UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended March 31, 2018
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from:              to             
Commission File Number 000-21937
 
CERUS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware	 	68-0262011	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
Identification No.)	
 	 	 	
2550 Stanwell Dr.
Concord, California	 	94520	
(Address of principal executive offices)	 	(Zip Code)	
 
(925) 288-6000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   ☒     NO   ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES   ☒     NO   ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer	☐	Accelerated filer	☒	
 	 	 	 	
Non-accelerated filer	☐   (Do not check if a smaller reporting company)	Smaller reporting company	☐	
 	 	 	 	
 	 	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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES   ☐     NO   ☒
As of April 27, 2018, there were 130,544,498 shares of the registrant’s common stock outstanding.
 
1

CERUS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
THREE MONTHS ENDED MARCH 31, 2018
TABLE OF CONTENTS
 
PART I	FINANCIAL INFORMATION	 	
 	 	 	
Item 1.	Financial Statements	3	
 	Unaudited Condensed Consolidated Balance Sheets – March 31, 2018 and December 31, 2017	3	
 	Unaudited Condensed Consolidated Statements of Operations – Three months ended March 31, 2018 and 2017	4	
 	Unaudited Condensed Consolidated Statements of Comprehensive Loss – Three months ended March 31, 2018 and 2017	5	
 	Unaudited Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2018 and 2017	6	
 	Notes to Unaudited Condensed Consolidated Financial Statements	7	
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22	
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32	
Item 4.	Controls and Procedures	32	
 	 	 	
PART II	OTHER INFORMATION	 	
 	 	 	
Item 1.	Legal Proceedings	33	
Item 1A.	Risk Factors	33	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66	
Item 3.	Defaults Upon Senior Securities	66	
Item 4.	Mine Safety Disclosures	66	
Item 5.	Other Information	66	
Item 6.	Exhibits	67	
 	 	
SIGNATURES	69	

 
2

PART I: FINANCI AL INFORMATION
ITEM 1.	 FINANCIAL STATEMENTS	
CERUS CORPORATION
 CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 	 	March 31,	 	 	December 31,	 	
 	 	2018	 	 	2017	 	
 	 	(Unaudited)	 	 	 	 	 	
ASSETS	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	14,877	 	 	$	13,683	 	
Short-term investments	 	 	90,988	 	 	 	47,013	 	
Accounts receivable	 	 	10,489	 	 	 	12,415	 	
Inventories	 	 	13,165	 	 	 	14,457	 	
Other current assets	 	 	4,257	 	 	 	2,330	 	
Total current assets	 	 	133,776	 	 	 	89,898	 	
Non-current assets:	 	 	 	 	 	 	 	 	
Property and equipment, net	 	 	1,969	 	 	 	2,119	 	
Goodwill	 	 	1,316	 	 	 	1,316	 	
Intangible assets, net	 	 	486	 	 	 	536	 	
Restricted cash	 	 	2,812	 	 	 	247	 	
Other assets	 	 	4,062	 	 	 	4,128	 	
Total assets	 	$	144,421	 	 	$	98,244	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
Accounts payable	 	$	11,231	 	 	$	10,974	 	
Accrued liabilities	 	 	10,357	 	 	 	11,712	 	
Debt – current	 	 	1,429	 	 	 	—	 	
Deferred product revenue – current	 	 	639	 	 	 	445	 	
Total current liabilities	 	 	23,656	 	 	 	23,131	 	
Non-current liabilities:	 	 	 	 	 	 	 	 	
Debt - non-current	 	 	28,387	 	 	 	29,798	 	
Manufacturing and development obligations – non-current	 	 	5,996	 	 	 	5,766	 	
Other non-current liabilities	 	 	784	 	 	 	609	 	
Total liabilities	 	 	58,823	 	 	 	59,304	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
Stockholders' equity:	 	 	 	 	 	 	 	 	
Common stock	 	 	131	 	 	 	115	 	
Additional paid-in capital	 	 	821,081	 	 	 	760,225	 	
Accumulated other comprehensive loss	 	 	(426	)	 	 	(97	)	
Accumulated deficit	 	 	(735,188	)	 	 	(721,303	)	
Total stockholders' equity	 	 	85,598	 	 	 	38,940	 	
Total liabilities and stockholders' equity	 	$	144,421	 	 	$	98,244	 	
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3

CERUS CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands, except per share data)
 
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2018	 	 	2017	 	
Product revenue	 	$	13,564	 	 	$	7,006	 	
Cost of product revenue	 	 	7,330	 	 	 	3,694	 	
Gross profit on product revenue	 	 	6,234	 	 	 	3,312	 	
Government contract revenue	 	 	3,455	 	 	 	1,428	 	
Operating expenses:	 	 	 	 	 	 	 	 	
Research and development	 	 	9,437	 	 	 	9,150	 	
Selling, general and administrative	 	 	13,607	 	 	 	13,683	 	
Total operating expenses	 	 	23,044	 	 	 	22,833	 	
Loss from operations	 	 	(13,355	)	 	 	(18,093	)	
Non-operating expense, net:	 	 	 	 	 	 	 	 	
Foreign exchange gain (loss)	 	 	108	 	 	 	(45	)	
Interest expense	 	 	(915	)	 	 	(531	)	
Other income, net	 	 	331	 	 	 	106	 	
Total non-operating expense, net	 	 	(476	)	 	 	(470	)	
Loss before income taxes	 	 	(13,831	)	 	 	(18,563	)	
Provision for income taxes	 	 	54	 	 	 	35	 	
Net loss	 	$	(13,885	)	 	$	(18,598	)	
 	 	 	 	 	 	 	 	 	
Net loss per share:	 	 	 	 	 	 	 	 	
Basic	 	$	(0.11	)	 	$	(0.18	)	
Diluted	 	$	(0.11	)	 	$	(0.18	)	
Weighted average shares outstanding used for calculating net loss per share:	 	 	 	 	 	 	 	 	
Basic	 	 	124,814	 	 	 	103,564	 	
Diluted	 	 	124,814	 	 	 	103,564	 	
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4

CERUS CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
UNAUDITED
(in thousands)
 
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2018	 	 	2017	 	
Net loss	 	$	(13,885	)	 	$	(18,598	)	
Other comprehensive losses	 	 	 	 	 	 	 	 	
Unrealized losses on available-for-sale investments, net of taxes of zero for the three months ended March 31, 2018 and 2017	 	 	(329	)	 	 	(246	)	
Comprehensive loss	 	$	(14,214	)	 	$	(18,844	)	
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5

CERUS CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
 
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2018	 	 	2017	 	
Operating activities	 	 	 	 	 	 	 	 	
Net loss	 	$	(13,885	)	 	$	(18,598	)	
Adjustments to reconcile net loss to net cash used in operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	413	 	 	 	469	 	
Stock-based compensation	 	 	2,315	 	 	 	2,147	 	
Non-cash interest expense	 	 	269	 	 	 	195	 	
Deferred income taxes	 	 	1	 	 	 	7	 	
Gain on sale of investment in marketable equity securities	 	 	—	 	 	 	(18	)	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	1,926	 	 	 	1,285	 	
Inventories	 	 	1,224	 	 	 	(388	)	
Other assets	 	 	(1,475	)	 	 	(310	)	
Accounts payable	 	 	(122	)	 	 	198	 	
Accrued liabilities and other non-current liabilities	 	 	(1,341	)	 	 	(1,724	)	
Manufacturing and development obligations	 	 	164	 	 	 	76	 	
Deferred product revenue	 	 	186	 	 	 	313	 	
Net cash used in operating activities	 	 	(10,325	)	 	 	(16,348	)	
Investing activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(52	)	 	 	(185	)	
Purchases of investments	 	 	(56,941	)	 	 	(10,158	)	
Proceeds from maturities and sale of investments	 	 	12,250	 	 	 	16,018	 	
Net cash (used in) provided by investing activities	 	 	(44,743	)	 	 	5,675	 	
Financing activities	 	 	 	 	 	 	 	 	
Net proceeds from equity incentives	 	 	1,295	 	 	 	422	 	
Net proceeds from (payments for) public offering	 	 	57,564	 	 	 	(30	)	
Repayment of debt	 	 	(32	)	 	 	(1,271	)	
Net cash provided by (used in) financing activities	 	 	58,827	 	 	 	(879	)	
Net increase (decrease) in cash, cash equivalents and restricted cash	 	 	3,759	 	 	 	(11,552	)	
Cash, cash equivalents and restricted cash, beginning of period	 	 	13,930	 	 	 	22,744	 	
Cash, cash equivalents and restricted cash, end of period	 	$	17,689	 	 	$	11,192	 	

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 
6

CERUS CORPORATION
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
 
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include those of Cerus Corporation and its subsidiary, Cerus Europe B.V. (together with Cerus Corporation, hereinafter “Cerus” or the “Company”) after elimination of all intercompany accounts and transactions. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring entries, considered necessary for a fair presentation have been made. Operating results for the three months ended March 31, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018, or for any future periods.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2017, which were included in the Company’s 2017 Annual Report on Form 10-K, filed with the SEC on March 8, 2018. The accompanying condensed consolidated balance sheet as of December 31, 2017 has been derived from the Company’s audited consolidated financial statements as of that date .
Use of Estimates
The preparation of financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to the nature and timing of satisfaction of performance obligations, the timing when the customer obtains control of products or services, the standalone selling price (“SSP”) of performance obligations, variable consideration, accounts receivable, inventory reserves, fair values of investments, stock-based compensation, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, and accrued liabilities, among others. The Company bases its estimates on historical experience, future projections, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates under different assumptions or conditions.
Revenue
The Company adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, on January 1, 2018, using the modified retrospective method. Revenue is recognized in accordance with that core principle by applying the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
 The Company’s main source of revenue is product revenue from sales of the INTERCEPT Blood System for platelets and plasma (“platelet and plasma systems” or “disposable kits”), UVA illumination devices (“illuminators”), spare parts and storage solutions, and maintenance services of illuminators. The Company sells its platelet and plasma systems directly to blood banks, hospitals, universities, government agencies, as well as to distributors in certain regions. For all sales of the Company’s INTERCEPT Blood System products, the Company uses a binding purchase order or signed sales contract as evidence of a contract and satisfaction of its policy. Generally, the Company’s contracts with its customers do not provide for open return rights, except within a reasonable time after receipt of goods in the case of defective or non-conforming product. The contracts with customers can include various combinations of products, and to a lesser extent, services. The Company must determine whether products or services are capable of being distinct and accounted for as separate performance obligations, or are accounted for as a combined performance obligation. The Company must allocate the transaction price to each performance obligation on a relative SSP basis, and recognize the revenue when the performance obligation is satisfied. The Company determines the SSP by using the historical selling price of the products and services. If the amount of consideration in a contract is variable, the Company estimates the amount of variable consideration that should be included in the transaction price using the most likely amount method, to the extent it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Product revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to receive in exchange for those products or services. Product revenue from the sale of illuminators, disposable kits, spare parts and storage solutions are recognized upon the transfer of control of the products to the customer. Product revenue from maintenance services are recognized ratably on a straight-line basis over the term of maintenance as customers simultaneously consume and receive benefits. Freight costs
7

charged to customers are recorded as a component of revenue. Taxes that the Company invoices to its customers and remits to governments are recorded on a n et basis, which excludes such tax from product revenue .
The Company receives reimbursement under its U.S. government contract with the Biomedical Advanced Research and Development Authority (“BARDA”) that supports research and development of defined projects. See “Note 10. Development and License Agreements—Agreement with BARDA” below. The contract generally provides for reimbursement of approved costs incurred under the terms of the contract. Revenue related to the cost reimbursement provisions under the Company’s U.S. government contract are recognized as the qualified direct and indirect costs on the projects are incurred. The Company invoices under its U.S. government contract using the provisional rates in the government contract and thus is subject to future audits at the discretion of government. These audits could result in an adjustment to government contract revenue previously reported, which adjustments potentially could be significant. The Company believes that revenue for periods not yet audited has been recorded in amounts that are expected to be realized upon final audit and settlement. Costs incurred related to services performed under the contract are included as a component of research and development or selling, general and administrative expenses in the Company’s consolidated statements of operations. The Company’s use of estimates in recording accrued liabilities for government contract activities (see “Use of Estimates” above) affects the revenue recorded from development funding and under the government contract.
 
Disaggregation of Product Revenue
Product revenue by geographical locations of customers during the three months ended March 31, 2018 and 2017, were as follows (in thousands):
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2018	 	 	2017	 	
Product revenue:	 	 	 	 	 	 	 	 	
North America	 	$	2,387	 	 	$	1,065	 	
Europe, Middle East and Africa	 	 	11,006	 	 	 	5,911	 	
Other	 	 	171	 	 	 	30	 	
Total product revenue	 	$	13,564	 	 	$	7,006	 	
 
Contract Balances
The Company invoices its customers based upon the payment terms in the contracts, which is generally from 30 to 60 days. Accounts receivable are recorded when the Company’s right to the consideration are estimated to be unconditional. The Company had no contract assets at March 31, 2018 and December 31, 2017.
Contract liabilities mainly consist of unearned product revenue related to uninstalled illuminators, unshipped products, and maintenance services. Maintenance services are generally billed upfront at the beginning of each annual service period and recognized ratably over the service period. The changes in the contract liabilities during the three months ended March 31, 2018 and 2017, were as follows (in thousands):
 	Beginning	 	 	 	 	 	 	 	Ending	 	
Contract Liabilities	Balance	 	Additions	 	Deductions	 	Balance	 	
Three months ended March 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	
Deferred product revenue - current	$	445	 	$	662	 	$	(468	)	$	639	 	
Deferred product revenue - non current	 	15	 	 	—	 	 	(8	)	 	7	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended March 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	
Deferred product revenue - current	$	149	 	$	634	 	$	(313	)	$	470	 	
Deferred product revenue - non current	 	46	 	 	—	 	 	(8	)	 	38	 	

Research and Development Expenses
Research and development (“R&D”) expenses are charged to expense when incurred, including cost incurred pursuant to the terms of the Company’s U.S. government contract. Research and development expenses include salaries and related expenses for scientific and regulatory personnel, payments to consultants, supplies and chemicals used in in-house laboratories, costs of R&D facilities, depreciation of equipment and external contract research expenses, including clinical trials, preclinical safety studies, other laboratory studies, process development and product manufacturing for research use.
8

