees and costs and building tenant electric expenses) shall be increased on a pro rata basis from the actual levels at which they are incurred during any given calendar year in question to the levels at which they would have been incurred had the Average Occupancy Figure been ninety five percent (95%) of the total square footage in Building 4 during the calendar year in question
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B. Expense and Tax Increases. In addition to the Base Rent, Tenant shall pay to Landlord, as additional rent, as hereinafter provided, Tenants Proportionate Share of (i) increases in Operating Expenses over the Base Operating Expenses, and (ii) increases in Property Taxes over the Base Property Taxes (collectively referred to as the Expense and Tax Increases ). Prior to the end of the Base Operating Expense Year, and in advance of each calendar year thereafter during the Term, Landlord shall furnish Tenant with an estimate (which estimate may be changed by Landlord from time to time) of Tenants Proportionate Share of the Expense and Tax Increases for the ensuing calendar year (or portion thereof). Commencing with the monthly installment of Base Rent payable for January, 2012, and thereafter on the first (1st) day of each month during the Term, Tenant shall pay to Landlord one-twelfth (1/12th) of the amount of Landlords then current estimate of Expense and Tax Increases. After the end of each calendar year following the Base Operating Expense Year and after the end of the Term, Landlord shall submit to Tenant a statement, prepared by Landlord, of the actual Expense and Tax Increases for the preceding calendar year (or partial calendar year in the event the Term shall end on a date other than a December 31 st ), and the figures used for computing Tenants Proportionate Share for the preceding calendar year, and if Tenants Proportionate Share of Expense and Tax Increases so stated for such period is (i) more than the amount paid for such period, Tenant shall pay to Landlord the deficiency within thirty (30) days after submission of such statement, or (ii) less than the amount paid for such period, at Landlords sole election, Tenant shall be entitled to a credit in the amount of such excess against amounts next coming due under this Paragraph or Landlord shall refund the amount of such overpayment to Tenant (or a refund of such excess in the case of the end of the term of this Lease). Any such adjustment shall survive the expiration or earlier termination of the Term. If Landlord shall furnish such estimate subsequent to the commencement of any such calendar year, then, until the first (1st) day of the month following the month in which such estimate is furnished to Tenant, Tenant shall pay to Landlord on the first (1st) day of each month an amount equal to Tenants monthly payment with respect to Tenants Proportionate Share of Expense and Tax Increases for the last month of the preceding calendar year.
3.3. Available Abatements of Real Property Taxes. Tenant, at Tenants reasonable expense, shall use reasonable commercial efforts to cooperate with any efforts by Landlord to obtain the benefit of any abatements of Property Taxes that may be available as a result of the Tenants occupancy of the Leased Premises ( Property Tax Abatements ). In the event any such Property Tax Abatements are secured, Tenant shall cooperate with and assist Landlord so as to ensure that the benefit of all such Property Tax Abatements inures to the sole benefit of Landlord.
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3.4. Electricity. On or before the first day of each month together with the Base Rent and other regularly recurring monthly payments of Additional Rent, Tenant shall pay to Landlord the fixed amounts during each applicable period as follows:
Period |
Months of
Term |
Annual
Amount |
Monthly
Installment Amount |
|||||||||
January 1, 2017 December 31, 2017 |
1-12 | $ | 30,520.00 | $ | 2,543.33 | |||||||
January 1, 2018 December 31, 2018 |
13-24 | $ | 31,130.40 | $ | 2,594.20 | |||||||
January 1, 2019 December 31, 2019 |
25-36 | $ | 31,753.01 | $ | 2,646.08 | |||||||
January 1, 2020 December 31, 2020 |
37-48 | $ | 32,388.07 | $ | 2,699.01 | |||||||
January 1, 2021 December 31, 2021 |
49-60 | $ | 33,035.83 | $ | 2,752.99 |
3.5. Absolute Obligation to Pay; No Set-Off. Tenants obligation to make full and prompt payment of all Base Rent and Additional Rent when owed under the terms of this Lease is absolute. All Base Rent and Additional Rent shall be paid without set-off, withdrawal or deduction of any nature.
3.6. Partial Payments. Any payment of Base Rent and/or Additional Rent which is less than the amount then due and owing to Landlord will be considered a payment against the oldest outstanding rental obligation and Landlord may accept such payment without affecting its rights to collect the balance owed.
3.7. Interest on Late Payments of Base Rent, Additional Rent or Other Amounts Due. Any rent or other amount which is owed by Tenant to Landlord under this Lease and which is not paid within ten (10) days of the date when due shall carry interest at an annual rate (the Default Rate ) equal to the lesser of (i) the highest rate allowed by law from the date which is ten (10) days after the date such Base Rent, Additional Rent or other amount was due until the date of payment, and (ii) eighteen percent (18%) per annum.
3.8. Bookkeeping and Audits. Landlord shall maintain books and records respecting gas, electricity, Operating Expenses and Taxes (as defined in Article 4) and determine the same in accordance with sound accounting and management practices, consistently applied. Tenant or its representative shall have the right to examine those books and records of Landlord and any managing agent reasonably necessary for purposes of auditing expenditures for gas, electricity, Operating Expenses and Taxes in question. Such examination shall take place during normal business hours at the place or places where such records are normally kept. Each Annual Operating Expense Statement rendered to Tenant shall be considered final, unless Tenant has given written notice to Landlord of its intention to audit the books and records of Landlord, which notice must be given within sixty (60) days following Tenants receipt of such Annual Operating Expense Statement. In the event that Landlord and Tenant are unable to resolve the dispute within seventy-five (75) days following Landlords granting Tenant access to such books and records of the Landlord, then such dispute shall be submitted to an independent certified public accounting firm selected by Landlord, subject to Tenants reasonable approval of such firm, which approval shall not be unreasonably withheld or delayed. The certification by such independent certified public accounting firm as to the proper amount shall be final and conclusive as between Landlord and Tenant. Tenant shall promptly pay the fees and costs of such independent certified public accounting firm unless such certification determines that Tenant was overbilled by more than two (2%) percent. Pending resolution of any such exceptions in the foregoing manner, Tenant shall continue paying, without prejudice to Tenants position, Tenants Proportionate Share of gas, electricity, Operating Expenses and Taxes paid or incurred during the applicable period in the amounts determined by Landlord, subject to adjustment after any such exceptions are resolved.
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3.9. Survival. The rights, obligations and liabilities of Landlord and Tenant under this Article 3 shall survive the expiration or earlier termination of this Lease for any reason.
ARTICLE 4. TAXES
4.1. Personal Property Taxes. Tenant shall be solely responsible for and pay within the time provided by law all taxes and assessments imposed on its inventory, furniture, trade fixtures, apparatus, equipment and any other of Tenants personal or other property.
4.2. Other Taxes and License Fees. Tenant shall pay before delinquency all license and permit fees and taxes that may be imposed upon the business of Tenant on the Leased Premises.
4.3. Survival. The rights, obligations and liabilities of Landlord and Tenant under this Article 4 shall survive the expiration or earlier termination of this Lease for any reason.
ARTICLE 5. TENANTS USE OF LEASED PREMISES
5.1. Use of Leased Premises. The Leased Premises will be used by Tenant for research, office and laboratory purposes only and for purposes incidental thereto. Tenant shall not use or occupy, nor permit the use nor occupancy of, the Leased Premises or any portion thereof for any of the following purposes: retail sales to the general public; the development, production or sale of pornographic materials; operation or promotion of a gambling establishment; or any use which creates fire, explosive or other similar hazard. The Tenant and any of its subtenants shall at all times and in all respects comply with all local, state and federal laws, ordinances, regulations and orders relating to land use, industrial hygiene, environmental (including, but not limited to the Environmental Laws as defined in Section 8.5) or similar laws, including the use, analysis, generation, manufacture, storage, disposal or transportation of Hazardous Materials as defined in Section 8.4. Landlord represents that research, office and laboratory use is a permitted use of the Leased Premises under applicable zoning laws, rules and regulations.
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ARTICLE 6. ALTERATIONS
6.1. Tenant May Not Make Alterations or Improvements. Tenant shall not make any alterations, additions or improvements in or to the Leased Premises except with Landlords prior written consent, which consent will not be unreasonably withheld. Without limiting the generality of the foregoing, it shall not be unreasonable for Landlord to withhold its consent or require modifications to the design or installation of any mechanical, electrical or other systems which interconnect to or could affect or be affected by mechanical, electrical, HVAC or other Building 4 systems.
6.2. Improvements to Become Property of Landlord. All additions and other improvements installed in the Leased Premises at any time during the Term, either by Tenant or by Landlord on Tenants behalf, shall become the property of Landlord and shall be surrendered with the Leased Premises upon the Expiration Date or earlier termination of this Lease. Landlord acknowledges that Tenant has supplied certain equipment, as contained in Schedule C attached, and Tenant shall remove said equipment upon the Expiration Date or earlier termination of this Lease.
6.3. Tenants Removal of Trade Fixtures. Nothing in this Article shall prevent Tenants removal of its trade fixtures upon the Expiration Date or earlier termination of this Lease in accordance with the terms hereof, but upon such removal, Tenant shall promptly, and at its own expense, repair and restore any damage caused by such removal.
6.4. Tenants Compliance with Conditions of Construction. Tenant shall, before making any alterations, additions or improvements permitted hereunder, obtain all permits, approvals and certifications required by any governmental or quasi-governmental body or authority, and (upon completion) certificates of final approval and/or completion thereof, and shall deliver promptly copies of all such permits, approvals and certificates to Landlord. In performing any additions, alterations or improvements to the Leased Premises permitted hereunder, Tenant shall comply with all applicable laws, regulations and ordinances. Tenant agrees to carry, and will cause its contractors and subcontractors to carry, workers compensation insurance in the amount required by law and general liability insurance with a limit of not less than One Million Dollars ($1,000,000.00) combined single limit per occurrence for bodily injury, personal injury and property damage liability. Each such policy shall name Landlord and, at Landlords request, Landlords Lenders (as such term is defined in Section 10.1 hereof), as additional insured(s) and Tenant shall furnish to Landlord prior to the commencement of construction appropriate certificates evidencing that such insurance is in effect. Tenant agrees to obtain and deliver to Landlord written subordination of mechanics liens upon the Property and Building 4 for all work, labor and services to be performed and for materials to be furnished in connection with such work, signed by all contractors, subcontractors, material men and laborers to become involved in such work. Any such alterations, additions or improvements shall be at the sole expense of Tenant using contractors selected by Tenant and approved by Landlord, which approval shall not be unreasonably denied or delayed. Tenant shall notify Landlord in writing of the identity of each contractor with whom it intends to contract at least five (5) business days prior to entering into a contract with such contractor. If Landlord has not notified Tenant in writing that Landlord disapproves of such contractor within five (5) business days after Landlord was notified of the identity of Tenants proposed contractor, then such contractor shall be deemed approved.
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6.5. Mechanics Lien. If any mechanics lien is filed against the Property or the Leased Premises for work claimed to have been done or materials claimed to have been furnished to or for the benefit of Tenant, whether related to work done pursuant to any provision of this Lease or otherwise, the lien, within thirty (30) days of its receipt of notice of such filing, shall be discharged by Tenant at Tenants expense by payment, satisfaction or by filing a bond as required by law or by other reasonable means.
ARTICLE 7. REPAIRS
7.1. Landlord Maintenance. Landlord shall maintain and repair the public portions of Building 4, exterior and interior, and shall make all structural repairs to Building 4, subject to Tenants obligations under Section 7.3. Landlord shall maintain and repair the equipment serving Building 4 generally, and the utility systems serving Building 4. Landlord shall also perform cleaning services as per the daily services specifications attached hereto as Exhibit B . The cleaning Specifications set forth on Exhibit B are illustrative only and shall be subject to change from time to time.
7.2. Tenant Maintenance. Tenant shall take good care of and maintain the Leased Premises, shall not waste the Leased Premises, and shall maintain the Leased Premises and its fixtures in good working order and condition, reasonable wear and tear excepted. Tenant shall also be responsible for its own janitorial services within the laboratory areas of the Leased Premises. Any contractors retained by Tenant for these purposes must be approved by Landlord in accordance with the provisions of Section 6.4.
7.3. Tenants Liability for Damages. Notwithstanding any provision of Section 7.1 above, subject to the provisions of Section 25.3, Tenant shall be liable for all damage or injury to the Leased Premises or to any other part of the Property or Building 4 or to any other portion of the property known as Science Park, of which the Property is a part, whether requiring structural or non-structural repairs, caused by or resulting from any intentional or unintentional act, negligence or willful conduct on the part of Tenant, a subtenant of Tenant, their respective servants, employees, agents, contractors, subcontractors, licensees or invitees. All such damage or injury shall be repaired promptly by Tenant at its sole cost and expense to the satisfaction of Landlord.
7.4. Tenant to Repair Damage. Tenant shall repair all damage to the Property, Building 4 and to the Leased Premises caused by the moving, installing or removing of Tenants fixtures, furniture, equipment or other personal property.
7.5. Landlord May Make Repairs at Tenants Expense. If Tenant fails after thirty (30) days notice to proceed with due diligence to make any repairs required to be made by it (unless in Landlords judgment, reasonably exercised, a delay of thirty days may expose persons or property to possible damage or injury, wherein Landlord may proceed without notice to
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repair), repairs may be made by Landlord for the account of and at the expense of Tenant. The reasonable costs and expenses so incurred by Landlord in making any such repairs shall be payable by Tenant as Additional Rent within ten (10) business days following submission of reasonably detailed invoices therefor.
7.6. Tenant to Notify Landlord of Defective Conditions. Tenant shall give Landlord prompt written notice of any defective condition in the Leased Premises of which Tenant is aware, including but not limited to, any defective condition in the plumbing, heating system or electrical lines located in, servicing or passing through the Leased Premises.
7.7. Quality of Work. Any and all work required or permitted to be done to or upon the Leased Premises by way of repairs, alterations, additions or improvements by Landlord or Tenant, or the agents or employees of either, shall be of a quality equal to the original construction and shall be done in accordance with all applicable laws, regulations and ordinances.
ARTICLE 8. COMPLIANCE WITH LAWS; INCREASED INSURANCE RATES;
ENVIRONMENTAL LAWS
8.1. Tenant to Comply with Laws and Regulations. Tenant, at its sole cost and expense, shall comply with all present and future statutes, laws, orders, ordinances, rules, regulations and requirements of all federal, state, municipal and local governments, departments, commissions and boards, the directions of any public officer, and all orders, rules and regulations of the Connecticut State Fire Safety Code or any similar organization, relating or pertaining to the conduct of Tenants business or its specific use and occupancy of the Leased Premises (and not to those laws, etc. which pertain to tenants generally, which shall be Landlords responsibility) (collectively, Laws ).
8.1.1. Landlords Representations. As of the Rent Commencement Date, Landlord represents and warrants that the Leased Premises are in compliance with all applicable safety Laws.
8.2. No Violation of Insurance Policies. Tenant shall not do or permit any act to be done in or to the Leased Premises which will invalidate or be in conflict with any policies of insurance at any time carried by or for the benefit of Landlord with respect to the Leased Premises, Building 4 or the Property. Tenant shall not use the Leased Premises in a manner that will increase the rate of any insurance applicable to the Leased Premises, Building 4 or the Property in effect on the Rent Commencement Date. Landlord represents that as of the Rent Commencement Date, the use of the Leased Premises for office and laboratory purposes does not conflict with or invalidate any insurance nor subject Landlord to an increase in the rate of insurance.
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8.3. Tenant to Pay Costs, Fines and Penalties. Upon receipt of notice from Landlord, Tenant shall promptly pay all claims, costs, expenses, fines, interest, penalties or damages that may be imposed upon or incurred by Landlord by reason of any Event of Default, provided that Tenant shall not be liable for any late charges or other costs that result from a delay by Landlord in paying the same. If Landlords insurance rates are increased during the Term of this Lease because of a special risk associated with Tenants use or occupancy, Tenant shall promptly reimburse Landlord for said increase as Additional Rent, upon receipt of reasonably detailed evidence thereof.
8.4. Hazardous Materials . As used herein, the term Hazardous Materials shall mean and include those elements, materials, compounds, mixtures, wastes or substances (collectively Substances ) which are designated as pollutant, toxic, infectious, flammable, radioactive or hazardous (or contained in any list which is adopted) by the United States Environmental Protection Agency (the EPA ), the State of Connecticut or any political subdivision thereof, including without limitation the Connecticut Department of Energy and Environmental Protection ( DEEP ), or is so designated under any of the Environmental Laws, and, whether or not included in any such list or designated as such, shall be deemed to include all Substances containing petroleum, petroleum products and derivatives, chlorinated hydrocarbons, asbestos, and polychlorinated biphenyls (PCBs).
8.5. Environmental Laws. As used herein, the term Environmental Laws shall mean and include any Federal, State, or local statute, law, ordinance, code, rule, regulation, order, or decree regulating or relating to the protection of human health or the environment, or regulating or imposing liability or standards of conduct concerning the use, storage, discharge, handling, treatment, removal, disposal or transportation of any Hazardous Materials, as now or at any time hereafter in effect including, without limitation, Title 22a ( Environmental Protection ) of the Connecticut General Statutes, including, but not limited to, Sections 22a-448 through 22a-457 of the Connecticut General Statutes (the Superlien Statute ), the Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. §§9601 et. seq ., The Superfund Amendments and Reauthorization Act, 42 U.S.C. §§9601 et. seq ., the Federal Oil Pollution Act of 1990, §§2701, et. seq ., the Federal Toxic Substances Control Act, 15 U.S.C. §§ 2601 et. seq ., the Federal Resource Conservation and Recovery Act as amended, 42 U.S.C. §§6901 et. seq ., the Federal Hazardous Materials Transportation Act, 49 U.S.C. §§1801 et. seq ., the Federal Clean Air Act 42 U.S.C. §7401 et. seq ., the Federal Water Pollution Control Act, 33 U.S.C. §1251 et. seq ., the Rivers and Harbors Act of 1899, 33 U.S.C. §§401 et. seq ., Title X of Pub.L. 102.550 (Oct. 28, 1992), and all laws, statutes, rules, ordinances, and all rules and regulations of the EPA, the DEEP or any other state or federal department, board, or agency, or any other agency or governmental board or entity having jurisdiction over the Property, as any of the foregoing have been, or are hereafter created, amended, supplemented, re-authorized, superseded and replaced from time to time.
8.6. Chemicals and Hazardous Materials. Tenant shall, no less often than annually, provide Landlord with a list of chemicals and Hazardous Materials Tenant intends to store or use in the Leased Premises. Such list, for the first Lease Year, is attached hereto as Schedule D . Tenant shall immediately notify Landlord in writing whenever Tenant intends to store or use other chemicals or Hazardous Materials than appear on such list, except that Tenant is permitted without prior notice and consent of landlord to use those Hazardous Materials necessary for the conduct of its business provided they are not used in reportable quantities and they are used in accordance with Environmental Laws. Failure to so notify Landlord shall be an Event of Default hereunder.
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8.7. Compliance with Environmental Laws . Tenant shall at its own expense procure, maintain in effect and comply with all conditions of any and all permits, licenses and other government and regulatory approvals required for Tenants activities or use of the Leased Premises, including, without limitation, the use, transportation, storage and discharge of Hazardous Materials. Tenant shall comply at all times with all Environmental Laws applicable to Tenants activities or use of the Leased Premises. Except as so discharged in accordance with all applicable Environmental Laws, Tenant shall cause any and all Hazardous Materials removed from the Leased Premises to be removed and transported solely by duly licensed haulers to duly licensed facilities for final disposal of such Hazardous Materials. Tenant shall in all respects handle, treat, deal with and manage any and all Hazardous Materials in, on, under or about the Leased Premises in total conformity with all applicable Environmental Laws and prudent industry practices regarding management of such Hazardous Materials. Upon expiration or earlier termination of the Term of the Lease, Tenant shall: (i) cause all Hazardous Materials used by Tenant to be removed from the Leased Premises by an appropriately licensed contractor and to be transported for use, storage or disposal in accordance and compliance with all applicable Environmental Laws; and (ii) shall arrange for a licensed industrial hygienist or other appropriately licensed contractor to clean the Leased Premises and any remaining furniture, fixtures and equipment of any and all Hazardous Materials used by Tenant and to provide to Landlord appropriate and customary written certifications specifying the completion of same including descriptions and/or serial numbers of all equipment cleaned by the contractor ( Cleaning Certificates ). Tenant shall promptly deliver to Landlord copies of all Cleaning Certificates and hazardous waste manifests reflecting the legal and proper cleaning of the Leased Premises and remaining furnishings, fixtures and equipment and the legal and proper disposal of all Hazardous Materials removed from the Leased Premises.
8.8. Tenant to Indemnify Landlord and Landlords Lenders. Tenant shall indemnify and hold harmless Landlord, Landlords Lenders (as defined in Section 10.1), and their respective directors, officers, employees and agents (each an Indemnified Party ) from and against any and all claims, actions, proceedings, investigations, suits, penalties, fines, costs, expenses, sums paid in settlement, judgments, losses and damages, directly or indirectly arising as a result of or caused by Tenants failure to comply fully with any applicable Laws or Environmental Laws or the terms of this Article 8. The foregoing indemnification shall include without limitation all costs of environmental cleanup, all fees and expenses of environmental consultants and engineers hired by an Indemnified Party and reasonable attorneys fees incurred by an Indemnified Party directly or indirectly as a result of any claim for which indemnification is provided herein. Tenant shall be responsible for the cost of any and all repairs to the Property, Building 4, the Leased Premises and any other real or personal property owned by Landlord or its subsidiaries from time to time, structural and nonstructural, required as a result of Tenants violation of any such Laws or Environmental Laws or terms of this Article 8. The terms of this Article 8 shall survive the termination or expiration of this Lease for any reason.
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8.9. Landlord to Indemnify Tenant. Except with respect to conditions caused by or attributable to Tenant, its contractors, agents or employees, Landlord shall indemnify and hold harmless Tenant, and its respective directors, officers, employees and agents (each a Tenant Indemnified Party ) from and against any and all claims, actions, proceedings, investigations, suits, penalties, fines, costs, expenses, sums paid in settlement, judgments, losses and damages, directly or indirectly arising as a result of or caused by Landlords failure to comply fully with any applicable Laws or Environmental Laws or the terms of this Article 8. The foregoing indemnification shall include without limitation all costs of environmental cleanup, all fees and expenses of environmental consultants and engineers hired by a Tenant Indemnified Party and reasonable attorneys fees incurred by a Tenant Indemnified Party directly or indirectly as a result of any claim for which indemnification is provided herein. Landlord shall be responsible for the cost of any and all repairs to the Property, Building 4, the Leased Premises and any other real or personal property owned by Landlord or its subsidiaries from time to time, structural and nonstructural, required as a result of Landlords violation of any such Laws or Environmental Laws or terms of this Article 8. The terms of this Article 8 shall survive the termination or expiration of this Lease for any reason.
ARTICLE 9. FLOOR LOAD; MACHINERY AND EQUIPMENT
9.1. Floor Load. Tenant shall not place a load upon any floor of the Leased Premises exceeding the established floor load, which shall be set by the Landlord. All such equipment and material installation shall be placed and maintained by Tenant at its expense, with equipment in settings sufficient to absorb vibration and noise and prevent annoyance to other tenants in Building 4.
9.2. Engines, Machinery and Equipment . Tenant shall provide Landlord with a list of all engines, machinery and equipment Tenant intends to store or use in the Leased Premises, excluding ordinary office equipment. Such list is attached hereto as Schedule C . Tenant shall notify Landlord in writing in advance whenever Tenant intends to store or use engines, machinery or equipment in the Leased Premises other than that listed on Schedule C . In no event shall Tenant store or use engines, machinery or equipment in the Leased Premises without Landlords prior written consent. Tenants failure to comply strictly with this section will constitute an Event of Default under this Lease.
ARTICLE 10. TENANTS OBLIGATIONS TO LANDLORDS LENDERS
10.1. Subordination. The rights of Tenant under this Lease will always be subject and subordinate to the rights, title and interest of all present and future lenders who may from time to time extend credit to Landlord which extensions of credit may be secured in whole or in part by a mortgage or other security interest on the Property, Building or Leased Premises (collectively, Landlords Lenders ) and all renewals, modifications, replacements and extensions of any such mortgage or other security interest, provided Tenants occupancy will not be disturbed. This provision is automatic without any further consent or confirmation by Tenant, but at Landlords request, Tenant will execute an agreement in form and content acceptable to Landlord and Landlords Lenders (a Subordination Nondisturbance Agreement ) confirming this provision. Tenant will sign the Subordination Nondisturbance Agreement and return it to Landlord within ten (10) days after Landlord makes the request in writing. Landlord shall obtain
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from the holder of any Mortgage in effect as of the Rent Commencement Date of this Lease, a reasonable form of Subordination Nondisturbance Agreement in recordable form to the effect that as long as Tenant shall keep, carry out, and perform all of the terms, covenants and provisions contained in this Lease which are to be performed by Tenant, within all applicable notice and cure periods, Landlords Lenders, or their assignees, will not disturb Tenants occupancy of the Leased Premises.
10.2. Estoppel Certificate. Tenant agrees to execute and deliver to Landlord within ten (10) days of Landlords written request a certificate or statement reasonably required to confirm that this Lease is in full force and effect, whether it has been modified, and if so, how, and whether, to Tenants knowledge, Landlord is in default in the performance or observance of any covenants or conditions in this Lease on Landlords part to be performed or observed, or any condition exists that with the passage of time would, if uncorrected, constitute a default (an Estoppel Certificate ). Landlord shall deliver to Tenant a comparable Estoppel Certificate within thirty (30) days after written request from Tenant.
10.3. Prohibition Against Recording Lease. Neither party shall record this Lease on the New Haven Land Records. Any such recordation of this Lease shall be an Event of Default hereunder and such recordation shall be null and void and of no force and effect.
ARTICLE 11. LIMITATIONS ON LANDLORDS LIABILITY
11.1. Property. Landlord shall not be liable for any loss of or damage to any property of Tenant, its employees, agents, contractors, subcontractors, licensees or invitees, whether by theft or otherwise, unless caused by the negligence or willful misconduct of Landlord, its agents, employees or contractors.
11.2. Landlord Not Liable for Other Tenants. Landlord and its agents shall not be liable for any injury or damage to persons or property caused by other tenants or persons in, upon or about Building 4, Property or other real property in the vicinity of the Property, or caused by operations in construction of any private, public or quasi-public work in or to Building 4, the Property or such other real property, unless caused by the negligence or willful misconduct of Landlord.
11.3. Limitation on Landlords Liability. Landlord shall not be liable to Tenant and, to the fullest extent allowed by applicable law, Tenant, for itself and its employees, contractors, subcontractors, agents, licensees and invitees, hereby waives all claims against and releases Landlord, Landlords Lenders, and their respective directors, officers, employees and agents from and against any and all claims, actions and causes of action which they or any of them may have now or in the future, for damages resulting from any entry into the Leased Premises, loss of life, personal injury, loss of business, or damage to any property on or about the Property or the real property known as Science Park of which the Property is a part or the approaches, entrances, streets, sidewalks or corridors thereto, by or from any cause whatsoever, including without limitation, damage caused by any defect in the Leased Premises or any other portion of Building 4 or Property or the real property know as Science Park, or by water leakage of any
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character from the roof, walls, basement or other portion of Building 4 or Leased Premises or caused by gas, fire, oil, electricity or any cause whatsoever in, on or about the Leased Premises or any other portion of Building 4 or the Property or the real property known as Science Park, provided the same does not arise, in whole or in part, by the negligence, willful misconduct or breach of contract of or by Landlord, its agents, employees or contractors.
ARTICLE 12. TENANTS OBLIGATION TO PROTECT LANDLORD AND
LANDLORDS LENDERS
12.1. Tenant to Indemnify and Hold Harmless Landlord. To the fullest extent allowed by applicable law, Tenant will defend, indemnify and hold harmless Landlord, Landlords Lenders, and their respective directors, officers, employees and agents (individually, an Indemnified Party ), from and against any and all claims, damages, liabilities, penalties, fines, judgments, forfeitures, actions, causes of action, losses, costs and expenses (including, without limitation, reasonable attorneys fees, costs and expenses incurred by any Indemnified Party in defending against any claim for which indemnification is provided herein), which result from, or arise out of or in connection with any one or more of the following (including claims resulting from the death of or injury to any person or damage to any property whatsoever, arising from or caused in whole or in part, directly or indirectly, by):
A. Any breach or violation by Tenant or a subtenant of Tenant or their respective servants, employees, agents, contractors, subcontractors, licensees or invitees of any provision of this Lease;
B. The negligence or willful act of Tenant or a subtenant of Tenant or their respective servants, employees, agents, contractors, subcontractors, licensees or invitees;
C. The use and occupancy of the Leased Premises by Tenant or any other party during the Term of this Lease; or
D. (i) the use, storage, transportation, disposal, release, discharge or generation of, Hazardous Materials to, in, on, under, about or from the Leased Premises or the Property or the real property known as Science Park of which the Property forms a part, by Tenant, a subtenant of Tenant or their respective employees, contractors, subcontractors, agents, licensees or invitees, or (ii) Tenants failure to comply with any Environmental Laws. Tenants obligation under this Section shall include, without limitation, and whether foreseeable or unforeseeable, any and all costs incurred in connection with any investigation of site conditions, and any and all costs of any required or necessary repair, cleanup, monitoring, remedial action, detoxification or decontamination of the Property or other portions of the real property known as Science Park of which the Property forms a part (including, without limitation, the soil and ground water on or under the Property or such real property known as Science Park) and the preparation and implementation of any closure, remedial action or other required plans in connection therewith, provided the cause of the same is due solely to Tenant, its agents, employees or contractors. Tenants obligations under this Section shall survive the expiration or earlier termination of the Term of the Lease. For purposes of the indemnity provisions hereof, any acts or omissions of
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Tenant or a subtenant of Tenant or by employees, agents, assignees, contractors, subcontractors, licensees and invitees of Tenant or a subtenant of Tenant or others acting for or on behalf of Tenant or a subtenant of Tenant (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant.
12.2. Tenant to Defend Claims. If any action or proceeding is brought against an Indemnified Party by reason of a claim described in Section 12.1. , Tenant, upon written notice from Landlord, will at Tenants sole cost and expense, defend the action or proceeding with legal counsel approved by Landlord in writing, which approval shall not be unreasonably withheld. Landlord shall give Tenant written notice of any such claim as soon as reasonably practicable but in any event within fifteen (15) days of Landlord receiving written notice of such claim.