The Company’s use of estimates in recording accrued liabilities for R&D activities (see “Use of Estimates” above) affects the amounts of R&D expenses recorded from development funding and under its U.S. government contract. Actual results may differ from those estimates under different as sumptions or conditions.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be classified as cash equivalents. These investments primarily consist of money market instruments, and are classified as available-for-sale.
Investments
Investments with original maturities of greater than three months primarily include corporate debt and U.S. government agency securities are designated as available-for-sale and classified as short-term investments or investment in marketable equity securities. Available-for-sale securities are carried at estimated fair value. The Company views its available-for-sale portfolio as available for use in its current operations. Unrealized gains and losses derived by changes in the estimated fair value of available-for-sale securities were recorded in “Unrealized losses on available-for-sale investments, net of taxes” on the Company’s unaudited condensed consolidated statements of comprehensive loss. Realized gains (losses) from the sale of available-for-sale investments were recorded in “Other income, net” on the Company’s unaudited condensed consolidated statements of operations. The costs of securities sold are based on the specific identification method, if applicable. The Company reported the amortization of any premium and accretion of any discount resulting from the purchase of debt securities as a component of interest income.
The Company also reviews its available-for-sale securities on a regular basis to evaluate whether any security has experienced an other-than-temporary decline in fair value. Other-than-temporary declines in market value, if any, are recorded in “Other income, net” on the Company’s unaudited condensed consolidated statements of operations.
Restricted Cash
As of March 31, 2018, the Company’s “Restricted cash” primarily consisted of a $2.5 million of letter of credit relating to the lease of the Company’s new office building. As of December 31, 2017, the Company had certain non-U.S. dollar denominated deposits recorded as “Restrict cash” related to compliance with certain foreign contractual requirements.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, available-for-sale securities and accounts receivable.
Pursuant to the Company’s investment policy, substantially all of the Company’s cash, cash equivalents and available-for-sale securities are maintained at major financial institutions of high credit standing. The Company monitors the financial credit worthiness of the issuers of its investments and limits the concentration in individual securities and types of investments that exist within its investment portfolio. Generally, all of the Company’s investments carry high credit quality ratings, which is in accordance with its investment policy. At March 31, 2018, the Company does not believe there is significant financial risk from non-performance by the issuers of the Company’s cash equivalents and short-term investments.
Concentrations of credit risk with respect to trade receivables exist. On a regular basis, including at the time of sale, the Company performs credit evaluations of its significant customers that it expects to sell to on credit terms. Generally, the Company does not require collateral from its customers to secure accounts receivable. To the extent that the Company determines specific invoices or customer accounts may be uncollectible, the Company establishes an allowance for doubtful accounts against the accounts receivable on its unaudited condensed consolidated balance sheets and records a charge on its unaudited condensed consolidated statements of operations as a component of selling, general and administrative expenses.
The Company had three customers that accounted for more than 10% of the Company’s outstanding trade receivables at both March 31, 2018 and December 31, 2017. These customers cumulatively represented approximately 57% and 53% of the Company’s outstanding trade receivables at March 31, 2018 and December 31, 2017, respectively. To date, the Company has not experienced collection difficulties from these customers.
Inventories
 At March 31, 2018 and December 31, 2017, inventory consisted of work-in-process and finished goods only. Finished goods include INTERCEPT disposable kits, illuminators, and certain replacement parts for the illuminators. Platelet and plasma systems’ disposable kits generally have 18 to 24 months shelf lives from the date of manufacture. Illuminators and replacement parts do not have regulated expiration dates. Work-in-process includes certain components that are manufactured over a protracted length of time before being
9

sold to, and ultimately incorporated and asse mbled by Fresenius Kabi Deutschland GmbH or Fresenius, Inc. (with their affiliates, “Fresenius”) into the finished INTERCEPT disposable kits. The Company maintains an inventory balance based on its current sales projections, and at each reporting period, t he Company evaluates whether its work-in-process inventory would be sold to Fresenius for production of finished units in order to sell to existing and prospective customers within the next twelve-month period. It is not customary for the Company’s product ion cycle for inventory to exceed twelve months. Instead, the Company uses its best judgment to factor in lead times for the production of its work-in-process and finished units to meet the Company’s forecasted demands. If actual results differ from those estimates, work-in-process inventory could potentially accumulate for periods exceeding one year. At March 31, 2018 and December 31, 2017 , the Company classified its work-in-process inventory as a current asset on its consolidated balance sheets based on i ts evaluation that the work-in-process inventory would be sold to Fresenius for finished disposable kit production within each respective subsequent twelve-month period .
Inventory is recorded at the lower of cost, determined on a first-in, first-out basis, or net realizable value. The Company uses significant judgment to analyze and determine if the composition of its inventory is obsolete, slow-moving or unsalable and frequently reviews such determinations. The Company writes down specifically identified unusable, obsolete, slow-moving, or known unsalable inventory that has no alternative use in the period that it is first recognized by using a number of factors including product expiration dates, open and unfulfilled orders, and sales forecasts. Any write-down of its inventory to net realizable value establishes a new cost basis and will be maintained even if certain circumstances suggest that the inventory is recoverable in subsequent periods. Costs associated with the write-down of inventory are recorded in “Cost of product revenue” on the Company’s consolidated statements of operations. At March 31, 2018 and December 31, 2017, the Company had $0.3 million and $0.1 million, respectively, recorded for potential obsolete, expiring or unsalable product.
Property and Equipment, net
Property and equipment is comprised of furniture, equipment, leasehold improvements, construction-in-progress, information technology hardware and software and is recorded at cost. At the time the property and equipment is ready for its intended use, it is depreciated on a straight-line basis over the estimated useful lives of the assets (generally three to five years). Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the improvements.
Goodwill and Intangible Assets, net
Intangible assets, net, which include a license for the right to commercialize the INTERCEPT Blood System in Asia, are subject to ratable amortization over the original estimated useful life of ten years. Accumulated amortization of intangible assets as of March 31, 2018 and December 31, 2017, was $1.53 million and $1.48 million, respectively. The change in intangible assets, net during three months ended March 31, 2018, was a result of amortization expense. Goodwill is not amortized but instead is subject to an impairment test performed on an annual basis, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Such impairment analysis is performed on August 31 of each fiscal year, or more frequently if indicators of impairment exist. The test for goodwill impairment may be assessed using qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than the carrying amount, the Company must then proceed with performing the quantitative goodwill impairment test. The Company may choose not to perform the qualitative assessment to test goodwill for impairment and proceed directly to the quantitative impairment test; however, the Company may revert to the qualitative assessment to test goodwill for impairment in any subsequent period. The quantitative goodwill impairment test compares the fair value of each reporting unit with its respective carrying amount, including goodwill. The Company has determined that it operates in one reporting unit and estimates the fair value of its one reporting unit using the enterprise approach under which it considers the quoted market capitalization of the Company as reported on the Nasdaq Global Market. The Company considers quoted market prices that are available in active markets to be the best evidence of fair value. The Company also considers other factors, which include future forecasted results, the economic environment and overall market conditions. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess, limited to the carrying amount of goodwill in the Company’s one reporting unit.
 
The Company performs an impairment test on its intangible assets if certain events or changes in circumstances occur which indicate that the carrying amounts of its intangible assets may not be recoverable. If the intangible assets are not recoverable, an impairment loss would be recognized by the Company based on the excess amount of the carrying value of the intangible assets over its fair value. During the three months ended March 31, 2018 and 2017, there were no impairment charges recognized related to the acquired intangible assets.
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Long-lived Assets
The Company evaluates its long-lived assets for impairment by continually monitoring events and changes in circumstances that could indicate carrying amounts of its long-lived assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the expected undiscounted future cash flows are less than the carrying amount of these assets, the Company then measures the amount of the impairment loss based on the excess of the carrying amount over the fair value of the assets.
Foreign Currency Remeasurement
The functional currency of the Company’s foreign subsidiary is the U.S. dollar. Monetary assets and liabilities denominated in foreign currencies are remeasured in U.S. dollars using the exchange rates at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are remeasured in U.S. dollars using historical exchange rates. Product revenues and expenses are remeasured using average exchange rates prevailing during the period. Remeasurements are recorded in the Company’s consolidated statements of operations.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant-date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period, and is adjusted for estimated forfeitures. To the extent that stock options contain performance criteria for vesting, stock-based compensation is recognized once the performance criteria are probable of being achieved.
For stock-based awards issued to non-employees, the measurement date at which the fair value of the stock-based award is measured to be the earlier of (i) the date at which a commitment for performance by the grantee to earn the equity instrument is reached or (ii) the date at which the grantee’s performance is complete. The Company recognizes stock-based compensation expense for the fair value of the vested portion of the non-employee stock-based awards in its consolidated statements of operations.
See Note 8 for further information regarding the Company’s stock-based compensation expense.
Income Taxes
The provision for income taxes is accounted for using an asset and liability approach, under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company does not recognize tax positions that do not have a greater than 50% likelihood of being recognized upon review by a taxing authority having full knowledge of all relevant information. Use of a valuation allowance is not an appropriate substitute for derecognition of a tax position. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax expense. To date, the Company has not recognized any interest and penalties in its unaudited condensed consolidated statements of operations, nor has it accrued for or made payments for interest and penalties. Although the Company believes it more likely than not that a taxing authority would agree with its current tax positions, there can be no assurance that the tax positions the Company has taken will be substantiated by a taxing authority if reviewed. The Company’s U.S. federal tax returns for years 1998 through 2016 and California tax returns for years through 2016 remain subject to examination by the taxing jurisdictions due to unutilized net operating losses and research credits. The Company continues to carry a full valuation allowance on substantially all of its net deferred tax assets.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share gives effect to all potentially dilutive common shares outstanding for the period. The potentially dilutive securities include stock options, employee stock purchase plan rights and restricted stock units, which are calculated using the treasury stock method.
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For the three months ended March 31, 2018 and 2017 , all potentially dilutive securities outstanding have been excluded from the computation of dilutive weighted average shares outstanding because such securities have an antidilutive impact due to losses reported.
 
The table below presents shares underlying stock options, restricted stock units, and employee stock purchase plan rights that were excluded from the calculation of the weighted average number of shares outstanding used for the calculation of diluted net loss per share. These are excluded from the calculation due to their anti-dilutive effect for the three months ended March 31, 2018 and 2017 (shares in thousands):
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2018	 	 	2017	 	
Weighted average number of anti-dilutive potential shares:	 	 	 	 	 	 	 	 	
Stock options	 	 	17,879	 	 	 	16,669	 	
Restricted stock units	 	 	1,579	 	 	 	966	 	
Employee stock purchase plan rights	 	 	92	 	 	 	—	 	
Total	 	 	19,550	 	 	 	17,635	 	
 
Guarantee and Indemnification Arrangements
The Company recognizes the fair value for guarantee and indemnification arrangements issued or modified by the Company. In addition, the Company monitors the conditions that are subject to the guarantees and indemnifications in order to identify if a loss has occurred. If the Company determines it is probable that a loss has occurred, then any such estimable loss would be recognized under those guarantees and indemnifications. Some of the agreements that the Company is a party to contain provisions that indemnify the counter party from damages and costs resulting from claims that the Company’s technology infringes the intellectual property rights of a third party or claims that the sale or use of the Company’s products have caused personal injury or other damage or loss. The Company has not received any such requests for indemnification under these provisions and has not been required to make material payments pursuant to these provisions.
The Company generally provides for a one-year warranty on certain of its INTERCEPT blood-safety products covering defects in materials and workmanship. The Company accrues costs associated with warranty obligations when claims become known and are estimable. The Company has not experienced significant or systemic warranty claims nor is it aware of any existing current warranty claims. Accordingly, the Company had not accrued for any future warranty costs for its products at March 31, 2018 and December 31, 2017.
Fair Value of Financial Instruments
The Company applies the provisions of fair value relating to its financial assets and liabilities. The carrying amounts of accounts receivables, accounts payable, and other accrued liabilities approximate their fair value due to the relative short-term maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, the Company believes the fair value of its debt approximates their carrying amounts. The Company measures and records certain financial assets and liabilities at fair value on a recurring basis, including its available-for-sale securities. The Company classifies instruments within Level 1 if quoted prices are available in active markets for identical assets, which include the Company’s cash accounts and money market funds. The Company classifies instruments in Level 2 if the instruments are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. These instruments include the Company’s corporate debt and U.S. government agency securities holdings. The available-for-sale securities are held by a custodian who obtains investment prices from a third party pricing provider that uses standard inputs (observable in the market) to models which vary by asset class. The Company classifies instruments in Level 3 if one or more significant inputs or significant value drivers are unobservable. The Company assesses any transfers among fair value measurement levels at the end of each reporting period.
See Note 2 for further information regarding the Company’s valuation of financial instruments.
New Accounting Pronouncements
 In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted the new accounting standard
12

on January 1, 2018, using the modified retrospective method, and the adoption had no impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10) , which requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, this ASU eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The Company adopted this ASU on January 1, 2018, and the adoption had no impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases , which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The standard is effective for annual periods beginning after December 15, 2018, and interim periods thereafter, with early application permitted. The Company plans to adopt this ASU on January 1, 2019, and is currently assessing the future impact of this ASU on its consolidated financial statements. The Company anticipates that the Company’s operating lease commitments will be subject to the new standard. The Company will recognize right-of-use assets and lease liabilities on the Company’s consolidated balance sheets upon the adoption of this ASU, which will increase the Company’s total assets and total liabilities.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. The standard is effective for annual periods beginning after December 15, 2019, and interim periods thereafter, with early application permitted. The Company plans to adopt this ASU on January 1, 2020, using the modified retrospective transition method. The Company is currently assessing the future impact of this ASU on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718) : Scope of Modification Accounting , which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company adopted this ASU on January 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Note 2. Available-for-sale Securities and Fair Value on Financial Instruments
Available-for-sale Securities
The following is a summary of available-for-sale securities at March 31, 2018 (in thousands):
 	 	March 31, 2018	 	
 	 	Amortized Cost	 	 	Gross
Unrealized Gain	 	 	Gross
Unrealized Loss	 	 	Fair Value	 	
Money market funds	 	$	2,487	 	 	$	—	 	 	$	—	 	 	$	2,487	 	
United States government agency securities	 	 	16,953	 	 	 	—	 	 	 	(39	)	 	 	16,914	 	
Corporate debt securities	 	 	74,461	 	 	 	—	 	 	 	(387	)	 	 	74,074	 	
Total available-for-sale securities	 	$	93,901	 	 	$	—	 	 	$	(426	)	 	$	93,475	 	
 
The following is a summary of available-for-sale securities at December 31, 2017 (in thousands):
 	 	December 31, 2017	 	
 	 	Amortized Cost	 	 	Gross
Unrealized Gain	 	 	Gross
Unrealized Loss	 	 	Fair Value	 	
Money market funds	 	$	3,758	 	 	$	—	 	 	$	—	 	 	$	3,758	 	
United States government agency securities	 	 	11,252	 	 	 	—	 	 	 	(24	)	 	 	11,228	 	
Corporate debt securities	 	 	35,858	 	 	 	—	 	 	 	(73	)	 	 	35,785	 	
Total available-for-sale securities	 	$	50,868	 	 	$	—	 	 	$	(97	)	 	$	50,771	 	
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Available-for-sale securities at March 31, 2018 and December 31, 2017, consisted of the following by contractual maturity (in thousands):
 	 	March 31, 2018	 	 	December 31, 2017	 	
 	 	Amortized Cost	 	 	Fair Value	 	 	Amortized Cost	 	 	Fair Value	 	
One year or less	 	$	31,278	 	 	$	31,175	 	 	$	38,836	 	 	$	38,781	 	
Greater than one year and less than five years	 	 	62,623	 	 	 	62,300	 	 	 	12,032	 	 	 	11,990	 	
Total available-for-sale securities	 	$	93,901	 	 	$	93,475	 	 	$	50,868	 	 	$	50,771	 	
 
The following tables show all available-for-sale marketable securities in an unrealized loss position for which an other-than-temporary impairment has not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
 
 	March 31, 2018	 	
 	Less than 12 Months	 	 	12 Months or Greater	 	 	Total	 	
 	Fair Value	 	 	Unrealized Loss	 	 	Fair Value	 	 	Unrealized Loss	 	 	Fair Value	 	 	Unrealized Loss	 	
United States government agency securities	$	16,914	 	 	$	(39	)	 	$	—	 	 	$	—	 	 	$	16,914	 	 	$	(39	)	
Corporate debt securities	 	72,824	 	 	 	(387	)	 	 	—	 	 	 	—	 	 	 	72,824	 	 	 	(387	)	
Total available-for-sale securities	$	89,738	 	 	$	(426	)	 	$	—	 	 	$	—	 	 	$	89,738	 	 	$	(426	)	

 	December 31, 2017	 	
 	Less than 12 Months	 	 	12 Months or Greater	 	 	Total	 	
 	Fair Value	 	 	Unrealized Loss	 	 	Fair Value	 	 	Unrealized Loss	 	 	Fair Value	 	 	Unrealized Loss	 	
United States government agency securities	$	8,729	 	 	$	(24	)	 	$	—	 	 	$	—	 	 	$	8,729	 	 	$	(24	)	
Corporate debt securities	 	35,785	 	 	 	(73	)	 	 	—	 	 	 	—	 	 	 	35,785	 	 	 	(73	)	
Total available-for-sale securities	$	44,514	 	 	$	(97	)	 	$	—	 	 	$	—	 	 	$	44,514	 	 	$	(97	)	
 
As of March 31, 2018, the Company considered the declines in market value of its marketable securities investment portfolio to be temporary in nature and did not consider any of its investments other-than-temporarily impaired. The Company typically invests in highly-rated securities, and its investment policy limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s cost basis. During the three months ended March 31, 2018 and 2017, the Company did not recognize any other-than-temporary impairment loss. The Company has no current requirement or intent to sell the securities in an unrealized loss position. The Company expects to recover up to (or beyond) the initial cost of investment for securities held.
The Company recognized zero and less than $0.1 million of realized gains from the sale of available-for-sale investments during the three months ended March 31, 2018 and 2017, respectively, which were reclassified out of accumulated other comprehensive income into “Other income, net” on the Company’s consolidated statements of operations. The Company did not record any gross realized losses from the sale or maturity of available-for-sale investments during the three months ended March 31, 2018 and 2017. 
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Fair Value Disclosures
The Company uses certain assumptions that market participants would use to determine the fair value of an asset or liability in pricing the asset or liability in an orderly transaction between market participants at the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:
•	Level 1: Quoted prices in active markets for identical instruments	
•	Level 2: Other significant observable inputs (including quoted prices in active markets for similar instruments)	
•	Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain investments)	
Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.
To estimate the fair value of Level 2 debt securities as of March 31, 2018, the Company’s primary pricing service relies on inputs from multiple industry-recognized pricing sources to determine the price for each investment. Corporate debt and U.S. government agency securities are systematically priced by this service as of the close of business each business day. If the primary pricing service does not price a specific asset a secondary pricing service is utilized.
The fair values of the Company’s financial assets and liabilities were determined using the following inputs at March 31, 2018 (in thousands):
 	 	Balance sheet	 	 	 	 	 	Quoted
Prices in
Active
Markets for Identical
Assets	 	 	Significant
Other
Observable
Inputs	 	 	Significant Unobservable Inputs	 	
 	 	classification	 	Total	 	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	
Money market funds	 	Cash and cash equivalents	 	$	2,487	 	 	$	2,487	 	 	$	—	 	 	$	—	 	
United States government agency securities	 	Short-term investments	 	 	16,914	 	 	 	—	 	 	 	16,914	 	 	 	—	 	
Corporate debt securities	 	Short-term investments	 	 	74,074	 	 	 	—	 	 	 	74,074	 	 	 	—	 	
Total financial assets	 	 	 	$	93,475	 	 	$	2,487	 	 	$	90,988	 	 	$	—	 	
 
The fair values of the Company’s financial assets and liabilities were determined using the following inputs at December 31, 2017 (in thousands):
 	 	Balance sheet	 	 	 	 	 	Quoted
Prices in
Active
Markets for Identical
Assets	 	 	Significant
Other
Observable
Inputs	 	 	Significant Unobservable Inputs	 	
 	 	classification	 	Total	 	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	
Money market funds	 	Cash and cash equivalents	 	$	3,758	 	 	$	3,758	 	 	$	—	 	 	$	—	 	
United States government agency securities	 	Short-term investments	 	 	11,228	 	 	 	—	 	 	 	11,228	 	 	 	—	 	
Corporate debt securities	 	Short-term investments	 	 	35,785	 	 	 	—	 	 	 	35,785	 	 	 	—	 	
Total financial assets	 	 	 	$	50,771	 	 	$	3,758	 	 	$	47,013	 	 	$	—	 	
 
The Company did not have any transfers among fair value measurement levels during the three months ended March 31, 2018.

Note 3. Inventories
Inventories at March 31, 2018 and December 31, 2017, consisted of the following (in thousands):
 
 	 	March 31, 2018	 	 	December 31, 2017	 	
Work-in-process	 	$	3,434	 	 	$	4,299	 	
Finished goods	 	 	9,731	 	 	 	10,158	 	
Total inventories	 	$	13,165	 	 	$	14,457	 	
 
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Note 4. Accrued Liabilities
Accrued liabilities at March 31, 2018 and December 31, 2017, consisted of the following (in thousands):
 
 	 	March 31, 2018	 	 	December 31, 2017	 	
Accrued compensation and related costs	 	$	5,613	 	 	$	7,372	 	
Accrued professional services	 	 	3,006	 	 	 	2,605	 	
Accrued customer obligations	 	 	696	 	 	 	481	 	
Accrued insurance premiums	 	 	254	 	 	 	507	 	
Other accrued expenses	 	 	788	 	 	 	747	 	
Total accrued liabilities	 	$	10,357	 	 	$	11,712	 	

Note 5. Debt
Debt at March 31, 2018, consisted of the following (in thousands):
 
 	 	March 31, 2018	 	
 	 	Principal	 	 	Unamortized Discount	 	 	Total	 	
Loan and Security Agreement	 	$	30,000	 	 	$	(184	)	 	$	29,816	 	
Less: debt - current	 	 	(1,429	)	 	 	—	 	 	 	(1,429	)	
Debt - non-current	 	$	28,571	 	 	$	(184	)	 	$	28,387	 	

Debt at December 31, 2017, consisted of the following (in thousands):
 
 	 	December 31, 2017	 	
 	 	Principal	 	 	Unamortized Discount	 	 	Net Carrying
Value	 	
Loan and Security Agreement	 	$	30,000	 	 	$	(202	)	 	$	29,798	 	
Less: debt - current	 	 	—	 	 	 	—	 	 	 	—	 	
Debt - non-current	 	$	30,000	 	 	$	(202	)	 	$	29,798	 	

Principal and interest payments on debt at March 31, 2018, are expected to be as follows (in thousands):
 
Year ended December 31,	 	Principal	 	 	Interest	 	 	Total	 	
2018	 	$	—	 	 	$	2,062	 	 	$	2,062	 	
2019	 	 	7,857	 	 	 	2,447	 	 	 	10,304	 	
2020	 	 	8,571	 	 	 	1,673	 	 	 	10,244	 	
2021	 	 	8,572	 	 	 	882	 	 	 	9,454	 	
2022	 	 	5,000	 	 	 	2,552	 	 	 	7,552	 	
Total	 	$	30,000	 	 	$	9,616	 	 	$	39,616	 	
 
Loan and Security Agreement
Prior to December 31, 2016, the Company maintained a five year loan and security agreement (the “Term Loan Agreement”) with Oxford Finance LLC (“Oxford”), under which the Company borrowed $20.0 million. The Company received $10.0 million from the first tranche (“Term Loan A”) in June 2014. The second tranche of $10.0 million (“Term Loan B”) was drawn in June 2015. Term Loan A bore an interest rate of 6.95%. Term Loan B bore an interest rate of 7.01%. Term Loans A and B were set to mature on June 1, 2019, with various interest only periods.
 On April 27, 2017, the Term Loan Agreement was amended to include an additional interest-only period for all advances under the Term Loan Agreement. As amended, the Company was required to make interest only payments from May 2017 through December 2017, followed by eighteen months of equal principal and interest payments thereafter. The Company determined that each of these amendments to the Term Loan Agreement resulted in a debt modification. As a result, the accounting treatment for the Term Loan continued under the interest method, with a new effective interest rate based on revised cash flows calculated on a prospective basis
16

upon the execution of each of these ame ndments to the Term Loan Agreement. The Company was also required to make a final payment equal to 7% of the principal amounts of the Term Loans drawn payable on the earlier to occur of maturity or prepayment.  
On July 31, 2017 (the “Closing Date”), the Company entered into an amended and restated loan and security agreement (the “Amended Credit Agreement”) with Oxford, which amends and restates the Term Loan Agreement in its entirety. The Amended Credit Agreement provides for secured growth capital term loans of up to $40.0 million (the “2017 Term Loans”). All of the Company’s current and future assets, excluding its intellectual property and 35% of the Company’s investment in Cerus Europe B.V., are secured for its borrowings under the Amended Credit Agreement. The 2017 Term Loans are available in two tranches. The first tranche of $30.0 million (“2017 Term Loan A”) was drawn by the Company on July 31, 2017, with the proceeds used in part to repay in full all of the outstanding term loans under the Term Loan Agreement of $17.6 million and the final payment of the Term Loan Agreement of $1.4 million. The second tranche of $10.0 million (“2017 Term Loan B”) will be made available to the Company upon the Company’s achieving consolidated trailing six-month revenues as defined in the agreement (the “Revenue Milestone”). If the Revenue Milestone is achieved, the Company may draw the 2017 Term Loan B through the earlier of (i) January 31, 2019, and (ii) the date which is 60 days after the achievement of the Revenue Milestone. The Company achieved the Revenue Milestone by March 31, 2018, and therefore 2017 Term Loan B is available to be drawn. The Company’s ability to draw the 2017 Term Loan B expires on May 14, 2018. The 2017 Term Loans require interest-only payments through February 1, 2019, followed by 42 monthly payments of equal principal plus declining interest payments. However, if the Company draws the 2017 Term Loan B, then the interest-only period will be extended through August 1, 2019, and the amortization period will be reduced to 36 months. Interest on the 2017 Term Loan A and the 2017 Term Loan B will bear interest at a rate equal to the greater of (i) 8.01% and (ii) the three-month U.S. LIBOR rate plus 6.72%. The interest rate on the 2017 Term Loan A at March 31, 2018, was approximately 9.03%. The Company will also be required to make a final payment fee of 8.00% of the principal amounts of the 2017 Term Loans. The Amended Credit Agreement contains certain nonfinancial covenants, with which the Company was in compliance at March 31, 2018.
 
Note 6. Commitments and Contingencies
Operating Leases
The Company leases its office facilities, located in Concord, California and Amersfoort, the Netherlands, and certain equipment and automobiles under non-cancelable operating leases with initial terms in excess of one year that require the Company to pay operating costs, property taxes, insurance and maintenance. The leases expire at various dates through 2029, with certain of the leases providing for renewal options, provisions for adjusting future lease payments based on the consumer price index, and the right to terminate the lease early. The Company’s leased facilities qualify as operating leases and as such, are not included on its consolidated balance sheets.
Future minimum non-cancelable payments under leases as of March 31, 2018, are as follows (in thousands):

Year ended December 31,	 	 	Lease Payments	 	
2018	 	 	$	1,235	 	
2019	 	 	 	3,135	 	
2020	 	 	 	2,259	 	
2021	 	 	 	2,110	 	
2022	 	 	 	2,141	 	
Thereafter	 	 	 	16,045	 	
Total	 	 	$	26,925	 	
 
Financed Leasehold Improvements
In 2010, the Company financed $1.1 million of leasehold improvements. The Company pays for the financed leasehold improvements as a component of rent and is required to reimburse its landlord over the remaining life of the respective leases. At March 31, 2018, the Company had an outstanding liability of $0.2 million related to these leasehold improvements, of which $0.1 million was reflected in “Accrued liabilities” and $0.1 million was reflected in “Other non-current liabilities” on the Company’s consolidated balance sheets.
Purchase Commitments
The Company is party to agreements with certain suppliers for certain components of the INTERCEPT Blood System. Certain of these agreements require minimum purchase commitments from the Company.

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Note 7 . Stockholders’ Equity
 
Public Offering of Common Stock
In January 2018, the Company issued and sold 14,030,000 shares of the Company’s common stock, par value $0.001 per share, at $4.10 per share in an underwritten public offering. The proceeds to the Company from this offering were approximately $57.2 million, net of the underwriting discount and other issuance costs.
Sales Agreement
On May 5, 2016, the Company entered into Amendment No. 2 to the Controlled Equity Offering SM Sales Agreement (as amended on May 5, 2016, the “Prior Cantor Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) that provided for the issuance and sale of shares of the Company’s common stock having an aggregate offering price of up to $132.2 million through Cantor. As a result of Amendment No. 2, at May 5, 2016, the Company had $70 million of common stock available to be sold under the Prior Cantor Agreement.
On August 4, 2017, the Company entered into Amendment No. 3 to the Cantor Agreement (as amended on August 4, 2017, the “Amended Cantor Agreement”). The Amended Cantor Agreement became effective on January 8, 2018, and provided for the issuance and sale of shares of the Company’s common stock having an aggregate offering price of up to $70.0 million through Cantor, which amount included the $31.4 million of unsold shares of common stock available for sale under the Prior Cantor Agreement immediately prior to the effectiveness of the Amended Cantor Agreement. Under the Amended Cantor Agreement, Cantor also acts as the Company’s sales agent and receives compensation based on an aggregate of 2% of the gross proceeds on the sale price per share of its common stock. The issuance and sale of these shares by the Company pursuant to the Amended Cantor Agreement are deemed an “at-the-market” offering and are registered under the Securities Act of 1933, as amended. During the three months ended March 31, 2018, 9,300 shares of the Company’s common stock were sold under the Amended Cantor Agreement for net proceeds of less than $0.1 million. At March 31, 2018, the Company had approximately $70.0 million of common stock available to be sold under the Amended Cantor Agreement.

Note 8. Stock-Based Compensation
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (the “Purchase Plan”), which is intended to qualify as an employee stock purchase plan within the meaning of Section 423(b) of the Internal Revenue Code. Under the Purchase Plan, the Company’s Board of Directors may authorize participation by eligible employees, including officers, in periodic offerings. Under the Purchase Plan eligible employee participants may purchase shares of common stock of the Company at a purchase price equal to 85% of the lower of the fair market value per share on the start date of the offering period or the fair market value per share on the purchase date. The Purchase Plan consists of a fixed offering period of 12 months with two purchase periods within each offering period. At March 31, 2018, the Company had 1.0 million shares available for future issuance.
2008 Equity Incentive Plan and Inducement Plan
 The Company also maintains an equity compensation plan to provide long-term incentives for employees, contractors, and members of its Board of Directors. The Company currently grants equity awards from one plan, the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan allows for the issuance of non-statutory and incentive stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, other stock-related awards, and performance awards which may be settled in cash, stock, or other property. On June 6, 2012 and June 12, 2013, the stockholders approved amendments to the 2008 Plan (collectively the “Amended 2008 Plan”) such that the Amended 2008 Plan had reserved for issuance an amount not to exceed 19.5 million shares. On June 10, 2015, the Company’s stockholders approved an amendment and restatement of the 2008 Plan that increased the aggregate number of shares of common stock authorized for issuance under the 2008 Plan by 5,000,000 shares. On June 7, 2017, the Company’s stockholders approved an amendment and restatement of the 2008 Plan that increased the aggregate number of shares of common stock authorized for issuance under the 2008 Plan by 6,000,000 shares. Awards under the Amended 2008 Plan generally have a maximum term of 10 years from the date of the award. The Amended 2008 Plan generally requires options to be granted at 100% of the fair market value of the Company’s common stock subject to the option on the date of grant. Options granted by the Company to employees generally vest over four years. RSUs are measured based on the fair market value of the underlying stock on the date of grant and will generally vest over three years. Performance-based stock or cash awards granted under the Amended 2008 Plan are limited to either 500,000 shares of common stock or $1.0 million per recipient per calendar year. The attainment of any performance-based awards granted shall be conclusively determined by a committee designated by the Company’s Board of Directors. At March 31, 2018, 20,000 performance-based stock options were outstanding.  On August 31, 2016, the Company’s  Board of Directors adopted the Cerus Corporation Inducement Plan (the “Inducement Plan”)  , and reserved 1,250,000 shares of its common stock under the Inducement Plan to be used exclusively for the issuance of non-statutory stock options and restricted stock units to individuals who
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were not previously employees or directors of the Company, or who had experienced a bona fide period of non-employment, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the N asdaq Listing Rules. The Inducement Plan was approved by the Company’s Board of Directors without stockholder approval pursuant to Rule 5635(c )(4), and the terms and conditions of the Inducement Plan are substantially similar to the Amended 2008 Plan . Effective June 7, 2017, the Company no longer issues shares from the Inducement Plan.
At March 31, 2018, the Company had an aggregate of approximately 24.9 million shares of its common stock subject to outstanding options or RSUs, or remaining available for future issuance under the Amended 2008 Plan and the Inducement Plan, of which approximately 18.9 million shares and 2.0 million shares were subject to outstanding options and outstanding RSUs, respectively, and approximately 4.0 million shares were available for future issuance under the Amended 2008 Plan. The Company’s policy is to issue new shares of common stock upon the exercise of options or vesting of RSUs.
Activity under the Company’s equity incentive plans related to stock options is set forth below (in thousands except per share amounts):
 
 	 	Number of
Options Outstanding	 	 	Weighted
Average
Exercise
Price per
Share	 	
Balances at December 31, 2017	 	 	17,138	 	 	$	4.27	 	
Granted	 	 	2,634	 	 	 	4.32	 	
Exercised	 	 	(329	)	 	 	2.70	 	
Forfeited	 	 	(412	)	 	 	4.60	 	
Expired	 	 	(145	)	 	 	6.00	 	
Balances at March 31, 2018	 	 	18,886	 	 	 	4.28	 	
 
Activity under the Company’s equity incentive plans related to RSUs is set forth below (in thousands except per share amounts):
 
 	 	Number of
Shares
Outstanding	 	 	Weighted
Average
Grant Date
Fair Value
per Share	 	
Balances at December 31, 2017	 	 	1,256	 	 	$	4.53	 	
Granted	 	 	1,296	 	 	 	4.32	 	
Vested	 	 	(435	)	 	 	4.65	 	
Forfeited	 	 	(94	)	 	 	4.11	 	
Balances at March 31, 2018	 	 	2,023	 	 	 	4.39	 	
 
The Company uses the Black-Scholes option pricing model to determine the grant-date fair value of stock options and employee stock purchase plan rights. The Black-Scholes option pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables, which include the expected term of the grants, actual and projected employee stock option exercise behaviors, including forfeitures, the Company’s expected stock price volatility, the risk-free interest rate and expected dividends. The Company recognizes the grant-date fair value of the stock award as stock-based compensation expense on a straight-line basis over the requisite service period, which is the vesting period, and is adjusted for estimated forfeitures.