12.3 Landlord to Indemnify Tenant as to Certain Claims. Except to the extent Tenant is required to indemnify Landlord under Section 12.1 above, Landlord will defend, indemnify and hold harmless Tenant and its directors, officers, employees and agents (individually, a Tenant Indemnified Party ), from and against any and all claims, damages, liabilities, penalties, fines, judgments, forfeitures, actions, causes of action, losses, costs and expenses, costs and expenses (including, without limitation, reasonable attorneys fees incurred by any Tenant Indemnified Party in defending against any claim for which indemnification is provided herein), which result from, or arise out of or in connection with (including claims resulting from the death of or injury to any person or damage to any property whatsoever, arising from or caused in whole or in part, directly or indirectly, by): (a) any breach or violation by Landlord or its servants, employees, agents, contractors, or subcontractors of any provision of this Lease; or (b) the negligence or willful act of Landlord or its servants, employees, agents, contractors, subcontractors, or licensees.
ARTICLE 13. FIRE AND OTHER CASUALTY
13.1. Notification to Landlord; Obligation to Pay Base Rent and Additional Rent. If the Leased Premises or Building 4, or any part thereof, shall be destroyed or partially damaged by fire or other casualty, Tenant shall continue to pay rent during any period of repair except as otherwise expressly provided in this Article or until the Lease is terminated in accordance with the terms of this Article.
13.2. When Lease May Be Terminated; Apportionment of Base Rent and Additional Rent. If by reason of casualty:
A. Building 4 is destroyed, this Lease shall terminate automatically and Tenant shall vacate the Leased Premises as of the date of the casualty;
B. The Leased Premises are rendered wholly or substantially untenantable and restoration will require longer than 120 days, this Lease shall terminate at the option of Landlord or Tenant made within 30 days of the casualty or loss causing such condition and Tenant shall vacate the Leased Premises as of the date of such casualty or loss; or
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C. Any portion of Building 4 is otherwise substantially damaged and Tenants access to or use of the Leased Premises is materially and adversely affected, and restoration of such damage shall require longer than 120 days to complete, then Landlord may either elect to repair the damage or may cancel this Lease by giving written notice of cancellation to Tenant within thirty (30) days after such casualty or loss. Upon the giving of such notice of cancellation, this Lease shall terminate, and Tenant shall vacate and surrender the Leased Premises to Landlord. If Landlord shall have decided to repair any damage as aforesaid, the damage (except as to Tenants fixtures, personal property or leasehold improvements made by Tenant) shall be repaired by and at the expense of Landlord within one hundred and eighty (180) days of the casualty and the Base Rent and Additional Rent shall be abated during the period of the repairs according to the part of the Leased Premises, if any, which is not usable by Tenant, but if the remaining usable portion does not enable Tenant to conduct its business in a reasonable manner, then abatement shall be determined by the extent of material interference with Tenants business. If Landlord shall not complete the restoration within said 180-day period, then, provided that the Leased Premises were materially damaged by the casualty, Tenant may elect to terminate this Lease by written notice given to Landlord within thirty (30) days after the end of said 180-day period. If the casualty occurred during the last 180 days of the Term and the Leased Premises was materially damaged, then Tenant may elect to terminate this Lease by written notice given to Landlord within thirty (30) days after the date of the casualty.
13.3. Intentionally Omitted.
13.4. Landlord Need Not Replace Tenants Property. Tenant acknowledges that Landlord is not required to repair or replace any of Tenants property or Tenants improvements to the Leased Premises and that Landlord will not carry insurance on Tenants furnishings, fixtures, equipment, improvements or other personal property.
13.5. Alternate Parking. In the event that Tenant parking as provided for in this Lease is temporarily unavailable because of fire, other casualty or any other reason outside of Landlords control, Landlord shall endeavor in good faith to provide alternative parking within the Science Park complex.
ARTICLE 14. TAKING BY GOVERNMENTAL AUTHORITY
14.1. Termination of Lease; Waiver of Claim by Tenant. If Building 4 or any portion of Building 4 which includes the Leased Premises shall be taken by condemnation (also known as eminent domain) by any authority having power so to do or is conveyed to such authority in lieu of condemnation, this Lease shall terminate from the date of title vesting in such authority. If any portion of Building 4, which does not include the Leased Premises but materially and adversely affects Tenants access to or use of the Leased Premises, shall be so taken, Landlord shall have the option, at its sole discretion, to cancel this Lease. All proceeds from the taking will belong to Landlord and Tenant waives any rights it might have to such proceeds. Tenant, however, may proceed with any independent claim against the taking authority as to moving costs.
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14.2. Taking Not Involving Building 4. If a portion of the Property shall be taken by condemnation as described in Section 14.1. or conveyed in lieu of condemnation, which portion does not include any portion of Building 4 (or excepting an inconsequential portion of Building 4 not affecting the Leased Premises), the Term of this Lease shall not terminate but shall continue in full force and effect according to its terms. Tenant shall not be entitled to any award or damages from such taking.
ARTICLE 15. TENANTS RIGHT TO ENCUMBER, ASSIGN, OR SUBLEASE
15.1. Tenant May Not Use Lease as Collateral. Tenant may not voluntarily or involuntarily use this Lease for collateral (known as encumbering the Lease) without Landlords prior written consent, which consent will not be unreasonably withheld.
15.2. Assignment or Subletting by Tenant. Except as permitted under Section 15.3.D of this Lease, Tenant may not assign or transfer its interest in this Lease, nor sublet any portion of the Leased Premises, without Landlords prior written consent, which consent shall not be unreasonably withheld. Consent to an assignment, transfer or sublease shall not be interpreted as consent to any renewal, additional or subsequent assignment, transfer or sublease.
15.3. Conditions Precedent to Assignment, Transfer or Sublease. An assignment, transfer or sublease shall become effective only upon and subject to the following conditions:
A. Tenant shall have provided to Landlord such information relating to the proposed assignment, transfer or sublease as Landlord may reasonably request, including but not limited to the identity of the proposed assignee, transferee or sublessee together with tax returns and financial statements for the proposed assignee, transferee or sublessee; and
B. Tenant shall have provided Landlord with an executed copy of all written agreements relating to the assignment, transfer or sublease, and such agreements are in a form reasonably acceptable to Landlord; and
C. The proposed assignee, transferee or subtenant shall execute and deliver to Landlord such agreements as Landlord and Landlords Mortgagees may reasonably require in order to evidence the assumption of the obligations and liabilities under this Lease; and
D. Landlord shall have approved in writing such assignment, transfer or sublease, which approval shall not be unreasonably denied; provided, however, that no such approval shall be required in the case of an assignment, transfer or sublease to a parent, affiliate or subsidiary of Tenant or in the case of a merger, consolidation, sale of stock or sale of substantially all of the assets of the Tenant, provided that the conditions set forth in clauses A, B and C of this Section 15.3 are satisfied and in all instances Tenant shall continue to be subject to Section 15.4 of this Lease.
15.4. Tenant Not Released. No assignment or transfer of Tenants interest hereunder nor a sublease of the Leased Premises or any part thereof will release Tenant from its obligations under this Lease and Landlord may look to Tenant for continued performance.
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15.5. Landlord May Collect Charges. Landlord may collect use and occupancy charges from a subtenant of Tenant without being considered to have consented to the sublease.
15.6. Shared Use By Other Entities. Except as permitted under Section 15.2, no use of the Leased Premises by any person or entity other than Tenant is permitted without the prior express written consent of Landlord, which consent may be conditioned on the following, among other reasonable conditions established by Landlord: (1) Landlords receipt of prior written request therefor and proof of insurance coverage to Landlords satisfaction, and (2) provision to Landlords satisfaction for payment by Tenant of any additional costs and charges occasioned by such use.
ARTICLE 16. ACCESS TO LEASED PREMISES
16.1. Landlord to Have Access in Emergency. Landlord and Landlords agents shall have the right to enter the Leased Premises at any time if Landlord or Landlords agent reasonably believes an emergency exists.
16.2. Landlords Right to Enter. Except as provided in Article 16.1. , Landlord and Landlords agents shall have the right to enter the Leased Premises upon reasonable notice to Tenant for the following purposes:
A. Inspecting the Leased Premises;
B. At any time during the Term, showing the Leased Premises to prospective purchasers and lenders;
C. During the final six months of the Term, showing the Leased Premises to prospective tenants; and
D. To make repairs and alterations as Landlord may deem necessary to the Leased Premises or to any other portion of Building 4 or which Landlord may elect to perform following Tenants failure to make repairs or perform any work which Tenant is obligated to perform under this Lease after notice and applicable cure periods, or for the purpose of complying with laws, regulations and other directives of governmental authorities. In exercising its rights under this Section 16.2, Landlord shall not unreasonably interfere with Tenants use of the Leased Premises.
16.3. Landlord May Make Changes to Building 4. Landlord shall have the right at any time, without incurring any liability to Tenant, to make any changes, deletions and additions to Building 4 and to the entrances, exits, stairs, halls, elevators and common spaces as Landlord believes necessary or desirable, provided that such changes shall not materially adversely affect Tenants access to or use of the Leased Premises. No action taken by Landlord pursuant to this section shall constitute an eviction or breach of this Lease.
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16.4 Safety Inspections. Landlord shall have the right, no more frequently than once every three months, to have a safety inspection performed by an appropriately licensed third party laboratory inspector (a Safety Inspection ). All such Safety Inspections shall be limited to the operation of and materials, chemicals and processes employed by Tenant in the portions of the Leased Premises used for laboratory purposes. Landlord shall give the Tenant at least five (5) business days advance notice of any such Safety Inspection and all Safety Inspections shall be conducted in advanced coordination with the Tenant in such a manner and at such a time as to minimize any disruption of business conducted by the Tenant. Tenant shall have a representative present during all Safety Inspections and shall simultaneously be sent a copy of any written report or summaries with respect to each Safety Inspection. To the extent that safety issues and/or violations of any applicable law are identified, Tenant shall remedy any such issues or violations in advance of a mutually agreed upon follow up Safety Inspection but in no event more than 30 days thereafter. Landlord may issue a default notice under Section 17.1.H. of this Lease should Tenant fail to remedy any such safety issues or violations of law as of the time of such follow up Safety Inspection.
ARTICLE 17. DEFAULT AND TERMINATION
17.1. Events of Default. The occurrence of any one or more of the following events shall constitute an event of default by Tenant hereunder ( Event of Default ):
A. Failure to pay any Base Rent, Additional Rent or any other rent or monetary obligation under this Lease within ten (10) days after written notice is given to Tenant that payment is past due; provided, however, that if Landlord has given Tenant at least three (3) such notices within any consecutive 12-month period with respect to Base Rent and/or Additional Rent due with respect to Tenants Proportionate Share of Operating Expenses and/or Property Taxes, then if Tenant shall fail again during such 12-month period to pay any Base Rent or Additional Rent within ten (10) days of the date payment is due, such failure shall be deemed an Event of Default and Landlord shall not be required to give Tenant notice that such payment is past due;
B. Voluntary recourse to any protection or procedure under the United States Bankruptcy Code, as amended, or any similar law.
C. There is filed against Tenant in any court pursuant to any statute, either of the United State of America or of any state, a petition in bankruptcy or insolvency, or for reorganization, the appointment of a receiver or trustee of all or a portion of Tenants property, or for other relief of debtors, and within thirty (30) days thereof Tenant fails to secure a dismissal thereof.
D. Failure to execute and deliver in a timely manner a Subordination Agreement, Estoppel Certificate or other certificate regarding the status of this Lease which continues for more than five (5) days after written notice of such failure.
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E. Transfer of this Lease to another party by operation of law or otherwise in violation of the terms of this Lease.
F. Abandonment of the Leased Premises.
G. The recordation of this Lease on the New Haven Land Records in violation of Section 10.3 hereof.
H. Failure to perform or comply with any other non-monetary obligation under this Lease within thirty (30) days of written notice of such failure, provided that, if said failure is of a nature that the same cannot be completely cured or remedied within said thirty (30) day period, then Tenant shall not be in default if it begins such cure within the thirty (30) day period described above and thereafter diligently prosecutes such cure to completion but in no event beyond sixty (60) days after such thirty (30) day period.
I. Any lien, attachment or other encumbrance is lodged against the Leased Premises, Building 4 or the Property by a party claiming through or under Tenant and such is not discharged, satisfied or bonded within thirty (30) days after Tenants receipt, whether actual or statutory, of such lien, attachment or encumbrance.
17.2. Termination Upon Occurrence of Event of Default. Upon the occurrence of an Event of Default, this Lease and the Term thereof shall, at the option of Landlord and upon written notice to the Tenant (which notice may be a notice to quit), terminate and expire and, upon such termination, Tenant shall forthwith quit and surrender the Leased Premises to Landlord but still shall remain liable to Landlord as herein provided.
17.3. Effect of Termination. Upon termination as provided for in this Article 17, Landlord may dispossess Tenant by summary process or otherwise in accordance with applicable law, and Tenant hereby waives the service of any notice to quit.
17.4. Damages. In the case of any termination of this Lease under this Article 17, Landlord, at its sole discretion, may recover from Tenant any and all actual damages sustained by Landlord as a result of the termination and any re-letting of the Leased Premises. These damages include, but are not limited to:
A. | Base Rent and Additional Rent when due; |
B. | The cost of removing Tenant and its property and otherwise recovering the Leased Premises; |
C. | The reasonable cost of preparing the Leased Premises for another tenant; |
D. | Reasonable brokerage appraisal fees; |
E. | Any other reasonable expenses as Landlord may incur in connection with re-letting the Leased Premises. |
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F. | As an alternative to the damages described in clause A of this Section 17.4, the difference between (i) all Base Rent and Additional Rent that would have become payable for the remainder of the Term of this Lease, and (ii) that actually received for said period, all of which shall be discounted to present value using Federal Reserve discount rate; and |
G. | Reasonable legal fees incurred by Landlord in exercising its rights under this Article 17. |
17.5. Mitigation of Damages. Landlord shall use reasonable efforts to mitigate its damages under this Lease. Provided that Landlord has used reasonable efforts to mitigate its damages, the failure or inability of Landlord to re-let the Leased Premises, or any part or parts thereof, or the failure or inability to collect rentals equal to the rentals payable under this Lease shall not release or affect Tenants liability for damages. In no event shall Tenant be entitled to receive any excess, if any, of any such rents collected over the sums payable by Tenant to Landlord under this Lease.
17.6. Use and Occupancy. Any monies received by Landlord from or on behalf of Tenant during the pending of any proceeding of the types referred to in subsections 17.1.B and 17.1.C shall be deemed paid as compensation for the use and occupation of the Leased Premises, and the acceptance of any such compensation by Landlord shall not be deemed an acceptance of Base Rent, Additional Rent or a waiver on the part of the Landlord of any rights under Article 17.
ARTICLE 18. LANDLORDS PERFORMANCE ON TENANTS BEHALF
18.1. Landlord May Cure Default. If Tenant defaults under this Lease, Landlord, at its sole option, following any required notice and cure period, immediately or at any time thereafter, may elect to correct the default on behalf of Tenant. Any costs or expenses incurred by Landlord in curing such default including, but not limited to, fines, penalties, interest, damages and reasonable attorneys fees in instituting, prosecuting or defending any action or proceeding, all of which sums shall carry interest at the lesser of 18% per annum or the highest rate permitted by law until paid in full, shall be deemed to be Additional Rent. Tenant shall pay such sums within thirty (30) days of rendition of a reasonably detailed bill or statement to Tenant therefor. Upon payment of such bill, Tenant shall be deemed to have cured such default.
18.2. Landlord Not Obligated to Cure Default. Nothing contained in this Article shall be construed as to require Landlord to incur any expenses or obligations on behalf of Tenant.
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ARTICLE 19. TENANTS QUIET ENJOYMENT OF THE LEASED PREMISES
So long as no uncured Event of Default exists, Tenant may peaceably and quietly have, hold and enjoy the Leased Premises for the Term of this Lease subject to the provisions of this Lease.
ARTICLE 20. NO WAIVER BY LANDLORD
20.1. No Waiver. If either Landlord or Tenant fails or decides not to enforce any provision of this Lease or Landlord fails or decides not to enforce any of the rules and regulations of Landlord set forth in this Lease or hereafter adopted, on any occasion, it may nevertheless on another occasion enforce such provision, rule or regulation. No act by Landlord or Landlords agents shall be deemed an acceptance of a surrender of the Leased Premises or a waiver of any right under the Lease unless Landlord has so agreed in writing.
20.2. Accepting Money Not a Waiver. Landlord will not waive any right to enforce any provision of this Lease by accepting a payment of Base Rent and/or Additional Rent from Tenant knowing that Tenant has failed to comply with the terms of the Lease. No endorsement or statement on any check or any letter accompanying any check or payment shall be deemed to effect an accord and satisfaction and Landlord may accept any such check or payment without prejudice to Landlords right to recover the balance of such Base Rent, Additional Rent or other payment due or to pursue any other remedy provided in this Lease.
ARTICLE 21. INABILITY TO PERFORM
This Lease and the obligation of Tenant to pay Base Rent, Additional Rent and other payments required hereunder and comply with all of the other provisions of this Lease shall in no way be affected, impaired or excused because Landlord is delayed in supplying any service expressly or implied to be supplied, or is unable to make or is delayed in making any repair, additions, alterations or decorations, or is unable to supply or is delayed in supplying any equipment or fixtures, or is unable to fulfill or is delayed in fulfilling any other obligation hereunder, if Landlord is so prevented or delayed by reason of riot, strike, labor troubles, war, act of God or any other cause whatsoever beyond Landlords reasonable control including, but not limited to, government preemption in connection with a national emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency, or by reason of the conditions of supply and demand which have been or are affected by war or other emergency; provided, however, that Landlord shall give written notice to Tenant of a claim of a force majeure delay within thirty (30) days after Landlord first becomes aware of the occurrence of the event of force majeure , and, provided, further, that if the force majeure delay shall exceed one hundred and eighty (180) days, then in such event Tenant may terminate this Lease by written notice given to Landlord within five (5) days of the expiration of said 180-day period.
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Notwithstanding the foregoing, if the Premises, or a material portion of the Premises, are made untenantable for a period in excess of five (5) consecutive Business Days as a result of a Landlords failure to furnish, or any interruption, diminishment or termination of services due to the application of Laws, the failure of any equipment, the performance of maintenance, repairs, improvements or alterations, utility interruptions (collectively a Service Failure ) that is reasonably within the control of Landlord to correct, then Tenant shall be entitled to receive an abatement of Rent payable hereunder during the period beginning on the first day after the expiration of such fifth (5 th ) Business Day period and ending on the day the service has been restored. If the entire Premises have not been rendered untenantable by the Service Failure, the amount of abatement shall be equitably prorated.
ARTICLE 22. NOTICES AND OTHER COMMUNICATIONS
All notices, consents, approvals or other communications required or provided to be sent by either party shall be in writing (except as otherwise provided in this Lease) and shall be: (i) sent by United States Postal Service, certified mail, return receipt requested, (ii) sent by any nationally known overnight delivery service for next business day delivery, (iii) delivered in person, (iv) sent by telecopier or facsimile machine which automatically generates a transmission report that confirms transmission and states the date and time of the transmission, and the telephone number of the recipients telecopier or facsimile machine (with a copy thereof sent by the end of the same day in accordance with clause (i) or (ii) above), or (v) sent by electronic mail (e-mail) with a copy thereof sent by the end of the same day in accordance with clause (i), (ii), (iii) or (iv) above (unless such follow up copy is excused in writing, including by way of e-mail, by the recipient). All notices shall be deemed to have been given upon receipt, except that notices sent pursuant to clause (iii) or (iv) shall be deemed to have been received (i) on the date of delivery or transmission, if so transmitted before 4:30 p.m. (local time of the recipient) on a Business Day, or (ii) on the next business day, if so delivered or transmitted on or after 4:30 p.m. (local time of the recipient) on a business day or if transmitted on a day other than a business day. All notices shall be addressed, if to Tenant, at the addresses set forth below or such other address as Tenant shall have last designated by notice to Landlord; if to Landlord, at the address set forth below or such other address as Landlord shall have last designated by notice to Tenant. Landlord and Tenant shall also deliver copies of all notices in like manner as set forth below:
LANDLORD:
Science Park Development Corporation
5 Science Park
New Haven, CT 06511
ATTN: President
Telephone: (203) 785-0840
Email: davidsilverstone1@gmail.com
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TENANT:
Precipio, Inc.
4 Science Park, 3 rd Floor
New Haven, CT, 06511
Attn: Carl Iberger
Tel: 203.787.7888 ex. 525
Email: ciberger@precipiodx.com
Any address or name specified above may be changed by notice given to the addressee by the other party in accordance with this Article 22 . Any notice to be given by any party hereto may be given by counsel for such party.
ARTICLE 23. RULES AND REGULATIONS
23.1. Compliance with Rules and Regulations. Tenant and Tenants servants, employees, agents, contractors, subcontractors, licensees and invitees shall faithfully observe and comply strictly with the rules and regulations for occupancy of the Leased Premises promulgated from time to time by Landlord and communicated in writing by Landlord to Tenant. The current rules and regulations in effect are attached hereto and made a part hereof as Schedule E . Landlord agrees not to discriminate against Tenant in the enforcement of the rules and regulations.
23.2. Notice of Change. Landlord shall give Tenant thirty (30) days written notice of any changes in Schedule E or of any additional rules or regulations to be adopted.
23.3. Landlord Under No Duty to Enforce Rules and Regulations. Landlord has no duty to enforce the rules and regulations or provisions of any other Lease as against any other tenant, and Landlord shall not be liable to Tenant for the violation of such rules, regulations or Leases by any other tenant, its servants, employees, agents, licensees or invitees.
ARTICLE 24. INTENTIONALLY OMITTED
ARTICLE 25. INSURANCE
25.1. Required Insurance. Tenant will maintain in full force and effect the following insurance:
A. Public liability insurance in an amount of $1,000,000 combined single limit death, bodily injury, personal injury and property damage.
B. All risk extended coverage insurance insuring its personal property and improvements to be located on the Leased Premises for full replacement value against loss by fire, vandalism, malicious mischief and other casualty.
C. Workers compensation insurance as required by law.
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25.2. Landlord and Landlords Lenders to be Named Additional Insureds. Tenants public liability and property damage insurance (but not as to Tenants personal property and equipment) shall name Landlord and Landlords Lenders and any public party required to be named, as designated by the holder of any mortgage on the Property, as an additional insured party.
25.3. Waiver of Subrogation. Each policy of all risk extended coverage insurance will contain an agreement by the insurance company waiving its rights to recover against Landlord and each additional insured party named in Section 25.2 for any claims.
25.4. Notice of Cancellation. Each insurance policy required to be maintained by Tenant hereunder must contain a provision that the policy may not be canceled or modified without at least ten (10) days notice to Landlord.
25.5. Insurance Companies. All insurance required to be maintained by Tenant hereunder will be provided by companies that are licensed to do business in Connecticut and have a Bests Insurance rating of A- or better and are otherwise reasonably acceptable to Landlord.
25.6. Policies to be Delivered to Landlord. Tenant will give Landlord an original certificate for each insurance policy before it occupies the Leased Premises and an original certificate of each renewal at least twenty (20) days before the expiration of the policy.
25.7. Landlords Insurance. Landlord will maintain in full force and effect during the Term of this Lease: (i) all risk extended coverage property insurance insuring Building 4 for its full replacement value, and (ii) public liability insurance in an amount of $1,000,000 combined single limit death, bodily injury, personal injury and property damage, naming Tenant as an additional insured thereunder. Landlords policy of all risk extended coverage insurance will contain an agreement by the insurance company waiving its rights to recover against Tenant.
25.8. Mutual Waiver . In extension and not in limitation of the foregoing, each party waives any and all rights of recovery which each party might otherwise have against the other party as the result of loss or damage to any of property of the waiving party arising from any of the perils insured against under a Standard Connecticut Fire Insurance Policy with extended coverage and supplemental casualty perils coverage, whether or not such loss or damage is caused in any part by a partys negligence or neglect, and all insurance policies carried by the parties respecting any property shall be endorsed to state that the respective insurance carriers have received and accepted notice of the provisions of this Lease and have waived any and all rights of subrogation against the other party that might arise under such policies.
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ARTICLE 26. SERVICES PROVIDED BY LANDLORD
26.1. Services. Landlord shall provide the following services to Tenant:
A. | Subject to reimbursement under Section 3.2 and 3.4 hereof, as applicable, Landlord shall provide heat, air conditioning, electricity and gas to Building 4 and the Leased Premises; |
B. | Landlord shall clean and maintain the common interior portions of Building 4 and, subject to reimbursement under Section 3.2 and 3.4 hereof, provide refuse removal; |
C. | Landlord shall keep the roadways, sidewalks and parking areas serving Building 4 and the Leased Premises free from snow, ice and all obstructions, and the grass and shrubbery properly maintained; |
D. | Landlord shall maintain and keep in good repair and efficient operation the utility and elevator systems and the fire protection sprinkler systems serving Building 4 and the Leased Premises; |
E. | Landlord shall provide heat and air conditioning, as required by health laws, from 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 2:00 p.m. on Saturdays, excluding holidays as set forth on Exhibit C hereto. |
F. | Landlord shall provide hot and cold running water for personal use. Tenant will be billed separately for extraordinary amounts which may be available at Landlords sole discretion; and |
G. | Landlord shall provide periodic manned security patrols at Building 4. Patrol intervals will be determined at the sole discretion of the Landlord. |
H. | Landlord shall provide Tenant with access to Building 4 and the Leased Premises 24 hours a day, 7 days a week, 52 weeks a year. |
I. | Landlord shall be responsible, at its sole cost, for compliance with all laws with respect to the Property and Building 4 (excluding the Leased Premises), including, without limitation, ADA, OSHA and local building and fire codes. |
26.2. Normal Operating Hours. Normal operating hours for Building 4 will be 8:00 a.m. to 6:00 p.m., Monday through Friday and 8:00 a.m. to 2:00 p.m. on Saturdays, excluding those holidays set forth on Exhibit C hereto. If Tenant desires heating and/or air conditioning at other than normal operating hours ( Additional Services ), Tenant shall make such request for Additional Services to the applicable contacts set forth on Exhibit D hereto, and Tenant shall provide at least twentyfour (24) hour advance notice. Notwithstanding the foregoing, Tenant
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may make emergency requests for Additional Services to the applicable contacts on Exhibit D (each an Emergency Request) at any time and best efforts shall be made to accommodate such Emergency Requests. Tenant will pay the actual costs of the Additional Services including fuel, utilities and any overtime costs incurred by or on behalf of Landlord. As of the date of this Lease, the actual cost per hour of Additional Services is $35.00, provided, however, that such amount shall change from time to time as the Landlords cost of providing such Additional Services changes and such charge will be more if Landlord is responding to an Emergency Request.
26.3. Services to Other Entities. No extra services shall be provided for the use of any entity other than Tenant without Landlords prior express written consent.
ARTICLE 27. ADDITIONAL OBLIGATIONS OF TENANT
27.1. Reimbursement of Landlord. Tenant shall promptly reimburse Landlord, upon demand, for all reasonable out of pocket costs of Landlord, including reasonable attorneys fees, incurred in the enforcement of this Lease and in providing any consent or review of any sublease, mortgage or collateral assignment of Tenants Leasehold interest, requested of Landlord hereunder.
27.2. Additional Obligations. In addition to its other obligations under this Lease, Tenant shall at its expense comply with the following provisions with respect to the Leased Premises:
A. | Tenant shall keep the Leased Premises in good order (subject to Landlords obligations set forth in Articles 7 and 26) and free from all refuse, and shall promptly remove all debris, garbage, and refuse of any kind from the Leased Premises; |
B. | Other than as expressly provided otherwise in this Lease, Tenant shall furnish all painting, janitorial and security services for the Leased Premises; |
C. | Tenant shall use all possible diligence, in accordance with the best prevailing methods, for the prevention and extermination of vermin, rats, mice or other pests in the Leased Premises; and |
D. | Tenant shall contract for and pay for the collection, removal and lawful disposal of all waste at the Leased Premises containing or constituting Hazardous Materials. |
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ARTICLE 28. SIGNS
Tenant may display signs at entrances to Building 4 and entrances to the Premises. The location, size, and overall appearance of any signs shall be subject to the Landlords approval, which approval may be withheld at the sole and absolute discretion of the Landlord. The Tenant shall be listed in all directories maintained by Landlord with respect to Building 4.
ARTICLE 29. BROKERAGE
Tenant agrees to indemnify and hold Landlord harmless from and against the claims of any party claiming a fee or commission by, under or through Tenant on account of this Lease. Pursuant to a separate agreement, Landlord shall compensate Colliers International as Landlords representatives. Landlord represents to Tenant that no other broker has an exclusive right to lease space at the Property and Landlord agrees to indemnify and hold Tenant harmless from and against the clams of any party claiming a fee or commission on the basis that Landlord granted an exclusive listing agreement.
ARTICLE 30. NOTICE OF LEASE
Upon the written request of either party, Landlord and Tenant agree to execute and record a statutory notice of Lease as provided in C.G.S. §47-19.
ARTICLE 31. SURRENDERING OF LEASED PREMISES
31.1. Surrender of Leased Premises. Tenant will immediately surrender the Leased Premises upon the expiration or earlier termination of this Lease for any reason. Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in so surrendering the Leased Premises, including, but not limited to, reasonable attorneys fees and any claims made by any succeeding tenant founded on such delay.
31.2. Condition of Leased Premises. Upon the expiration of the Term or sooner termination of this Lease, except where the Lease has been terminated because of fire or other casualty, Tenant shall leave the Leased Premises and surrender it to Landlord broom clean and in good order, condition and repair, ordinary wear and tear excepted.
31.3. Removal of Tenants Property. When Tenant surrenders the Leased Premises to Landlord, Tenant shall, at Tenants expense, forthwith provide Cleaning Certificates remove all personal property of Tenant and that of any other persons claiming under Tenant, from the Leased Premises, Building 4, the Property and the real property known as Science Park of which the Property forms a part. Property not removed by Tenant within forty-eight (48) hours after termination of this Lease shall be deemed abandoned and Landlord may, at Tenants expense, remove the same from the Property and/or at Landlords option sell or otherwise dispose of the same with no obligation to remit any portion of the proceeds of any such sale to Tenant. Tenant shall reimburse Landlord upon demand for all reasonable costs incurred by Landlord in so obtaining Cleaning Certificates or removing and disposing of such property.