Note 9. Income Taxes
The Company’s income tax expense of less than $0.1 million for the three months ended March 31, 2018 and 2017 relates primarily to the operating income of the Company’s Cerus Europe B.V. subsidiary.
 
Note 10. Development and License Agreements
Agreements with Fresenius
 Fresenius manufactures and supplies the platelet and plasma systems to the Company under a supply agreement (the “Supply Agreement”). Fresenius is obligated to sell, and the Company is obligated to purchase, finished disposable kits for the Company’s platelet and plasma systems and the Company’s red blood cell system product candidate (the “RBC Sets”). The Supply Agreement permits the Company to purchase platelet and plasma systems and RBC Sets from third parties to the extent necessary to maintain supply qualifications with such third parties or where local or regional manufacturing is needed to obtain product registrations or sales.
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Pricing terms per unit are initially fixed and decline at specified annual production levels, and are subject to certain adjustments after the initial pricing term. Under the Supply Agreement, the Company maintains the amounts due from the components sold to Fresenius as a current asset on its accompanying consolidated balance sheets until such time as the Company purchases finished disposable kits using those components.
The Supply Agreement also requires the Company to make payments to support certain projects Fresenius has and will perform on behalf of the Company related to certain R&D activities and manufacturing efficiency activities for which certain assets have been established in the Company’s condensed consolidated balance sheets. The manufacturing efficiency asset is expensed on a straight line basis over the life of the Supply Agreement. The prepaid asset related to amounts paid up front for the R&D activities to be conducted by Fresenius on behalf of the Company is expensed over the period which such activities occur. The following table summarizes the amounts of prepaid R&D asset and manufacturing efficiency asset at March 31, 2018 and December 31, 2017 (in thousands).
 
 	 	March 31, 2018	 	 	December 31, 2017	 	
Prepaid R&D asset - current (1)	 	$	84	 	 	$	114	 	
Prepaid R&D asset - non-current (2)	 	 	2,155	 	 	 	2,162	 	
Manufacturing efficiency asset (2)	 	 	1,778	 	 	 	1,839	 	
 
(1)	Included in “Other current assets” in the Company's consolidated balance sheets.	
(2)	Included in “Other assets” in the Company's consolidated balance sheets.	
 
The initial term of the Supply Agreement extends through July 1, 2025 (the “Initial Term”) and is automatically renewed thereafter for additional two year terms (each, a “Renewal Term”), subject to termination by either party upon (i) two years written notice prior to the expiration of the Initial Term or (ii) one year written notice prior to the expiration of any Renewal Term. Under the Supply Agreement, the Company has the right, but not the obligation, to purchase certain assets and assume certain liabilities from Fresenius.
The Company made payments to Fresenius of $5.4 million and $3.2 million relating to the manufacturing of the Company’s products during the three months ended March 31, 2018 and 2017, respectively. The following table summarizes the amounts of the Company’s payables to Fresenius and receivables from Fresenius at March 31, 2018 and December 31, 2017 (in thousands).
 
 	 	March 31, 2018	 	 	December 31, 2017	 	
Payables to Fresenius (1)	 	$	4,930	 	 	$	4,687	 	
Receivables from Fresenius (2)	 	 	1,400	 	 	 	231	 	
 
(1)	Included in “Accounts Payable” and “Accrued Liabilities” in the Company's consolidated balance sheets.	
(2)	Included in “Other current assets” in the Company's consolidated balance sheets.	
 
Agreement with BARDA
In June 2016, the Company entered into an agreement with BARDA to support the Company’s development and implementation of pathogen reduction technology for platelet, plasma, and red blood cells.
The five-year agreement with BARDA and its subsequent modifications include a base period (the “Base Period”) and options (each an “Option Period”) with committed funding of up to $88.2 million for clinical development of the INTERCEPT Blood System for red blood cells (the “red blood cell system”), and the potential for the exercise by BARDA of subsequent Option Periods that, if exercised by BARDA and completed, would bring the total funding opportunity to $186.2 million over the five-year contract period. If exercised by BARDA, subsequent Option Periods would fund activities related to broader implementation of the platelet and plasma system or the red blood cell system in areas of Zika virus risk, clinical and regulatory development programs in support of the potential licensure of the red blood cell system in the U.S., and development, manufacturing and scale-up activities for the red blood cell system. The Company is responsible for co-investment of $5.0 million and would be responsible for an additional $9.6 million, if certain Option Periods are exercised. BARDA will make periodic assessments of the Company’s progress and the continuation of the agreement is based on the Company’s success in completing the required tasks under the Base Period and each exercised Option Period. BARDA has rights under certain contract clauses to terminate the agreement, including the ability to terminate the agreement for convenience at any time.
Under the contract, the Company is reimbursed and recognizes revenue as allowable direct contract costs are incurred plus allowable indirect costs, based on approved provisional indirect billing rates, which permit recovery of fringe benefits, overhead and general and administrative expenses. As of March 31, 2018 and December 31, 2017, $2.0 million and $1.4 million, respectively, of billed and unbilled amounts were included in accounts receivable on the Company’s condensed consolidated balance sheets related to BARDA.
Note 11. Segment, Customer and Geographic Information
 The Company continues to operate in only one segment, blood safety. The Company’s chief executive officer is the chief operating decision maker who evaluates performance based on the net revenues and operating loss of the blood safety segment. The Company
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considers the sale of all of its INTERCEPT Blood System products to be similar in nature and function, and any revenue earned from services is minimal.
The Company’s operations outside of the U.S. include a wholly-owned subsidiary headquartered in Europe. The Company’s operations in the U.S. are responsible for the R&D and global and domestic commercialization of the INTERCEPT Blood System, while operations in Europe are responsible for the commercialization efforts of the platelet and plasma systems in Europe, the Commonwealth of Independent States and the Middle East. Product revenues are attributed to each region based on the location of the customer, and in the case of non-product revenues, on the location of the collaboration partner.
The Company had the following significant customer that accounted for more than 10% of the Company’s total product revenue, during the three months ended March 31, 2018 and 2017 (in percentages):
 
 	 	Three Months Ended	
 	 	March 31,	
 	 	2018	 	 	2017	
Établissement Français du Sang	 	41%	 	 	*	
 	 	 	 	 	 	 	
*   Represents an amount less than 10% of product revenue.	 	 	 	 	 	 	

 
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ITEM 2.	 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for the three months ended March 31, 2018 are not necessarily indicative of results that may occur in future periods.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, that involve risks and uncertainties. The forward-looking statements are contained principally in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Item 1A, “Risk Factors.” These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These forward-looking statements may include, but are not limited to, statements about:
 	•	future sales of and our ability to effectively commercialize and achieve market acceptance of the INTERCEPT Blood System, including our ability to comply with applicable United States, or U.S., and foreign laws, regulations and regulatory requirements;	
 	•	our ability to successfully complete development, receive regulatory approvals and commercialize extended storage cryoprecipitate or other plasma derived biological products using the INTERCEPT Blood System;	
 	•	our ability to manage the growth of our business and attendant cost increases, including in connection with the commercialization of the INTERCEPT Blood System in the U.S., as well as our ability to manage the risks attendant to our international operations;	
 	•	the timing or likelihood of regulatory submissions and approvals and other regulatory actions or interactions, including our anticipated CE mark submission for the red blood cell system;	
 	•	our ability to obtain and maintain regulatory approvals of the INTERCEPT Blood System;	
 	•	our ability to obtain adequate clinical and commercial supplies of the INTERCEPT Blood System from our sole source suppliers for a particular product or component they manufacture;	
 	•	the initiation, scope, rate of progress, results and timing of our ongoing and proposed preclinical and clinical trials of the INTERCEPT Blood System;	
 	•	the successful completion of our research, development and clinical programs and our ability to manage cost increases associated with preclinical and clinical development of the INTERCEPT Blood System;	
 	•	 the amount and availability of funding we may receive  under our agreement with the Biomedical Advanced Research and Development Authority, or BARDA;	
 	•	our ability to transition distribution of the INTERCEPT Blood System from third parties to a direct sales model in certain international markets;	
 	•	the ability of our products to inactivate the emerging viruses and other pathogens that we may target in the future;	
 	•	our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and	
 	•	our estimates regarding the sufficiency of our cash resources, our ability to continue as a going concern and our need for additional funding.	
 In some cases, you can identify forward-looking statements by terms such as “anticipate,” “will,” “believe,” “estimate,” “expect,” “plan,” “may,” “should,” “could,” “would,” “project,” “predict,” “potential,” and similar expressions intended to identify such forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks and uncertainties. There can be no assurance that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on our business, results of operations and financial condition. Certain important factors could cause actual results to differ materially from those discussed in such statements, including the rate of customer adoption in the U.S. and our ability to achieve market acceptance of our products in the U.S. and international markets, whether our preclinical and clinical data or data from commercial use will be considered sufficient by regulatory authorities to grant marketing approvals for our products or for product extensions or additional claims for our products, our ability to obtain reimbursement approvals for our products, our ability to complete the development and testing of additional configurations or redesigns of our products, our need for additional financing and our ability to access funding under our agreement
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with BARDA, the impacts of regulation of our products by domestic and foreign regulatory authorities, our limited experience in sales, marketing and regulatory support for the INTERCEPT Blood System, our reliance on Fresenius and third parties to manufacture certain components of t he INTERCEPT Blood System, incompatibility of our platelet system with some commercial platelet collection methods, our need to complete our red blood cell system’s commercial design, more effective product offerings by, or clinical setbacks of, our compet itors, product liability, our use of hazardous materials in the development of our products, business interruption due to earthquake, our expectation of continuing losses, protection of our intellectual property rights, volatility in our stock price, on-go ing compliance with the requirements of the Sarbanes-Oxley Act of 2002 and other factors discussed below and under the caption “Risk Factors” in Item 1A of this Quarterly Report on Form 10-Q. We discuss many of these risks in this Quarterly Report on Form 10-Q in greater detail in the section entitled “Risk Factors” under Part II, Item 1A below. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and ass umptions only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q and the documents that we incorporate by reference in and have filed as exhibits to this Quarterly Report on Form 10-Q completely. Our ac tual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update or revise any forward-looking statements to reflect new information or future events, even if new information becomes availabl e in the future. You should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements.
Overview
Since our inception in 1991, we have devoted substantially all of our efforts and resources to the research, development, clinical testing and commercialization of the INTERCEPT Blood System. The INTERCEPT Blood System is designed for three blood components: platelets, plasma and red blood cells. The INTERCEPT Blood System for platelets, or platelet system, and the INTERCEPT Blood System for plasma, or plasma system, have received CE marks and U.S. Food and Drug Administration, or FDA, approval and are being marketed and sold in a number of countries around the world. We sell both the platelet and plasma systems using our direct sales force and through distributors.
The platelet system is approved in the U.S. for ex vivo preparation of pathogen-reduced apheresis platelet components collected and stored in 100% plasma or InterSol in order to reduce the risk of transfusion-transmitted infection, or TTI, including sepsis, and to potentially reduce the risk of transfusion-associated graft versus host disease or TA-GVHD. As part of the FDA’s approval of the platelet system, we are required to successfully conduct and complete two post-approval studies - a haemovigilance study to evaluate the incidence of acute lung injury following transfusion of INTERCEPT treated platelets; and a recovery study of platelets treated with the platelet system that is currently in discussion with FDA. The plasma system is approved in the U.S. for ex vivo preparation of plasma in order to reduce the risk of TTI when treating patients requiring therapeutic plasma transfusion.
 The INTERCEPT Blood System for red blood cells, or the red blood cell system, is currently in development and has not been commercialized anywhere in the world. We announced the successful completion of our European Phase 3 clinical trial of our red blood cell system for acute anemia patients in January 2015, and in January 2018, we reported that the primary efficacy and safety endpoints were successfully achieved in our European Phase 3 clinical trial for chronic anemia patients. Based on the results of those trials, we plan to submit for CE mark approval in the European Union in the second half of 2018. In the U.S., we successfully completed a Phase 2 recovery and lifespan study in 2014. In 2017, we initiated a Phase 3 clinical, double-blind study, known as the RedeS study, to assess the safety and efficacy of INTERCEPT-treated red blood cells when compared to conventional red blood cells in regions impacted by the Zika virus epidemic. Also in 2017, we received investigational device exemption, or IDE, approval from the FDA to initiate a Phase 3 clinical trial, known as the ReCePI study, that is designed to evaluate the efficacy and safety of INTERCEPT-treated red blood cells in patients requiring transfusion for acute blood loss during surgery. In addition to successfully conducting and completing the RedeS and ReCePI studies, we will need to successfully conduct and complete an additional Phase 3 clinical trial for chronic anemia in the U.S. before the FDA will consider our red blood cell product for approval. We also understand that one or more additional in vitro studies will be required to be successfully completed and submitted to the FDA, prior to any initiation of a potential additional Phase 3 clinical trial. There can be no assurance that we will be able to successfully complete any such in vitro studies, nor can there be any assurance that we and the FDA will agree to any trial protocol we propose or that we will otherwise obtain FDA clearance to initiate a potential additional Phase 3 clinical trial. Although we plan to complete additional development activities to support an anticipated CE mark submission for the red blood cell system, such development activities could prolong development of our red blood cell system, and we do not expect to receive any regulatory approvals of our red blood cell system in the next twelve months, if ever. We must demonstrate an ability to define, test and meet acceptable specifications for our current Good Manufacturing Practice, or cGMP, manufactured compounds used to prepare INTERCEPT-treated red blood cells before we can submit and seek regulatory approval of our red blood cell system. We understand that while the data generated from our European Phase 3 clinical trials may be sufficient to receive CE mark approval, we may need to generate additional safety data from commercial use in order to achieve broad market acceptance. In addition, these trials may need to be supplemented by additional, successful Phase 3 clinical trials for approval in certain countries. If such additional Phase 3 clinical trials are required, they would likely need to demonstrate equivalency of INTERCEPT-treated red blood cells compared to conventional red blood cells and significantly lower lifespan for INTERCEPT-treated red blood cells compared to non-treated red blood cells may limit our ability to
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obtain any regulatory approvals for the red blood cell system. As part of our development activities, we will need to successfully complete a number of in vitro studies prior to receiving any regulatory approvals in Europe and certain additional activities, including successfully completing the RedeS and ReCePI studies and an additional Phase 3 clinical trial for chronic anemia in the U.S., prior to receiving any regulatory approvals in the U.S. Successful completion of these activitie s may require capital beyond that which we currently have or that may be available to us under our agreement with the BARDA, and we may be required to obtain additional capital in order to complete the development of and obtain any regulatory approvals for the red blood cell system. In addition, if we are unable to develop sufficient quantities of the active compounds for our products meeting defined quality and regulatory specifications or if our suppliers are not able to maintain regulatory compliance, we may experience delays in testing, conducting trials or obtaining approvals, and our product development costs would likely increase.
In 2016, we entered into a five-year agreement with BARDA, part of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response, to receive funding from BARDA to support the development of our red blood cell system, including clinical and regulatory development programs in support of potential licensure, and development, manufacturing and scale-up activities, as well as activities related to broader implementation of all three INTERCEPT systems in areas of Zika virus risk. The RedeS and ReCePI studies are being funded as part of our agreement with BARDA. Under the contract, BARDA reimburses us as allowable direct contract costs are incurred plus allowable indirect costs. See the discussion under “BARDA” below for more information.
Our near-term capital requirements are dependent on various factors, including operating costs and working capital investments associated with commercializing the INTERCEPT Blood System, including in connection with the continuing U.S. commercial launch of our platelet and plasma systems, costs to develop different configurations of existing products and new products, including our illuminator, costs associated with planning, enrolling and completing ongoing studies, and the post-approval studies we are required to conduct in connection with the FDA approval of the platelet system, costs associated with pursuing potential regulatory approvals in other geographies where we do not currently sell our platelet and plasma systems, costs associated with conducting in vitro studies and clinical development of our red blood cell system in Europe and the U.S., costs associated with performing the agreed-upon activities under our BARDA agreement, and costs related to creating, maintaining and defending our intellectual property. Our long-term capital requirements will also be dependent on the success of our sales efforts, competitive developments, the timing, costs and magnitude of our longer-term clinical trials and other development activities related to our platelet, plasma and red blood cell systems, including required post-approval studies for the platelet system, market preparedness and product launch activities for any of our products in geographies where we do not currently sell our products, and regulatory factors. Until we are able to generate a sufficient amount of product revenue and generate positive net cash flows from operations, which we may never do, meeting our long-term capital requirements is in large part reliant on continued access to funds under our BARDA agreement and the public and private equity and debt capital markets, as well as on collaborative arrangements with partners, augmented by cash generated from operations and interest income earned on the investment of our cash balances. While we believe that our available cash and cash equivalents and short-term investments, as well as cash received from product sales and under our agreement with BARDA, will be sufficient to meet our capital requirements for at least the next twelve months, if we are unable to generate sufficient product revenue, or access sufficient funds under our BARDA agreement or the public and private equity and debt capital markets, we may be unable to execute successfully on our operating plan. We have based our cash sufficiency estimate on assumptions that may prove to be incorrect. If our assumptions prove to be incorrect, we could consume our available capital resources sooner than we currently expect or in excess of amounts than we currently expect, which could adversely affect our commercialization and clinical development activities.
We have borrowed and in the future may borrow additional capital from institutional and commercial banking sources to fund future growth, including pursuant to our amended and restated loan and security agreement, or the Amended Credit Agreement, with Oxford Finance, as described below, or potentially pursuant to new arrangements with different lenders. We may borrow funds on terms that may include restrictive covenants, including covenants that restrict the operation of our business, liens on assets, high effective interest rates, financial performance covenants and repayment provisions that reduce cash resources and limit future access to capital markets. In addition, we expect to continue to opportunistically seek access to the equity capital markets to support our development efforts and operations. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders.
 As a result of economic conditions, general global economic uncertainty, political change, and other factors, we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. If we are unable to raise additional capital due to the volatile global financial markets, general economic uncertainty or other factors, we may need to curtail planned development or commercialization activities. In addition, we may need to obtain additional funds to complete development activities for the red blood cell system necessary for potential regulatory approval in Europe, if costs are higher than anticipated or we encounter delays. We may need to obtain additional funding to conduct additional randomized controlled clinical trials for existing or new products, particularly if we are unable to access any additional portions of the funding contemplated
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by our BARDA agreement, and we may choose to defer such activities until we can obtain s ufficient additional funding or, at such time, our existing operations provide sufficient cash flow to conduct these trials .
Although we received FDA approval of our platelet and plasma systems in December 2014, our U.S. commercial efforts in 2018 will continue to be largely focused on implementing INTERCEPT to customers with whom we have previously signed agreements and continuing to develop awareness of INTERCEPT’s product profile relative to other platelet and plasma products, including conventional, un-treated components. Significant product revenue from customers in the U.S. may not occur, if at all, until we have been able to successfully implement the platelet and plasma systems and demonstrate that they are economical, safe and efficacious for potential customers.
Outside of the U.S., we recognize product revenues from the sale of our platelet and plasma systems in a number of countries around the world including those in Europe, the Commonwealth of Independent States, or CIS, and the Middle East. In 2018, we plan to focus commercial efforts on supporting continued use of INTERCEPT by existing customers and supporting the national adoption of the platelet system in France. However, since no purchase volume commitments have been made by the Établissement Français du Sang, or EFS, significant product revenue from the French market may not occur or may not consistently occur quarter-over-quarter. National deployment of the INTERCEPT Blood System for platelets throughout France will require a coordinated and highly managed roll-out and any set back or failure could negatively impact the timing and success of adoption. We cannot provide any assurance that national deployment of INTERCEPT in France would be sustainable, should it occur, or that we will be able to secure any subsequent contracts with EFS or that the terms, including the pricing or committed volumes, if any, of any future contract will be equivalent or superior to the terms under our current contract.
If we are unable to gain widespread commercial adoption in markets where our blood safety products are approved for commercialization, including the U.S., we will have difficulties achieving profitability. In order to commercialize all of our products and product candidates, we will be required to conduct significant research, development, preclinical and clinical evaluation, commercialization and regulatory compliance activities for our products and product candidates, which, together with anticipated selling, general and administrative expenses, are expected to result in substantial losses. Accordingly, we may never achieve a profitable level of operations in the future
In addition to the product revenues from sales of our platelet and plasma systems, we anticipate that we will continue to recognize revenue from our BARDA agreement. We recognize revenue associated with the BARDA agreement as qualified costs are incurred for reimbursement over the performance period.
Fresenius
Fresenius Kabi AG, or Fresenius, manufactures and supplies the platelet and plasma systems to us under a supply agreement, or the Supply Agreement. Fresenius is obligated to sell, and we are obligated to purchase, finished disposable kits for our platelet, plasma and red blood cell systems. The Supply Agreement permits us to purchase platelet, plasma and red blood cell systems from third parties to the extent necessary to maintain supply qualifications with such third parties or where local or regional manufacturing is needed to obtain product registrations or sales. Pricing terms are initially fixed and decline at specified annual production levels, and are subject to certain adjustments after the initial pricing term.
The Supply Agreement requires us to make certain payments totaling €8.6 million, or the Manufacturing and Development Payments, to Fresenius in 2016 and on December 31 of the earlier of (a) the year of achievement of certain production volumes or (b) 2022. In 2016, we paid €3.1 million to Fresenius. Because these payments represent unconditional payment obligations, we recognize our liability for these payments at their net present value using a discount rate of 9.72% based on our effective borrowing rate at that time. See the discussion under “Manufacturing and development obligations” below for more information.
The initial term of the Supply Agreement extends through July 1, 2025, or the Initial Term, and is automatically renewed thereafter for additional two year terms, or Renewal Terms, subject to termination by either party upon (i) two years written notice prior to the expiration of the Initial Term or (ii) one year written notice prior to the expiration of any Renewal Term. Under the Supply Agreement, we have the right, but not the obligation, to purchase certain assets and assume certain liabilities from Fresenius. In the event that Fresenius refuses or is unable to continue operating under the Supply Agreement, we may be unable to maintain inventory levels or otherwise meet customer demand, and our business and operating results would be materially and adversely affected.
 Likewise, if we conclude that supply of the INTERCEPT Blood System or components from Fresenius and others is uncertain, we may choose to build and maintain inventories of raw materials, work-in-process components, or finished goods, which would consume capital resources faster than we anticipate and may cause our supply chain to be less efficient. Like most regulated manufacturing processes, our ability to produce our products is dependent on our or our suppliers’ ability to source components and raw materials which may at times be in short demand or obsolete. In such cases, we and/or Fresenius or other suppliers may need to source, qualify
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and obtain approval for replacement materials or components which would likely prove to be disruptive and consume capi tal resources sooner than we anticipate.
BARDA
 In June 2016, we entered into an agreement with BARDA to support our development and implementation of pathogen reduction technology for platelet, plasma, and red blood cells, including access to funding that could potentially support various activities, including funding studies necessary to support a potential premarket application, or PMA, submission to the FDA for the red blood cell system, and acceleration of commercial scale up activities to facilitate potential adoption of the red blood cell system by U.S. blood centers.
The five-year agreement with BARDA and its subsequent modifications provide for the reimbursement of certain amounts incurred by us in connection with our satisfaction of certain contractual milestones. Under the agreement, we are reimbursed and recognize revenue as qualified direct contract costs are incurred plus allowable indirect costs, based on approved provisional indirect billing rates, which permit recovery of fringe benefits, overhead and general and administrative expenses. BARDA has committed to reimburse certain of our expenses related to the clinical development of the red blood cell system during a base period, or the Base Period, and under exercised options, or Option Periods, in an aggregate amount of up to $88.2 million. If we were to satisfy subsequent milestones and BARDA were to exercise additional Option Periods, the total funding opportunity under the BARDA agreement could reach up to $186.2 million over the five-year agreement period. If exercised by BARDA in its sole discretion, each subsequent Option Period would fund activities related to broader implementation of the platelet and plasma system or the red blood cell system in areas of Zika virus risk, clinical and regulatory development programs in support of the potential licensure of the red blood cell system in the U.S., and development, manufacturing and scale-up activities for the red blood cell system. We are currently responsible for co-investment of approximately $5.0 million, and would be responsible for an additional $9.6 million, if certain additional Option Periods were exercised by BARDA. BARDA will make periodic assessments of our progress and the continuation of the agreement is based on our success in completing the required tasks under the Base Period and each exercised Option Period. BARDA has rights under certain contract clauses to terminate the agreement, including the ability to terminate for convenience at any time.
Although BARDA has committed to reimburse us for up to $88.2 million in expenses to date, we may not receive all of these funds if BARDA were to terminate the agreement. Amounts invoiced and currently payable under the BARDA agreement are subject to future audits at the discretion of the government. These audits could result in an adjustment to revenue previously reported, which potentially could be significant.
Equity and Debt Agreements
Public Offering of Common Stock
In January 2018, we issued and sold 14,030,000 shares of our common stock, par value $0.001 per share, at $4.10 per share in an underwritten public offering. The proceeds to us from this offering were approximately $57.2 million, net of the underwriting discount and other issuance costs.
Cantor
On May 5, 2016, we entered into Amendment No. 2 to the Controlled Equity Offering SM Sales Agreement with Cantor Fitzgerald & Co., or Cantor, that provided for the issuance and sale of shares of our common stock over the term of the Controlled Equity Offering SM Sales Agreement, or the Cantor Agreement, having an aggregate offering price of up to $132.2 million, $70.0 million of which was available at May 5, 2016, through Cantor.
On August 4, 2017, we entered into Amendment No. 3 to the Cantor Agreement, or the Amended Cantor Agreement. The Amended Cantor Agreement became effective on January 8, 2018, and provides for the issuance and sale of shares of our common stock having an aggregate offering price of up to $70.0 million through Cantor, which amount includes the $31.4 million of unsold shares of common stock available for sale under the Cantor Agreement immediately prior to the effectiveness of the Amended Cantor Agreement. Under the Amended Cantor Agreement, Cantor also acts as our sales agent and receives compensation based on an aggregate of 2% of the gross proceeds on the sale price per share of its common stock. During the three months ended March 31, 2018, 9,300 shares of our common stock were sold under the Amended Cantor Agreement for net proceeds of less than $0.1 million. The issuance and sale of these shares by us pursuant to the Amended Cantor Agreement are deemed an “at-the-market” offering and are registered under the Securities Act of 1933, as amended.
Debt Agreement
 Prior to December 31, 2016, we maintained a five year loan and security agreement with Oxford Finance, or the Term Loan Agreement, under which we borrowed $20.0 million. We received $10.0 million from the first tranche, or Term Loan A, in June 2014. In June 2015, we received $10.0 million from the second tranche, or Term Loan B. Term Loan A bore an interest rate of 6.95%, and
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Term Loan B bore an interest rate of 7.01%. Term L oans A and B were set to mature on June 1, 2019, with various interest only periods .
On April 27, 2017, the Term Loan Agreement was amended to include an additional interest-only period for all advances under the Term Loan Agreement. As amended, we were required to make interest only payments from May 2017 through December 2017 followed by eighteen months of equal principal and interest payments thereafter. We were also required to make a final payment equal to 7% of the principal amounts of the Term Loans drawn payable on the earlier to occur of maturity or prepayment.
On July 31, 2017, we entered into an amended and restated loan and security agreement, or the Amended Credit Agreement, which amended and restated the Term Loan Agreement in its entirety. The Amended Credit Agreement provides for secured growth capital term loans, or 2017 Term Loans, of up to $40.0 million. All of our current and future assets, excluding our intellectual property and 35% of our investment in Cerus Europe B.V., are secured for the borrowings under the Amended Credit Agreement. The 2017 Term Loans are available in two tranches. The first tranche of $30.0 million, or 2017 Term Loan A, was drawn by us on July 31, 2017, with the proceeds in part to repay in full all of the outstanding the Term Loans under the Term Loan Agreement of $17.6 million and the final payment of the Term Loan Agreement of $1.4 million. The second tranche of $10.0 million, or 2017 Term Loan B, is currently available to us based on our timely achievement of a contractually defined revenue milestone as of March 31, 2018. Our ability to draw the 2017 Term Loan B expires on May 14, 2018. The 2017 Term Loans require interest-only payment through February 1, 2019, followed by 42 monthly of equal principal payments plus declining interest payments. However, if we draw the 2017 Term Loan B, then the interest-only period will be extended through August 1, 2019, and the amortization period will be reduced to 36 months. Interest on the 2017 Term Loan A and the 2017 Term Loan B will bear interest at a rate equal to the greater of (i) 8.01% and (ii) the three-month U.S. LIBOR rate plus 6.72%. The interest rate on the 2017 Term Loan A at March 31, 2018, was approximately 9.03%. We will also be required to make a final payment fee of 8.00% of the principal amounts of the 2017 Term Loans. As of March 31, 2018, our indebtedness under the 2017 Term Loan A was approximately $29.8 million. The Amended Credit Agreement contains certain nonfinancial covenants, with which we were in compliance at March 31, 2018.
Critical Accounting Policies and Management Estimates
Critical accounting policies are those that require significant judgment and/or estimates by management at the time that the financial statements are prepared such that materially different results might have been reported if other assumptions had been made. We consider certain accounting policies related to revenue recognition, inventory, accrued expenses, goodwill and intangible assets, stock-based compensation and income taxes to be critical policies. We adopted the new accounting standard for revenue recognition effective January 1, 2018, using the modified retrospective method, and the new standard had no impact on our consolidated financial statements. See Note 1 in Part I of this Form 10-Q for further discussion.   
Results of Operations
Three months ended March 31, 2018 and 2017
Revenue
 	 	Three Months Ended	 	 	 	 	 	 	 	 	 	
 	 	March 31,	 	 	 	 	 	 	 	 	 	
(in thousands, except percentages)	 	2018	 	 	2017	 	 	Change	 	 	
Product revenue	 	$	13,564	 	 	$	7,006	 	 	$	6,558	 	 	94	%	 	
Government contract revenue	 	 	3,455	 	 	 	1,428	 	 	 	2,027	 	 	142	%	 	
Total revenue	 	$	17,019	 	 	$	8,434	 	 	$	8,585	 	 	102	%	 	
 