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31.4. Holding Over Shall Not Renew Lease. Tenants occupancy of the Leased Premises beyond the Term of this Lease or after termination will not constitute a renewal of the Lease by operation of law or otherwise for any period whatsoever. If Tenant does so occupy the Leased Premises, it shall be deemed to be a tenant at sufferance only and shall pay Landlord Base Rent and Additional Rent in an amount equal to one hundred fifty percent (150%) of the highest Base Rent and Additional Rent payable hereunder and shall be subject to all other provisions of this Lease. Regardless of any payment made by Tenant or any payment cycle, no holding over after receipt of notice of termination shall under any circumstances be deemed any more than a tenancy at sufferance.
ARTICLE 32. ADDITIONAL OBLIGATIONS OF TENANT
Tenant shall promptly reimburse Landlord, upon demand, for all reasonable out of pocket costs of Landlord, including reasonable attorneys fees, incurred in the enforcement of this Lease and in providing any consent or review of any sublease, mortgage or collateral assignment of Tenants Leasehold interest, requested of Landlord hereunder.
ARTICLE 33. TENANTS WAIVER OF RIGHTS
In connection with any disputes and legal proceedings arising from this Lease, Tenant waives the following legal rights:
33.1 PREJUDGMENT REMEDY, REDEMPTION, COUNTERCLAIM AND JURY TRIAL. THE TENANT, FOR ITSELF AND FOR ALL PERSONS CLAIMING THROUGH OR UNDER IT, HEREBY ACKNOWLEDGES THAT THIS LEASE CONSTITUTES A COMMERCIAL TRANSACTION AS SUCH TERM IS USED AND DEFINED IN SECTION 52-278(A) OF THE CONNECTICUT GENERAL STATUTES, OR ITS SUCCESSOR PROVISIONS IF AMENDED, AND HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS WHICH ARE OR MAY BE CONFERRED UPON THE TENANT BY SAID ACT TO ANY NOTICE OR HEARING PRIOR TO A PREJUDGMENT REMEDY UNDER SECTIONS 52-278(A) TO 52-278(G), OR THEIR SUCCESSOR PROVISIONS IF AMENDED, INCLUSIVE OF SAID STATUTES. SUCH WAIVER IS INTENDED AS A WAIVER IN ACCORDANCE WITH SECTION 52-278(F) OR ITS SUCCESSOR PROVISIONS IF AMENDED, OF SAID STATUTES. TENANT FURTHER WAIVES ANY AND ALL RIGHTS WHICH ARE OR MAY BE CONFERRED BY ANY PRESENT OR FUTURE LAW TO REDEEM THE LEASED PREMISES, OR TO ANY NEW TRIAL IN ANY ACTION OF EJECTMENT UNDER ANY PROVISION OF LAW, AFTER RE-ENTRY THEREUPON, OR UPON ANY PART THEREOF, BY THE LANDLORD, OR AFTER ANY WARRANT TO DISPOSSESS OR JUDGMENT IN EJECTMENT. IF THE LANDLORD SHALL ACQUIRE POSSESSION OF THE LEASED PREMISES BY SUMMARY PROCEEDINGS, OR IN ANY OTHER LAWFUL MANNER WITHOUT JUDICIAL
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PROCEEDINGS IT SHALL BE DEEMED A RE-ENTRY WITHIN THE MEANING OF THAT WORD AS USED IN THIS LEASE. IN THE EVENT THAT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NON-PAYMENT OF RENT OR OTHER CHARGES PROVIDED FOR IN THIS LEASE, THE TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION IN ANY SUCH PROCEEDING OR ACTION. THE TENANT AND THE LANDLORD BOTH WAIVE A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING IN ANY ACTION OR PROCEEDING BETWEEN THE PARTIES HERETO OR THEIR SUCCESSORS, UNDER OR CONNECTED WITH THIS LEASE, OR ANY OF ITS PROVISIONS.
33.2. Waiver of Notice to Quit. The right to a formal demand to leave the Leased Premises upon expiration of this Lease by lapse of time, known as a Notice to Quit, or any other form of notice under §47a-25 of the Connecticut General Statutes, should Landlord use summary process to evict Tenant or regain possession of the Leased Premises.
33.3. Waiver of Right of Reinstatement. Any right, under existing or future law, to gain back the Leased Premises once Tenant is legally removed (known as Right of Reinstatement).
ARTICLE 34. EFFECT OF WRITTEN LEASE AGREEMENT
34.1. Written Lease Sole Expression of Parties Intent. All understandings, letters of intent or agreements between Tenant and Landlord, which predate this Lease, are merged in this Lease. No oral statements or representations or prior written communications by or between the parties dealing with this Lease shall be binding or effective. This Lease is the sole and complete expression of the agreement between Landlord and Tenant as to the subject matter of this Lease.
34.2. Amendment of Written Lease. This Lease can be modified, altered or amended only by a written agreement signed by both Landlord and Tenant.
ARTICLE 34A. OPTION TO EXTEND; EXPANSION OF LEASED PREMISES.
34A.1. Option to Extend. Provided Tenant is not in default in its obligations hereunder beyond any applicable cure period, Tenant shall have the option to extend this Lease for one additional term (hereinafter referred to as the Extended Term.) commencing immediately upon the expiration of the initial Term hereof and continuing for a period of five (5) years, provided that Tenant proceeds strictly in accordance with the provisions of this Article 34A. On or before the date that is one hundred eighty (180) prior to the Expiration Date for the Term (the Notice Date), Tenant shall advise Landlord in writing that Tenant wishes to extend the term of this Lease (hereinafter referred to as Tenants Extension Notice). If at the time Landlord receives Tenants Extension Notice this Lease is in full force and effect without default on the part of the Tenant beyond any applicable cure period, then, during the next thirty (30) days, Landlord shall notify Tenant in writing of the Base Rent pursuant to Article 3 of the Lease which shall be due for the Extended Term. The Base Rent specified by Landlord shall be equal to the Landlords projected fair market Base Rent as of the commencement of the Extended Term (for comparable space in comparable buildings in New Haven) (the FMV Notice ).
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34A.2. Base Rent for Extended Term. The Tenant shall have 21 days after receipt of the FMV Notice in which to send Landlord a written dispute as to the proposed Base Rent specified in the FMV Notice. If Tenant agrees to pay such new Base Rent or if Tenant does not send a written dispute of the new Base Rent specified in the FMV Notice within such 21 day period, Tenant shall be deemed to have agreed to pay such Base Rent (in which case this Lease shall be extended for the Extended Term without the execution of any additional documents, and each and every term and condition of this Lease shall apply during the Extended Term except only that the Base Rent specified in Article 3 of this Lease during the Extended Term shall be that agreed upon by Landlord and Tenant, and the phrase term of this Lease and Term shall be construed to include the Extended Term of this Lease and thus the new Expiration Date shall be the last day of the Extended Term). If Tenant sends Landlord a written dispute as to the Base Rent proposed in the FMV Notice, the Base Rent for the Extended Term shall be determined pursuant to the arbitration system set forth in Article 34A.3 below.
34A.3. Arbitration of Fair Market Rent. In the event that Tenant sends written notice to Landlord disputing the FMV Notice and electing arbitration within 21 days of Tenants receipt of the FMV Notice, each of Landlord and Tenant shall at its own cost and expense retain a real estate broker, who must have ten (10) years experience in commercial leasing in the New Haven market, to determine the fair market Base Rent for the Leased Premises as of the commencement date of the Extended Term, which appraisals must be completed and submitted within thirty (30) days of the commencement of the appraisal process by Tenants notice electing arbitration. If the two appraisals are within ten percent (10%) of each other, then the average of the two appraisal amounts shall constitute the Base Rent which shall be due during the Extended Term. If the two appraisals are not within ten percent (10%) of each other, the two brokers shall select a third real estate broker (who must also possess the minimum qualifications described above), who within the next thirty (30) days shall select one of the two appraisal amounts which shall then constitute the Base Rent which shall be due during the Extended Term. Landlord and Tenant shall each bear one-half of the cost of said third broker. The appraisal process shall be binding upon both Landlord and Tenant.
34A.4. Failure to Exercise Option. If Tenant shall fail to give Landlord written notice of Tenants exercise of the Extended Term on or before the Notice Date, time being of the essence, Tenant shall have no right to extend this Lease for the Extended Term, and this Lease shall terminate as provided in Article 3 of this Lease and Tenant shall vacate the Leased Premises on or before the Expiration Date in accordance with the provisions of this Lease.
ARTICLE 35. SECURITY DEPOSIT.
35.1. Deposit. At or before Tenants execution of this Lease, Tenant shall deposit and maintain with Landlord the sum of $18,000 as a security deposit and payment and performance guaranty (the Deposit ). Landlord shall retain said sum throughout the Term of this Lease as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease. If Tenant defaults with respect to any provision of this Lease, including but not limited to the provisions relating to the payment of Base Rent and/or Additional Rent, in any case beyond applicable notice and cure periods, Landlord may use, apply or retain all or any part of the Deposit for the payment of any Base Rent and/or Additional Rent, or for the payment of
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any loss or damage which Landlord may suffer by reason of Tenants default, or to compensate Landlord for any other amount which Landlord may spend or become obligated to spend by reason of Tenants default. In no event, except as specifically hereinafter provided, shall Landlord be obliged to apply the same to Base Rent and/or Additional Rent or to damages for Tenants failure to perform said covenants, conditions and agreements; however, Landlord may so apply the Deposit, at its option. Landlords right to bring a special proceeding to recover or otherwise to obtain possession of the Premises before or after Landlords declaration of the termination of this Lease for non-payment of Base Rent and/or Additional Rent or for any other reason shall not in any event be affected by reason of the fact that Landlord holds the Deposit.
35.2. Insolvency; Additional Rights of Landlord . In the event any bankruptcy, insolvency, reorganization or other creditor-debtor proceedings shall be instituted by or against Tenant, or its successors or assigns, or any guarantor of Tenant hereunder, the Deposit shall be deemed to be applied first to the payment of any Base Rent and/or Additional Rent for all periods prior to the institution of such proceedings, and the balance, if any, of the Deposit may be retained by Landlord in partial liquidation of Landlords damages. The Deposit shall not constitute a trust fund, the Landlord shall not be obligated to keep the Deposit as a separate fund but may commingle the Deposit with its own funds and Tenant shall not be entitled to interest on the Deposit. In the event Landlord applies the Deposit in whole or in part, Tenant shall, within five (5) days after demand by Landlord, deposit sufficient funds to maintain the Deposit in the initial amount. Failure of Tenant to deposit such additional funds shall entitle Landlord to avail itself of the remedies provided in this Lease for non-payment of Base Rent and/or Additional Rent by Tenant.
35.3. Return of Deposit; Successor Landlord. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Deposit or any balance thereof, less any sums then due Landlord from Tenant under this Lease, shall be returned to Tenant (or, at Landlords option to the last assignee of Tenants interest thereunder) within thirty (30) days following the last to occur of (i) the passage of the Expiration Date, (ii) Tenants vacating the Leased Premises, and (iii) the receipt by Landlord of all Cleaning Certificates and manifests with respect to the cleaning of the Leased Premises and remaining furnishings, fixtures and equipment required pursuant to Article 8.7 hereof. In the event that Cleaning Certificates and manifests which are satisfactory to Landlord both in form and substance are not received by Landlord within thirty (60) days of the Expiration Date, Landlord shall be authorized to utilize the Deposit to engage such appropriate contractors to perform Tenants obligations under Article 8.7 hereof. In the event of a sale or other transfer of Building 4, or Landlords interest in this Lease, Landlord shall transfer the Deposit to the transferee, and Landlord shall thereupon be released from all liability for the return of the Deposit; Tenant agrees to look solely to the transferee for the return of any such security and it is agreed that the provisions of this sentence shall apply to every sale or transfer of Building 4 or Landlords interest in this Lease by Landlord named herein or its successors, and to every transfer or assignment made of any such Deposit. Any transferee shall be deemed to have agreed that the Deposit transferred to such transferee pursuant to this Section shall be held in trust for the purposes of this Article.
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ARTICLE 36. INTERPRETATION OF LEASE
36.1. Partial Invalidity. If any of the provisions of this Lease, or its application, is held by any court or in arbitration to be invalid or inapplicable, such decision shall not affect any other term, provision, covenant or condition of this Lease. Notwithstanding the foregoing, if the invalid provision has the effect of reducing the Base Rent and/or Additional Rent to be paid by Tenant, Landlord may cancel this Lease.
36.2. Article and Section Captions. Article and section captions will not be given any effect in determining the meaning of this Lease.
36.3. Governing Law. The laws of the State of Connecticut will govern the interpretation of this Lease.
36.4. Successors and Assigns. This Lease shall be binding upon the parties hereto and upon their heirs, administrators, executors, successors and assigns.
36.5. Continuing Obligations. Notwithstanding anything to the contrary contained herein, all of Tenants and Landlords respective rights, remedies, obligations and liabilities under this Lease shall survive the Expiration Date or the earlier termination of this Lease for any reason.
36.6. Landlords Liability. In the event of a ground lease, sale, transfer or conveyance by Landlord of Building 4, the same shall operate to release Landlord from any future liability for any of the obligations, covenants or conditions, express or implied, herein contained, provided the purchaser, ground lessee or transferee assumes Landlords obligations and covenants hereunder. In such event, Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease.
Landlord and Landlords officers, directors, shareholders and agents shall have absolutely no personal liability with respect to any provision of this Lease or any obligation or liability arising from this Lease or in connection with this Lease in the event of a breach or default by Landlord on any of its obligations. Tenant shall look solely to the equity of the Landlord in the Leased Premises at the time of the breach or default for the satisfaction of any remedies of Tenant, and shall have no recourse against any other assets of Landlord or against any assets of any officer, director, shareholder or agent of Landlord. Such exculpation of liability shall be absolute and without any exception whatsoever.
36.7 Counterparts. This Lease may be executed in counterparts and each counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement.
[The signature pages immediately follow.]
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written.
Signed, Sealed and Delivered
In the Presence of:
TENANT: | ||||||||
PRECIPIO, Inc. | ||||||||
By: | /s/ A. Zaki Sabet | |||||||
Name: A. Zaki Sabet | ||||||||
Title: COO | ||||||||
LANDLORD: | ||||||||
SCIENCE PARK DEVELOPMENT CORPORATION | ||||||||
By: | /s/ Clio Nicolakis | |||||||
Clio Nicolakis | ||||||||
Executive Director & Controller |
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STATE OF CONNECTICUT | ) | |||
) ss.: New Haven | July 11, 2017 | |||
COUNTY OF New Haven | ) |
On this date personally appeared before me A. Zaki Sabet, who acknowledged himself to be the duly authorized COO of Precipio, Inc., a Delaware corporation, and that the execution hereof was the free act and deed of such limited liability company and his/her free act and deed as such officer.
IN WITNESS WHEREOF, I hereunto set my hand.
/s/ Jessie Cruz |
Commissioner of the Superior Court/ Notary Public |
STATE OF CONNECTICUT | ) | |||
) ss.: New Haven | July 11, 2017 | |||
COUNTY OF NEW HAVEN | ) |
On this date personally appeared before me Clio Nicolakis, who acknowledged himself to be the duly authorized Executive Director & Controller of Science Park Development Corporation, a corporation, and that the execution hereof was the free act and deed of such corporation and his/her free act and deed as such officer.
IN WITNESS WHEREOF, I hereunto set my hand.
/s/ Jessie Cruz |
Commissioner of the Superior Court/ Notary Public |
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EXHIBIT A
LEGAL PROPERTY DESCRIPTIONBUILDING 4, WINCHESTER AVENUE
A certain piece or parcel of land located in the City and County of New Haven and State of Connecticut containing 28,914 square feet and being sown on a map entitled Property Survey ALTA/ACSM Land Title Survey Building 4 A.K.A. Reuse Parcel SP-1-C-2 Winchester Avenue, New Haven, Connecticut Prepared for Lyme Properties, LLC, by URS, scale 1=20, dated October 2000, said parcel being more particularly bounded and described as follows:
Beginning at a point on the easterly street line of Winchester Avenue, said point being on the division line between land now or formerly of Science Park Development Corporation, Parcel SP-1-C-1, on the north and the herein described parcel on the south;
Thence running South 75° 38 10 East, 333.76 feet and South 13° 50 00 West, 86.53 feet along land now or formerly of Science Park Development Corporation, Parcel SP-1-C-1;
Thence running North 75° 38 10 West, 33-58 feet along land now or formerly of Science Park Development Corporation, Building 5;
Thence running North 14° 22 30 East, 86.53 feet along the easterly street line of Winchester Avenue to the point and place of beginning.
Together with rights and benefits set forth in Agreement Regarding Winchester Avenue between Olin Corporation and Repeating Arms Company dated July 20, 1981 and recorded in Volume 2922 at Page 278 and Agreement dated May14, 1984 and recorded in Volume 3211 at Page 202 of the New Haven Land Records.
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EXHIBIT B
Page 1 of 2
I. | DAILY SERVICES TENANT SPACE: | |||
1. | Empty and clean all ashtrays and waste baskets. | |||
2. |
Vacuum all carpet, and spot clean as needed. |
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3. |
Sweep and dust clean composition floors with treated mops. |
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4. |
Remove trash generated by normal daily business activity to designated areas. |
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5. |
Remove all cardboard to proper recycle dumpster. |
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Note: All cardboard to be broken down flat. |
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6. |
Dust all desks, tables, files, cabinets, chairs, picture frames, top of office partitions, horizontal surfaces and clean glass tops. |
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7. |
Dust all paneling with appropriate cleaning products. |
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8. |
Clean all counter, door and partition glass. |
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9. |
Damp mop spillage. |
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10. |
Spot clean wood work, doors, walls, granite floors and carpet stains. |
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II. | DAILY SERVICES COMMON AREAS: | |||
1. | Sweep and wet mop composition floors. | |||
2. |
Spot clean carpeting or tile floor as needed. |
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III. | WEEKLY SERVICES TENANT SPACE AND COMMON AREAS: | |||
1. | Clean all telephones. | |||
2. |
Dust baseboards and window sills. |
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IV. | QUARTERLY SERVICES TENANT SPACE AND COMMON AREAS: | |||
1. | Dust door frames, high ledges, high files, ventilating, air conditioning outlets, and return air inlet grills. | |||
2. |
Dust window blinds (where installed). |
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3. |
Scrub and wax all vinyl tile floor areas. |
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4. |
Clean all sinks and counter areas. |
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V. | DAILY SERVICES REST ROOM AREAS: | |||
1. | Empty all wastepaper containers. | |||
2. |
Clean and polish all mirrors. |
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3. |
Clean all lavatory fixtures. |
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4. |
Keep sinks, toilet bowls, and urinals free of scale at all times. |
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5. |
Wash and sanitize underside and tops of toilet seats, toilet fixtures and compartments. |
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6. |
Refill soap, towel and tissue containers (using standard Building stock only). |
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7. |
Wipe down walls around sink counter area, toilets and urinal compartments. |
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8. |
Sweep and wet mop all lavatory floors. |
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9. |
Dust all horizontal surfaces. |
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10. |
Empty, clean and disinfect sanitary napkin disposals. |
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VI. | WEEKLY SERVICES REST ROOM AREAS: | |||
1. | Wash down ceramic tile walls. | |||
2. |
Fill floor drain traps with water. |
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3. |
Brush down ceiling vents. |
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4. |
Wash down shower rooms. |
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VII. | MONTHLY SERVICES REST ROOM AREAS: | |||
1. | Machine scrub all restroom floors. | |||
2. |
Perform high dusting. |
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VIII. | DAILY SERVICE STAIRWELLS: | |||
1. | Police and sweep all stairwells. |
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EXHIBIT B
Page 2 of 2
IX. | WEEKLY SERVICE STAIRWELLS: | |||
1. | Sweep and wet mop all stairwells. | |||
X. | DAILY SERVICE BUILDING ENTRANCE LOBBY AREA: | |||
1. | Sweep or vacuum all floors and entrance mats with proper equipment. | |||
2. |
Dust directory boards. |
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3. |
Clean entrance doors, door glass and side lights. |
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4. |
Empty and clean ashtrays and sand urns. |
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5. |
Scrub and polish drinking fountains. |
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6. |
Spot clean walls to remove finger marks, smudges and spillage. |
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7. |
Wipe down metal reachable surfaces. |
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8. |
Sweep and wet mop stone and wood floors. |
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XI. | WEEKLY SERVICE BUILDING ENTRANCE LOBBY AREA: | |||
1. | Shampoo and extract entrance mats (more often if necessary). | |||
2. |
All entrance mats to be rolled up and swept and wet mopped underneath two (2) times per week. |
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XII. | DAILY SERVICE ELEVATORS: | |||
1. | Vacuum elevator carpets daily and spot clean same as necessary. | |||
2. |
Clean elevator cabs and wash walls. |
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3. |
Vacuum tracks and saddles. |
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4. |
Dust and polish elevator controls, dispatch panels and exhaust fan vent. |
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5. |
Spot clean walls by outside elevator call buttons. |
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6. |
Wipe down elevator car doors. |
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XIII. | MONTHLY SERVICE ELEVATORS: | |||
1. | Shampoo and extract elevator carpets. | |||
2. |
Polish door tracks and saddles. |
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XIV. | WEEKLY SERVICE JANITORIAL STORAGE AND SINK AREAS | |||
1. | Inventory cleaning supplies and report any needs to building management. | |||
2. |
Clean and organize storage areas appropriately. |
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3. |
Clean, disinfect and rinse slop sinks. |
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EXHIBIT C
Holidays:
Martin Luther King, Jr. Day
Presidents Day
Good Friday
Memorial Day
Independence Day
Labor Day
Columbus Day
Thanksgiving Day
Day after Thanksgiving
Christmas Day
New Years Day
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EXHIBIT D
Additional Services Contacts:
Contact info for service requests/maintenance issues:
The Wm. M Hotchkiss Company
Science Park Facilities Supervisor: Rick Matosian(203) 624-1242
rmatosian@wmmhotchkiss.com
Contact for business matters and lease issues:
The Wm. M Hotchkiss Company
Property Manager: Gary Poitras
(203) 772-3200
gpoitras@wmmhotchkiss.com
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SCHEDULE A
FLOOR PLAN OF LEASED PREMISES
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SCHEDULE B
TENANTS WORK
NONE
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SCHEDULE C
TENANTS EQUIPMENT | Page 1 of 2 |
Equipment |
Vendor |
Catalog # |
||
Coulter Gallios | Beckman Coulter | |||
Refrigerator/Freezer | Home Depot | |||
Cytospin | Fisher | A78300002 | ||
CentrifugeThermo Fisher | Fisher | 75004221 | ||
VortexM16700 Maxi Mix | lab depo | M63215 | ||
RockerUnico TTR 300D | medicus-health | 5265M4 |
Equipment |
Company |
Order # |
||
Cytovision FISH Module with Microscope | Leica | |||
Thermobrite Elite | Leica | |||
GSL 120 Autoscanner | Leica | |||
Fume hood | Fisher Scientific | 10-090-100 | ||
Biological Hood | Fisher Scientific | 09-681-110 | ||
Dual Stack Incubator (2 in 1) | Fisher Scientific | 20-137-0 | ||
Oven 1 (baking) | Fisher Scientific | 11-475-132 | ||
Freezer | Home Depo | |||
Fridge | Home Depo | |||
Water Bath 1 | Fisher Scientific | 15-474-15 | ||
Water Bath 2 | Fisher Scientific | 15-474-15 | ||
Water Bath 3 | Fisher Scientific | 15-474-15 | ||
centrifuge | Beckman Coulter | |||
phase Microscope | Fisher Scientific | 12-561-2FAZ | ||
Slide Warmer | Fisher Scientific | |||
ThermoBrite | Abbott Molecular | |||
MicroCentrifuge | Fisher Scientific | |||
Vortex | Fisher Scientific | |||
pH meter | Fisher Scientific | |||
Balance | Fisher Scientific | |||
stirrer | Fisher Scientific |
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SCHEDULE C
TENANTS EQUIPMENT | Page 2 of 2 |
Equipment |
Vendor |
Catalog # |
||
Embedding Station Leica EG1150 | Leica | |||
AXL 100-120 (H&E Stainer) | Leica | |||
CV5030-TS5015 (Coverslip) | Leica | |||
Automated MicrotomeLeica | Leica | |||
ProcessorVIP | Leica | |||
Water bathLeica 3804535S | Leica | |||
Oven | - | EW-05014-03 | ||
Double door Refrigerator | Home Depot | |||
Fireproof cabinets | - |
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SCHEDULE D
CHEMICALS AND HAZARDOUS MATERIALS | Page 1 of 6 |
Antibodies |
Vendor |
Catalog # |
||
Cyclin D1-FITC |
B-D |
554109 |
||
7-AAD |
Beckman |
IM3422 |
||
CD103-FITC |
Beckman |
IM1856U |
||
CD10-ECD |
Beckman |
IM3608U |
||
CD10-PC5 |
Beckman |
IM2721 |
||
CD117-PC5 |
Beckman |
IM2733U |
||
CD11b-PE |
Beckman |
IM2581 |
||
CD11c-PE |
Beckman |
IM1760U |
||
CD138-PC5 |
Beckman |
A40317 |
||
CD13-PC5 |
Beckman |
IM2639U |
||
CD14-ECD |
Beckman |
IM2707 |
||
CD15-PE |
Beckman |
IM1954 |
||
CD16-FITC |
Beckman |
IM0814U |
||
CD16-PC5 |
Beckman |
IM2642U |
||
CD19-ECD |
Beckman |
IM2708U |
||
CD19-PC5 |
Beckman |
IM2643U |
||
CD20-FITC |
Beckman |
IM1455U |
||
CD23-ECD |
Beckman |
IM3609U |
||
CD25-PC5 |
Beckman |
IM2646U |
||
CD2-PC5 |
Beckman |
IM2634U |
||
CD33-PE |
Beckman |
IM1179U |
||
CD34-ECD |
Beckman |
IM2709u |
||
CD38-FITC |
Beckman |
IM0775 |
||
CD38-PC5 |
Beckman |
IM2651U |
||
CD38-PE |
Beckman |
IM2371U |
||
CD3-ECD |
Beckman |
IM2705U |
||
CD45 ECD |
Beckman |
IM2710U |
||
CD45-FITC |
Beckman |
IM0782U |
||
CD45-PC5 |
Beckman |
IM2653U |
||
CD45-PC7 |
Beckman |
IM3548U |
||
CD45-PE |
Beckman |
IM2078U |
||
CD4-PE |
Beckman |
IM0449U |
||
CD56-PC5 |
Beckman |
IM2654U |
||
CD56-PE |
Beckman |
IM2073 |
||
CD57-FITC |
Beckman |
IM0466U |
||
CD5-FITC |
Beckman |
IM0468 |
||
CD5-PC5 |
Beckman |
IM2637U |
||
CD64-FITC |
Beckman |
IM1604 |
||
CD79b-PE |
Beckman |
IM1612U |
||
CD7-PE |
Beckman |
IM1429U |
||
CD8-FITC |
Beckman |
IM0451U |
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SCHEDULE D
CHEMICALS AND HAZARDOUS MATERIALS | Page 2 of 6 |
Antibodies |
Vendor |
Catalog # |
||
CD8-PE | Beckman | IM0452U | ||
FMC7-FITC | Beckman | IM1364U | ||
HLA-DR-FITC | Beckman | IM1638U | ||
Kappa-FITC | Beckman | A64828 | ||
Lambda-PE | Beckman | A64827 | ||
MPO | Beckman | IM1874 | ||
TCR PANG/D FITC | Beckman | IM1571 | ||
CD33-PC5 | Beckman | IM2647U | ||
TCR PANA/B PE | Biolegend | 306710 | ||
IgA for Flow | Fisher | F018801F | ||
IgG for Flow | Fisher | F018501F | ||
IgM for Flow | Fisher | F005801F | ||
Kappa-FITC (Cytoplasmic) | Fisher | F043401F | ||
Lambda-PE (Cytoplasmic) | Fisher | R043701F | ||
TdT-FITC | Invitrogen | MHTDT01-5 | ||
Zap70-PE | Invitrogen | MHZAP7004 | ||
CD24-PE | Invitrogen | MHCD2404 | ||
CD55-PE | Invitrogen | MHCD5504 | ||
CD59-PE | Invitrogen | MHCD5904 | ||
TdT control cell Positive | Phoenix Flow Systems | CRTD-10 | ||
Flaer (Alexa 488 proaerolysin variant) | Pinewood Scientific Services | FL1 | ||
Reagents |
Vendor |
Catalog # |
||
Coulter Cleanse | Beckman | 8546931 | ||
Cytocomp Kits | Beckman | 6607023 | ||
Flow Check | Beckman | 6605359 | ||
Flow Count | Beckman | 7547053 | ||
Flow set | Beckman | 6607007 | ||
IMMUNO-BRITE Standards Kit | Beckman | 6603473 | ||
Iso Flow Sheath Fluid | Beckman | 8547008 | ||
LYSING KIT | Beckman | 6603152 | ||
Bovine Albumin Serum | Invitrogen | 16170-060 | ||
Fixation & Permeabllization | Invitrogen | GAS-004 | ||
water, deionized | Fisher | 23-751628 |
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SCHEDULE D
CHEMICALS AND HAZARDOUS MATERIALS | Page 3 of 6 |
Reagents |
Vendor |
Catalog # |
||
Acetic Acid, Glacial | Cardinal | V193-45 | ||
Giemsa stain | Cardinal | 620-75 1L | ||
Methyl alcohol, ASC Poly | Cardinal | 3016-16 | ||
PH 7.0 Buffer | Cardinal | H7590-7 | ||
Sodium hydroxide 10N | Cardinal | 5674-02 | ||
Trypsin 0.25% | Cardinal | 0152-17 | ||
Buffer tablets ( GURR )P.H.6.8 | Invitrogen | 10582-013 | ||
Colcemid | Invitrogen | 15212-012 | ||
Ethidium Bromide, UltraPure 10 mg/ml | Invitrogen | 15585-011 | ||
Fetal Bovine serum Qualified | Invitrogen | 10437-028 | ||
L-Glutamine-200mM | Invitrogen | 25030-081 | ||
Penicillin | Invitrogen | 15070-063 | ||
PHA | Invitrogen | 10576-015 | ||
RPMI Medium 1640 | Invitrogen | 21870-076 | ||
Hydron Buffer capsule 7.0 | Micro Essential lab | 270-7.00 | ||
Ethyl alcohol | Pharmco | 200 Proof24 pints | ||
HCL (36.5-38%)12N | Sigma-Aldrich | H1758-500ml | ||
Itnerleukin-2 | Sigma-Aldrich | I-7908-10KU | ||
potassium chloride | Sigma-Aldrich | P8041-1KG | ||
sodium chlorite | Sigma-Aldrich | S9625-500G | ||
TPA | Sigma-Aldrich | p8139-5mg | ||
LSI ATM/P53 | Leica | 32-191025 | ||
LSI BCL 2/Igh | Leica | 32-191018 | ||
LSI BCL 6 | Leica | 01N23-020 | ||
LSI BCR/ABL Dual color fusion probe | Leica | 32-191032 | ||
LSI CBFB (inv 16) | Leica | 32-191008 | ||
LSI CEP 8 SG | Leica | 06J37-018 | ||
LSI CEP17 | Leica | 06J37-027 | ||
LSI CEP3 | Leica | 06J36-013 | ||
LSI CEP9 SPECTRUM Aqua prob | Leica | 06J54019 | ||
LSI CEPX SG,CEPY SO | Leica | 32-131051 | ||
LSI CSF1R/D5S23 | Leica | 32-191001 | ||
LSI D7s486/cep7 | Leica | 32-191002 | ||
LSI Eto/Aml | Leica | 32-191006 | ||
IGH | Leica | 32-191019 |
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SCHEDULE D
CHEMICALS AND HAZARDOUS MATERIALS | Page 4 of 6 |
Reagents |
Vendor |
Catalog # |
||
IGH SG/FGFR 3 SO | Leica | 32-191023 | ||
IGH/CCND1 | Leica | 32-191015 | ||
IGH/MYC/CEP8 | Leica | 32-191020 | ||
LSI 1p36/LSI 1q25 | Leica | 32-231011 | ||
LSI API2/MALT1 | Leica | 32-231007 | ||
LSI buffer, 2x500ul | Leica | 06J67-011 | ||
LSI D13S319SO/13Q34SG | Leica | 01N20-020 | ||
LSI D20S108SO | Leica | 05J47-011 | ||
LSI BCR/ABL ES dual color | Leica | 05J78-001 | ||
LSI MLL | Leica | 32-190083 | ||
LSI MYB | Leica | 07j86.011 | ||
LSI P53 SO | Leica | 05J52-011 | ||
LSI PML/RARA | Leica | 32-191013 | ||
LSI TEL/AML1 | Leica | 32-191005 | ||
LSI FIP1L1/CHIC2/PDGFRA | Cytocell | LPH032 | ||
potassium chloride | Sigma-Aldrich | P8041-1KG | ||
Distilled water | Invitrogen | 15230-196 | ||
SSC (20x) | Leica | 32-804850 | ||
NP-40 | Leica | 32-804818 | ||
DAPI II | Leica | 32-804831 | ||
CD16 7ml predil | Abcam | ab74512 | ||
CD123 (IL3RA) 100ug | Abcam | ab53695 | ||
Activated Carbon | BelAir | 3750 | ||
AFP, 7ml predilute | Cell Marque | 203A-18 | ||
Bcl 1, 0.5ml conc. | Cell Marque | 241R-15 | ||
Bcl 2, 7ml predilute | Cell Marque | 226M-98 | ||
BCL 6, 0.5ml conc. | Cell Marque | 227M-95 | ||
CD10, 1ml conc. | Cell Marque | 110M-16 | ||
CD138, 1ml conc | Cell Marque | 138M-16 | ||
CD210.5ml conc | Cell Marque | 121R-15 | ||
CD230.5ml | Cell Marque | 123M-15 | ||
CD31ml conc | Cell Marque | 103A-76 | ||
CD307ml predilute | Cell Marque | 130M-98 | ||
CD357ml predilute | Cell Marque | 135M-18 | ||
CD4, 7 ml predilute | Cell Marque | 104R-18 | ||
CD43, 0.5ml conc | Cell Marque | 143M-15 | ||
CD44, MRQ13, 7ml predilute | Cell Marque | 144M-98 | ||
CD45, 0.5ml conc | Cell Marque | 145M-95 |
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SCHEDULE D
CHEMICALS AND HAZARDOUS MATERIALS | Page 5 of 6 |
Reagents |
Vendor |
Catalog # |
||
CD 5, 1ml conc | Cell Marque | CMC018 | ||
CD56, 0.5 ml conc | Cell Marque | 156M-85 | ||
CD68, 0.5 ml conc | Cell Marque | 168M-95 | ||
CD7 predilute | Cell Marque | 107M-18 | ||
CD79a, 0.5ml conc. | Cell Marque | 179M-95 | ||
Glycophorin A 0.5ml conc | Cell Marque | 260M-15 | ||
IgA, 0.5 ml conc | Cell Marque | 267A-15 | ||
IgG, 0.5 ml conc | Cell Marque | 269A-15 | ||
IgM 0.5 ml conc | Cell Marque | 270A-15 | ||
Kappa, 0.5ml conc | Cell Marque | 274M-95 | ||
Lambda | Cell Marque | 277M-96 | ||
PCK (AE1/AE3), 0.5ml conc | Cell Marque | 313M-15 | ||
TdT, predilute | Cell Marque | 338A-78 | ||
AmyloidA | Dako | M0759 | ||
Antibody Diluent | Dako | S0809 | ||
CD117 0.2ml conc | Dako | A4502 | ||
CD20 | Dako | M0755 | ||
Ki67 | Dako | M7240 | ||
AFB special stains | Fisher | 23-900-660 | ||
Decalcifying Solution | Fisher | 22-050-263 | ||
Formalin, buffered | Fisher | SF93 20 | ||
Hyde-away Aldehyde | Fisher | 435578 | ||
Methyl alcohol, ASC Poly | Fisher | A433F | ||
Histoprep Rgnt ALC 1GAL | Fisher | HC6001GAL | ||
Permount, cs of 6 | Fisher | sP15-500 | ||
Paraplast (1kg) 8/case | Fisher | 23-021399 | ||
Potassium Ferrocyanide | Fisher | P236-500 | ||
Ribbon pro mounting medium-Fisher brand | Fisher | 23-031557 | ||
DBA44 (Hairy Cell Lukemia) 6ml | Fisher | MA1-26274 | ||
Diastase kit | Polyscientific | s174p | ||
nuclear fast-red | Polyscientific | S248-32oz | ||
3-Step Stain Fixative | Richard Allan | 3303 | ||
3-Step Stain soln A | Richard Allan | 3313 | ||
3-Step Stain Soln B | Richard Allan | 3323 | ||
Bluing | Richard Allan | 7301 | ||
Clarifier | Richard Allan | 7401 | ||
Eosin-Y | Richard Allan | 7111 | ||
Hematoxylin | Richard Allan | 7211 | ||
buffer, Phosphate PH.7.0 Geimsa | Rowley Biochemical | B-154-2 | ||
Giemsa stock soln 1 quart | Rowley Biochemical | B-154-3 |
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SCHEDULE D
CHEMICALS AND HAZARDOUS MATERIALS | Page 6 of 6 |
Paraclear-5 gallons cube | Scientific Device Laboratory | 615-5 | ||
HCL (36.5-38%)12N | Sigma-Aldrich | H1758-500ml | ||
Labsorbs Large | Surgipath | 03240 | ||
Labsorbs Small | Surgipath | 03242 | ||
Cleaning kit | Ventana | 860-016 | ||
Iron Staining kit | Ventana | 860-009 | ||
Metal Extraction System, Kit Pack, HMES, | Roche | 860-104 | ||
pas staining kit | Roche | 860-014 | ||
Reticulum II staining kit | Roche | 860-024 | ||
Special stainer cover slip liquid | Roche | 250-009 | ||
special stain wash buffer | Roche | 860-015 | ||
Vapor Trap | Roche | 860-101 | ||
Bioitin Blocking, Endogenous Kit | Roche | 760-050 | ||
Bluing Reagent | Roche | 760-2037 | ||
CD1a | Roche | 760-4244 | ||
CD2 | Roche | 760-4377 | ||
CD15 | Roche | 760-2504 | ||
CD21 | Roche | 760-4245 | ||
CD 30 | Roche | 790-2926 | ||
CD 31 | Roche | 760-4246 | ||
CD 34 | Roche | 790-2927 | ||
CD35 | Roche | 760-4247 | ||
CD 57 | Roche | 760-2626 | ||
CD61 | Roche | 760-4249 | ||
CD68 confirm Ab | Roche | 790-2931 | ||
CD8 | Roche | 760-4250 | ||
EZ prep | Roche | 950-102 | ||
FactVIII predilute | Roche | 760-2642 | ||
Hematoxylin II | Roche | 790-2208 | ||
Optiview detection kit | Roche | 760-091 | ||
LCS | Roche | 650-010 | ||
Lysozyme predilute | Roche | 760-2656 | ||
Myeloperoxidase | Roche | 760-2659 | ||
Negative ctrl Mouse | Roche | 760-2014 | ||
reaction buffer | Roche | 950-300 | ||
Red Counter Stain II | Roche | 780-2218 | ||
temp verifier slides | Roche | 970-021 | ||
water, deionized | Fisher | 23-751628 |
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SCHEDULE E
RULES AND REGULATIONS
1. No sign, signal, advertisement, notice or other lettering, except as allowed in the Lease, shall be exhibited, inscribed, painted or affixed by any tenant on any part of the outside of the Leased Premises or inside of the Building without the prior written consent of Landlord. No signs, advertisements or notices shall be painted or affixed on or to any windows or doors, or other parts of the Building, except of color, size and style and in such places as shall be first approved in writing by Landlord. Interior signs on doors and directory tablet shall be inscribed, painted or affixed by each tenant at Tenants expense and shall be of a size, color and style acceptable to Landlord. Tenant agrees that any door or directory signage shall be removed at the end of the Lease Term and all doors and walls will be restored to their original conditions. All signs that are contracted for by Landlord will be at the rate fixed by Landlord from time to time and Tenant will be billed and will pay for such service accordingly.
2. Tenant will refer to Landlord all contractors, contractors representatives and installation technicians rendering any service to Tenant for Landlords supervision, approval and control before performance of any contractual service. Except for the hanging of pictures, no boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord and as Landlord may direct. This provision shall apply to all work performed in the Building including installations of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building.
3. The Landlord shall designate appropriate entrances for the moving to or from the Building, of equipment, materials, supplies, furniture or other property, and Tenant shall not use any other entrances or elevators for such purposes, except as designated by Landlord. Movement in or out of the Building of furniture or office equipment or dispatch or receipt by Tenant of any merchandise or materials which require use of elevators or stairways or movement through Building entrances or lobby shall be restricted to hours designated by Landlord. All such movement shall be under the supervision of Landlord and in the manner agreed between Tenant and Landlord by arrangement before performance. Such pre-arrangement initiated by Tenant will include determination by Landlord and subject to its decision and control as to the time, method and routing of movement and as to limitations imposed for safety or other concerns which may prohibit any article, equipment or any other item from being brought into the Building. Tenant is to assume all risk as to damage to articles moved and injury to persons or public engaged or not engaged in such movement, including equipment, property and personnel of Landlord, if damaged or injured as a result of acts in connection with carrying out this service for Tenant from the time of entering the Property to completion of work.
Landlord shall not be liable for the acts of any person engaged in, or any damage or loss to, any of said property or persons resulting from any act in connection with such service performed for Tenant, unless performed by Landlord, its agents, employees or contractors.
4. Tenant shall not deface any part of the Leased Premises, Building or Property.
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5. No portion of the Leased Premises or of any other part of the Building shall at any time be used for cooking (except in designated areas), or occupied for lodging or sleeping, or for any immoral or illegal purpose, or for any purpose that will damage the Property or the reputation thereof or for any purpose other than that specified in the Lease covering the Leased Premises.
6. Tenant shall not place, install or operate on the Leased Premises or in any other part of the Building or on the grounds any engine or machinery or maintain, use or keep any flammable, explosive or hazardous material without the prior written consent of Landlord.
7. Landlord will not be responsible for lost or stolen personal property, equipment, money or jewelry from Tenants area or public rooms regardless of whether or not such loss occurs when the area is locked against entry.
8. No birds or animals shall be brought into or kept in or about the Building, without permission of Landlord, except as necessary for Tenants conduct of business on the Leased Premises. Tenant shall at its sole expense comply with all federal, state and local laws, ordinances, codes and regulations applicable to the presence of such birds or animals on the Leased Premises.
9. Tenants shall not hire or employ employees of Landlord without Landlords prior express written consent. Tenants shall not give gifts of money or property to employees of Science Park or its agents.
10. Landlord will not permit entrance to the Leased Premises by use of pass keys controlled by Landlord to any person at any time without written permission by Tenant, except to employees, contractors or service personnel directly supervised by Landlord.
11. The entries, passages, doorways, elevators, elevator doors, hallways and stairwells shall not be blocked or obstructed; no rubbish, litter, trash or material of any nature shall be placed, emptied or thrown in these areas; and such areas shall not be used at any time except for ingress or egress by Tenant, Tenants agents, employees, invitees, Tenants equipment, furnishings and supplies to or from the Leased Premises.
12. Tenant shall not do or permit anything to be done in or about the Building or bring or keep anything therein that will in any way increase the rate of fire or other insurance on the Building or on property kept therein, or obstruct or interfere with the rights of, or otherwise injure or annoy other tenants or do anything in conflict with the valid pertinent laws, rules or regulations of any government authority.
13. Landlord desires to maintain the highest standards of environmental comfort and convenience for the tenancy. It will be appreciated if any undesirable conditions or lacks of courtesy or attention are reported directly to Landlord.
14. Intentionally Omitted.
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15. Landlord shall have the right to determine and prescribe the weight and proper position of any unusually heavy equipment including safes, large files, etc. that are to be placed in the Building, and only those which in the opinion of Landlord do not exceed acceptable floor loading and might not with reasonable probability do damage to the floors, structure and/or freight elevator, may be moved into said Building. Landlords permission will not be unreasonably withheld. Any damage occasioned in connection with the moving or installing of such aforementioned articles in said Building or the existence of same in said Building shall be paid for by Tenant, unless otherwise covered by insurance.
16. Landlord shall have the right to prohibit the use of the Science Park Development Corporation name, or of the name of the Science Park project or of any Science Park building, or any other publicity by Tenant, which, in Landlords opinion, tends to impair Landlords Reputation or that of the Building or its desirability for the executive offices of Landlord or of other tenants; and, upon written notice from Landlord, Tenant will refrain from or discontinue such use or publicity. Landlords permission will not be unreasonably withheld.
17. No food or beverages may be stored in any areas other than in those specifically designated for such purposes. Also, waste materials, including trash from the packaging, preparation or serving of the above, must be disposed of the same day in the proper receptacles. Tenant must bear the cost of correcting any pest problem resulting from these activities.
18. No weapons are allowed on the Property or on the real property known as Science Park of which the Property forms a part.
19. Any device used for moving of furniture, freight, mail or paper goods that will be used on a daily basis will be padded in such a way as to protect from possible damage any surface with which it may come in contact. Any device used on an occasional basis, which is not padded, will be operated in a safe manner so as to prevent damage to any walls, doors, floors, ceilings or other surfaces. Hand trucks must have rubber tires.
20. All work done by service personnel, whether in-house or contracted, shall be done in a first class manner to accepted standards of the trade and shall conform to all codes imposed by any governmental authority.
21. No awnings or other projections shall be attached to the outside walls of the Building without the prior written consent of Landlord. No curtains, shades or screens shall be attached to, or hung in or used in connection with any window or door of the Leased Premises without the prior written consent of Landlord. Such awnings, projections, curtains, blinds, shades, screens or other fixtures so permitted by Landlord must be of a quality, type, design and color and attached in the manner approved by Landlord.
22. No show cases or other articles shall be placed in front of or affixed to any part of the exterior of the Building, nor placed in the halls, corridors or vestibules without the prior written consent of Landlord.
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23. Water and wash closets and other plumbing fixtures shall not be used for any purpose other than those for which they were constructed and no sweepings, rubbish, rags or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by any Tenant who, or whose servants, employees, agents, contractors, subcontractors, licensees or visitors, shall have caused the same.
24. Landlord reserves the right to exclude from the Building any persons who do not present identification acceptable to Landlord. Landlord shall in no case be liable for damages for any error with regard to admission or exclusion from the Building of any person.
In the case of riot, mob, invasion, public excitement or other circumstances rendering such actions advisable in Landlords opinion, Landlord reserves the right to prevent access to the Building during the continuance of the same by such actions as the Landlord may deem appropriate including closing doors.
25. The requirements of Tenant will be attended to only upon application at the office of Landlords building manager in the manner set forth by Landlord. Landlords employees shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord.
26. Canvassing, soliciting and peddling in the Building is prohibited and Tenant shall cooperate to prevent same.
27. Intentionally Omitted.
28. Hours of Operation
Science Park is open 24 hours a day, 7 days a week. The normal hours of operation are Monday through Friday from 8:00 a.m. to 6:00 p.m. excluding holidays.
29. Keys to Offices
Two keys will be issued for each tenants space. The principal of the Tenant will sign for the keys upon issuance. The Tenant may make additional copies of the keys as needed. It will be the responsibility of the Tenants principal to keep track of those persons to whom he has issued keys. All keys and photo IDs must be returned to the Landlord upon termination of the Lease or a $15 penalty per item charge will be deducted from the security deposit held by Landlord. Replacement of locks because of lost or unreturned keys shall be undertaken at the Tenants expense.
30. Parking and Speed Limit
All Science Park companies and employees will be assigned to specific parking lot areas. There are no assigned spaces other than for handicapped parking. It is requested that individuals park between the painted lines. If for business reasons you wish to leave your vehicle overnight or for the weekend, the security officer must be notified. No one is allowed to deadhead his or her vehicle in the parking lots. Vehicles found improperly parked obstructing exits, fire lanes, other spaces, etc. will be towed at the owners expense.
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The speed limit for the private drives and roadways within Science Park is 15 m.p.h. Please obey this speed limit for the safety of everyone walking and driving within the Park.
31. Reporting Emergencies or Incidents
All emergencies (fire, injury, illness, etc.) should be reported to security immediately at 624-1242. This telephone number must only be used in cases of emergency. Incidents such as thefts, unwanted persons, vandalism or damage to parked vehicles in Science Park should also be reported as soon as possible.
32. Film Crews. Tenant shall provide Landlord with at least 24 hours advance written notice of any scheduled visits to and/or work within, on or about Science Park by any film crew, whether in connection with a documentary or dramatic production, interviews, research, promotion, advertising, news coverage or otherwise.
33. Special Events Held by Science Park Companies
Any event held by a Science Park company which may disturb or interfere with the security, safety or operations of other companies or which involves more than ten (10) people entering into the Park must be registered with the Landlord and the Landlords security site supervisor. The host company may be required to hire additional security or maintenance personnel. For any such special event, the following will be required:
(a) Events will be held within the confines of the host companys Leased Premises and only within an SPDC common area when express permission has been granted.
(b) Participants will be restricted to a pre-determined area near which bathroom facilities are available.
(c) A guest list must be provided to Landlords security site supervisor at least twenty four (24) hours in advance of the special event.
(d) Arrangements will be made for ample parking to be available with proper signs provided to guide and inform the guests. The host company should be prepared to provide the signs.
(e) Alcohol consumption must be monitored by the host company for underage persons and for excessive consumption by guests.
(f) The host company will be responsible for cleanup and for any damage and costs incurred in restoring any area involved to its original good condition.
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34. Roof Off Limits. No Tenant and no employee or invitee of any Tenant or employee, shall go upon the roof of the Building without Landlords permission.
35. Changes to Entrances. Landlord shall have the right at any time without incurring any liability to Tenant to change the arrangement and/or location of entrances or passageways, doors or doorways, corridors, elevators, stairs, toilets or other common areas of the Building.
36. Tenant Information.
(a) Tenants are required to provide a 2-3 line description of their companys operation. This description will include P.O. Box (if applicable), telephone numbers (fax, voice, e-mail) and company principal(s).
(b) Each year as of June 30 th , SPDC conducts a survey of employment in Science Park companies which includes questions pertaining to personnel and strategic data which identifies benchmarks for Science Park performance, including but not limited to the number of employees and other such data, education levels, company expansion plans, and needs, etc. This data is necessary for SPDCs reporting to its lenders and others. Individual company data is kept confidential. Tenants including Ground lease Tenants/Subtenants are required to participate in this survey. In addition, Tenant shall promptly distribute SPDCs current survey form to their subtenant companies, follow up, and collect the completed forms from subtenants by the established due date.
37. Yale University Amenities
Commercial (those having no off street or public customers) Tenants of Science Park and their employees are invited to take advantage of the following current amenities at Yale University. All Yale amenities are offered at the sole discretion of Yale University and the following language cannot be changed without the express approval of Yale.
A. | Payne Whitney Gymnasium |
1. | Fitness Center cardio machines, Cybex circuits, free weights |
2. | Swimming Poolslap swimming |
3. | Lanman Center/Greenberg Brothers Track basketball, jogging |
4. | 15 International Squash Courts recreational squash |
5. | Physical Education Classes including aerobics, dance, martial arts, sports skills |
6. | Sauna for Women, Sauna for Men for health/relaxation |
Membership to Payne Whitney Gym: |
63
EXECUTION COPY
The membership fee is the same as charged to Yale faculty and staff. To obtain a membership simply present a letter at the membership office in the Payne Whitney Gym on your companys letterhead which states that you are an employee of a Science Park company. After paying the fee, you will receive a membership card, which must be presented for admission to the facilities.
The Membership Office is open Monday through Friday 10:00 a.m. to 2:00 p.m. and 3:15 p.m. to 6:00 p.m. Please call the membership office at (203) 432-2497 for additional information.
B. | Yale Golf Course Access |
1. Corporate Membership: (For corporations and businesses that will elect for membership, four individuals within the corporation or business.) the four individuals will be entitled to unlimited play. (Alternatively, the corporation/business can elect to purchase 300 rounds, within the calendar year, for use by its employees and guests.) The one time initiation fee will be waived. Contact the Membership Office at (203) 392-2306 for cost of membership and details.
2. Involvement with Yale Golf Classic and other golf events. Contact Barbara Chesler at 432-1435 for details.
C. | Yale Football Corporate Hospitality and Group Outings |
For information on adult or youth group outings for football or other varsity athletic events contact Pat ONeill at (203) 432-2205.
D. | Yale University Library Privileges |
Employees of Science Park tenant companies when SPDC has a current, valid lease on file may request a Yale Library Card, which will be issued at no charge. The request must be made using the SPDC designed standard, bearer letter on SPDC (or in the case of an SPDC ground leasee Tenant, the ground leasee Tenants letterhead), counter-signed by the sub-tenant companys designated Yale Privileges Representative. When leases commence or terminate, SPDC or SPDCs ground leasee Tenants will update their list of valid leasees and email the list to the Yale Sterling Memorial Librarys circulation desk. The Circulation Desk will compare each library card request letter to the companies on the lists to confirm privileges. A card valid for 1 year will be available for pickup at the Library approximately one week after the request is received. If you have any questions regarding this validation procedure only , contact SPDC; Clio Nicolakis, at 203.785.0840. For all other questions, contact the Sterling Memorial Library at 203.432.1853 or smlcirc@yale.edu.
64
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Precipio, Inc. (formerly Transgenomic, Inc.) on Form S-8 file nos 333-41714, 333-69334, 333-139999, and 333-196712, and Form S-3 file nos 333-200313, 333-201907, 333-205793, 333-209111 and 333-209112 of our report, which includes an explanatory paragraph as to the Companys ability to continue as a going concern, dated April 24, 2017, with respect to our audit of the financial statements of Precipio Diagnostics, LLC as of December 31, 2016 and for the year ended December 31, 2016, which report is included in this Current Report on Form 8-K/A of Precipio, Inc.
/s/ Marcum LLP
Hartford, CT
July 31, 2017
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statements on Form S-3 (Nos. 333-201907, 333-200313, 333-205793, 333-209111 and 333-209112) and Form S-8 (Nos. 333-196712, 333-41714, 333-69334 and 333-139999) of Precipio, Inc. (formerly Transgenomic, Inc.) of our report, dated July 27, 2017, related to the 2015 financial statements of Precipio Diagnostics, LLC included in this Current Report on Form 8-K/A of Precipio, Inc.
/s/ Whittlesey & Hadley, P.C. |
Hartford, Connecticut |
July 31, 2017 |
Exhibit 99.1
PRECIPIO DIAGNOSTICS, LLC
INDEX
Unaudited Condensed Financial Statements | 2 | |||
Condensed Balance Sheets at March 31, 2017 (Unaudited) and December 31, 2016 | 2 | |||
Condensed Statements of Operations for the three months ended March 31, 2017 and 2016 (Unaudited) | 3 | |||
Condensed Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (Unaudited) | 4 | |||
Notes to Unaudited Condensed Financial Statements | 5 | |||
Managements Discussion and Analysis of Financial Condition and Results of Operations | 22 |
1
PRECIPIO DIAGNOSTICS, LLC
CONDENSED BALANCE SHEETS
(UNAUDITED)
See notes to unaudited condensed financial statements
2
PRECIPIO DIAGNOSTICS, LLC
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, |
||||||||
2017 | 2016 | |||||||
NET REVENUE |
||||||||
Patient service revenue, net |
$ | 303,343 | $ | 656,532 | ||||
less provision for bad debts |
(54,602 | ) | (118,176 | ) | ||||
|
|
|
|
|||||
248,741 | 538,356 | |||||||
LESS: COST OF DIAGNOSTIC SERVICES |
182,282 | 237,880 | ||||||
|
|
|
|
|||||
GROSS PROFIT |
66,459 | 300,476 | ||||||
OPERATING EXPENSES |
662,761 | 527,807 | ||||||
|
|
|
|
|||||
OPERATING LOSS |
(596,302 | ) | (227,331 | ) | ||||
OTHER INCOME (EXPENSE): |
||||||||
Interest expense |
(162,251 | ) | (81,716 | ) | ||||
Other income |
| 1,500 | ||||||
|
|
|
|
|||||
(162,251 | ) | (80,216 | ) | |||||
|
|
|
|
|||||
NET LOSS |
$ | (758,553 | ) | $ | (307,547 | ) | ||
|
|
|
|
|||||
Preferred unit dividends |
| (432,716 | ) | |||||
Deemed dividends on exchange of preferred units |
| (1,421,738 | ) | |||||
|
|
|
|
|||||
NET LOSS AVAILABLE TO COMMON UNIT HOLDERS |
$ | (758,553 | ) | $ | (2,162,001 | ) | ||
|
|
|
|
|||||
BASIC AND DILUTED LOSS PER COMMON UNIT |
$ | (0.58 | ) | $ | (1.74 | ) | ||
|
|
|
|
|||||
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OF COMMON UNITS OUTSTANDING |
1,316,246 | 1,242,754 | ||||||
|
|
|
|
See notes to unaudited condensed financial statements
3
PRECIPIO DIAGNOSTICS, LLC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
See notes to unaudited condensed financial statements
4
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES
NATURE OF BUSINESS
Precipio Diagnostics, LLC (the Company or Precipio) is a Connecticut limited liability company formed in 2011. The Company is an early-stage diagnostics company that operates a cancer diagnostic laboratory located in New Haven, Connecticut. The Company collaborates with the Yale School of Medicine (Yale) to provide cancer diagnostics that are delivered to the community and improve patient care. The Company is party to an exclusive agreement for professional pathology services with Yale, which allows the Company to provide a superior level of cancer diagnostics. Specimens are shipped to the Companys laboratory where they are processed and diagnosed by the academic experts at Yale, whereby the end product is a pathology report which guides its customers, oncologists, as to the nature of their patients disease and helps them determine how best to care for their patient. In addition to the pathology services provided, a Yale designated physician also serves as the Companys medical director.
On June 29, 2017, the Company completed a reverse merger transaction with Transgenomic, Inc. (Transgenomic) becoming a wholly owned subsidiary of Transgenomic. Due to the reverse merger, the Company became the surviving entity and the registrant. Further, in connection with the Merger, Transgenomic changed its name to Precipio, Inc. (New Precipio) (see Note 7 for further description of the merger).
BASIS OF PRESENTATION
The accompanying condensed financial statements are presented in conformity with accounting principles generally accepted in the United States (GAAP).
The condensed balance sheet as of December 31, 2016 was derived from our audited balance sheet as of that date, but does not include all of the information and footnotes required by US GAAP for complete financial statements. There has been no change in the balance sheet from December 31, 2016. The accompanying condensed financial statements as of and for the three months ended March 31, 2017 and 2016 are unaudited and reflect all adjustments (consisting of only normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited condensed financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2016. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year 2017.
5
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (C ONTINUED )
GOING CONCERN
The condensed financial statements have been prepared using GAAP applicable for a going concern, which assume that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has incurred substantial operating losses and has used cash in its operating activities for the past several years. For the three months ended March 31, 2017 and 2016 the Company had negative working capital of $2.9 million and $2.5 million, respectively, due to the fact that its accounts payable and accrued expenses were double the amount of its current assets as of the balance sheet date, along with the significant amount of debt the Company has coming due within the next twelve months. The Companys ability to continue as a going concern is dependent upon a combination of achieving its business plan, including generating additional revenue, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.
In conjunction with the merger on June 29, 2017, Precipio, Inc. relisted its common stock with the National Association of Securities Dealers Automated Quotations (NASDAQ), and raised an additional $1,200,000. See Note 7 for a further description of the merger.
New Precipio is currently in discussions with certain investors to raise additional capital. There can be no assurance such capital is available at terms favorable or agreeable to management, if at all, or that the Company will successfully complete the proposed capital raise. Since the outcome of these matters cannot be predicted with any certainty at this time, there is substantial doubt that the Company will be able to continue as a going concern.
The Company has entered into a payment deferral arrangement with Connecticut Innovations, Incorporated (Connecticut Innovations) as the Company was unable to continue to repay the principal payments on the loan as they came due. The Company has secured a revision to its Connecticut Innovations debt repayment schedule effective July 14, 2016 that approves interest only payments through October 1, 2017, interest and principal payments through August 1, 2018 and on the remainder of the outstanding loan due on October 1, 2018.
Further, the Company is in default on its Webster Bank (Webster) covenants due to the Companys cash balance falling below the required minimum balance of a cash runway of three months, based on trailing six months average cash burn as stipulated in the agreement. Precipio and Webster, in a Default and Reservation of Rights letter dated January 29, 2016, agreed that while Precipio remains in default, Webster will preserve their rights but take no action at this time against the Company and shall refrain from calling the loan. Further Webster Bank has considered to maintain its senior credit facility in a letter dated January 4, 2017 subject to their re-approval process.
On June 29, 2017, after completing the merger and raising an additional $1,200,000 in new capital, Precipio, Inc. paid in full its loan obligations with Connecticut Innovations the Department Economic Community Development and Webster. See Note 9 for further discussion on debt retirements.