Product revenue increased during the three months ended March 31, 2018, compared to the three months ended March 31, 2017, primarily due to year-over-year growth in EMEA and U.S. sales of disposable kits for our platelet system and, to a lesser extent, due to improved foreign exchange rates for the Euro.
We anticipate product revenue for INTERCEPT disposable kits will increase in future periods as the INTERCEPT Blood System gains market acceptance in geographies where commercialization efforts are underway, and as national adoption of the platelet system continues in France, as well as from expected expansion of U.S. sales and newly accessible geographies. However, a deterioration of the Euro relative to the U.S. dollar has in the past and could in the future have a material impact on our product revenues, as the majority of our product revenue is expected to come from Euro denominated markets over the near term. As a result of these and other factors, the historical results may not be indicative of INTERCEPT Blood System product revenue in the future.
 We recognized $3.5 million and $1.4 million of revenue from our BARDA agreement during the three months ended March 31, 2018 and 2017, respectively, as a result of the direct and indirect contract costs incurred under the BARDA agreement. As our RedeS study enrolls patients, we anticipate enrolling patients in our ReCePI study and we plan for a potential additional Phase 3 study for chronic
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anemia , and as the other qualified clinical and development activities increase under the Option Periods exercised, we anticipate reported BARDA revenue will increase.
Cost of Product Revenue
Our cost of product revenue consists of the cost of the INTERCEPT Blood System sold, provisions for obsolete, slow-moving and unsaleable product, certain order fulfillment costs, to the extent applicable and costs for idle facilities. Inventory is accounted for on a first-in, first-out basis.
 	 	Three Months Ended	 	 	 	 	 	 	 	 	 	
 	 	March 31,	 	 	 	 	 	 	 	 	 	
(in thousands, except percentages)	 	2018	 	 	2017	 	 	Change	 	 	
Cost of product revenue	 	$	7,330	 	 	$	3,694	 	 	$	3,636	 	 	98	%	 	
 
Cost of product revenue increased during the three months ended March 31, 2018, compared to the three months ended March 31, 2017. The increase was primarily due to the increase in the volume of INTERCEPT platelet kits sold in the current period compared to the same period of the prior year. Cost of product revenue was also impacted by less favorable foreign currency exchange rates related to inventory production compared to the same period of the prior year
Our gross margin on product sales was 46% during the three months ended March 31, 2018, compared to 47% during the three months ended March 31, 2017. Gross margin remained relatively flat due to the impact of manufacturing volume purchases, pricing from higher volume platelet contracts and on product revenue foreign exchange rates during the three months ended March 31, 2018, compared to the same period in 2017.
Changes in our gross margin on product sales are affected by various factors, including the volume of product manufactured and the relative per unit pricing in our agreement with Fresenius, exchange rate of the Euro relative to the U.S. dollar, manufacturing and supply chain costs, the mix of product sold, and the mix of customers to which products are sold. We may encounter unforeseen manufacturing difficulties which, at a minimum, may lead to higher than anticipated costs, scrap rates, or delays in manufacturing products. In addition, we may face competition which may limit our ability to maintain existing selling prices for our products which in turn would negatively affect our reported gross margins on product sales. Our gross margins on product sales may be impacted in the future based on all of these and other criteria.
We expect to build inventory levels that will be sufficient to meet forecasted demand and plan to continue to manufacture at levels above those produced in 2017.
Research and Development Expenses
Our research and development expenses include salaries and related expenses for our scientific personnel, non-cash stock based compensation, payments to consultants, costs to prepare and conduct preclinical and clinical trials, third-party costs for development activities, certain regulatory costs, costs associated with our facility related infrastructure, and laboratory chemicals and supplies.
 
 	 	Three Months Ended	 	 	 	 	 	 	 	 	 	
 	 	March 31,	 	 	 	 	 	 	 	 	 	
(in thousands, except percentages)	 	2018	 	 	2017	 	 	Change	 	 	
Research and development	 	$	9,437	 	 	$	9,150	 	 	$	287	 	 	3	%	 	
 
Research and development expenses increased during the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily due to the increased headcount costs and costs associated with clinical development of our INTERCEPT red blood cell system, our pursuit of supplemental approvals for the platelet and plasma systems, and activities related to the BARDA agreement.
We expect to incur additional research and development costs associated with planning, enrolling and completing our required post-approval studies for the platelet system, pursuing potential regulatory approvals in other geographies where we do not currently sell our platelet and plasma systems, planning and conducting in vitro studies and clinical development of our red blood cell system in Europe and the U.S., completing activities to support a potential CE mark submission for our red blood cell system in Europe, new product development and product enhancements, including potential new label claims, and costs associated with performing the activities under our BARDA agreement. Due to the inherent uncertainties and risks associated with developing biomedical products, including, but not limited to, intense and changing government regulation, uncertainty of future preclinical studies and clinical trial results and uncertainty associated with manufacturing, it is not possible to reasonably estimate the costs to complete these research and development projects. We face numerous risks and uncertainties associated with the successful completion of our research and development projects, which risks and uncertainties are discussed in further detail under “Item 1A— Risk Factors ” in Part II of this Quarterly Report on Form 10-Q.
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Selling, General, and Administrative Expenses
Selling, general, and administrative expenses include salaries and related expenses for administrative personnel, non-cash stock based compensation, expenses for our commercialization efforts in a number of countries around the world including those in U.S., Europe, the CIS and the Middle East, Asia, Latin America, and expenses for accounting, tax, internal control, legal and facility and infrastructure related expenses, and insurance premiums.
 
 	 	Three Months Ended	 	 	 	 	 	 	 	 	 	
 	 	March 31,	 	 	 	 	 	 	 	 	 	
(in thousands, except percentages)	 	2018	 	 	2017	 	 	Change	 	 	
Selling, general and administrative	 	$	13,607	 	 	$	13,683	 	 	$	(76	)	 	(1	%)	 	
 
Selling, general, and administrative expenses remained relatively flat during the three months ended March 31, 2018, compared to the three months ended March 31, 2017. We anticipate our selling, general, and administrative expenses to remain relatively consistent over the remainder of 2018.
Non-Operating Expense, Net
Non-operating expense, net consists of foreign exchange gains and losses, interest charges incurred on our debt, and other non-operating gains and losses, including interest earned from our short-term investment portfolio.
 
 	 	Three Months Ended	 	 	 	 	 	 	 	 	 	 	
 	 	March 31,	 	 	 	 	 	 	 	 	 	 	
(in thousands, except percentages)	 	2018	 	 	2017	 	 	Change	 	 	 	
Foreign exchange gain (loss)	 	$	108	 	 	$	(45	)	 	$	153	 	 	(340	%)	 	 	
Interest expense	 	 	(915	)	 	 	(531	)	 	 	(384	)	 	72	%	 	 	
Other income, net	 	 	331	 	 	 	106	 	 	 	225	 	 	212	%	 	 	
Total non-operating expense, net	 	$	(476	)	 	$	(470	)	 	$	(6	)	 	1	%	 	 	
Foreign Exchange Gain
We recorded a foreign exchange gain during the three months ended March 31, 2018, compared to a foreign exchange loss during the three months ended March 31, 2017, primarily due to the improved foreign exchange rates for the Euro.
Interest Expense
Interest expense increased for the three months ended March 31, 2018, compared to the three months ended March 31, 2017, primarily due to increased average outstanding debt balance under our Amended Credit Agreement with Oxford. See discussion under “Debt” below for more information.
Other Income, Net
Other income, net increased during the three months ended March 31, 2018, compared to the three months ended March 31, 2017, primarily due to the interest income from our increased investments in marketable securities. Proceeds from our recently completed public offering of our common stock have been fully invested and also contributed to the increased principal generating interest.
Provision for Income Taxes
For the three months ended March 31, 2018, and March 31, 2017, we recorded a tax expense of less than $0.1 million, which was primarily a result of our Cerus Europe B.V. subsidiary’s operating profit.
Due to our history of cumulative operating losses, management has concluded that, after considering all of the available objective evidence, it is not likely that all our net deferred tax assets will be realized. Accordingly, substantially all of our U.S. deferred tax assets continue to be subject to a valuation allowance as of March 31, 2018.
As of March 31, 2018, there have been no material changes to our total amount of unrecognized tax benefits.

Liquidity and Capital Resources
In recent years, our sources of capital have primarily consisted of public issuances of common stock, debt instruments, and to a lesser extent, cash from product sales and reimbursements under our BARDA agreement.
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At March 31, 2018 , we had cash , cash equivalents , and restricted cash of $ 17.7 million, of which $14.9 million was included in cash and cash equivalents, and $2.8 million was included as restricted cash. A t December 31, 2017 , we had cash, cash equivalents, and restricted cash of $13.9 million, of which $1 3.7 million was included in cash and cash equivalents, and $0.2 million was included as restricted cash . Our cash equivalents primarily consist of money market instruments, which are classified for accounting purposes as available-for-sale. In addition, we had $ 91.0 million of short-term investments at March 31, 2018 , and $ 47.0 million at December 31, 2017 . We also had total indebtedness of approximately $29.8 million under our Amended Credit Agreement at March 31, 2018, and approximately $ 29.8 million at December 31, 2017 . Excess cash is typically invested in highly liquid instruments of short-term investments with high-quality credit rated corporate and government agency fixed-income securities in accordance with our investment policy.  
Operating Activities
Net cash used in operating activities was $10.3 million for the three months ended March 31, 2018, compared to $16.3 million during the three months ended March 31, 2017. The decrease in net cash used in operating activities was primarily related to the increased product sales and reimbursements from the BARDA agreement, and was also related to the timing of purchases related to inventories and other assets during the three months ended March 31, 2018, as compared to the same period in 2017 . 
Investing Activities
Net cash used by investing activities was $44.7 million for the three months ended March 31, 2018, compared to $5.7 million net cash provided during the three months ended March 31, 2017. The change period over period was primarily the result of higher purchases of investments due to the proceeds from our January 2018 public offering of common stock, and lower proceeds from the sale of our marketable securities, during the three months ended March 31, 2018, as compared to the same period in 2017.
Financing Activities
Net cash provided by financing activities was $58.8 million during the three months ended March 31, 2018, compared to $0.9 million net cash used during the three months ended March 31, 2017. The increase in net cash provided by financing activities was primarily due to the proceeds received from our January 2018 public offering of common stock. The estimated net proceeds from this offering were approximately $57.2 million, net of the underwriting discounts and other issuance costs.
Working Capital
Working capital increased to $110.1 million at March 31, 2018, from $66.8 million at December 31, 2017, primarily due to the cash received from the public offering of our common stock in January 2018.
Capital Requirements
Our near-term capital requirements are dependent on various factors, including operating costs and working capital investments associated with commercializing the INTERCEPT Blood System, including in connection with the continuing U.S. commercial launch of our platelet and plasma systems, costs to develop different configurations of existing products and new products, including our illuminator, costs associated with planning, enrolling and completing ongoing studies, and the post-approval studies we are required to conduct in connection with the FDA approval of the platelet system, costs associated with pursuing potential regulatory approvals in other geographies where we do not currently sell our platelet and plasma systems, costs associated with conducting in vitro studies and clinical development of our red blood cell system in Europe and the U.S., costs associated with performing the agreed-upon activities under our BARDA agreement, and costs related to creating, maintaining and defending our intellectual property. Our long-term capital requirements will also be dependent on the success of our sales efforts, competitive developments, the timing, costs and magnitude of our longer-term clinical trials and other development activities related to our platelet, plasma and red blood cell systems, including required post-approval studies for the platelet system, market preparedness and product launch activities for any of our products in geographies where we do not currently sell our products, and regulatory factors. Until we are able to generate a sufficient amount of product revenue and generate positive net cash flows from operations, which we may never do, meeting our long-term capital requirements is in large part reliant on continued access to funds under our BARDA agreement and the public and private equity and debt capital markets, as well as on collaborative arrangements with partners, augmented by cash generated from operations and interest income earned on the investment of our cash balances. While we believe that our available cash and cash equivalents and short-term investments, as well as cash received from product sales and under our agreement with BARDA, will be sufficient to meet our capital requirements for at least the next twelve months, if we are unable to generate sufficient product revenue, or access sufficient funds under our BARDA agreement or the public and private equity and debt capital markets, we may be unable to execute successfully on our operating plan. We have based our cash sufficiency estimate on assumptions that may prove to be incorrect. If our assumptions prove to be incorrect, we could consume our available capital resources sooner than we currently expect or in excess of amounts than we currently expect, which could adversely affect our commercialization and clinical development activities.
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We have borrowed and in the future may borrow additional capital from institutional and commercial banking sources to fund future growth , including pursuant to our Amended Credit Agreement wit h Oxford Finance, as described above under “ Equity and Debt Agreements—Debt Agreement ,” or potentially pursuant to new arrangements with different lenders . We may borrow funds on terms that may include restrictive covenants, including covenants that restri ct the operation of our business, liens on assets, high effective interest rates , financial performance covenants and repayment provisions that reduce cash resources and limit future access to capital markets. In addition, we expect to continue to opportun istically seek access to the equity capital markets to support our development efforts and operations. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses on terms that are not favorabl e to us, or issue equity that may be substantially dilutive to our stockholders.
While we expect to receive significant funding under our five-year agreement with BARDA, our ability to obtain the funding we expect to receive under the agreement is subject to various risks and uncertainties, including with respect to BARDA’s ability to terminate the agreement for convenience at any time and our ability to achieve the required milestones under the agreement. In addition, access to federal contracts is subject to the authorization of funds and approval of our research plans by various organizations within the federal government, including the U.S. Congress. The general economic environment, coupled with tight federal budgets, has led to a general decline in the amount available for government funding. If BARDA were to eliminate, reduce or delay funding under our agreement, this would have a significant negative impact on the programs associated with such funding and could have a significant negative impact on our revenues and cash flows. In addition, if we are unable to generate sufficient perquisite Phase 3 clinical data and/or reach agreement with the FDA on an additional Phase 3 clinical trial for chronic anemia in the U.S. for our red blood cell system, our agreement with BARDA will be severely limited in scope or could be terminated altogether, and our ability to complete the development activities required for licensure in the U.S. may require additional capital beyond which we currently have. If alternative sources of funding are not available, we may be forced to suspend or terminate development activities related to the red blood cell system in the U.S.
As a result of economic conditions, general global economic uncertainty, political change, and other factors, we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. If we are unable to raise additional capital due to the volatile global financial markets, general economic uncertainty or other factors, we may need to curtail planned development or commercialization activities. In addition, we may need to obtain additional funds to complete development activities for the red blood cell system necessary for potential regulatory approval in Europe, if costs are higher than anticipated or we encounter delays. We may need to obtain additional funding to conduct additional randomized controlled clinical trials for existing or new products, particularly if we are unable to access any additional portions of the funding contemplated by our BARDA agreement, and we may choose to defer such activities until we can obtain sufficient additional funding or, at such time, our existing operations provide sufficient cash flow to conduct these trials.
 
Commitments and Off-Balance Sheet Arrangements
Off-balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2018.
Contractual Commitments
The following summarizes our contractual commitments at March 31, 2018:
Contractual Commitments	Total	 	 	1 year	 	 	2 - 3 years	 	 	4 - 5 years	 	 	After 5 years	 	
Debt	$	39,616	 	 	$	4,163	 	 	$	20,881	 	 	$	14,572	 	 	$	—	 	
Minimum purchase requirements	 	19,942	 	 	 	9,947	 	 	 	5,735	 	 	 	4,260	 	 	 	—	 	
Manufacturing and development obligations	 	6,776	 	 	 	—	 	 	 	6,776	 	 	 	—	 	 	 	—	 	
Operating leases	 	26,925	 	 	 	2,070	 	 	 	5,132	 	 	 	4,271	 	 	 	15,452	 	
Other commitments	 	535	 	 	 	439	 	 	 	96	 	 	 	—	 	 	 	—	 	
Total contractual obligations	$	93,794	 	 	$	16,619	 	 	$	38,620	 	 	$	23,103	 	 	$	15,452	 	
Debt
On July 31, 2017, we entered into Amended Credit Agreement with Oxford. The Amended Credit Agreement provides for secured growth capital term loans of up to $40.0 million, of which $30.0 million had been drawn through March 31, 2018. For more information on the Amended Credit Agreement, see “ Equity and Debt Agreements—Debt Agreement ” above.
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Minimum P urchase R equireme nts
Our minimum purchase commitments include certain components of our INTERCEPT Blood System which we purchase from third party manufacturers.
Manufacturing and Development Obligations
The Supply Agreement with Fresenius calls for a payment of €5.5 million on December 31 of the year in which certain production volumes are achieved, or December 31, 2022, whichever occurs first.
Operating Leases
We generally lease our office facilities and certain equipment and automobiles under non-cancelable leases with initial terms in excess of one year that require us to pay operating costs, property taxes, insurance and maintenance. The leases expire at various dates through 2029, with certain of the leases providing for renewal options, provisions for adjusting future lease payments, which is based on the consumer price index and the right to terminate the lease early.
Other Commitments
Our other commitments primarily consist of obligations for business insurance financing and our landlord financed leasehold improvements, which are in addition to the leases we have for office and laboratory space. We pay for the financed leasehold improvements as a component of rent and are required to reimburse our landlords over the remaining life of the respective leases.
Financial Instruments
Our investment policy is to manage our marketable securities portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio to assist us in funding our operations. We currently invest our cash and cash equivalents in money market funds and interest-bearing accounts with financial institutions. Our money market funds are classified as Level 1 in the fair value hierarchy, in which quoted prices are available in active markets, as the maturity of money market funds are relatively short and the carrying amount is a reasonable estimate of fair value. Our available-for-sale securities related to corporate debt and U.S. government agency securities are classified as Level 2 in the fair value hierarchy, which uses observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. We maintain portfolio liquidity by ensuring that the securities have active secondary or resale markets. We did not record any other-than-temporary impairment losses during the three months ended March 31, 2018 or the year ended December 31, 2017. Adverse global economic conditions have had, and may continue to have, a negative impact on the market values of potential investments.
New Accounting Pronouncements
See “New Accounting Pronouncements” section in Note 1, “Summary of Significant Accounting Policies” in the Notes to our unaudited condensed consolidated financial statements.
 