6
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (C ONTINUED )
GOING CONCERN (C ONTINUED )
Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Companys ability to continue as a going concern. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern as a result of the outcome of this uncertainty.
S IGNIFICANT A CCOUNTING P OLICIES
U SE OF E STIMATES
The preparation of unaudited condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities, at the date of the financial statements, and the reported revenues and expenses during the reporting period.
The most significant estimates with regard to these financial statements relate to the allowance for doubtful accounts, assumptions used to value stock based compensation, contractual allowances, warrant valuations and potential impairment of long-lived assets. Although management believes the estimates that have been used are reasonable, actual results could vary from the estimates that were used.
C ONCENTRATIONS OF R ISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company considers all highly liquid investments, with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits of $250,000. The Company reduces its exposure to credit risk by maintaining such deposits with high-quality financial institutions. At times the Companys deposits can exceed these limits.
Service companies in the health care industry typically grant credit without collateral to patients. The majority of these patients are insured under third-party insurance agreements. The services provided by the Company are routinely billed utilizing the Current Procedural Terminology (CPT) code set designed to communicate uniform information about medical services and procedures among physicians, coders, patients, accreditation organizations, and payers for administrative, financial, and analytical purposes.
7
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (C ONTINUED )
C ONCENTRATIONS OF R ISK ( C ONTINUED )
CPT codes are currently identified by the Centers for Medicare and Medicaid Services and third-party payors. The Company utilizes CPT codes for Pathology and Laboratory Services contained within codes 80000-89398.
R ISKS A ND U NCERTAINTIES
The Company operates in the healthcare industry which is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.
P ROPERTY A ND E QUIPMENT
Depreciation expense was $24,024 and $28,050 for the three months ended March 31, 2017 and 2016, respectively. Depreciation expense during each period includes depreciation related to equipment acquired under capital leases.
N ET P ATIENT S ERVICE R EVENUE
The Company primarily recognizes revenue for services rendered upon completion of the testing process. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered, including retroactive adjustment under reimbursement agreements with third-party payors. Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for third-party payor settlements are provided in the period the related services are rendered and adjusted in the future periods, as final settlements are determined.
8
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (C ONTINUED )
P RESENTATION OF I NSURANCE C LAIMS AND R ELATED I NSURANCE R ECOVERIES
The Company accounts for its insurance claims and related insurance recoveries at their gross values as standards for health care entities do not allow the Company to net insurance recoveries against the related claim liabilities. There were no insurance claims or insurance recoveries recorded during the three months ended March 31, 2017 and 2016.
I NCOME T AXES
The Company was organized as a limited liability company and operated under the default classification as a partnership until July 31, 2016. Effective August 1, 2016 the Company elected to be treated as a corporation for tax purposes and as such, a net deferred tax asset, prior to a valuation allowance is created. The company began calculating an income tax provision through the remainder of the year. Prior to August 1, 2016, income tax expense or benefits were calculated at the members level.
U NIT B ASED C OMPENSATION
The Company recognizes unit-based compensation expense for the fair value of the awards on the date granted on a straight-line basis over their service period. Compensation expense is recognized only for unit-based payments expected to vest. The Company estimates forfeitures at the date of grant based on the Companys historical experience and future expectations Non-Employee Awards: The Company accounts for unit based compensation issued to non-employees at the fair value of equity instruments given as consideration for services rendered as a non-cash charge to operations over the shorter of the vesting period or service period. The equity instruments are revalued on each subsequent reporting date until performance is complete with a cumulative catch-up adjustment recognized for any changes in their fair value.
C OMMON W ARRANT U NITS
The Company accounts for the issuance of common warrant units issued in accordance with the provisions of ASC Topic 815. The Company classifies as equity any contracts that (i) require physical settlement or net-unit settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own units (physical settlement or net-unit settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside of the companys control), or (ii) give the counterparty a choice of net-cash settlement or settlement in units (physical settlement or net-unit settlement).
L OSS P ER S HARE
Basic loss per share is calculated based on the weighted-average number of common units outstanding during each period. Diluted loss per share includes the dilutive effect of common unit options, warrants or conversion rights. Options, warrants and conversion rights pertaining to 8,062,065 and 8,059,787 common units have been excluded from the computation of diluted loss per share at March 31, 2017 and 2016, respectively, because the effect is anti-dilutive due to the net loss.
9
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (C ONTINUED )
S UBSEQUENT E VENTS
We have evaluated events occurring subsequent to March 31, 2017 for potential recognition or disclosure in the condensed financial statements and concluded that other than what has been disclosed within this condensed financial statement there were no subsequent events that required recognition or disclosure.
R ECENT A CCOUNTING P RONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU No. 2014-09). This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to a customer. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB decided to defer the effective date of this new accounting guidance by one year. As a result, ASU No. 2014-09 will be effective for the Company for all annual and interim reporting periods beginning after December 15, 2017 and early adoption would be permitted as of the original effective date. The new standard permits the use of either the retrospective or cumulative effect transition method. The Company does not expect to early adopt this guidance and it has not selected a transition method. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard amends the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases and amends disclosure requirements associated with leasing arrangements. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. The Company is currently assessing the impact that the adoption of this ASU will have on its financial statements.
In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements, forfeitures and classification on the statement of cash flows. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The Company adopted ASU No. 2016-09 as of January 1, 2017. The adoption of this guidance did not have a material effect on the Companys financial position and results of operations.
10
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (C ONTINUED )
R ECENT A CCOUNTING P RONOUNCEMENTS (C ONTINUED )
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow - Classification of Certain Cash Receipts and Cash Payments (Topic 230) (ASU 2016-15), which addresses a few specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its statements of cash flow.
In January 2017, FASB issues ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU No. 2017-01 adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not believe ASU No. 2017-01 will have a material effect on its financial position and results of operations.
N OTE 2 N OTES P AYABLE
Long-term debt consists of the following:
March 31,
2017 |
December 31,
2016 |
|||||||
Senior Notes |
$ | 3,534,968 | $ | 3,269,968 | ||||
Senior Note debt issuance costs |
(8,000 | ) | (8,500 | ) | ||||
Junior Notes |
583,821 | 583,821 | ||||||
Connecticut Innovation - line of credit |
162,066 | 162,066 | ||||||
Depart. Economic Development (DECD) |
234,534 | 243,287 | ||||||
DECD debt issuance costs |
(28,874 | ) | (30,208 | ) | ||||
Webster Bank |
290,500 | 328,000 | ||||||
Webster Bank debt discounts and debt issuance |
(22,213 | ) | (26,340 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
4,746,802 | $ | 4,522,094 | |||||
Current Portion |
(357,603 | ) | (394,838 | ) | ||||
|
|
|
|
|||||
Long-term debt, net of current maturities |
$ | 4,389,199 | $ | 4,127,256 | ||||
|
|
|
|
11
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 2 N OTES PAYABLE ( CONTINUED )
SENIOR AND JUNIOR NOTES
During 2016, the Company raised $525,000 from members through the issuance of Senior Notes which accrue interest at a rate of 12% and are payable at the sooner of the closing of a qualified public offering, as outlined in the note agreement, or five years from date of issuance.
Also during 2016, the Company restructured equity through a redemption and exchange agreement by exchanging Member Equity comprised of Series A and Series B Convertible Preferred Units in the amount of $2,147,716 (members initial investment of $1,715,000, plus declared dividends on these preferred units of $432,716), and Convertible Bridge Notes of $1,120,000, plus accrued interest of $61,073 for new Senior Notes of $2,744,968 and new Junior Notes of $583,821. The Senior and Junior Notes accrue interest at a rate of 12% and 15%, respectively, and have maturity dates ranging from March 2021 to September 2021, or earlier based on certain qualifying events as outlined in the note agreements.
As of March 31, 2017, the outstanding balance of Senior and Junior notes was $3,534,968 and $583,821, respectively, with accrued interest included within accrued expenses on the accompanying condensed balance sheet of $381,190 and $92,851, respectively. As of December 31, 2016, the outstanding balance of Senior and Junior notes was $3,269,968 and $583,821, respectively, with accrued interest included within the accrued expenses on the accompanying condensed balance sheet of $279,740 and $71,258, respectively.
During the three months ended March 31, 2017, the Company raised $265,000 from members through the issuance of Senior Notes at a rate of 12% interest that are payable at the sooner of the closing of a qualified public offering, as outlined in the note agreement, or five years from date of issuance.
CONNECTICUT INNOVATIONS, INCORPORATED
The Company entered into a line of credit on April 1, 2012 with Connecticut Innovations, an entity affiliated with a director of the company, for up to $500,000 with interest paid monthly at 8%, due on September 1, 2018. Principal and interest payments began February 1, 2013 and ranged from $7,436 to $12,206 until September 2016, when the Company entered into a forbearance agreement to defer monthly principal payments until October 2017 and interest-only payments plan totaling $1,041 per month through October 2017. Beginning October 1, 2017, principal payments of $11,467 are due including interest at 9% through September 2018. Pursuant to the forbearance agreement, the Company is also restricted from any additional borrowings under the line of credit. The line is secured by substantially all of the Companys assets. The outstanding balance was $162,066 as of March 31, 2017 and December 31, 2016, respectively.
12
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 2 N OTES PAYABLE ( CONTINUED )
DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT
The Company entered into a 10-year term loan with the Department of Economic and Community Development (DECD) on May 1, 2013 for $300,000, with interest paid monthly at 3%, due on April 23, 2023. The loan is secured by substantially all of the Companys assets but is subordinate to the term loan with Webster Bank and the Connecticut Innovations, Incorporated Line of Credit. As of March 31, 2017 and December 31, 2016 the outstanding balance was $234,534 and $243,287, respectively.
WEBSTER BANK
The Company entered into a 3.5-year term loan with Webster Bank on December 1, 2014 for $500,000, with interest paid monthly at the one month LIBOR rate (0.98% at March 31, 2017) plus 500 basis points, due on May 31, 2018. The line is secured by substantially all of the Companys assets and has first priority over all other outstanding debt. As of March 31, 2017 and December 31, 2016 the outstanding balance was $290,500 and $328,000, respectively.
The term loan with Webster Bank is subject to financial covenants relating to maintaining adequate cash runway, as defined. As of December 31, 2016 the Company was not in compliance with these covenants and, as such, the Webster Bank debt has all been presented as current in the accompanying financial statements. Precipio and Webster Bank entered into a Default and Reservation of Rights letter dated January 29, 2016, agreed that while Precipio remains in default, Webster Bank will preserve their rights but not take any action at this time against the company and shall refrain from calling the loan. Further Webster Bank has considered maintaining its senior credit facility in a letter dated January 4, 2017 subject to their re-approval process. During this period Webster Reservation of Rights letter discussed above will remain in effect until the process is completed.
On October 12, 2016, Precipio, Transgenomic and New Haven Labs Inc., a wholly owned subsidiary of Transgenomic (Merger Sub and, together with Transgenomic, the Transgenomic Parties) entered into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which Precipio will become a wholly owned subsidiary of Transgenomic (the Merger), on the terms and subject to the conditions set forth in the Merger Agreement. See note 7 Merger Agreement.
On June 29, 2017, the Merger closed and Precipio paid in full its loan obligations with Connecticut Innovation ($162,062), the Department Economic Community Development ($228,661) and Webster Bank ($253,000).
13
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 3 C ONVERTIBLE B RIDGE N OTES P AYABLE
During the year ended December 31, 2015, the Company issued eleven unsecured convertible bridge notes for $1,360,000. The notes accrue interest at a rate of 14% and were payable no later than September 30, 2016. As of December 31, 2015, the outstanding balance was $1,360,000, excluding debt issuance costs of $8,927, with accrued interest of $87,818 included within accrued expenses on the accompanying balance sheet. During 2016, the maturity date of these convertible bridge notes was extended to December 31, 2016.
The convertible Notes will (i) convert into Series C Preferred Units of the Company (at a 30% discount) upon a Qualified Series C Financing (as defined), (ii) at the option of the holders of a majority of the then-outstanding principal amount of the notes, convert into Series C Preferred Units of the Company (at a 30% discount) upon any other Series C Financing, or (iii) if no such Qualified Series C Financing occurs, or no such option conversion takes place by the maturity date (as hereinafter defined), the convertible notes will be fully repaid by Company or the notes and accrued and unpaid interest shall convert into Preferred Series B Units (at a 30% discount) of the Preferred Series B conversion Price as defined in the operating agreement provided that notice is given to the Company at least one day prior to maturity. In the event a Deemed Liquidity Event (merger, sale, IPO, or transaction with exchange of 50% or more of voting power) the holders of the note at its sole discretion can (a) require the Company to pay an amount equal to two times the principal and accrued and unpaid interest or (b) convert all unpaid principal and interest at a rate of 70% of the applicable security. These notes are subordinated to Connecticut Innovations Inc., State of Connecticut Department of Economic Development and Webster Bank. See note 7 Merger Agreement.
During 2016, prior to entering into the redemption and exchange agreement, the Company issued additional unsecured convertible bridge notes for $440,000. In addition, the Company issued additional unsecured convertible bridge notes for $15,000. These notes accrue interest at a rate of 14% and are payable no later than December 31, 2016.
Pursuant to the redemption and exchange agreement, the Company exchanged $1,120,000 of convertible bridge notes for long-term debt. See note 2 Notes Payable.
During January 2017, the holders of the convertible bridge notes agreed to waive the maturity date of December 31, 2016 and change it to payable on demand and accrue interest until paid.
In March 2017, the Company raised an additional $100,000 from members in advance of the issuance of a promissory note from the merger partner. The advance was to be included in the promissory note from the merger partner Transgenomic which accrues interest at the rate of 8% and is payable upon the earlier of (x) the Closing (as defined in the Merger Agreement referred to herein) and (y) December 31, 2017 or such later date as requested by the Borrower and agreed to in writing by the Lender in its sole discretion (such date, the Maturity Date).
14
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 3 C ONVERTIBLE B RIDGE N OTES P AYABLE - ( CONTINUED )
As of March 31, 2017, debt issuance costs were fully amortized and the outstanding convertible notes balance was $795,000, with accrued interest of $168,384 which is included within accrued expenses on the accompanying condensed balance sheet.
NOTE 4 Accrued Expenses
Accrued expenses consist of the following:
March 31,
2017 |
December 31,
2016 |
|||||||
Accrued Interest - Junior Notes |
$ | 381,190 | $ | 279,740 | ||||
Accrued Salary |
207,426 | 154,621 | ||||||
Accrued Interest - Convertible Bridge Notes |
168,384 | 143,981 | ||||||
Accrued Interest - Senior Notes |
92,851 | 71,258 | ||||||
Accrued Expenses |
76,534 | 50,000 | ||||||
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$ | 926,385 | $ | 699,600 | |||||
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N OTE 5 C ONTINGENCIES
The Company is involved in legal proceedings related to matters, which are incidental to its business. In the opinion of management, based on consultation with legal counsel, the outcome of such proceedings will not materially affect the Companys financial position or results of operations.
The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirement, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.
Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.
15
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 6 M EMBERS D EFICIT
The Companys amended and restated limited liability company operating agreement (the amended operating agreement) authorizes the use of four different classes of units (i) Series A Convertible
Preferred Units (Series A), (ii) Series B Convertible Preferred Units (Series B), (iii) Voting Common Units and (iv) Non-Voting Common Units.
The Company is authorized to issue 1,905,556 Series A units (including warrants), 1,882,968 Series B units (including warrants) and 5,288,524 common units. The common units include 3,788,524 common units (including warrants) reserved for issuance upon conversion of the Series A units and Series B units, 954,216 voting common units issued or reserved for issuance as equity incentives and 545,784 non-voting common units issued or reserved for issuance as equity incentives.
C OMMON U NITS
Common Units
The Company has two classes of common units, voting and non-voting. The Company has issued to various employees 954,216 common voting units as of March 31, 2017 and December 31, 2016; and 361,694 and 360,416 common non-voting units as of March 31, 2017 and December 31, 2016, respectively. The Company released 2,278 and 15,351 vested restricted common non-voting units during the three months ended March 31, 2017 and 2016, respectively.
Restricted Unit Awards
The fair value of restricted units granted to employees is determined on the grant date. No incentive units were granted during the three months ended March 31, 2017 and 2016. Unit-based compensation expense charged to operations for the three months ended March 31, 2017 and 2016 was $271 and $4,267, respectively.
C ONVERTIBLE P REFERRED U NITS
The Company had outstanding preferred units of 1,075,000 for Series A and 1,208,189 for Series B as of March 31, 2017 and December 31, 2016 respectively.
The Series A and Series B units have a preferred return of eight percent per year on the unreturned capital contributions of the respective series. The preferred return accrues quarterly; unpaid returns accumulate and were $432,028 and $480,970, as of December 31, 2016, for Series A and Series B, respectively. The accumulated amounts as of March 31, 2017 were $453,234 and $518,209 on Series A and Series B units, respectively.
16
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 6 M EMBERS D EFICIT (C ONTINUED )
In addition, in connection with the Companys finance agreements, the Company issued warrants to purchase 25,000 units of Series A and $20,000 of Series B. These warrants were still outstanding as of March 31, 2017.
M ANDATORY C ONVERSION
The Series A units and Series B units have a mandatory conversion feature, which states that at either the closing of a qualified public offering or an event that has been specified as a mandatory conversion time by a vote of the Series A and Series B unit members, then all outstanding Series A and Series B units (and any declared but unpaid distributions) shall automatically be converted into voting common units at the then effective conversion rate. As of March 31, 2017, no events have occurred that would cause an automatic conversion of these units. On June 29, 2017, the Company completed a reverse merger transaction with Transgenomic. In connection with the Merger, at the effective time of the Merger, New Precipio will issue shares of New Precipio stock. See Note 7 Merger Agreement.
C ONVERTIBLE R IGHTS
The Series A Members and Series B Members shall have conversion rights as follows:
Each Series A unit shall be converted, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable voting common units as is determined by dividing the Series A adjusted purchase price by the Series A conversion price (original purchase price of security, subject to adjustments for distributions to its respective series) in effect at the time of conversion. Series A can be converted into 1,528,234 and 1,507,028 common units at March 31, 2017 and December 31, 2016, respectively.
Each Series B unit shall be converted, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable voting common units as is determined by dividing the Series B adjusted purchase price by the Series B conversion price (original purchase price of security, subject to adjustments for distributions to its respective series) in effect at the time of conversion. Series B can be converted into 1,552,184 and 1,527,464 common units at March 31, 2017 and December 31, 2016, respectively.
17
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
N OTE 6 M EMBERS D EFICIT (C ONTINUED )
C OMMON W ARRANT U NITS
In March 2016, the Company entered into a redemption and exchange agreement with certain members relating to their 805,556 Preferred A Units and 609,024 Preferred B Units. Under the terms of the agreement, the unit holders would exchange their units in the Company for the issuance of debt. The aggregate purchase price per the agreement was the members initial investment of $750,000 for Preferred A Units and $965,000 for Preferred B Units, along with a preferred return of 8%, recorded as a dividend in the amount of $432,716, resulting in a total principal amount of $2,147,716 (comprised of $1,563,895 senior notes and $583,821 junior notes). In addition to the debt issued as consideration for the members preferred units, the Company also issued common warrant units, which allows the holders to collectively purchase common units of the Company, representing approximately 60% of the Company at the time of exercise. At the time of issuance, this represented approximately 5,731,217 common units. The common warrant units have a $0.00 exercise price with a ten year expiration date. The common warrant units were classified as equity awards and the fair value upon issuance was calculated utilizing a discounted cash flow analysis to value the Companys equity and an option pricing method to allocate the value of the equity. The fair value of the warrants was determined directly utilizing the option pricing method as the exercise price was $0.00. The aggregate value of the common warrant units was $1,421,738, which was considered a deemed dividend
N OTE 7 M ERGER A GREEMENT
On October 12, 2016, Precipio, Transgenomic and New Haven Labs Inc., a wholly owned subsidiary of Transgenomic (Merger Sub and, together with Transgenomic, the Transgenomic Parties) entered into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which Precipio will become a wholly owned subsidiary of Transgenomic (the Merger), on the terms and subject to the conditions set forth in the Merger Agreement. Following the Merger, Transgenomic will change its name to Precipio, Inc. (New Precipio). On June 29, 2017, the Merger closed. When the Merger is completed, (i) each outstanding common unit of Precipio will be converted into the right to receive 79% of the outstanding shares of New Precipio common stock (not taking into account the issuance of New Precipio preferred stock in the Merger or the private placement discussed below) and (ii) each outstanding preferred unit of Precipio will be converted into the right to receive shares of New Precipio preferred stock in an aggregate amount equal to $3 million.
In connection with the Merger, at the effective time of the Merger, New Precipio also will issue shares of New Precipio preferred stock in a private placement, whereby: holders of indebtedness of Precipio will receive $3 million in New Precipio preferred stock in exchange for such indebtedness.
18
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
NOTE 7 M ERGER A GREEMENT (CONTINUED)
The board of managers of Precipio and the boards of directors of Transgenomic and Merger Sub, and Transgenomic, in its capacity as the sole stockholder of Merger Sub, have each approved the Merger Agreement and the board of managers of Precipio and the board of directors of Transgenomic have each recommended that their respective equity holders approve the transactions contemplated by the Merger Agreement. Transgenomic will hold a special meeting of its stockholders to approve the issuance of shares of Transgenomic common stock pursuant to the Merger, as required by Nasdaq Listing Rules, as well as certain other matters (the Special Meeting).
The foregoing description of the Merger Agreement does not purport to be complete. The description of the merger transaction should be read in conjunction with the audited financial statements and notes for the year ended December 31, 2016.
On February 2, 2017, Transgenomic and Precipio entered into the First Amendment to the Merger Agreement (the First Amendment) which provided for the following: (a) the Precipio Bridge Loan to Transgenomic was authorized; (b) the exchange ratio set forth in the Merger Agreement was revised to provide that outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of New Precipio common stock representing approximately 79% of the fully diluted New Precipio common stock and resulting in an implied exchange ratio of 24.4255 for the Precipio common units; (c) the continual listing of the existing shares of Transgenomics common stock on Nasdaq was waived as a condition to the closing of the merger; (d) the deadline pursuant to which a shelf registration statement on Form S-3 or other appropriate form is required to be filed by New Precipio with the SEC was extended to June 1, 2017; (e) certain indebtedness of Transgenomic was permitted to remain outstanding as of the effective date of the merger; (f) certain actions taken by each of Transgenomic and Precipio since the date the Merger Agreement were authorized and (g) certain additional conditions to the closing of the merger were removed from the Merger Agreement. In determining the number of shares of New Precipio common stock to be issued pursuant to the First Amendment, the parties applied the formula set forth in the Merger Agreement based on the relative expected liabilities of Transgenomic and Precipio as of the closing of the merger. The representations, warranties and covenants contained in the Merger Agreement are made only for purposes of the Merger Agreement and are made as of specific dates; are solely for the benefit of the parties; may be subject to qualifications and limitations agreed upon by the parties in connection with negotiating the terms of the Merger Agreement, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties rather than establishing matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders. Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of Transgenomic, Precipio or their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures.
19
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
NOTE 7 M ERGER A GREEMENT (CONTINUED)
On June 29, 2017, the Company completed the reverse merger transaction with Transgenomic. In connection with the merger, Transgenomic changed its corporate name to Precipio Inc., relisted its common stock under Precipio, Inc. on the National Association of Securities Dealers Automated Quotations (NASDAQ), raised an additional $1,200,000 in the form of a new $800,000 promissory note which accrues interest at 8% and $400,000 in new Preferred Stock which accrues interest at 8% from existing members and external investors; and exchanged the April 2017 Promissory Note (see Note 8) and warrants for new notes accruing interest at 4% due October 1, 2017 and new warrants.
The new Promissory Note of $800,000 is due on the earlier of (i) October 1, 2017, as the same may be extended as set forth herein, or (ii) five Business Days after the closing of a Qualified Offering, provided that the Note has not been previously converted as set forth herein (the Maturity Date), or such earlier date as the Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of the Note in accordance with the provisions thereof.
In connection with the Merger, the Supporting Stockholders and Supporting Members (as defined in the Merger Agreement) are obligated to enter into a lock-up agreement with the combined company at the Effective Time pursuant to which the Supporting Stockholders will agree, among other things, not to sell shares of Transgenomic common stock for the six month period beginning at the Effective Time.
The Merger Agreement also provides that the combined company will enter into employment agreements with certain employees of Precipio at the Effective Time and that the officers of the combined company will be agreed to by the parties prior to the Effective Time.
NOTE 8 I NCOME T AX
As a result of the tax status change, the Company recorded a net deferred tax asset before valuation allowance at December 31, 2016 and March 31, 2017 of $665,616 and $959,311 respectively both of which were totally eliminated due to the recording of a valuation allowance. We recorded a valuation allowance against all of our deferred tax assets. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The major component of the net deferred assets before valuation allowance as of December 31, 2016 and March 31, 2017 were NOLs of $405,000 and $624,101 respectively. Some of the other items that make up the deferred tax assets are accrued interest, accrued salaries, and bad debt reserves.
NOTE 9 S UBSEQUENT E VENTS
During April 2017, the Company raised $561,500 from the merger partner, Transgenomic, through the issuance of a promissory note and warrants, herein referred to as the April Promissory Note, which accrues interest at the rate of 8% and is payable upon the earlier of (x) the Closing (as defined in the Merger Agreement referred to herein) and (y) December 31, 2017 or such later date as requested by Borrower and agreed to in writing by the Lender in its sole discretion (such date, the Maturity Date) or such lesser amount as may be outstanding under this Promissory Note (the Note), together with accrued unpaid interest. The principal sum of the April Promissory Note includes the $100,000 advance received by the Company in March 2017.
20
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
NOTE 9 S UBSEQUENT E VENTS (CONTINUED)
During May 2017, the Company raised an additional $50,000 in Senior Notes from existing members that accrue interest at 12% and are payable on terms pari-parssu with existing Senior Notes.
On June 29, 2017, the Company completed a reverse merger transaction with Transgenomic. In connection with the Merger, at the effective time of the Merger, New Precipio will issue shares of New Precipio stock. See footnote 7 Merger Agreement.
21
Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
Precipio Managements Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements. These statements are based on managements current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this section should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, income (loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, insurance reimbursements, product pricing, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, future interest costs, future economic circumstances, business strategy, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, actions of governments and regulatory factors affecting our business, retaining key employees and other risks. In some cases these statements are identifiable through the use of words such as anticipate, believe, estimate, expect, intend, plan, project, target, can, could, may, should, will, would or the negative versions of these terms and other similar expressions.
You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements in this report we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that Precipio, Inc. (the Company or Precipio) makes. The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
The following discussion should be read together with Precipios financial statements and related notes. Results for the three months ended March 31, 2017 are not necessarily indicative of results that may be attained in the future.
22
Business Description
Precipio Diagnostics, LLC (the Company or Precipio) is a Connecticut limited liability company formed in 2011. The Company has built a platform designed to eradicate the problem of misdiagnosis by harnessing the intellect, expertise and technology developed within academic institutions, and delivering quality diagnostic information to physicians and their patients worldwide. Through its collaboration with a world-class academic institution specializing in cancer research, diagnostics and treatment, Precipio offers a new standard of diagnostic accuracy enabling a higher level of patient care. The Company operates a pathology diagnostic laboratory located in New Haven, Connecticut. The Company is party to an exclusive agreement for professional pathology services with the Department of Pathology at Yale University, or Yale, which allows the Company to provide a superior level of cancer diagnostics. Specimens are shipped to the Companys laboratory where they are processed and diagnosed by the academic experts at Yale, whereby the end product is a pathology report which guides its customers, oncologists, as to the nature of their patients disease and helps them determine how best to care for their patient. In addition to the pathology services provided, a Yale designated physician also serves as the Companys medical director.
On June 29, 2017, the Company completed a reverse merger transaction with Transgenomic, Inc., or Transgenomic, becoming a wholly owned subsidiary of Transgenomic. Due to the reverse merger, the Company became the surviving entity and the registrant. Further, in connection with the Merger, Transgenomic changed its name to Precipio, Inc., or New Precipio (see Note 7 for further description of the merger).
The newly named company, Precipio, Inc. (formally known as Transgenomic, Inc.) is a biotechnology company focused on precision medicine. Precipio, Inc. will merge Precipio Diagnostics, LLC and operate the diagnostic cancer pathology lab business as Precipio, Inc. while continuing to provide genetic analytical services related to oncology and pharmacogenomics research conducted by pharmaceutical and biotechnology companies worldwide. Precipio, Inc. is located in New Haven, CT and its business plan is to build and continue to develop a platform designed to eradicate the problem of misdiagnosis by harnessing the intellect, expertise and technology developed within academic institutions and delivering quality diagnostic information to physicians and their patients worldwide. Precipio, Inc.s primary genetic business objective is to commercialize its proprietary Multiplexed ICE COLD-PCR, or ICP, product that enables the use of blood and other bodily fluids for more effective and patient-friendly diagnosis, monitoring and treatment of cancer by improving the ability to detect genetic mutations on existing testing panels. Precipio, Inc.s ICP kit product has been validated internally on all currently available sequencing platforms. ICP enhances the level of detection of genetic mutations and suppresses normal or wild-type DNA. More importantly, is the ability of ICP to enhance detection testing results by utilizing peripheral blood, salvia and urine as the source for DNA in lieu of tumor biopsies. Precipio, Inc. is building a nationwide sales team and a domestic and international business development team to offer its services to oncologists, hospitals and commercial pharmaceutical/biogenetic testing and research companies worldwide.
23
Three Months Ended March 31, 2017 Overview and Recent Highlights
For the three months ended March 31, 2017, the Company has continued to market its diagnostic services to hospitals and office based oncologists as well as expanding its relationships with academic institutions. During late 2016, the Company experienced turnover of key sales personnel. For the three months ended March 31, 2017, the turnover in sales personnel has resulted in lower volumes and reported revenues when compared to the same period in 2016. In response, management has focused not only on rebuilding the sales force but on accelerating its expansion. In addition, the Company is increasing marketing resources and enhanced its sales training programs to grow revenues and market share. Key drivers of our growth include the ability to rapidly build a strong direct-to-the-physician sales team; deliver a clear message that differentiates us from our competition; and duplicate the customer adoption and retention success that we have seen in the market place. We believe the strategy to grow the business as rapidly as possible to maximize shareholder value will require several changes including additional capital infusions to grow Precipio, provide additional market opportunities to expand our service offerings, and leverage existing infrastructure. See the accompanying unaudited condensed financial statements and Note 7Merger Agreement in the Notes to unaudited condensed financial statements for more discussion on the merger.
Results of Operations
Three Months Ended March 31, 2017 and 2016
Net Revenue. Net revenue is as follows:
2017 | 2016 | $ | % | |||||||||||||
Total Net Revenue |
$ | 248,741 | $ | 538,356 | $ | (289,615 | ) | -53.8 | % |
Net revenue decreased by $290,000, or 54%, during the three months ended March 31, 2017 as compared to the same period in 2016. The decrease is entirely due to the decrease in cases processed during the three months ended March 31, 2017 as compared to the same period in 2016. Precipio processed 199 cases during the three months ended March 31, 2017 as compared to 389 cases during the same period in 2016, or a 49% decrease in cases. The decrease in volume is the result of turnover of key sales personnel.
Cost of Diagnostic Services. Cost of diagnostic services includes material and supply costs for the patient tests performed and other direct costs (primarily personnel costs and rent) associated with the operations of our laboratory. Cost of diagnostic services decreased by $56,000, or 23.4%, to $182,000 for the three months ended March 31, 2017 as compared to the same period in 2016. The decrease is due to decreases in reagent supplies as a result of the decreased revenues in the three months ended March 31, 2017.
24
Gross Profit. Gross profit was as follows:
2017 | 2016 | $ | % | |||||||||||||
Gross Profit |
$ | 66,459 | $ | 300,476 | $ | (234,017 | ) | -77.9 | % |
Gross profit was $66,000, or 27% of total net sales, during the three months ended March 31, 2017, compared to $300,000, or 56% of total net revenues, during the same period in 2016. The decrease in gross profit in the current period is a result of decreased sales during the three months ended March 31, 2017 as compared to the same period in 2016. Our cost of diagnostic services includes a number of fixed costs required to maintain critical operations and provide all diagnostic services offered by the company. These costs include rent, technical salaries and reagents for histology, cytology, flow and molecular testing. As a result, our laboratory is operating below capacity for the current cost structure. As such, we believe that our gross profit as a percentage of sales will grow as our sales increase.
Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs and depreciation. Our operating expenses of $663,000 during the three months ended March 31, 2017 increased by $135,000, or 26%, as compared to the same period in 2016. The increase in operating expenses reflects the increase in administrative salaries and legal expense attributed to Precipios effort to raise investment capital and the pending merger agreement. See Note 7Merger Agreement and Note 9 Subsequent Events in the notes to unaudited condensed financial statements for further discussion of the merger and related subsequent financing.
Other Income (Expense). Other expense for the three months ended March 31, 2017 and 2016 includes interest expense related to our debt instruments of $162,000 and $82,000, respectively. The increase in the current year is due to increased interest bearing instruments outstanding during the three months ended March 31, 2017 as compared to the same period in 2016.
Liquidity and Capital Resources
Uncertainties
We have suffered recurring losses from operations. At March 31, 2017, we had cash and cash equivalents of approximately $33,000. We have incurred substantial operating losses and have used cash in our operating activities for the past several years. As of March 31, 2017, we had negative working capital of $2,943,000 due to the fact that our accounts payable and accrued expenses were double the amount of our current assets as of the balance sheet date, along with the significant amount of debt we have coming due within the next twelve months. Our ability to continue as a going concern is dependent upon a combination of achieving our business plan, including generating additional revenue, and raising additional financing to meet our debt obligations and pay our liabilities arising from normal business operations when they come due. Precipio is currently in discussions with certain investors to raise additional capital. There can be no assurance such capital is available at terms favorable or agreeable to Precipio management, if at all. Since the outcome of these matters cannot be predicted with any certainty at this time, there is substantial doubt that we will be able to continue as a going concern without raising capital.
25
On June 29, 2017, Precipio and Transgenomic completed their merger. Post-merger, Transgenomic changed its name to Precipio, Inc. and Precipio, Inc. has paid in full its loan obligations with Connecticut Innovation ($162,000), the Department Economic Community Development ($229,000) and Webster Bank ($253,000). To execute the strategic plan management is currently planning to raise additional investment capital. There can be no assurance that Precipio will be able to successfully achieve its initiatives summarized above in order to continue as a going concern. The accompanying financial statements have been prepared assuming Precipio will continue as a going concern and do not include any adjustments that might result should Precipio be unable to continue as a going concern as a result of the outcome of this uncertainty.
Analysis of Working Capital For the Periods Ended March 31, 2017 and 2016
Our working capital positions as of the three month periods ended March 31, 2017 and 2016 were as follows:
2017 | 2016 | Change | ||||||||||
Current assets (including cash and equivalents of $33,000 and $52,000 respectively) |
$ | 528,000 | $ | 552,000 | $ | (24,000 | ) | |||||
Current liabilities |
$ | 3,471,000 | $ | 3,011,000 | $ | (460,000 | ) | |||||
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Working Capital |
$ | (2,943,000 | ) | $ | (2,459,000 | ) | $ | (484,000 | ) | |||
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During the three months ended March 31, 2017, Precipio raised $365,000 from members through the issuance of $265,000 in senior notes and $100,000 through the issuance of an additional convertible note.
The senior notes accrue interest at a rate of 12% and are payable at the closing of a qualified public offering, as outlined in the note agreement, or five years from date of issuance. The convertible note accrued interest at a rate of 8%.
26
As of the three months ended March 31, 2017, the outstanding balance of senior and junior notes was $3,535,000 and $584,000, respectively, with accrued interest included within accrued expenses on the accompanying condensed balance sheet of $381,000 and $93,000, respectively, and the outstanding balance of Convertible Bridge Notes was $795,000, with accrued interest within accrued expenses on the accompanying balance sheet of $168,000. See the accompanying unaudited condensed financial statements and Note 2Notes Payable and Note 3Convertible Bridge Notes Payable in the Notes to unaudited condensed financial statements for additional information regarding Precipios outstanding debt and debt servicing obligations and related defaults on certain debt agreements with Webster Bank and Connecticut Innovations.
Analysis of Cash Flows For the Three Months Ended March 31, 2017 and 2016
Net Change in Cash and Cash Equivalents. Cash and cash equivalents decreased by $19,000 during the three months ended March 31, 2017, compared to a decrease of $147,000 during the same period in 2016.
Cash Flows Used in Operating Activities. The cash flows used in operating activities of $326,000 during the three months ended March 31, 2017 included a net loss of $759,000, a decrease in net accounts receivable of $7,000 and other working capital uses of $1,000, less non-cash adjustments of $30,000. These were partially offset by an increase in accrued expenses and accounts payable of $396,000. The cash flows used in operating activities of $547,000 during the three month period ended March 31, 2016 included the net loss of $308,000 and an increase in accounts receivable of $315,000, less non-cash adjustments of $120,000. These were partially offset by a decrease in accounts payable and accrued expenses of $35,000, other working capital uses of $3,000 and a decrease in deferred rent of $7,000.
Cash Flows Used in Investing Activities. There were no cash flows used in investing activities for the three months ended March 31, 2017 and 2016.
Cash Flows Provided by Financing Activities. Cash flows provided by financing activities totaled $308,000 for the three months ended March 31, 2017, which included proceeds of $265,000 from the issuance of senior notes and a $100,000 convertible note from an existing member. These proceeds were partially offset by payments on our debt, capital lease obligations and for deferred financing costs of $57,000. Cash flows provided by financing activities during the three months ended March 31, 2016 included proceeds of $455,000 from the issuance of senior notes partially offset by $55,000 of payments on our debt, capital lease obligations and for deferred financing costs.
Off-Balance Sheet Arrangements
At each of the periods ending March 31, 2017 and 2016, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
27
Contractual Obligations and Commitments
We have entered into certain operating leases and purchase commitments as part of our normal course of business. See the accompanying unaudited condensed financial statements and Note 5 - Contingencies in the Notes to unaudited condensed financial statements for additional information regarding Precipios contractual obligations and commitments.
Critical Accounting Policies and Estimates
Accounting policies used in the preparation of our financial statements may involve the use of management judgments and estimates. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial statements and require significant or complex judgments on the part of management. Our judgments and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgments or estimates may vary under different assumptions or circumstances. See the accompanying unaudited condensed financial statements and Note 1Nature of Business and Significant Accounting Policies in the Notes to unaudited condensed Financial Statements for additional information regarding Precipios critical accounting policies and estimates.
Recently Issued Accounting Pronouncements
See the accompanying unaudited condensed financial statements and Note 1 - Nature of Business and Significant Accounting Policies in the Notes to unaudited condensed financial statements for additional information regarding recently issued accounting pronouncements.
Impact of Inflation
We do not believe that price inflation or deflation had a material adverse effect on our financial condition or results of operations during the periods presented.
28
Exhibit 99.2
INDEX TO PRECIPIO DIAGNOSTICS, LLC FINANCIAL STATEMENTS
Precipio Diagnostics, LLC
Page | ||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
2 | |||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
3 | |||
FINANCIAL STATEMENTS |
4 | |||
BALANCE SHEETS AT DECEMBER 31, 2016 AND DECEMBER 31, 2015 |
4 | |||
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 |
5 | |||
STATEMENTS OF CHANGES IN MEMBERS DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 |
6 | |||
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 |
7 | |||
NOTES TO FINANCIAL STATEMENTS |
8 |
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members
of Precipio Diagnostics, LLC
We have audited the accompanying balance sheet of Precipio Diagnostics, LLC (the Company) as of December 31, 2016, and the related statements of operations, changes in members deficit and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Precipio Diagnostics, LLC, as of December 31, 2016, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, negative working capital and has a net member deficiency which raises substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty
/s/ Marcum LLP
Marcum LLP
Hartford, CT
April 24, 2017
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Precipio Diagnostics, LLC
Report on the Financial Statements
We have audited the accompanying balance sheet of Precipio Diagnostics, LLC as of December 31, 2015, and the related statements of operations, changes in members deficit and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Precipio Diagnostics, LLC as of December 31, 2015, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Whittlesey & Hadley, P.C.
Hartford, Connecticut
July 27, 2017
3
PRECIPIO DIAGNOSTICS, LLC
BALANCE SHEETS
DECEMBER 31, 2016 AND 2015
December 31,
2016 |
December 31,
2015 |
|||||||
ASSETS | ||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 51,573 | $ | 234,688 | ||||
Accounts receivable, net |
387,613 | 455,744 | ||||||
Inventory |
100,222 | 83,411 | ||||||
Prepaids and other current assets |
12,761 | 4,910 | ||||||
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|
|
|
|||||
Total current assets |
552,169 | 778,753 | ||||||
PROPERTY AND EQUIPMENT, NET |
280,061 | 343,214 | ||||||
SECURITY DEPOSIT |
10,000 | 10,000 | ||||||
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|
|
|||||
TOTAL ASSETS |
$ | 842,230 | $ | 1,131,967 | ||||
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|
|||||
LIABILITIES AND MEMBERS DEFICIT | ||||||||
CURRENT LIABILITIES: |
||||||||
Current maturities of long-term debt, less discounts |
$ | 394,838 | $ | 575,157 | ||||
Convertible bridge notes, less debt issuance costs |
695,000 | 1,351,073 | ||||||
Accounts payable |
1,083,550 | 739,719 | ||||||
Accrued expenses |
699,600 | 123,386 | ||||||
Current maturities of capital leases |
46,230 | 36,440 | ||||||
Deferred rent |
| 28,107 | ||||||
Deferred revenue |
92,150 | | ||||||
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|
|
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Total current liabilities |
3,011,368 | 2,853,882 | ||||||
LONG TERM LIABILITIES: |
||||||||
Long-term debt, less current maturities and discounts |
4,127,256 | 210,639 | ||||||
Capital leases, less current maturities |
163,077 | 164,185 | ||||||
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|
|
|
|||||
Total liabilities |
7,301,701 | 3,228,706 | ||||||
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|
|
|
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MEMBERS DEFICIT |
||||||||
Preferred Series A, 1,905,556 units authorized, 1,075,000 units in 2016 and 1,880,556 units in 2015 issued and outstanding |
1,075,000 | 1,825,000 | ||||||
Preferred Series B, 1,882,968 units authorized, 1,208,189 units in 2016 and 1,817,213 units in 2015 issued and outstanding |
1,820,070 | 2,785,070 | ||||||
Common units, 5,288,254 units authorized, 1,314,632 units in 2016 and 1,237,449 units in 2015 issued and outstanding |
52,176 | 37,705 | ||||||
Warrants |
1,433,636 | 11,898 | ||||||
Restricted units |
7,203 | 9,802 | ||||||
Accumulated deficit |
(10,847,556 | ) | (6,766,214 | ) | ||||
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|
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Total members deficit |
(6,459,471 | ) | (2,096,739 | ) | ||||
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|
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TOTAL LIABILITIES AND MEMBERS DEFICIT |
$ | 842,230 | $ | 1,131,967 | ||||
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|
The accompanying notes are an integral part of these financial statements.
4
PRECIPIO DIAGNOSTICS, LLC
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Years Ended
December 31, |
||||||||
2016 | 2015 | |||||||
NET REVENUE |
||||||||
Patient service revenue, net |
$ | 2,100,986 | $ | 1,804,828 | ||||
Less provision for bad debts |
(378,178 | ) | (324,869 | ) | ||||
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|
|
|
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1,722,808 | 1,479,959 | |||||||
LESS: COST OF DIAGNOSTIC SERVICES |
969,504 | 814,660 | ||||||
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|
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GROSS PROFIT |
753,304 | 665,299 | ||||||
OPERATING EXPENSES |
2,465,165 | 2,168,655 | ||||||
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|
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OPERATING LOSS |
(1,711,861 | ) | (1,503,356 | ) | ||||
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OTHER INCOME (EXPENSE): |
||||||||
Interest expense |
(518,027 | ) | (188,240 | ) | ||||
Other income |
3,000 | 11,838 | ||||||
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|
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(515,027 | ) | (176,402 | ) | |||||
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NET LOSS |
(2,226,888 | ) | (1,679,758 | ) | ||||
Preferred unit dividends |
(432,716 | ) | | |||||
Deemed dividends on exchange of preferred units |
(1,421,738 | ) | | |||||
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|
|
|||||
NET LOSS AVAILABLE TO COMMON UNIT HOLDERS |
$ | (4,081,342 | ) | $ | (1,679,758 | ) | ||
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The accompanying notes are an integral part of these financial statements.
5
PRECIPIO DIAGNOSTICS, LLC
STATEMENTS OF CHANGES IN MEMBERS DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Preferred
Series A |
Preferred
Series B |
Common |
Restricted
Units Capital Value |
Warrants |
Accumulated
Deficit |
Total | ||||||||||||||||||||||||||||||||||
Outstanding
Units |
Capital
Value |
Outstanding
Units |
Capital
Value |
Outstanding
Units |
Capital
Value |
|||||||||||||||||||||||||||||||||||
Balance, January 1, 2015 |
1,880,556 | $ | 1,825,000 | 1,817,213 | $ | 2,785,070 | 1,007,879 | $ | 22,789 | $ | 14,318 | $ | 11,898 | $ | (5,086,456 | ) | (427,381 | ) | ||||||||||||||||||||||
Net loss |
| | | | | | | | (1,679,758 | ) | (1,679,758 | ) | ||||||||||||||||||||||||||||
Stock based compensation on vesting of restricted units |
| | | | 229,570 | 14,916 | (4,516 | ) | | | 10,400 | |||||||||||||||||||||||||||||
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Balance December 31, 2015 |
1,880,556 | 1,825,000 | 1,817,213 | 2,785,070 | 1,237,449 | 37,705 | 9,802 | 11,898 | (6,766,214 | ) | (2,096,739 | ) | ||||||||||||||||||||||||||||
Net loss |
| | | | | | | (2,226,888 | ) | (2,226,888 | ) | |||||||||||||||||||||||||||||
Preferred unit dividends |
| | | | | | | (432,716 | ) | (432,716 | ) | |||||||||||||||||||||||||||||
Deemed dividends on exchange of preferred units |
| | | | | | 1,421,738 | (1,421,738 | ) | | ||||||||||||||||||||||||||||||
Exchange of preferred units for Sr. Notes & Warrants |
(805,556 | ) | (750,000 | ) | (299,779 | ) | (475,000 | ) | | | | | | (1,225,000 | ) | |||||||||||||||||||||||||
Exchange of preferred units for Jr. Notes & Warrants |
| | (309,245 | ) | (490,000 | ) | | | | | | (490,000 | ) | |||||||||||||||||||||||||||
Stock based compensation on vesting of restricted units |
| | | | 77,183 | 14,471 | (2,599 | ) | | | 11,872 | |||||||||||||||||||||||||||||
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Balance December 31, 2016 |
1,075,000 | $ | 1,075,000 | 1,208,189 | $ | 1,820,070 | 1,314,632 | $ | 52,176 | $ | 7,203 | $ | 1,433,636 | $ | (10,847,556 | ) | $ | (6,459,471 | ) | |||||||||||||||||||||
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The accompanying notes are an integral part of these financial statements.
6
PRECIPIO DIAGNOSTICS, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
The accompanying notes are an integral part of these financial statements.
7
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES
N ATURE OF B USINESS
Precipio Diagnostics, LLC (the Company or Precipio) is a Connecticut Limited Liability Company formed in 2011. The Company is an early-stage diagnostics company that operates a cancer diagnostic laboratory located in New Haven, Connecticut. The Company collaborates with the Yale School of Medicine (Yale) to provide cancer diagnostics that is delivered to the community and improves patient care. The Company is party to an exclusive agreement for professional pathology services with Yale, which allows the Company to provide a superior level of cancer diagnostics. Specimens are shipped to the Companys laboratory where they are processed and diagnosed by the academic experts at Yale, whereby the end product is a pathology report which guides its customers, oncologists, as to the nature of their patients disease and helps them determine how best to care for their patient. In addition to the pathology services provided, a Yale designated physician also serves as the Companys medical director.
L IQUIDITY AND G OING C ONCERN
The financial statements have been prepared using accounting principles generally accepted in the United States of America (GAAP) applicable for a going concern, which assume that we will realize our assets and discharge our liabilities in the ordinary course of business. We have incurred substantial operating losses and have used cash in our operating activities for the past several years. As of December 31, 2016 and 2015 we had negative working capital of $2.5 million and $2.1 million, respectively due to the fact that our accounts payable and accrued expenses were double the amount of our current assets as of the balance sheet date, along with the significant amount of debt we have coming due within the next twelve months. Our ability to continue as a going concern is dependent upon a combination of achieving our business plan, including generating additional revenue, and raising additional financing to meet our debt obligations and pay our liabilities arising from normal business operations when they come due. The Company is currently in discussions with certain investors to raise additional capital as part of a proposed merger, see Note 12 for further discussion on the merger. There can be no assurance such capital is available at terms favorable or agreeable to management, if at all, or that the Company will successfully complete the proposed merger. Since the outcome of these matters cannot be predicted with any certainty at this time, there is substantial doubt that we will be able to continue as a going concern.
The Company has entered into a payment deferral arrangement with Connecticut Innovations as they were unable to continue to repay the principal payments on the loan as they came due. The Company has secured a revision to its Connecticut Innovations debt repayment schedule effective July 14, 2016 that approves interest only payments through October 1, 2017, interest and principal payments through August 1, 2018 and on the remainder of the outstanding loan due on October 1, 2018.
Further, the Company is in default on its Webster Bank loan due to the Companys cash balance falling below the required minimum balance of a cash runway of 3 months, based on trailing six months average cash burn as stipulated in the agreement. Precipio and Webster Bank, in a Default and Reservation of Rights letter dated January 29, 2016, agreed that while Precipio remains in default, Webster Bank will preserve their rights but take no action at this time against the Company and shall refrain from calling the loan. Further Webster Bank has considered to maintain its senior credit facility in a letter dated January 4, 2017 subject to their re-approval process.
During this period Webster Reservation of Rights letter discussed above will remain in effect until the process is completed. Management cannot assure that they will be able to extend the credit facility on terms reasonably acceptable to the Company if at all.
If management is unable to extend the credit facilities, obtain waivers, or both, the financial institutions could request payment on demand which could impair the Companys ability to conduct business in the near future.
8
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (continued)
The aforementioned circumstances raise substantial doubt about the Companys ability to continue as a going concern. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern as a result of the outcome of this uncertainty.
S IGNIFICANT A CCOUNTING P OLICIES
U SE OF E STIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities, at the date of the financial statements, and the reported revenues and expenses during the reporting period.
The most significant estimates with regard to these financial statements relate to the allowance for doubtful accounts, assumptions used to value stock based compensation, contractual allowances, warrant valuations and potential impairment of long-lived assets. Although management believes the estimates that have been used are reasonable, actual results could vary from the estimates that were used.
C ONCENTRATIONS OF R ISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company considers all highly liquid investments, with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed, Federal Deposit Insurance Corporation (FDIC) insured limits of $250,000. The Company reduces its exposure to credit risk by maintaining such deposits with high-quality financial institutions. At times the Companys deposit can exceed these limits.
Service companies in the health care industry typically grant credit without collateral to patients. The majority of these patients are insured under third-party insurance agreements. The services provided by the Company are routinely billed utilizing the Current Procedural Terminology (CPT) code set designed to communicate uniform information about medical services and procedures among physicians, coders, patients, accreditation organizations, and payers for administrative, financial, and analytical purposes. CPT codes are currently identified by the Centers for Medicare and Medicaid Services and Third-party payors. The Company utilizes CPT codes for Pathology and Laboratory Services contained within codes 80000-89398.
R ISKS AND U NCERTAINTIES
The Company operates in the healthcare industry which is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.
9
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (continued)
A CCOUNTS R ECEIVABLE
Accounts receivable result from the health care services provided by the Company and are due within 30 days from the invoice date. Accounts receivable are reduced by an allowance for doubtful accounts. In evaluating the collectability of accounts receivable, the Company analyzes and identifies trends for each of its sources of revenue to estimate the appropriate allowance for doubtful accounts. For receivables associated with services provided to patients with third-party coverage, the Company analyzes contractually due amounts and provides an allowance, if necessary. For receivables associated with self-pay patients, including patients with insurance and a deductible and copayment, the Company records an allowance for doubtful accounts in the period of services on the basis of past experience of patients unable or unwilling to pay for service fee for which they are financially responsible. The difference between the standard rates and the amounts actually collected after all reasonable collection efforts have been exhausted is charged against the allowance for doubtful accounts.
I NVENTORY
Inventory consists of laboratory supplies and is valued at cost (determined on an average cost basis, which approximates the first-in, first-out method) or net realizable value, whichever is lower. We evaluate inventory for items that are slow moving or obsolete and record an appropriate allowance for obsolescence if needed. We determined that no allowance for slow moving or obsolete inventory was necessary at December 31, 2016 and 2015.
P ROPERTY A ND E QUIPMENT
Property and equipment, including assets held under capital lease, are stated at cost, net of accumulated depreciation and amortization. Expenditures for maintenance and repairs are expensed as incurred. Depreciation and amortization are calculated using the straight-line method over estimated useful lives of related assets. Amortization expense of assets acquired through capital leases is included in depreciation and amortization.
Estimated useful lives are as follows:
Asset |
Life | |||
Machinery and lab equipment |
5 7 years | |||
Office equipment and computer |
5 7 years | |||
Lab software |
3 5 years |
For assets sold or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts, and any related gain or loss is reflected in operations for the period. Expenditures for major betterments that extend the useful lives of property and equipment are capitalized.
I MPAIRMENT OF L ONG -L IVED A SSETS
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the assets carrying value and estimated fair value calculated utilizing the a discounted cash flow model or appraised value depending on the nature of the asset. There were no impairments of long-lived assets for the years ended December 31, 2016 and 2015.
10
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (continued)
D EBT I SSUANCE C OSTS
Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Both are presented as a reduction of the related debt in the accompanying balance sheets. Net debt issuance costs and debt discounts were $65,048 and $87,207 at December 31, 2016 and December 31, 2015, respectively (net of accumulated amortization of $87,342 and $55,184, respectively). Related amortization expense was $32,662 and $33,437 for the years ended December 31, 2016 and 2015, respectively.
N ET P ATIENT S ERVICE R EVENUE
The Company primarily recognizes revenue for services rendered upon completion of the testing process. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered, including retroactive adjustment under reimbursement agreements with third-party payors. Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for third-party payor settlements are provided in the period the related services are rendered and adjusted in the future periods, as final settlements are determined. See Note 6 for additional information relative to net patient service revenue recognition and third-party payor programs.
P RESENTATION OF I NSURANCE C LAIMS AND R ELATED I NSURANCE R ECOVERIES
The Company accounts for its insurance claims and related insurance recoveries at their gross values as standards for health care entities do not allow the Company to net insurance recoveries against the related claim liabilities. There were no insurance claims or insurance recoveries recorded during 2016 or 2015.
I NCOME T AXES
The Company, which is organized as a limited liability company, operated under the default classification as a partnership until July 31, 2016. Effective August 1, 2016, the Company elected to be treated as a corporation for tax purposes and as such, a net deferred tax asset, prior to a valuation allowance is created. The Company calculated an income tax provision for the remainder of the year. Prior to August 1, 2016, income tax expense or benefits were calculated at the members level.
For the period from August 1, 2016 through December 31, 2016, deferred income taxes are provided on net operating loss carryovers and on the future income tax considerations associated with temporary differences between the carrying amounts of assets and liabilities for tax and financial reporting purposes. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not that they will not be realized.
There are no uncertain tax positions that would require recognition in the financial statements. Managements conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of, or changes in tax laws, regulations and interpretations thereof as well as other factors. At December 31, 2016 and August 1, 2016, there were no amounts that had been accrued for uncertain tax positions. Our policy is to record interest and penalties directly related to income taxes as income tax expense in the accompanying statements of operations. We have statutes of limitation open for our federal and state income tax returns related to tax years 2013 through 2016.
R ENT E XPENSE
Rental expense is recognized on a straight-line basis over the terms of the leases.
A DVERTISING C OSTS
Advertising costs are expensed as incurred. Advertising costs charged to operations totaled $12,935 in 2016 and $24,249 in 2015.
11
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (continued)
U NIT B ASED C OMPENSATION
The Company recognizes unit-based compensation expense for the fair value of the awards on the date granted on a straight-line basis over their service period. Compensation expense is recognized only for unit-based payments expected to vest. The Company estimates forfeitures at the date of grant based on the Companys historical experience and future expectations.
Non-Employee Awards: The Company accounts for unit based compensation issued to non-employees at the fair value of equity instruments given as consideration for services rendered as a non-cash charge to operations over the shorter of the vesting period or service period. The equity instruments are revalued on each subsequent reporting date until performance is complete with a cumulative catch-up adjustment recognized for any changes in their fair value.
C OMMON W ARRANT U NITS
The Company accounts for the issuance of common warrant units issued in accordance with the provisions of ASC Topic 815. The Company classifies as equity any contracts that (i) require physical settlement or net-unit settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own units (physical settlement or net-unit settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside of the companys control), or (ii) gives the counterparty a choice of net-cash settlement or settlement in units (physical settlement or net-unit settlement).
R ECLASSIFICATIONS
Certain 2015 amounts have been reclassified to conform with the 2016 presentation. Such reclassifications had no impact on the 2015 net loss or members deficit.
R ECENT A CCOUNTING P RONOUNCEMENTS
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU No. 2014-09). This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to a customer. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB decided to defer the effective date of this new accounting guidance by one year. As a result, ASU No. 2014-09 will be effective for the Company for all annual and interim reporting periods beginning after December 15, 2017 and early adoption would be permitted as of the original effective date. The new standard permits the use of either the retrospective or cumulative effect transition method. The Company does not expect to early adopt this guidance and it has not selected a transition method. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40). The new guidance addresses managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. The Company does not believe that the adoption of this guidance will have a material impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard amends the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases and amends disclosure requirements associated with leasing arrangements. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. The Company is currently assessing the impact that the adoption of this ASU will have on its financial statements.
12
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 1 N ATURE OF B USINESS AND S IGNIFICANT A CCOUNTING P OLICIES (continued)
In March 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements, forfeitures and classification on the statement of cash flows. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow Classification of Certain Cash Receipts and Cash Payments (Topic 230) (ASU 2016-15), which addresses a few specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its statements of cash flows.
N OTE 2 A CCOUNTS R ECEIVABLE
The mix of receivables from patients and third-party payers at December 31, was as follows:
2016 | 2015 | |||||||
Medicaid |
$ | 21,642 | $ | 18,234 | ||||
Medicare |
232,068 | 225,145 | ||||||
Self-Pay |
63,599 | 84,706 | ||||||
Third party payers |
880,912 | 560,089 | ||||||
|
|
|
|
|||||
1,198,221 | 888,174 | |||||||
Less allowance for doubtful accounts |
810,608 | 432,430 | ||||||
|
|
|
|
|||||
Total accounts receivable |
$ | 387,613 | $ | 455,744 | ||||
|
|
|
|
N OTE 3 P ROPERTY A ND E QUIPMENT
A summary of property and equipment at December 31 follows:
2016 | 2015 | |||||||
Machinery and equipment |
$ | 152,738 | $ | 152,738 | ||||
Capital lease equipment |
296,053 | 247,044 | ||||||
Laboratory software |
218,165 | 218,165 | ||||||
Computers |
57,277 | 57,277 | ||||||
Office equipment |
9,348 | 9,348 | ||||||
|
|
|
|
|||||
733,581 | 684,572 | |||||||
Less accumulated depreciation |
453,520 | 341,358 | ||||||
|
|
|
|
|||||
Total property and equipment |
$ | 280,061 | $ | 343,214 | ||||
|
|
|
|
Depreciation expense totaled $112,162 in 2016 and $111,571 in 2015
13
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 4 N OTES P AYABLE
Long-term debt consists of the following:
December 31, | ||||||||
2016 | 2015 | |||||||
Senior Notes |
$ | 3,269,968 | $ | | ||||
Senior Note debt issuance costs |
(8,500 | ) | | |||||
Junior Notes |
583,821 | | ||||||
Connecticut Innovations line of credit |
162,066 | 138,422 | ||||||
Depart. of Economic Development (DECD) |
243,287 | 277,654 | ||||||
DECD debt issuance costs |
(30,208 | ) | (35,552 | ) | ||||
Webster Bank |
328,000 | 448,000 | ||||||
Webster Bank debt discounts and debt issuance costs |
(26,340 | ) | (42,728 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
4,522,094 | 785,796 | ||||||
Current Portion |
(394,838 | ) | (575,157 | ) | ||||
|
|
|
|
|||||
Long-term debt, net of current maturities |
$ | 4,127,256 | $ | 210,639 | ||||
|
|
|
|
S ENIOR AND J UNIOR N OTES
During 2016, the Company raised $525,000 from members through the issuance of Senior Notes which accrue interest at a rate of 12% and are payable at the sooner of the closing of a qualified public offering, as outlined in the note agreement, or five years from date of issuance.