ITEM 3.	 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	
During the three months ended March 31, 2018, there were no material changes to our market risk disclosures as set forth under, “Item 7A – Quantitative and Qualitative Disclosures About Market Risk ,” in Part II of our Annual Report on Form 10-K for the year ended December 31, 2017.
ITEM 4.	 CONTROLS AND PROCEDURES	
Evaluation of Disclosure Controls and Procedures
We have carried out an evaluation under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2018.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting which occurred during our fiscal quarter ended March 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable assurance, not absolute assurance, that the objectives of our disclosure control system are met and, as set forth above, our principal executive officer and principal financial officer have concluded, that based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that the objective of our disclosure control system were met.

PART II: OTHER INFORMATION
ITEM 1.	 LEGAL PROCEEDINGS	
None.
 Item 1A.  Risk Factors
Our business faces significant risks. If any of the events or circumstances described in the following risks actually occurs, our business may suffer, the trading price of our common stock could decline and our financial condition or results of operations could be harmed. These risks should be read in conjunction with the other information set forth in this report. The risks and uncertainties described below are not the only ones facing us. There may be additional risks faced by our business. Other events that we do not currently anticipate or that we currently deem immaterial also may adversely affect our financial condition or results of operations.
We depend substantially upon the commercial success of the INTERCEPT Blood System for platelets and plasma in the United States, or U.S., and our inability to successfully commercialize the INTERCEPT Blood System in the U.S. would have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We have invested a significant portion of our efforts and financial resources on the development of the INTERCEPT Blood System for platelets and plasma for the U.S. market. As a result, our business is substantially dependent on our ability to successfully commercialize the INTERCEPT Blood System in the U.S. in a timely manner. In December 2014, we received U.S. regulatory approval of the INTERCEPT Blood System for platelets and plasma, with certain restrictions regarding usage and although the INTERCEPT Blood System is now commercially available in the U.S., we have no prior experience commercializing any products in the U.S. and we may be unable to commercialize the INTERCEPT Blood System in the U.S. successfully or in a timely manner, or at all. The broad successful commercial adoption of any product, particularly involving novel technologies, is often dependent upon the seller earning a level of trust from and familiarity with customers, which can take time to develop. In addition, although we received FDA approval of our platelet and plasma systems in December 2014, our commercial efforts in 2018 will continue to be largely focused on implementing INTERCEPT to customers with whom we have previously signed agreements and continuing to develop awareness of INTERCEPT’s product profile relative to other platelet and plasma products, including conventional, un-treated components. Significant product revenue from customers in the U.S. may not occur, if at all, until we have been able to successfully implement the platelet and plasma systems and demonstrate that they are economical, safe and efficacious for potential customers. Similar to our experience in foreign jurisdictions, some potential customers in the U.S. have chosen to first validate our technology or conduct other pre-adoption activities prior to purchasing or deciding whether to adopt the INTERCEPT Blood System for commercial use, which may never occur. In addition, potential customers and certain existing customers must obtain site-specific licenses from the Center for Biologics Evaluation and Research, or CBER, prior to engaging in interstate transport of blood components processed using the INTERCEPT Blood System, which could significantly delay or preclude our ability to successfully commercialize the INTERCEPT Blood System to those customers for the portion of their business involved in interstate commerce. In addition, significant changes to our product or the way in which our product is used may require that those customers file supplements or amendments to their site-specific licenses from CBER to continue to sell blood components processed using the INTERCEPT Blood System. Until those licenses and any required supplements are obtained, U.S. blood centers will be limited to sales to hospital customers within the state in which the INTERCEPT-treated platelets or plasma are processed. Further, the hospital customers of any of our new blood center customers will need to go through the administrative process of generating internal tracking codes to integrate INTERCEPT-treated products into their inventories, which may further delay customer adoption in the U.S. The availability of platelets in the U.S. is currently constrained. Should U.S. blood centers prioritize obtaining and selling conventional, untreated platelet components over INTERCEPT-treated components, we may not achieve widespread market adoption. If we are not successful in achieving market adoption of the INTERCEPT Blood System in the U.S., we may never generate substantial product revenue, and our business, financial condition, results of operations and growth prospects would be materially and adversely affected.
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Our ability to successfully commercialize the INTERCEPT Blood System for platelets and plasma i n the U.S. will depend on our ability to:
 	•	achieve market acceptance and generate product sales through execution of sales agreements on commercially reasonable terms;	
 	•	enter into and maintain sufficient manufacturing arrangements for the U.S. market with our third party suppliers;	
 	•	create market demand for the INTERCEPT Blood System through our education, marketing and sales activities;	
 	•	hire, train, deploy, support and maintain a qualified U.S.-based commercial organization and field sales force;	
 	•	expand the labeled indications of use for the INTERCEPT Blood System and/or design, develop, test and obtain regulatory approval for new product configurations;	
 	•	comply with requirements established by the FDA, including post-marketing requirements and label restrictions; and	
 	•	comply with other U.S. healthcare regulatory requirements.	
In addition to the other risks described herein, our ability to successfully commercialize the INTERCEPT Blood System for platelets and plasma in the U.S. is subject to a number of risks and uncertainties, including those related to:
 	•	the highly concentrated U.S. blood collection market that is dominated by a small number of blood collection organizations;	
 	•	availability of donors;	
 	•	regulatory and licensing requirements, including the CBER licensing process that U.S.-based blood centers are required to follow in order to obtain and maintain the required site-specific licenses to engage in interstate transport of blood components processed using the INTERCEPT Blood System;	
 	•	changed or increased regulatory restrictions or requirements;	
 	•	the amount available for reimbursement pursuant to codes we have obtained under the Healthcare Common Procedure Coding System, or HCPCS, and pricing for outpatient use of INTERCEPT-treated blood components;	
 	•	any supply or manufacturing problems or delays arising with any of our suppliers, many of whom are our sole suppliers for the particular product or component they manufacture, the ability of our suppliers to maintain FDA approval to manufacture the INTERCEPT Blood System and to comply with FDA-mandated current Good Manufacturing Practice, or cGMP, and Quality System Regulation, or QSR, requirements;	
 	•	successful customer transition to the disposable kits manufactured with the alternate plastics, once approved by FDA;	
 	•	dependency upon any third party manufacturer that supplies products required by blood centers to process and store blood components consistent with our approved specifications and claims, including but not limited to, apheresis collection devices, disposable blood bags and reagents, and PAS;	
 	•	changes in healthcare laws and policy, including changes in requirements for blood product coverage by U.S. federal healthcare programs; and	
 	•	acceptance of the INTERCEPT Blood System as safe, effective and economical from the broad constituencies involved in the healthcare system.	
In addition to the above, our ability to successfully commercialize the INTERCEPT Blood System in the U.S. is dependent on our ability to operate without infringing on the intellectual property rights of others. For example, we are aware of a recently expired U.S. patent issued to a third-party that covers methods to remove psoralen compounds from blood products. We have reviewed the patent and believe there exist substantial questions concerning its validity. We cannot be certain, however, that a court would hold the patent to be invalid or not infringed by our platelet or plasma systems. In this regard, whether or not we have infringed this patent will not be known with certainty unless and until a court interprets the patent in the context of litigation. In the event that we are found to have infringed any valid claim of this patent, we may, among other things, be required to pay damages.
These and the other risks described below related to the commercialization of the INTERCEPT Blood System could have a material adverse effect on our ability to successfully commercialize the INTERCEPT Blood System for platelets and plasma in the U.S.
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The INTERCEPT Blood System may not achieve br oad market adoption.
In order to increase market adoption of the INTERCEPT Blood System and to increase market demand in the U.S., we must address issues and concerns from broad constituencies involved in the healthcare system, from blood centers to patients, transfusing physicians, key opinion leaders, hospitals, private and public sector payors, regulatory bodies and public health authorities. We may be unable to demonstrate to these constituencies that the INTERCEPT Blood System is safe, effective and economical or that the benefits of using the INTERCEPT Blood System products justify their cost and outweigh their risks.
The use of the platelet system results in some processing loss of platelets. If the loss of platelets leads to increased costs, or the perception of increased costs for our customers, or our customers or prospective customers believe that the loss of platelets reduces the efficacy of the transfusion unit, or our process requires changes in blood center or clinical regimens, prospective customers may not adopt our platelet system. Additionally existing customers may not believe they can justify any perceived operational change or inefficiency by itself or in conjunction with a blood component availability shortage. Certain customers that attempt to optimize collection practices in order to produce the highest volume of transfusable units with those collections may experience a less optimized yield as result of adopting INTERCEPT over conventional platelet products. Certain studies have indicated that transfusion of conventionally prepared platelets may yield higher post-transfusion platelet counts (according to a measurement called “corrected count increment”) and may be more effective than transfusion of INTERCEPT-treated platelets. Although certain other studies demonstrate that INTERCEPT-treated platelets retain therapeutic function comparable to conventional platelets, prospective customers may choose not to adopt our platelet system due to considerations relating to corrected count increment, efficacy or other factors.
The INTERCEPT Blood System does not inactivate all known pathogens, and the inability of the INTERCEPT Blood System to inactivate certain pathogens may limit its market adoption. For example, our products have not been demonstrated to be effective in the reduction of certain non-lipid-enveloped viruses, including hepatitis A and E viruses, due to these viruses’ biology. In addition, our products have not demonstrated a high level of reduction for human parvovirus B-19, which is also a non-lipid-enveloped virus. Although we have shown high levels of reduction of a broad spectrum of lipid-enveloped viruses, prospective customers may choose not to adopt our products based on considerations concerning inability to inactivate, or limited reduction, of certain non-lipid-enveloped viruses. Similarly, although our products have been demonstrated to effectively inactivate spore-forming bacteria, our products have not been shown to be effective in reducing bacterial spores once formed. In addition, our products do not inactivate prions since prions do not contain nucleic acid. While transmission of prions has not been a major problem in blood transfusions, and we are not aware of any competing products that inactivate prions, the inability to inactivate prions may limit market adoption of our products. Furthermore, due to limitations of detective tests, we cannot exclude that a sufficient quantity of pathogen or pathogens may still be present in active form, which could present a risk of infection to the transfused patient. Should INTERCEPT-treated components contain detectable levels of pathogens after treatment, the efficacy of INTERCEPT may be called into question, whether or not any remaining pathogens are the result of INTERCEPT’s efficacy or other factors. Such uncertainties may limit the market adoption of our products.
In 2015, we conducted a Phase 1 clinical study protocol under an investigational device exemption, or IDE, to treat plasma derived from convalesced patients that were previously infected with the Ebola virus and had recovered from the disease according to the criteria set by the Centers for Disease Control and Prevention. The transfusion of convalesced plasma from Ebola survivors is believed to pass on antibodies to the disease from the survivor to the recipient of the plasma transfusion. INTERCEPT use under the IDE was limited to pathogen reduction claims that relied on existing clinical data that we had regarding reduction of certain pathogens in donated plasma. Accordingly, the study was not designed to generate any data on the efficacy of INTERCEPT to inactivate the Ebola virus, and we still do not have any clinical or commercial data on the efficacy of INTERCEPT to inactivate the Ebola virus, and therefore, we do not know the effectiveness of INTERCEPT to inactivate the Ebola virus. This may negatively impact a customer’s desire to adopt INTERCEPT in those countries where addressing an Ebola virus outbreak is a primary concern.
We have conducted studies of our products in both in vitro and in vivo environments using well-established tests that are accepted by regulatory bodies. When an in vitro test was not generally available or not well-established, we conducted in vivo studies in mammalian models to predict human responses. Although we have no reason to believe that the in vitro and in vivo studies are not predictive of actual results in humans, we cannot be certain that the results of these in vitro and in vivo studies accurately predict the actual results in humans in all cases. In addition, strains of infectious agents in living donors may be different from those strains commercially available or for which we have tested and for which we have received approval of the inactivation claims for our products. To the extent that actual results in human patients differ, commercially available or tested strains prove to be different, or customers or potential customers perceive that actual results differ from the results of our in vitro or in vivo testing, market acceptance of our products may be negatively impacted.
 If customers experience operational or technical problems with the use of INTERCEPT Blood System products, market acceptance may be reduced or delayed. For example, if adverse events arise from incomplete reduction of pathogens, improper processing or user error, or if testing of INTERCEPT-treated blood samples fails to reliably confirm pathogen reduction, whether or not directly
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attributable to the INTERCEPT Blood System, customers may refrain from purchasing our products. Furthermore, should customers communicate operational problems or suspected product failure, we will need to investigate and report imputability to the relevant regulatory authorities in a timely manner. We or others may be required to file repo rts on such complaints or product failure before we have the ability to obtain conclusive data as to imputability which may cause concern with existing and prospective customers or regulators. For example, in connection with the nation-wide deployment of I NTERCEPT platelets in France, our customer, Établissement Français du Sang, or EFS, has encountered instances of leakage in the disposable kits. Although the relative number of reports is not disproportionate to the number we have seen in other markets, be cause of the high number of new sites, and the high utilization rates throughout France, the absolute number of incidents has triggered a report to the French National Agency for Medicines and Health Products Safety , or ANSM. We are working with EFS to gain access to the sites and personnel reporting the leaks in order to investigate and determine root cause and imputability in an effort to resolve the issue and if we are unable to successfully resolve the issue, then we may be required to recall our pro ducts, either voluntarily or at the direction of ANSM. In addition, t he United States is current ly experiencing a shortage of platel et components in many markets. Should customers feel that INTERCEPT treatment has a negative impact on the number of transfu sable platelet units able to be manufactured from available donors, our ability to convince a blood center to treat increasing proportions of its platelet units may be negatively impacted. Moreover, there is a risk that further studies that we or others ma y conduct, including the post-approval studies we are required to conduct as a condition to the FDA approval of the platelet system, will show results inconsistent with previous studies. Should this happen, potential customers may delay or choose not to ad opt our products and existing customers may cease use of our products. In addition, some hospitals may decide to purchase and transfuse both INTERCEPT-treated blood components and conventional blood components. Managing such a dual inventory of blood produ cts may be challenging, and hospitals may need to amend their product labels and inventory management systems before being able to move forward with INTERCEPT. This may require coordination between hospital suppliers and blood centers, which in turn may ca use delay in market adoption. Further, in certain markets, potential customers may require us to develop, sell, and support data management application software for their operations before they would consider adopting INTERCEPT. Such software development e fforts may be costly or we may be unsuccessful in developing a data management application that would be broadly accepted. Developing, maintaining and supporting software can be time consuming, costly and may require resources and skill sets that we do not possess. Failure to do so may limit market adoption in geographies where we commercialize the INTERCEPT Blood System, including the U.S.
Market adoption of our products is affected by blood center and healthcare facility budgets and the availability of reimbursement from governments, managed care payors, such as insurance companies, and/or other third parties. In many jurisdictions, due to the structure of the blood products industry, we have little control over budget and reimbursement discussions, which generally occur between blood centers, healthcare facilities such as hospitals, and national or regional ministries of health and private payors. Even if a particular blood center is prepared to adopt the INTERCEPT Blood System, its hospital customers may not accept or may not have the budget to purchase INTERCEPT-treated blood products. Since blood centers would likely not eliminate the practice of screening donors or testing blood for some pathogens prior to transfusion, even after implementing our products, some blood centers may not be able to identify enough cost offsets or hospital pricing increases to afford to purchase our products. Budgetary concerns may be further exacerbated by economic legislation in certain countries and by proposals by legislators at both the U.S. federal and state levels, regulators, healthcare facilities and third party payors to keep healthcare costs down, which may limit the adoption of new technologies, including our products. In some jurisdictions, commercial use of our products may not be covered by governmental or commercial third party payors for health care services and may never be covered. In the U.S., we obtained HCPCS reimbursement codes for INTERCEPT treated platelets and plasma in the outpatient setting in 2015. The costs and expenses incurred by the blood center related to donor blood are typically included in the price that the blood center charges a hospital for a unit of blood. Even after blood components treated with our products are approved for reimbursement by governmental or commercial third party payors, including under HCPCS codes, the costs and expenses related to use of the INTERCEPT Blood System will not be directly reimbursed, but instead may be incorporated within the reimbursement structure for medical procedures and/or products at the site of patient care. If the costs to the hospital for INTERCEPT-processed blood products cannot be easily, readily, or fully incorporated into the existing reimbursement structure, hospital billing and/or reimbursement for these products could be impacted, thus negatively impacting hospitals’ acceptance and uptake of our products.