Also during 2016, the Company restructured equity through a redemption and exchange agreement by exchanging Member Equity comprised of Series A and Series B Convertible Preferred Units in the amount of $2,147,716 (members initial investment of $1,715,000, plus declared dividends on these preferred units of $432,716), and Convertible Bridge Notes of $1,120,000, plus accrued interest of $61,073 for new Senior Notes of $2,744,968 and new Junior Notes of $583,821. The Senior and Junior Notes accrue interest at a rate of 12% and 15%, respectively, and have maturity dates ranging from March 2021 to September 2021, or earlier based on certain qualifying events as outlined in the note agreements.
As of December 31, 2016, the outstanding balance of Senior and Junior notes was $3,269,968 and $583,821, respectively, with accrued interest included within accrued expenses on the accompanying balance sheet of $279,740 and $71,258, respectively. As of December 31, 2016, the Senior and Junior notes and the accompanying interest are owed to an entity affiliated with one of the Companys directors.
C ONNECTICUT I NNOVATIONS , I NCORPORATED
The Company entered into a line of credit on April 1, 2012 with Connecticut Innovations, an entity affiliated with a director of the Company, for up to $500,000 with interest paid monthly at 8 percent, due on September 1, 2018. Principal and interest payments began February 1, 2013 and ranged from $7,436 to $12,206 until September 2016, when the Company entered into a forbearance agreement to defer monthly principal payments until October 2017. Beginning October 1, 2017, principal payments of $11,467 are due including interest at 9% through September 2018. Pursuant to the forbearance agreement, the Company is also restricted from any additional borrowings under the line of credit. The line is secured by substantially all of the Companys assets. As of December 31, 2016 and 2015 the outstanding balance was $162,066 and $138,422, respectively.
In connection with the line of credit, the Company issued warrants to purchase 25,000 Series A Preferred Units of the Company, which were classified as an equity warrant, at an exercise price of $1.00 per unit, subject to adjustments as defined in the warrant agreement. The warrants were valued at $6,000 at the date of the grant utilizing the Black-Sholes model (volatility 40%, expected life 7 years, and risk free rate .36%). The value of the warrants was treated as a debt discount. The Company accreted to interest expense $1,500 in 2015. There was no accretion of the debt for the year ended December 31, 2016.
14
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 4 N OTES P AYABLE (continued)
The warrant and related Series A Preferred Units have a put feature related to the Company maintaining its presence in the State of Connecticut. Management has reviewed the probability of the Company leaving the State of Connecticut as being remote. This determination is mainly due to the collaboration agreement it has with Yale. As such determined that the put option has an immaterial value. The line of credit is subordinate to the Webster Bank term loan.
The Company was in default with Connecticut Innovations because it was unable to continue to repay its principal payments on the loan. As such during 2014, the Company entered into a forbearance agreement with Connecticut Innovations to defer the loan payments for up to six months. The Company was in default of the forbearance agreement during 2015 and was not able to pay the balloon payment for the full balance is due June 2016. Precipio subsequently entered into an agreement with Connecticut Innovations on July 14, 2016 to restructure the loan to an interest-only payments plan totaling $1,041 per month through October 2017. Principal and interest shall be due at the end of the deferral period and the regular monthly payments of $11,467 will continue thereafter through October 2018 at which time the remaining balance is due and payable. The Company is also restricted from any additional borrowings under the line of credit.
D EPARTMENT OF E CONOMIC AND C OMMUNITY D EVELOPMENT
The Company entered into a 10-year term loan with the Department of Economic and Community Development (DECD) on May 1, 2013 for $300,000, with interest paid monthly at 3 percent, due on April 23, 2023. The loan is secured by substantially all of the Companys assets but is subordinate to the term loan with Webster Bank and the Connecticut Innovations, Incorporated Line of Credit. As of December 31, 2016 and 2015 the outstanding balance was $243,287 and $277,654, respectively,
W EBSTER B ANK
The Company entered into a 3.5-year term loan with Webster Bank on December 1, 2014 for $500,000, with interest paid monthly at the one month LIBOR rate (0.73% at December 31, 2016) plus 500 basis points, due on May 31, 2018. The loan is secured by substantially all of the Companys assets and has first priority over all other outstanding debt. As of December 31, 2016 and 2015 the outstanding balance was $328,000 and $448,000, respectively.
The term loan with Webster Bank is subject to financial covenants relating to maintaining adequate cash runway, as defined. As of December 31, 2016 the Company was not in compliance with these covenants and, as such, the Webster Bank debt has all been presented as current in the accompanying financial statements. Precipio and Webster Bank entered into a Default and Reservation of Rights letter dated January 29, 2016, agreed that while Precipio remains in default, Webster Bank will preserve their rights but not take any action at this time against the company and shall refrain from calling the loan. Further Webster Bank has considered maintaining its senior credit facility in a letter dated January 4, 2017 subject to their re-approval process. During this period Webster Reservation of Rights letter discussed above will remain in effect until the process is completed.
In connection with the Webster Bank agreement, the Company issued 7 year warrants to purchase $20,000 Series B Preferred Units of the Company. The exercise price is equal to 1) share price of the next round of equity financing equal to or greater than $1.0 million to be closed prior to September 1, 2015 or 2) the most recent round prior to the close ($1.5845) should the qualified financing not occur. There were no qualifying rounds of $1.0 million prior to September 1, 2015 as such the exercise price is $1.5845. The warrants were valued at $11,898 at the date of the grant utilizing the Black-Scholes model (volatility 59.1%, expected life 7 years, and risk free rate 1.93%) and was classified as an equity warrant. The value of the warrants was treated as a debt discount and will continue to accrete interest through the maturity date of the loan. The Company accreted to interest expense $1,700 of the debt discount for the periods ending December 31 2016 and 2015.
15
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 4 N OTES P AYABLE (continued)
The following represents the aggregate future maturities required on long-term debt for the years ending December 31:
Senior
Notes |
Junior
Notes |
Connecticut
Innovations |
DECD |
Webster
Bank |
Total | |||||||||||||||||||
2017 |
$ | | $ | | $ | 31,514 | $ | 35,324 | $ | 328,000 | $ | 394,838 | ||||||||||||
2018 |
| 130,552 | 36,398 | | 166,950 | |||||||||||||||||||
2019 |
| | | 37,505 | | 37,505 | ||||||||||||||||||
2020 |
| | | 38,646 | | 38,646 | ||||||||||||||||||
2021 |
3,269,968 | 583,821 | | 39,821 | | 3,893,610 | ||||||||||||||||||
Thereafter |
| | | 55,593 | | 55,593 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
3,269,968 | 583,821 | 162,066 | 243,287 | 328,000 | 4,587,142 | |||||||||||||||||||
Less, debt discount and debt issuance costs |
(8,500 | ) | | | (30,208 | ) | (26,340 | ) | (65,048 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 3,261,468 | $ | 583,821 | $ | 162,066 | $ | 213,079 | $ | 301,660 | $ | 4,522,094 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
N OTE 5 C ONVERTIBLE B RIDGE N OTES P AYABLE
During the year ended December 31, 2015, the Company issued eleven unsecured convertible bridge notes for $1,360,000. The notes accrue interest at a rate of 14% and were payable no later than September 30, 2016. As of December 31, 2015, the outstanding balance was $1,360,000, excluding debt issuance costs of $8,927, with accrued interest of $87,818 included within accrued expenses on the accompanying balance sheet. During 2016, the maturity date of these convertible bridge notes was extended to December 31, 2016. At December 31, 2015, $680,000 of the bridge notes are owed to an entity affiliated with one of the Companys directors.
The convertible Notes will (i) convert into Series C Preferred Units of the Company (at a 30% discount) upon a Qualified Series C Financing (as defined), (ii) at the option of the holders of a majority of the then-outstanding principal amount of the notes, convert into Series C Preferred Units of the Company (at a 30% discount) upon any other Series C Financing, or (iii) if no such Qualified Series C Financing occurs, or no such option conversion takes place by the maturity date (as defined), the convertible notes will be fully repaid by Company or the notes and accrued and unpaid interest shall convert into Preferred Series B Units (at a 30% discount) of the Preferred Series B conversion Price as defined in the operating agreement provided that notice is given to the Company at least one day prior to maturity. In the event a Deemed Liquidity Event (merger, sale, IPO, or transaction with exchange of 50% or more of voting power) the holders of the note at its sole discretion can (a) require the Company to pay an amount equal to two times the principal and accrued and unpaid interest or (b) convert all unpaid principal and interest at a rate of 70% of the applicable security. These notes are subordinated to Connecticut Innovations Inc., State of Connecticut Department of Economic Development and Webster Bank.
During 2016, prior to entering into the redemption and exchange agreement, the Company issued additional unsecured convertible bridge notes for $440,000. In addition, the Company issued additional unsecured convertible bridge notes for $15,000. These notes accrue interest at a rate of 14% and are payable no later than December 31, 2016.
Pursuant to the redemption and exchange agreement, the Company exchanged $1,120,000 of convertible bridge notes for long-term debt (Senior Notes) (Note 4).
During January 2017, the holders of the notes agreed to waive the maturity date and the notes are payable on demand and accrue interest until paid. As of December 31, 2016, debt issuance costs were fully amortized and the outstanding convertible notes balance was $695,000, with accrued interest of $143,981 which is included within accrued expenses on the accompanying balance sheet.
16
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 6 N ET R EVENUE FROM P ATIENT S ERVICES
The following table summarizes net revenues for the years ended December 31, from services to patients:
2016 | 2015 | |||||||
Gross patient service revenue |
$ | 3,385,526 | $ | 2,854,037 | ||||
Less: contractual allowances and adjustments |
(1,284,540 | ) | (1,049,209 | ) | ||||
|
|
|
|
|||||
Patient service revenue, net |
$ | 2,100,986 | $ | 1,804,828 | ||||
|
|
|
|
The following summarizes all payers for the years ended December 31:
2016 | 2015 | |||||||
Medicaid |
$ | 24,902 | $ | 28,678 | ||||
Medicare |
688,335 | 665,371 | ||||||
Self pay |
252,727 | 224,177 | ||||||
Third party payors |
1,135,022 | 886,602 | ||||||
|
|
|
|
|||||
$ | 2,100,986 | $ | 1,804,828 | |||||
|
|
|
|
Revenue from the Medicare and Medicaid programs account for a portion of the Companys net patient service revenue. Laws and regulations governing those programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term.
N OTE 7 C OMMITMENTS A ND C ONTINGENCIES
O PERATING L EASES
The Company entered into a sixty-four month operating lease beginning in September 2011, for their facility in New Haven, Connecticut and during 2012 and 2013, the Company took on additional square footage. For the years ended December 31, 2016 and 2015, rental payments range from approximately $11,000 to $12,000 per month. As of January 2017, this lease is month to month and the Company is negotiating a new long-term lease for its facility.
The Company recognizes rent expense on a straight-line basis for all operating leases. Rent expense was $122,751 in 2016 and $130,957 in 2015.
C APITAL L EASES
The Company has entered into various capital lease agreements to obtain lab equipment. The terms of the capital leases range from five to ten years with interest rates of 7.25%.
The following is an analysis of the property acquired under capital leases as of December 31.
Classes of Property: |
2016 | 2015 | ||||||
Lab equipment |
$ | 296,053 | $ | 247,044 | ||||
Less accumulated amortization |
(102,247 | ) | (57,632 | ) | ||||
|
|
|
|
|||||
$ | 193,806 | $ | 189,412 | |||||
|
|
|
|
17
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 7 C OMMITMENTS AND C ONTINGENCIES (continued)
Included in cost of diagnostic services is amortization expense of $44,615 in 2016 and $33,055 in 2015 related to equipment acquired under capital leases.
The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments.
Years ending December 31, |
||||
2017 |
$ | 59,888 | ||
2018 |
59,888 | |||
2019 |
59,888 | |||
2020 |
35,520 | |||
2021 |
24,514 | |||
Thereafter |
4,207 | |||
|
|
|||
Total capital lease obligations |
243,905 | |||
Less: Amount representing interest |
(34,598 | ) | ||
|
|
|||
Present value of net minimum lease obligations |
209,307 | |||
Less, current maturities of capital leases |
(46,230 | ) | ||
|
|
|||
Capital Leases, long term |
$ | 163,077 | ||
|
|
P URCHASE C OMMITMENTS
The Company has entered into purchase commitments for reagents from suppliers. These agreements started in 2011 and run through 2022. The Company and the suppliers will true up the amounts on an annual basis. The future minimum purchase commitments under these agreements are as follows:
Years ending December 31, |
||||
2017 |
$ | 148,664 | ||
2018 |
148,664 | |||
2019 |
148,664 | |||
2020 |
97,382 | |||
2021 |
69,920 | |||
Thereafter |
7,837 |
N OTE 8 L EGAL AND R EGULATORY E NVIRONMENT
The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirement, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.
Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.
18
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 9 M EMBERS D EFICIT
The Company entered into an amended and restated limited liability company operating agreement (the amended operating agreement) authorizing the use of four different classes of units (i) Series A Convertible Preferred Units (Series A) (ii) Series B Convertible Preferred Units (Series B), (iii) Voting Common Units and (iv) Non-Voting Common Units. The Company is authorized to issue 1,905,556 Series A units (including warrants), 1,882,968 Series B units (including warrants) and 5,288,524 common units. The common units include 3,788,524 common units (including warrants) reserved for issuance upon conversion of the Series A units and Series B units, 954,216 voting common units issued or reserved for issuance as equity incentives and 545,784 non-voting common units issued or reserved for issuance as equity incentives.
V OTING R IGHTS
Each of the Series A and Series B classes of units has protective provisions providing consent rights for such classes in voting on certain matters. In addition, each holder of Series A and Series B units shall have the right to the number of votes equal to the number of common units issuable upon conversion of such Series A and B units, respectively. Each voting common unit shall carry the right of one vote per common unit. Non-voting common units shall not have any voting rights.
C OMMON U NITS
Common Units
The Company has two classes of common units, voting and non-voting. The Company has issued 954,216 and 954,216 common voting and 360,416 and 283,233 common non-voting shares to various employees as of December 31, 2016 and 2015, respectively.
Restricted Unit Awards
The fair value of restricted units granted to employees is determined on the grant date. Incentive units granted during years ended December 31, 2016 and 2015 were zero and 90,000, respectively. Unit-based compensation expense charged to operations for the periods ended December 31, 2016 and 2015 was $11,872 and $10,400, respectively.
Information regarding outstanding restricted unit awards follows:
Voting | Non-Voting | Total | ||||||||||
Outstanding at January 1, 2015 |
138,784 | 89,007 | 227,791 | |||||||||
Granted |
| 90,000 | 90,000 | |||||||||
Released |
(138,784 | ) | (90,786 | ) | (229,570 | ) | ||||||
Canceled, forfeited, or expired |
| | | |||||||||
|
|
|
|
|
|
|||||||
Outstanding at December 31, 2015 |
| 88,221 | 88,221 | |||||||||
Granted |
| | | |||||||||
Released |
| (77,183 | ) | (77,183 | ) | |||||||
Canceled, forfeited, or expired |
| (1,000 | ) | (1,000 | ) | |||||||
|
|
|
|
|
|
|||||||
Outstanding at December 31, 2016 |
| 10,038 | 10,038 | |||||||||
|
|
|
|
|
|
|||||||
C ONVERTIBLE P REFERRED U NITS
As of December 31, 2015 the Company had 1,880,556 Series A and 1,817,213 Series B units outstanding. During 2016, the Company restructured some equity investments, including the exchange of 805,556 Series A and 609,024 Series B units for new Senior and Junior Notes (see Note 5) and common warrant units resulting in outstanding units as of December 31, 2016 of 1,075,000 for Series A and 1,208,189 for Series B.
19
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 9 M EMBERS D EFICIT (continued)
The Series A and Series B units have a preferred return of eight percent per year on the unreturned capital contributions of the respective series. The preferred return accrues quarterly; unpaid returns accumulate and were $631,717 and $507,644, as of December 31, 2015, for Series A and Series B, respectively. The accumulated amounts as of December 31, 2016 were $432,028 and $480,970 on Series A and Series B units, respectively.
In addition, in connection with the Companys finance agreements, the Company issued warrants to purchase 25,000 units of Series A and $20,000 of Series B. These warrants were still outstanding as of December 31, 2016.
M ANDATORY C ONVERSION
The Series A units and Series B units have a mandatory conversion feature, which states that at either the closing of a qualified public offering or an event that has been specified as a mandatory conversion time by a vote of the Series A and Series B unit members, then all outstanding Series A and Series B units (and any declared but unpaid distributions) shall automatically be converted into voting common units at the then effective conversion rate. As of December 31, 2016, no events have occurred that would cause an automatic conversion of these units.
C ONVERTIBLE R IGHTS
The Series A Members and Series B Members shall have conversion rights as follows:
Each Series A unit shall be converted, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable voting common units as is determined by dividing the Series A adjusted purchase price by the Series A conversion price (original purchase price of security, subject to adjustments for distributions to its respective series) in effect at the time of conversion. Series A can be converted into 1,507,028 and 2,470,348 shares of common units at December 31, 2016 and 2015, respectively.
Each Series B unit shall be converted, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable voting common units as is determined by dividing the Series B adjusted purchase price by the Series B conversion price (original purchase price of security, subject to adjustments for distributions to its respective series) in effect at the time of conversion. Series B can be converted into 1,527,464 and 2,140,080 shares of common units at December 31, 2016 and 2015, respectively.
C OMMONWARRANT U NITS
In March 2016, the Company entered into a redemption and exchange agreement with certain members relating to their 805,556 Preferred A Units and 609,024 Preferred B Units. Under the terms of the agreement, the unit holders would exchange their units in the Company for the issuance of debt. The aggregate purchase price per the agreement was the members initial investment of $750,000 for Preferred A Units and $965,000 for Preferred B Units, along with a preferred return of 8%, recorded as a dividend in the amount of $432,716, resulting in a total principal amount of $2,147,716 (comprised of $1,563,895 senior notes and $583,821 junior notes) see Note 4 Notes Payable for further discussion on senior and junior notes. In addition to the debt issued as consideration for the members preferred units, the Company also issued common warrant units, which allows the holders to collectively purchase common units of the Company, representing approximately 60% of the Company at the time of exercise. At the time of issuance, this represented approximately 5,731,217 common units. The common warrant units have a $0.00 exercise price with a ten year expiration date. The common warrant units were classified as equity awards and the fair value upon issuance was calculated utilizing a discounted cash flow analysis to value the Companys equity and an option pricing method to allocate the value of the equity. The fair value of the warrants was determined directly utilizing the option pricing method as the exercise price was $0.00. The aggregate value of the common warrant units was $1,421,738, which was considered a deemed dividend.
20
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 10 M AJOR C USTOMERS
The Company recognized revenue from two customers in 2016 and 2015 that represented in the aggregate 27 percent (ranging from 12 to 15 percent) and 30 percent (ranging from 13 to 17 percent) of total revenues, respectively.
N OTE 11 L ITIGATION
The Company is involved in legal proceedings related to matters, which are incidental to its business. In the opinion of management, based on consultation with legal counsel, the outcome of such proceedings will not materially affect the Companys financial position or results of operations.
N OTE 12 M ERGER A GREEMENT
On October 12, 2016, Precipio, Transgenomic Inc. (Transgenomic) and New Haven Labs Inc., a wholly owned subsidiary of Transgenomic (Merger Sub and, together with Transgenomic, the Transgenomic Parties) entered into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which Precipio will become a wholly owned subsidiary of Transgenomic (the Merger), on the terms and subject to the conditions set forth in the Merger Agreement. Following the Merger, Transgenomic will change its name to Precipio, Inc. (New Precipio). The parties expect the Merger to close during the second quarter of 2017. When the Merger is completed, (i) each outstanding common unit of Precipio will be converted into the right to receive 79% of the outstanding shares of New Precipio common stock (not taking into account the issuance of New Precipio preferred stock in the Merger or the private placement discussed below) and (ii) each outstanding preferred unit of Precipio will be converted into the right to receive shares of New Precipio preferred stock in an aggregate amount equal to $3 million.
In connection with the Merger, at the effective time of the Merger, New Precipio also will issue shares of New Precipio preferred stock in a private placement, whereby: holders of indebtedness of Precipio will receive $3 million in New Precipio preferred stock in exchange for such indebtedness; and New Precipio will issue for cash up to $7 million in New Precipio preferred stock to investors in a private placement.
New Precipio preferred stock will be issued based on a pre-money valuation of New Precipio of $25 million and will represent, in the aggregate, approximately 34% of the outstanding shares of New Precipio common stock on an as-converted basis, including New Precipio preferred stock issued in the Merger and the private placement.
The board of managers of Precipio and the boards of directors of Transgenomic and Merger Sub, and Transgenomic, in its capacity as the sole stockholder of Merger Sub, have each approved the Merger Agreement and the board of managers of Precipio and the board of directors of Transgenomic have each recommended that their respective equity holders approve the transactions contemplated by the Merger Agreement. Transgenomic will hold a special meeting of its stockholders to approve the issuance of shares of Transgenomic common stock pursuant to the Merger, as required by Nasdaq Listing Rules, as well as certain other matters (the Special Meeting).
The Merger Agreement contains various representations, warranties and covenants of Precipio and the Transgenomic Parties, including, among others, covenants (i) by each of Precipio and Transgenomic to operate its business in the ordinary course, (ii) by each of Precipio and Transgenomic not to engage in certain kinds of transactions during the period between the execution of the Merger Agreement and the completion of the Merger, (iii) by Precipio to have its members approve the Merger and (iv) by Transgenomic to hold the Special Meeting.
21
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 12 M ERGER A GREEMENT (continued)
Under the Merger Agreement, Precipio and Transgenomic are subject to customary no shop provisions that limit their respective abilities to solicit alternative acquisition proposals from third parties or to provide confidential information to third parties, subject to a fiduciary out provision that allows Precipio and Transgenomic to provide information and participate in discussions with respect to certain unsolicited written proposals and to terminate the Merger Agreement and enter into an acquisition agreement with respect to a superior proposal in compliance with the terms of the Merger Agreement (a Superior Proposal). Completion of the Merger is subject to various conditions, including, among others: (i) approval of the holders of a majority of Transgenomics shares of outstanding common stock, (ii) approval of the requisite amount of the members of Precipio, (iii) approval of an amendment to the Certificate of Incorporation of Transgenomic contemplating the New Preferred Stock Financing (described below) and changing the name of Transgenomic to Precipio, Inc. or such other name as determined by Precipio, (iv) obtaining certain third party consents, (v) the absence of any judgment, injunction, order or decree prohibiting or enjoining the completion of the Merger, (vi) consummation of the New Preferred Stock Financing, (vii) approval of listing of the New Precipio Common Stock on Nasdaq, (viii) completion of the Common Unit Recapitalization (described above), (ix) increase in the size of the Transgenomic board by two members and the appointment of designees in accordance with the Merger Agreement and (x) the lock-up of certain shares held by Transgenomic stockholders and Precipio members.
In addition, the obligation of the parties to complete the Merger is subject to certain other conditions, including (i) subject to the standards set forth in the Merger Agreement, the accuracy of the representations and warranties of the other party, (ii) compliance of each party with its covenants in all material respects and (iii) no material adverse effect of either party.
The Merger Agreement contains certain termination rights for both the Transgenomic Parties and Precipio. Either may terminate the Merger Agreement if the Merger is not completed on or before the date that is six months following the date of the Merger Agreement. Moreover, either party may terminate the Merger Agreement if the other party changes its recommendation to its security holders to approve the Merger and the related transactions or enter into an agreement with a third party regarding a Superior Proposal (as defined in the Merger Agreement).
The Merger Agreement also provides that, upon termination of the Merger Agreement under certain circumstances, Transgenomic will be required to pay to Precipio a termination payment of $256,500. If the Merger Agreement is terminated for certain other reasons, Precipio will be required to pay Transgenomic a termination payment of $256,500.
The foregoing description of the Merger Agreement does not purport to be complete. The Merger Agreement was filed by Transgenomic with the Securities and Exchange Commission as Exhibit 2.1 to Transgenomics Current Report on Form 8-K filed on October 13, 2016. The Merger Agreement was provided solely to provide investors and security holders with information regarding its terms. It is not intended to be a source of financial, business or operational information about Transgenomic, Precipio or their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement are made only for purposes of the Merger Agreement and are made as of specific dates; are solely for the benefit of the parties; may be subject to qualifications and limitations agreed upon by the parties in connection with negotiating the terms of the Merger Agreement, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties rather than establishing matters as facts (any qualification contained in such confidential disclosures that is material has been disclosed herein or if such a qualification becomes material after the date hereof, will be disclosed in a public disclosure); and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders. Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of Transgenomic, Precipio or their respective subsidiaries or affiliates. Moreover, information concerning the
22
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 12 M ERGER A GREEMENT (continued)
subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures if such updates are not required by law or are not necessary to provide Transgenomics stockholders with a materially complete understanding of the Merger Agreement and transactions contemplated thereby.
On February 2, 2017, Transgenomic and Precipio entered into the First Amendment to the Merger Agreement (the First Amendment) which provided for the following: (a) the Precipio Bridge Loan to Transgenomic was authorized; (b) the exchange ratio set forth in the Merger Agreement was revised to provide that outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of New Precipio common stock representing approximately 79% of the fully diluted New Precipio common stock and resulting in an implied exchange ratio of 24.4255 for the Precipio common units; (c) the continual listing of the existing shares of Transgenomics common stock on Nasdaq was waived as a condition to the closing of the merger; (d) the deadline pursuant to which a shelf registration statement on Form S-3 or other appropriate form is required to be filed by New Precipio with the SEC was extended to June 1, 2017; (e) certain indebtedness of Transgenomic was permitted to remain outstanding as of the effective date of the merger; (f) certain actions taken by each of Transgenomic and Precipio since the date the Merger Agreement were authorized and (g) certain additional conditions to the closing of the merger were removed from the Merger Agreement. In determining the number of shares of New Precipio common stock to be issued pursuant to the First Amendment, the parties applied the formula set forth in the Merger Agreement based on the relative expected liabilities of Transgenomic and Precipio as of the closing of the merger.
The representations, warranties and covenants contained in the Merger Agreement are made only for purposes of the Merger Agreement and are made as of specific dates; are solely for the benefit of the parties; may be subject to qualifications and limitations agreed upon by the parties in connection with negotiating the terms of the Merger Agreement, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties rather than establishing matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders. Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of Transgenomic, Precipio or their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures.
In connection with the Merger, the Supporting Stockholders and Supporting Members (as defined in the Merger Agreement) are obligated to enter into a lock-up agreement with the combined company at the Effective Time pursuant to which the Supporting Stockholders will agree, among other things, not to sell shares of Transgenomic common stock for the six month period beginning at the Effective Time.
The Merger Agreement also provides that the combined company will enter into employment agreements with certain employees of Precipio at the Effective Time and that the officers of the combined company will be agreed to by the parties prior to the Effective Time.
23
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 13 I NCOME T AXES
The Company, which is organized as a limited liability company, operated under the default classification as a partnership until July 31, 2016. Effective August 1, 2016, the Company elected to be treated as a corporation for tax purposes and as such, a net deferred tax asset, prior to a valuation allowance is created. The Company calculated an income tax provision for the remainder of the year. The Companys income tax expense (benefit) from continuing operations for the period from August 1, 2016 through December 31, 2016 relating to federal and state tax jurisdictions differs from the amounts determined by applying the statutory federal income tax rate based on the following:
For the
period from August 1, 2016 through December 31, 2016 |
For the
year ended December 31, 2015 |
|||||||
Benefit at the federal rate |
34.00 | % | | % | ||||
Increase (decrease) resulting from: |
||||||||
State Income taxes net of federal benefit |
4.95 | % | | |||||
Miscellaneous permanent differences |
| | ||||||
State, net operating loss expiration and true-ups |
| | ||||||
Valuation allowance |
(38.95 | )% | | |||||
|
|
|
|
|||||
Total income tax expense (benefit) |
| % | | % | ||||
|
|
|
|
The provision for income tax (benefit) expense consists of:
For the
period from August 1, 2016 through December 31, 2016 |
For the
year ended December 31, 2015 |
|||||||
Current: |
||||||||
Federal |
$ | | $ | | ||||
State and local |
| | ||||||
|
|
|
|
|||||
Total current |
| | ||||||
Deferred: |
||||||||
Federal |
| | ||||||
State and local |
| | ||||||
|
|
|
|
|||||
Total deferred |
| | ||||||
|
|
|
|
|||||
Total income tax expense (benefit) |
$ | | $ | | ||||
|
|
|
|
24
PRECIPIO DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
N OTE 13 I NCOME T AXES (continued)
Components of deferred income taxes consists of:
December 31,
2016 |
December 31,
2015 |
|||||||
Deferred tax assets: |
||||||||
Allowance for bad debts |
$ | 50,302 | $ | | ||||
Accrued salaries |
60,225 | | ||||||
Accrued interest |
164,106 | | ||||||
Net operating loss carryforward |
407,202 | | ||||||
|
|
|
|
|||||
Total deferred tax assets |
681,835 | | ||||||
Valuation allowance |
(665,617 | ) | | |||||
|
|
|
|
|||||
Total deferred tax assets, net of valuation allowance |
16,218 | | ||||||
Deferred tax liabilities: |
||||||||
Other |
(16,218 | ) | | |||||
|
|
|
|
|||||
Net deferred tax asset (liability) |
$ | | $ | | ||||
|
|
|
|
As a result of the tax status change, the Company would have recorded a net deferred tax asset at July 31, 2016 of $258,395, which consisted of $50,302 of an allowance for bad debts, $164,122 of accrued interest, $60,225 of accrued salaries, net of a deferred tax liability of $16,254 for depreciation and amortization. The Company would have recorded a valuation allowance of $258,395 against the net deferred tax asset.
At December 31, 2016, the Company had unused federal net operating loss carryforwards of $967,087 which expire in 2036. During the period from August 1, 2016 through December 31, 2016, the valuation allowance increased by $407,222.
N OTE 14 S UBSEQUENT E VENTS
During 2017, the Company raised $265,000 from members through the issuance of five senior notes which accrue interest at a rate of 12% and are payable at the closing of a qualified public offering, as outlined in the note agreement, but no later than January 30, 2022.
In addition, during April 2017 the Company entered into a $561,500 note with the merger partner, Transgenomic Inc., through the issuance of a promissory note which accrues interest at the rate of 8% and is payable upon the earlier of (x) the Closing (as defined in the Merger Agreement referred to herein) and (y) December 31, 2017 or such later date as requested by Borrower and agreed to in writing by the Lender in its sole discretion (such date, the Maturity Date), the principal sum of $561,500 or such lesser amount as may be outstanding under this Promissory Note (the Note), together with accrued unpaid interest as set forth herein.
The Company evaluated subsequent events through April 24, 2017, which is the date the financial statements were available to be issued. No events, other than previously disclosed, occurred that require disclosures or adjustments to the financial statements.
25
PRECIPIO MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Information
Precipios Managements Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. These statements are based on managements current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this section should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, income (loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, insurance reimbursements, product pricing, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, future interest costs, future economic circumstances, business strategy, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, actions of governments and regulatory factors affecting our business, retaining key employees and other risks. In some cases these statements are identifiable through the use of words such as anticipate, believe, estimate, expect, intend, plan, project, target, can, could, may, should, will, would or the negative versions of these terms and other similar expressions.
You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements in this report we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that Precipio makes. Precipio and Transgenomic expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
The following discussion should be read together with Precipios financial statements and related notes contained in this Current Report on Form 8-K. Results for the year ended December 31, 2016 are not necessarily indicative of results that may be attained in the future.
Precipio Business Description
Precipio is a cancer diagnostics company providing diagnostic services to the oncology market. Precipio operates a cancer diagnostic laboratory located in New Haven, Connecticut and collaborates with Yale School of Medicine which we believe provides a better standard of cancer diagnostics that is delivered to patients. It has built and continues to develop a web-based virtual software platform that successfully translates its expertise into a commercial setting. The platform is intended to connect patients, physicians, and diagnostic experts residing within academic institutions. Expected to launch in 2017, the platform will facilitate the following relationships:
Patients: Patients may search for physicians in their area and consult directly with academic experts that are on the platform. The platform may also allow for patient-to-patient communications and allow individuals to shares stories and provide support for one another.
Physicians: Physicians can connect with academic experts to seek consultations on behalf of their patients, and may also provide consultations for patients in their area seeking medical expertise in that physicians relevant specialty. Physicians will likely also be able to consult with their peers to discuss and share challenges and solutions.
Academic Experts: Academic experts on the platform can make themselves available for patients or physicians to seek access to their expertise. These experts may also be able to interact with others in academia on the platform to discuss their research and cross-collaborate.
Precipio has partnered with Yale School of Medicine to capture the expertise, experience and technologies developed within academia, and utilizes such institution to solve the growing problem of misdiagnosis. Under its agreement with Yale, Precipio pays to Yale a fee per case ranging from $500 to $1,000 that is based upon the tests ordered. By obtaining over 3,000 patient specimens, all of which have been diagnosed by academic pathologists, Precipio believes, based upon confirmation of its diagnoses by second opinions, that it has been able to achieve an improved level of diagnostic accuracy within clinical services to the oncology market, though there are no third-party studies supporting such belief.
Precipio is building a nationwide and international sales team that offers its services to oncologists in several countries. Specimens are shipped to its laboratory in New Haven, Connecticut where they are processed and diagnosed by academic experts at Yale School of Medicine that act as consultants to Precipio; the end product is a pathology report which guides its customers, oncologists, as to the nature of their patients disease and helps them determine how best to care for their patients.
Precipio has not sought patent protection for its platform but instead relies on agreements and trade secret policies and practices to protect its intellectual property. Although the platform is not regulated by the FDA, the laboratory is certified under the Clinical Laboratories Improvement Act of 1988 with specific certifications in the area of immunology, hematology, histopathology and cytogenetics.
2016 Overview and Recent Highlights
During 2016, Precipio has continued to grow our business and build our sales force nationwide. Our revenue has grown as compared to the prior year, with most of it coming from recurring revenue from long-term physician customers. The key drivers of our growth include the ability to build a strong direct-to-the-physician sales team; deliver a clear message that differentiates us from our competition; and duplicate the customer adoption and retention success that we have seen in the market place. We believe that the avenue to grow the business as rapidly as possible and maximize shareholder values will require several changes including a capital infusion. We recently hired Carl R. Iberger as Chief Financial Officer of Precipio. This is a key addition to our management team as we move forward with our growth plans. In October 2016, we entered into the Merger Agreement with Transgenomic which we feel provides Precipio with additional market opportunities to expand our service offerings, grow revenues and leverage existing infrastructure and capacity. See Note 12 Merger Agreement in the Notes to Precipio Diagnostics, LLC Financial Statements for more discussion on the merger.
Results of Operations
Years Ended December 31, 2016 and 2015
Net Revenue. Net revenue is as follows:
2016 | 2015 | $ | % | |||||||||||||
Total Net Revenue |
$ | 1,722,808 | $ | 1,479,959 | $ | 242,849 | 16.4 | % |
Net revenue increased by $243,000, or 16%, during the year ended December 31, 2016 as compared to the same period in 2015. The increase is entirely due to the increase in cases processed during the year ended December 31, 2016 as compared to the same period of 2015. Precipio processed 1,252 cases during 2016 as compared to 1,039 cases during 2015 or a 20% increase in cases.
Cost of Diagnostic Services. Cost of diagnostic services includes material and supply costs for the patient tests performed and other direct costs (primarily personnel costs and rent) associated with the operations of our laboratory. Cost of diagnostic services increased by $155,000 to $970,000 for the year ended December 31, 2016 as compared to the same period in 2015. The increase is due to increased personnel costs and reagent supplies as a result of the increased revenues in the current year period.
Gross Profit. Gross profit was as follows:
Profit % | ||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Gross Profit |
$ | 753,304 | $ | 665,299 | 44.0 | % | 45.0 | % |
Gross profit was $753,000, or 44% of total net sales, during the year ended December 31, 2016, compared to $665,000, or 45% of total net sales, during the same period of 2015. The increase in gross profit in the current year is a result of increased sales during the year ended December 31, 2016 as compared to the same period ended in 2015. Our cost of diagnostic services includes a number of fixed costs and our laboratory is operating below capacity for the current cost structure. As such, we believe that our gross profit as a percent of sales will grow as our sales increase.
Operating Expenses . Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs and depreciation. Our operating expenses of $2,465,000 during the year ended December 31, 2016 an increase of $297,000, or 13% as compared to the same period in 2015. The increase in operating expenses reflects the increase in administrative salaries and legal expense attributed to Precipios effort to raise investment capital and the pending merger agreement. See Note 12 Merger Agreement in the Notes to Precipio Diagnostics, LLC Financial Statements for further discussion on the merger.
Other Income (Expense). Other expense for the year ended December 31, 2016 and 2015 includes interest expense related to our debt and equity instruments of $518,000 and $188,000, respectively. The increase in the current year is due to increased interest bearing instruments outstanding during the year ended December 31, 2016 as compared to the same period in 2015.
Liquidity and Capital Resources
Uncertainties
We have suffered recurring losses from operations. At December 31, 2016, we had cash and cash equivalents of $52,000. We have incurred substantial operating losses and have used cash in our operating activities for the past several years. As of December 31, 2016, we had negative working capital of $2,459,000 due to the fact that our accounts payable and accrued expenses were double the amount of our current assets as of the balance sheet date, along with the significant amount of debt we have coming due within the next twelve months. Our ability to continue as a going concern is dependent upon a combination of achieving our business plan, including generating additional revenue, and raising additional financing to meet our debt obligations and pay our liabilities arising from normal business operations when they come due. Precipio is currently in discussions with certain investors to raise additional capital as part of a proposed merger, see Note 12 Merger Agreement in the Notes to Precipio Diagnostics, LLC Financial Statements for further discussion on the merger. There can be no assurance such capital is available at terms favorable or agreeable to Precipio management, if at all, or that Precipio will successfully complete the proposed merger. Since the outcome of these matters cannot be predicted with any certainty at this time, there is substantial doubt that we will be able to continue as a going concern.
Precipio was in default under the forbearance agreement with Connecticut Innovations, Incorporated (Connecticut Innovations) because we were unable to continue to repay the principal payments on the loan as they came due. Precipio has secured a revision to its Connecticut Innovations debt repayment schedule effective July 14, 2016 that approves interest only payments through October 1, 2017, interest and principal payments through August 1, 2018 and on the remainder of the outstanding loan due on October 1, 2018. Further, Precipio is in default on its Webster Bank loan due to Precipios cash balance falling below the required minimum balance of a cash runway of three months, based on trailing six months average cash burn as stipulated in the agreement.
Precipio and Webster Bank, in a Default and Reservation of Rights letter dated January 29, 2016, agreed that while Precipio remains in default, Webster Bank will preserve their rights but take no action at this time against Precipio and shall refrain from calling the loan. Further Webster Bank has considered to maintain its senior credit facility in a letter dated January 4, 2017 subject to their re-approval process. During this period Webster Reservation of Rights letter discussed above will remain in effect until the process is completed. Precipio management cannot assure that they will be able to extend the credit facility on terms reasonably acceptable to Precipio if at all. If management is unable to extend the credit facilities, obtain waivers, or both, the financial institutions could request payment on demand which could impair Precipios ability to conduct business in the near future.
The aforementioned circumstances raise substantial doubt about Precipios ability to continue as a going concern. There can be no assurance that Precipio will be able to successfully achieve its initiatives summarized above in order to continue as a going concern. The accompanying financial statements have been prepared assuming Precipio will continue as a going concern and do not include any adjustments that might result should Precipio be unable to continue as a going concern as a result of the outcome of this uncertainty.
Our working capital positions at December 31, 2016 and 2015 were as follows:
December 31
2016 |
December 31
2015 |
Change | ||||||||||
Current assets (including cash and cash equivalents of $51,573 and $234,688, respectively) |
$ |
552,169 |
|
$ |
778,753 |
|
$ | (226,584 | ) | |||
Current Liabilities |
$ | 3,011,368 | $ | 2,853,882 | $ | 157,486 | ||||||
|
|
|
|
|
|
|||||||
Working Capital |
$ | (2,459,199 | ) | $ | (2,075,129 | ) | $ | (69,098 | ) | |||
|
|
|
|
|
|
During 2016, Precipio raised $980,000 from members through the issuance of $525,000 in senior notes and $455,000 through the issuance of additional unsecured convertible bridge notes.
The senior notes accrue interest at a rate of 12% and are payable at the closing of a qualified public offering, as outlined in the note agreement, or five years from date of issuance. The unsecured convertible bridge notes accrue interest at a rate of 14% and the holders of the notes agreed to waive the maturity date and all convertible bridge notes are payable on demand and accrue interest until paid.
Also during 2016, Precipio restructured equity through a redemption and exchange agreement by exchanging Member Equity comprised of Series A and Series B Convertible Preferred Units in the amount of $1,715,000, plus declared dividends on these preferred units of $432,716, and Convertible Bridge Notes of $1,120,000 plus accrued interest of $61,073 for new Senior Notes of $2,744,968 and new junior notes of $583,821. The senior and junior notes accrue interest at a rate of 12% and 15%, respectively, and have maturity dates ranging from March 2021 to September 2021, or earlier based on certain qualifying events as outlined in the note agreements.
As of December 31, 2016, the outstanding balance of senior and junior notes was $3,269,968 and $583,821, respectively, with accrued interest included within accrued expenses on the accompanying balance sheet of $279,740 and $71,258, respectively and the outstanding balance of Convertible Bridge Notes was $695,000, with accrued interest within accrued expenses on the accompanying balance sheet of $143,981. See Note 4 Notes Payable and Note 5 Convertible Bridge Notes Payable in the Notes to Precipio Diagnostics, LLC Financial Statements for additional information regarding Precipios outstanding debt and debt servicing obligations and related defaults on the Webster Bank debt agreement.
Analysis of Cash Flows Year Ended December 31, 2016 and 2015
Net Change in Cash and Cash Equivalents. Cash and cash equivalents decreased by $183,000 during the year ended December 31, 2016, compared to a decrease of $339,000 during the same period ended 2015.
Cash Flows Used in Operating Activities. The cash flows used in operating activities of $958,000 during the year ended December 31, 2016 included a net loss of $2,227,000, a decrease in net accounts receivable of $68,000 and other working capital uses of $24,000, less non-cash adjustments of $213,000. These were partially offset by an increase in accrued expenses and accounts payable of $920,000 and an increase in deferred revenue of $92,000. The cash flows used in operating activities in year ended 2015 included the net loss of $1,680,000 and an increase in accounts receivable of $583,000, less non-cash adjustments of $325,000. These were partially offset by an increase in accounts payable and accrued expenses of $234,000 and other working capital uses of $4,000.
Cash Flows Used in Investing Activities. There were no cash flows used in investing activities for the year ended December 31, 2016 and $11,000 in capital expenditure purchases for the same period ended 2015.
Cash Flows Provided by Financing Activities. Cash flows provided by financing activities totaled $775,000 for the year ended December 31, 2016, which included proceeds of $455,000 from the issuance of convertible bridge notes and $525,000 from the issuance of senior notes. These proceeds were partially offset by payments on our debt, capital lease obligations and for deferred financing costs of $205,000. Cash flows provided by financing activities during the year ended December 31, 2015 included proceeds of $1,263,000 from the issuance of convertible bridge notes partially offset by $112,000 of payments on our debt, capital lease obligations and for deferred financing costs.
Off-Balance Sheet Arrangements
At each of December 31, 2016 and 2015, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations and Commitments
We have entered into certain operating leases and purchase commitments as part of our normal course of business. Our contractual obligations and commitments are discussed in Note 7 Commitments and Contingencies in the Notes to Precipio Diagnostics, LLC Financial Statements.
Critical Accounting Policies and Estimates
Accounting policies used in the preparation of our financial statements may involve the use of management judgments and estimates. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial statements and require significant or complex judgments on the part of management. Our judgments and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgments or estimates may vary under different assumptions or circumstances. Our critical accounting policies are discussed in Note 1 Nature of Business and Significant Accounting Policies in the Notes to Precipio Diagnostics, LLC Financial Statements.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are discussed in Note 1 Nature of Business and Significant Accounting Policies in the Notes to Precipio Diagnostics, LLC Financial Statements.
Income Taxes
Precipio, which is organized as a limited liability company, operated under the default classification as a partnership until July 31, 2016. Effective August 1, 2016, Precipio elected to be treated as a corporation for tax purposes and as such, calculated an income tax provision for the remainder of the year. Prior to August 1, 2016, income tax expense or benefits were calculated at the members level.
For the period from August 1, 2016 through December 31, 2016, deferred income taxes are provided on net operating loss carryovers and on the future income tax considerations associated with temporary differences between the carrying amounts of assets and liabilities for tax and financial reporting purposes. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not that they will not be realized. Precipios policy is to record interest and penalties directly related to income taxes as income tax expense in the statements of operations. At December 31, 2016 and August 1, 2016, Precipio had net deferred tax assets in the amounts of $665,617 and $258,395, respectively, for which a full valuation allowance has been recorded against these amounts. See Note 13 Income Taxes in the Notes to Precipio Diagnostics, LLC Financial Statements for additional tax related disclosure.
Impact of Inflation
We do not believe that price inflation or deflation had a material adverse effect on our financial condition or results of operations during the periods presented.
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information has been prepared to assist you in your analysis of the financial effects of the merger of New Haven Labs Inc. (Merger Sub), a wholly owned subsidiary of Transgenomic Inc. (Transgenomic), with Precipio Diagnostics, LLC (Precipio). Pursuant to the merger, which closed on June 29, 2017, Merger Sub merged with and into Precipio, with Precipio surviving the merger as a wholly-owned subsidiary of the combined company. In connection with the merger, the combined company changed its name from Transgenomic, Inc. to Precipio, Inc. (New Precipio). The unaudited pro forma combined financial information was prepared using the historical consolidated financial statements of Transgenomic and Precipio. This information should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and accompanying notes of Transgenomic and Precipio. All Transgenomic historical financial statement information can be derived from Transgenomics Form 10-K and 10-Q filings.
The merger, which closed on June 29, 2017, will be accounted for as a reverse acquisition under the acquisition method of accounting in accordance with GAAP. The accompanying unaudited pro forma combined financial information gives effect to the merger, assuming the issuance of New Precipio common stock and preferred stock. The pro forma adjustments related to the merger are preliminary and based on managements best estimates of fair value. Such adjustments do not reflect the final purchase price or final allocation of the excess of the purchase price over the fair value of the assets and liabilities assumed in connection with the merger. A final determination of these estimated fair values will be based on the actual fair values of acquired assets and liabilities assumed of Transgenomic that exist as of the date of completion of the merger. Accordingly, the pro forma adjustments, including the allocations of purchase price, are preliminary and have been made solely for the purpose of providing unaudited pro forma consolidated financial information. Final adjustments, the accounting for which will not be effective until the filing of our second quarter 2017 results on Form 10-Q, will result in modifications to the final purchase price and allocation of the purchase price, which will affect the fair value assigned to the acquired assets and liabilities assumed. The effect of the changes to the statements of operations could be material. The unaudited pro forma combined financial information is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the dates or periods indicated, nor is it necessarily indicative of the results of operations or financial position that may occur in the future.
The historical consolidated financial information has been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma combined financial information does not reflect revenue opportunities and cost savings that New Precipio expects to realize after the merger. No assurance can be given with respect to the estimated revenue opportunities and operating cost savings that are expected to be realized as a result of the merger. The pro forma combined financial information also does not reflect expenses related to integration activity or exit costs that may be incurred by Transgenomic or Precipio in connection with this merger.
The unaudited pro forma combined balance sheet assumes that the merger took place on March 31, 2017 and combines Transgenomics March 31, 2017 consolidated balance sheet with the balance sheet of Precipio as of March 31, 2017. The unaudited pro forma combined statements of operations for the three months ended March 31, 2017 assume that the merger took place on January 1, 2017. The unaudited pro forma combined statement of operations for the three months ended March 31, 2017 combines Transgenomics unaudited condensed consolidated statement of operations for the three months ended March 31, 2017 with Precipios unaudited condensed statement of operations for the three months ended March 31, 2017. The unaudited pro forma combined statements of operations for the fiscal year ended December 31, 2016 assume that the merger took place on January 1, 2016. The unaudited pro forma combined statement of operations for the fiscal year ended December 31, 2016 combines Transgenomics audited consolidated statement of operations for the fiscal year ended December 31, 2016 with Precipios audited statement of operations for the fiscal year ended December 31, 2016.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of March 31, 2017
(in thousands)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2017
(dollars in thousands)
Historical |
Pro Forma
Adjustments |
Notes |
New Precipio
Combined |
|||||||||||||||||
New Precipio (f) | Precipio (h) | |||||||||||||||||||
Net sales |
$ | 658 | $ | 249 | $ | | $ | 907 | ||||||||||||
Cost of goods sold |
459 | 182 | (41 | ) | a | 600 | ||||||||||||||
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|
|
|
|
|
|
|
|||||||||||||
Gross profit |
199 | 67 | 41 | 307 | ||||||||||||||||
Operating Expenses |
1,754 | 663 | 251 | a,b | 2,668 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Operating loss from continuing operations |
(1,555 | ) | (596 | ) | (210 | ) | (2,361 | ) | ||||||||||||
Other Expense: |
||||||||||||||||||||
Interest expense, net |
(247 | ) | (162 | ) | 220 | c | (189 | ) | ||||||||||||
Warrant revaluation |
(33 | ) | | | (33 | ) | ||||||||||||||
Other, net |
| | | | ||||||||||||||||
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|
|
|
|
|
|||||||||||||
Total other expense |
(280 | ) | (162 | ) | 220 | (222 | ) | |||||||||||||
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|
|
|
|
|||||||||||||
Loss from continuing operations before income taxes |
(1,835 | ) | (758 | ) | 10 | (2,583 | ) | |||||||||||||
Income tax |
| | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net loss from continuing operations |
(1,835 | ) | (758 | ) | 10 | (2,583 | ) | |||||||||||||
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|
|
|
|
|
|
|
|||||||||||||
Preferred stock/unit dividends |
| | (128 | ) | d | (128 | ) | |||||||||||||
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|
|||||||||||||
NET LOSS FROM CONTINUING OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS |
$ | (1,835 | ) | $ | (758 | ) | $ | (118 | ) | $ | (2,711 | ) | ||||||||
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|
|||||||||||||
Basic and diluted loss per common share from continuing operations |
$ | (0.07 | ) | $ | (0.41 | ) | ||||||||||||||
Basic and diluted weighted-average shares of common stock outstanding (Note 4) |
26,779,835 | (20,171,869 | ) | e | 6,607,966 |
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 2016
(dollars in thousands)
Historical |
Pro Forma
Adjustments |
Notes |
New Precipio
Combined |
|||||||||||||||||
New Precipio (g) | Precipio (i) | |||||||||||||||||||
Net sales |
$ | 1,557 | $ | 1,723 | $ | | $ | 3,280 | ||||||||||||
Cost of goods sold |
1,762 | 970 | (198 | ) | a | 2,534 | ||||||||||||||
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|
|
|
|
|
|||||||||||||
Gross profit |
(205 | ) | 753 | 198 | 746 | |||||||||||||||
Operating Expenses |
7,614 | 2,465 | 1,004 | a,b | 11,083 | |||||||||||||||
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|
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|
|
|
|||||||||||||
Operating loss from continuing operations |
(7,819 | ) | (1,712 | ) | (806 | ) | (10,337 | ) | ||||||||||||
Other Income (Expense): |
||||||||||||||||||||
Interest expense, net |
(1,038 | ) | (518 | ) | 866 | c | (690 | ) | ||||||||||||
Warrant revaluation |
788 | | | 788 | ||||||||||||||||
Other, net |
(200 | ) | 3 | | (197 | ) | ||||||||||||||
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|
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Total other income (expense) |
(450 | ) | (515 | ) | 866 | (99 | ) | |||||||||||||
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|
|||||||||||||
Loss from continuing operations before income taxes |
(8,269 | ) | (2,227 | ) | 60 | (10,436 | ) | |||||||||||||
Income tax |
| | | | ||||||||||||||||
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Net loss from continuing operations . |
(8,269 | ) | (2,227 | ) | 60 | (10,436 | ) | |||||||||||||
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|||||||||||||
Preferred stock/unit dividends |
(393 | ) | (432 | ) | 313 | d | (512 | ) | ||||||||||||
Deemed dividends on exchange of preferred units |
| (1,422 | ) | 1,422 | j | | ||||||||||||||
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NET LOSS FROM CONTINUING OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS |
$ | (8,662 | ) | $ | (4,081 | ) | $ | 1,795 | $ | (10,948 | ) | |||||||||
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Basic and diluted loss per common share from continuing operations |
$ | (0.38 | ) | $ | (1.66 | ) | ||||||||||||||
Basic and diluted weighted-average shares of common stock outstanding (Note 4) |
22,689,831 | (16,081,865 | ) | e | 6,607,966 |
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
1. Description of Transaction and Basis of Presentation
Description of Transaction.
On June 29, 2017 (Closing Date), Transgenomic, Inc., or Transgenomic, completed its merger, or the Merger, with Precipio Diagnostics, LLC, a privately held Delaware limited liability company, or Precipio, in accordance with the terms of the Agreement and Plan of Merger, or the Merger Agreement, dated October 12, 2016, as amended on February 2, 2017 and June 29, 2017, by and among Transgenomic, Precipio and New Haven Labs Inc., or Merger Sub, a wholly-owned subsidiary of Transgenomic. Pursuant to the Merger Agreement, Merger Sub merged with and into Precipio, with Precipio surviving the Merger as a wholly-owned subsidiary of the combined company. In connection with the Merger, the combined company changed its name from Transgenomic, Inc. to Precipio, Inc. (New Precipio) and effected a 1-for-30 reverse stock split of its common stock.
On the Closing Date, the outstanding common and preferred units of Precipio and certain debt of Precipio were converted into (i) 5,352,847 shares of New Precipio common stock, together with cash in lieu of fractional units, and (ii) 802,920 shares of New Precipio preferred stock with an aggregate face amount equal to $3 million.
In connection with the Merger, on the Closing Date, New Precipio also issued promissory notes and shares of New Precipio preferred and common stock in a number of transactions, whereby:
| Holders of certain secured indebtedness of Transgenomic received in exchange for such indebtedness 802,925 shares of New Precipio preferred stock in an amount equal to $3 million, and 352,630 shares of New Precipio common stock; |
| Holders of Transgenomic preferred stock converted it into 7,155 shares of New Precipio common stock; and |
| New Precipio issued 107,056 shares of New Precipio preferred stock to certain investors in exchange for $400,000 in a private placement. New Precipio also completed the sale of an aggregate of $800,000 of promissory notes pursuant to a securities purchase agreement. |
Basis of Presentation.
The historical consolidated financial information has been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma combined financial information does not reflect revenue opportunities and cost savings that New Precipio expects to realize after the merger. No assurance can be given with respect to the estimated revenue opportunities and operating cost savings that are expected to be realized as a result of the merger. The pro forma financial information also does not reflect expenses related to integration activity or exit costs that may be incurred by Transgenomic or Precipio in connection with this merger. The final determination of the purchase price allocation will be based on the fair values of assets acquired and liabilities assumed as of the date the transaction closes, and could result in a significant change to the unaudited pro forma combined financial information, including goodwill.
Prior to the Closing Date, Transgenomic completed a 1-for-30 reverse stock split with an effective date of June 13, 2017. All share and per share amounts have been adjusted for disclosure in the unaudited pro forma condensed combined financial statements.
2. Estimated Purchase Consideration
The purchase consideration based on the value of the equity of Transgenomic, the accounting acquiree, is as follows:
(in thousands) |
||||
Estimated equity market cap |
$ | 6,088 | ||
Fair value of preferred share conversions |
49 | |||
Fair value of debt conversions |
8,551 | |||
|
|
|||
Estimated purchase consideration |
$ | 14,688 | ||
|
|
In estimating the purchase consideration above, Transgenomic used its closing stock price of $6.80 as of the Closing Date. Transgenomic had 895,334 common shares outstanding prior to the Merger. In connection with the Merger, Transgenomic preferred stock converted into 7,155 shares of New Precipio common stock and certain of Transgenomic debt and accrued interest converted into 352,630 shares of New Precipio common stock and 802,925 shares of New Precipio preferred stock, face value $3 million with an 8% annual dividend.
Preliminary Allocation of Estimated Purchase Consideration
The following table sets forth a preliminary allocation of the estimated purchase consideration to the identifiable tangible and intangible assets of Transgenomic, the accounting acquiree, based on fair values as of the Closing Date with the excess recorded as goodwill:
(in thousands) |
||||
Current and other assets |
$ | 419 | ||
Property and equipment |
29 | |||
Goodwill |
12,572 | |||
Other intangible assets (1) |
16,060 | |||
|
|
|||
Total assets |
$ | 29,080 | ||
Current liabilities |
$ | 13,604 | ||
Other liabilities |
788 | |||
|
|
|||
Total liabilities |
14,392 | |||
|
|
|||
Net assets acquired |
$ | 14,688 | ||
|
|
(1) | Other intangible assets consist of: |
Acquired technology |
$ | 14,310 | ||
Customer relationships |
240 | |||
Non-compete agreements |
20 | |||
Trademark and trade name |
40 | |||
Backlog |
180 | |||
In-process research and development |
1,270 | |||
|
|
|||
Total |
$ | 16,060 |
3. Pro Forma Adjustments
The pro forma adjustments included in the unaudited pro forma combined financial statements are as follows:
Pro Forma Adjustments Balance Sheet
a) | Reflects goodwill resulting from the acquisition method of accounting based on preliminary estimates of the fair value of the assets and liabilities of Transgenomic. This also includes the elimination of Transgenomics historical stockholders deficit accounts because Transgenomic is not considered to be the accounting acquirer. |
b) | Reflects acquired intangibles resulting from the acquisition method of accounting based on preliminary estimates of the fair value of the assets and liabilities of Transgenomic. |
c) | Elimination of historical intangibles of Transgenomic. |
d) | In the aggregate, holders of Precipio common stock, preferred stock and certain debt and accrued interest received 5,352,847 shares of New Precipio common stock and 802,920 shares of New Precipio preferred stock, face value $3 million with an 8% annual dividend. |
e) | Transgenomic pre-merger preferred stock converted to common stock. |
f) | Transgenomic pre-merger debt and accrued interest converted to common stock and $3 million of New Precipio preferred stock with an 8% annual dividend. |
g) | Issuance of 107,056 shares of New Precipio preferred stock, face value $0.4 million, and $0.8 million of convertible notes to investors in a private placement. |
h) | To reflect the impact on Transgenomics common stock for its 1-for-30 reverse stock split effective June 13, 2017. |
i) | Refer to Transgenomics Quarterly Report on Form 10-Q for the three months ended March 31, 2017, filed with the SEC on May 18, 2017. |
j) | Refer to Precipios unaudited condensed financial statements included as Exhibit 99.1 to this report on Form 8-K/A |
Pro Forma Adjustments Statements of Operations
a) | Eliminate amortization expense related to Transgenomic historical intangibles. |
b) | Record amortization expense related to newly acquired intangibles assuming useful lives between 1 20 years. |
c) | Eliminate interest expense for Transgenomic interest bearing debt that was converted to New Precipio common stock and preferred stock and record new interest on $0.8 million note issued at merger with 8% interest. |
d) | Elimination of historical dividends and recording dividends on $6.4 million of New Precipio preferred stock with 8% annual dividend. |
e) | To reflect the issuance of New Precipio common stock in connection with the Merger and the impact of the 1-for 30 reverse stock split that became effective on June 13, 2017. |
f) | Refer to Transgenomics Quarterly Report on Form 10-Q for the three months ended March 31, 2017, filed with the SEC on May 18, 2017. |
g) | Refer to Transgenomics Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April 13, 2017. |
h) | Refer to Precipios quarterly condensed financial statements for the three months ended March 31, 2017 included as Exhibit 99.1 to this report on Form 8-K/A. |
i) | Refer to Precipios audited financial statements included as Exhibit 99.2 to this report on Form 8-K/A. |
j) | Elimination of historical deemed dividends. |
4. New Precipio Common Shares and Preferred Shares
Shares | ||||
New Precipio Common Stock: |
||||
Transgenomic: |
||||
Outstanding common shares at Closing Date |
895,334 | |||
Conversion of preferred stock |
7,155 | |||
Conversion of debt |
352,630 | |||
Precipio: |
||||
Conversion of common units, preferred units and debt |
5,352,847 | |||
|
|
|||
Total New Precipio common shares, par value $0.01 |
6,607,966 | |||
|
|
|||
New Precipio Preferred Stock: |
||||
Total New Precipio preferred stock, par value $0.01 |
1,712,901 | |||
|
|