 The market for the INTERCEPT Blood System is highly concentrated with few customers, including often-dominant regional or national blood collection entities. Even where our products receive regulatory approval and reimbursement is available, failure to effectively market, promote, distribute, price or sell our products to any of these customers could significantly delay or even diminish potential product revenue in those geographies. Moreover, the market for pathogen reduction systems in the U.S. is highly concentrated and dominated by a small number of blood collection organizations. In the U.S., the American Red Cross represents the largest single portion of the blood collection market. While we entered into a multi-year commercial agreement with the American Red Cross in February 2016, we cannot guarantee the volume or timing of commercial purchases that the American Red Cross may make, if any, under our agreement. Our ability to gain significant market penetration in the U.S. is largely dependent on utilization of INTERCEPT and distribution of INTERCEPT treated blood components by the American Red Cross. The American Red Cross is a large organization and broad-based utilization of INTERCEPT and distribution of INTERCEPT treated products may be concentrated in a limited number of centers or may occur slowly, if at all. Conversely, given the large relative size of the American Red Cross, should they deploy the technology rapidly, our resources may be inadequate to fulfill the American Red Cross’ and other customers’
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demands, which could result in a loss of product revenues or customer contracts, or both. In many countries in Western Europe and in Japan, various national blood transfusion services or Red Cross organizations collect, store and distribute virtually all of their respective nations’ blood and blood components supply. In Europe, the largest markets for our products are in Germany, Franc e, and England. In Germany, decisions on product adoption are made on a regional or even blood center-by-blood center basis, but depend on both local approvals and centralized regulatory approvals from the Paul Ehrlich Institute, or PEI. Obtaining these ap proval s require s blood center support and effort to obtain the approvals, which even if they put forth the effort to obtain those approval, may take a significant period of time to obtain, if ever. Product specifications that receive marketing authorizatio n from the PEI may differ from product specifications that have been adopted in other territories where we rely on CE mark approval, thereby necessitating market specific modifications to the commercial product, which may not be economical or technically f easible for us. Following the inclusion of pathogen-inactivated platelets for national reimbursement by the German Institute for the Hospital Remuneration System as of January 1, 2018, German customers who do not currently have an approved marketing author ization application, or MAA, will first need to obtain one before using our product. The review period for a new MAA can be up to twelve months following submission and we cannot assure that any of the potential German customers submitting a new MAA will o btain it. Without broad approvals of MAA applications obtained by potential German customers, our ability to successfully commercialize INTERCEPT in Germany will be negatively impacted, which may adversely affect our results of operations and financial res ults.
In July 2017, we entered into new agreements with the EFS to supply illuminators and platelet and plasma disposable kits and while no commitment has been made by EFS to adopt the platelet system across France, EFS has begun to standardize production of its platelets using the INTERCEPT Blood System. National deployment of the INTERCEPT Blood System for platelets throughout France will require a coordinated and highly managed roll-out and any set back or failure could negatively impact the timing and success of adoption. We cannot provide any assurance that national deployment of INTERCEPT in France would be sustainable, should it occur, or that we will be able to secure any subsequent contracts with EFS or that the terms, including the pricing or committed volumes, if any, of any future contract will be equivalent or superior to the terms under our current contract. If we are unable to successfully support EFS’ national adoption of the INTERCEPT Blood System for platelets or the final commercial terms of any subsequent contract are less favorable than the terms under our existing contract, our financial results may be adversely impacted.
In Japan, the Japanese Red Cross controls a significant majority of blood transfusions and exerts a high degree of influence on the adoption and use of blood safety measures in Japan. The Japanese Red Cross has been reviewing preclinical and clinical data on pathogen reduction of blood over a number of years and has yet to make a formal determination to adopt any pathogen reduction approach. We also understand that the Japanese Red Cross has begun formal evaluation of a competing technology. Before the Japanese Red Cross considers our products, we understand that we may need to commit to making certain product configuration changes, which are currently under development but may not be economically or technologically feasible for us to accomplish.
Significant increases in demand may occur given the concentrated nature of many of the largest potential customers and the potential for a mandate by public health agencies to adopt pathogen reduction technologies. Should those customers choose to adopt and standardize their production on the INTERCEPT Blood System or be required to adopt and standardize on the INTERCEPT Blood System, our ability to meet associated increases in demand may be constrained due to a variety of factors, including supply issues, manufacturing disruptions, availability of disposable kits manufactured from the obsolete plastic materials in jurisdictions that have not approved the alternate plastics, or other obsolescence of parts, among others. If we encounter such disruptions or supply shortages, we may have to allocate available products to customers, which could negatively impact our business and reputation or cause those customers to look for alternatives to the INTERCEPT Blood System.
We expect to continue to generate losses.
 We may never achieve a profitable level of operations. Our cost of product sold, research and development and selling, general and administrative expenses have resulted in substantial losses since our inception. The platelet and plasma systems have been approved in the U.S. only since December 2014 and are not approved in many countries around the world. The red blood cell system is in the development stage and may never emerge from the development stage as a marketed product. We may be required to reduce the sales price for our products in order to make our products economically attractive to our customers and to governmental and private payors, or to compete favorably with other blood safety interventions or other pathogen reduction technologies, which may reduce or altogether eliminate any gross profit on sales. At our present and expected near-term sales levels of the platelet and plasma systems, our costs to manufacture, distribute, market, sell, and support the systems are and are expected to continue to be in excess of our revenue. We expect our losses to continue at least until we are able to gain widespread commercial adoption, which may never occur. We expect to incur additional research and development costs associated with the development of different configurations of  existing products including our illuminator, development of new products, planning, enrolling and completing ongoing clinical and non-clinical studies, including the post-approval studies  we are required to conduct in connection with the FDA approval of the platelet system, pursuing potential regulatory approvals in other geographies where we do not currently sell our platelet and plasma systems, planning and conducting in vitro studies and clinical development of our red blood cell system in Europe and the U.S., and completing activities to support a potential CE mark submission for our red blood cell system in Europe. These costs could be substantial and
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could extend the period during which we ex pect to operate at a loss, particularly if we experience any difficulties or delays in completing the activities.
In certain countries, governments have issued regulations relating to the pricing and profitability of medical products and medical product companies. Healthcare reform in the U.S. has also placed downward pressure on the pricing of medical products that could have a negative impact on our profit margins.
Adverse market and economic conditions may exacerbate certain risks affecting our business.
Sales of our products are dependent on purchasing decisions of and/or reimbursement from government health administration authorities, distribution partners and other organizations. As a result of adverse conditions affecting the global economy and credit and financial markets, disruptions due to political instability or terrorist attacks, economies and currencies largely affected by declining commodity prices or otherwise, these organizations may defer purchases, may be unable to satisfy their purchasing or reimbursement obligations, or may delay payment for the INTERCEPT Blood System.
 The sales of our products in Europe and CIS countries are denominated in Euros and other currencies. As a result, we are exposed to foreign exchange risk, and our results of operations have been and will continue to be impacted by fluctuations in the exchange rate between the U.S. dollar and other currencies, in particular the Euro. In addition, there have been concerns for the overall stability and suitability of the Euro as a single currency given the economic and political challenges facing individual Eurozone countries. Continuing deterioration in the creditworthiness of Eurozone countries, the withdrawal of, or the announcement of the withdrawal of, one or more member countries from the European Union, or E.U., following  the United Kingdom  ’s, or U.K.’s, referendum in which voters approved an exit from the E.U., or the failure of the Euro as a common European currency or an otherwise diminished value of the Euro could materially and adversely affect our product revenue.
 In the past, a meaningful amount of our product revenue has come from sales to our distributor in Russia and other CIS countries. Low worldwide oil prices and the ongoing civil, political and economic disturbances in Russia, Turkey and Ukraine, and their spillover effect on surrounding areas, along with the impact of sanctions imposed against Russia by certain European nations and the U.S., have significantly devalued the Russian Ruble and other CIS currencie  s and may continue to have a negative impact on the Russian and other CIS countries’ economies, particularly if sanctions continue to be levied against Russia or are strengthened from those currently in place from either the E.U., U.S. or both. For example, in August 2017, President Trump signed into law new legislation which provides for additional sanctions against Russia, and in 2018, the Trump administration imposed new sanctions targeting certain Russian individuals and entities. While our agreement with our Russian and other CIS distributors calls for sales, invoicing and collections to be denominated in Euros, if significant sanctions continue or are strengthened, if new sanctions are imposed in connection with Russia’s alleged interference in the U.S. election, its involvement in Syria or otherwise, if worldwide oil prices weaken and/or if measures taken by the Russian government to support the Ruble fail, the Russian economy and value of the Ruble or other CIS currencies may further weaken or remain weak, and our business in Russia and other CIS countries may be negatively impacted further or never recover to historical levels. Similarly, weak worldwide oil prices and current political conflicts may negatively impact potential future sales of our products in the Middle East and other oil producing exporters.
Moreover, the Trump administration has recently imposed tariffs on certain U.S. imports, and we cannot predict what effects such tariffs and any retaliatory tariffs imposed by other countries on U.S. exports would have on our business. However, these tariffs and other trade restrictions could increase our operating costs, reduce our gross margins or otherwise negatively impact our financial results.
In addition, terrorist attacks and civil unrests in some of the countries where we do business, and the resulting need for enhanced security measures may impact our ability to deliver services, threaten the safety of our employees, and increase our costs of operations.
Our products, blood products treated with the INTERCEPT Blood System and we are subject to extensive regulation by domestic and foreign authorities. If our preclinical and clinical data are not considered sufficient by a country’s regulatory authorities to grant marketing approval, we will be unable to commercialize our products and generate product revenue in that country. Our investigational red blood cell system requires extensive additional testing and development.
Our products, both those sold commercially and those under development are subject to extensive and rigorous regulation by local, state and federal regulatory authorities in the U.S. and by foreign regulatory bodies. These regulations are wide-ranging and govern, among other things:
 	•	development;	
 	•	testing;	
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 	•	manufacturing;	
 	•	labeling;	
 	•	storage;	
 	•	clinical trials;	
 	•	product safety;	
 	•	pre-market clearance or approval;	
 	•	sales and distribution;	
 	•	use standards and documentation;	
 	•	conformity assessment procedures;	
 	•	product traceability and record keeping procedures;	
 	•	post-launch surveillance and post-approval studies;	
 	•	quality;	
 	•	advertising and promotion;	
 	•	product import and export; and	
 	•	reimbursement.	
Our products must satisfy rigorous standards of safety and efficacy and we must adhere to quality standards regarding manufacturing and customer-facing business processes in order for the FDA and international regulatory authorities to approve them for commercial use. For our product candidates, we must provide the FDA and international regulatory authorities with preclinical, clinical and manufacturing data demonstrating that our products are safe, effective and in compliance with government regulations before the products can be approved for commercial sale. The process of obtaining required regulatory approvals is expensive, uncertain and typically takes a number of years. We may continue to encounter significant delays or excessive costs in our efforts to secure necessary approvals or licenses, or we may not be successful at all. In addition, our labeling claims may not be consistent across markets. In addition, jurisdictions may differ in the definition of what constitutes a transfusable unit of platelets. We have developed our products with the aim to standardize the volume of platelets treatable by our system, wherever possible, which may not be accepted by all regulators or customers, may require additional data to support approval or which may not produce optimal transfusable blood components. For example, in certain jurisdictions, our approved label claims and the definition of a viable platelet unit for transfusion may allow for a significantly lower or higher platelet count per volume than other jurisdictions may allow. This variability in platelet count per volume may result in differences in platelet quality once processed and stored using INTERCEPT, and if customers experience sub-optimal platelet quality following INTERCEPT treatment, they may limit their adoption of INTERCEPT or consider adoption of competing blood safety technologies over INTERCEPT. In addition, our approved labels from the FDA limit our current approvals to certain platelet collection platforms and a particular storage solution for the particular collection platform. For instance, our FDA approved claims permit apheresis collection of platelets on the Fresenius Amicus device while stored in an additive solution or for apheresis collection of platelets collected on the Terumo Trima device and stored in 100% plasma. Such discrepant collection methodologies and storage solutions and conditions also exist for red blood cells. We may be required to provide the FDA with data for each permutation for which blood banking treatment practices exist which may be time consuming, costly and limit the potential size of the U.S. market that can use our products. In addition, in order to generate data that would be satisfactory to the FDA, we need to test our products with different blood center production configurations producing otherwise saleable products for the blood center. As such, we will generally need to purchase blood components which are expensive and may be limited during periods of low availability. For example, we continue to experience such availability constraints for platelets. Any such inability to procure blood components at a reasonable price, or at all, to conduct studies in order to generate data sufficient for label claim expansions may negatively impact our business opportunities.
Clinical and Preclinical
 Clinical trials are particularly expensive and have a high risk of failure. Any of our trials may fail or may not achieve results sufficient to attain market acceptance, which could prevent us from achieving profitability. We do not know whether we will begin or complete clinical trials on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a study, delays in reaching agreement on acceptable clinical study agreement terms with prospective clinical sites, delays in obtaining institutional review board, ministry of health or ethical committee approval to conduct a study at a prospective clinical site, delays in recruiting subjects to participate in a study, delays in the conduct of the clinical trial by personnel at the clinical site or due to our inability to actively and timely monitor clinical trial sites because of travel restrictions, political
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instability or terrorist activity or concerns over employee safety. We have in the past restricted and may again in the future need to restrict travel to certain clinical trial sites for monitoring site visits or to otherwise manage the trial due to state department issued travel warnings and restrictions. Significant delays in cl inical testing could also materially impact our clinical trials. For example, the RedeS study is ongoing in Puerto Rico which has seen massive destruction from the hurricanes of 2017. The blood centers and hospitals were significantly impacted, causing del ays in enrollment and progress on the RedeS study. To mitigate these delays, we are seeking to enroll patients in the U.S., including in Florida, though we cannot be certain if these mitigation steps will allow us to successfully enroll and complete the cl inical trial. Criteria for regulatory approval in blood safety indications are evolving, reflecting competitive advances in the standard of care against which new product candidates are judged, as well as changing market needs and reimbursement levels. Cli nical trial design, including enrollment criteria, endpoints and anticipated label claims are thus subject to change, even if original objectives are being met. As a result, we do not know whether any clinical trial will result in marketable products. Typi cally, there is a high rate of failure for product candidates in preclinical studies and clinical trials and products emerging from any successful trial may not reach the market for several years.
Enrollment criteria for certain of our clinical trials may be quite narrow, further delaying the clinical trial process. For instance, clinical trials previously conducted using INTERCEPT-treated plasma for patients with thrombotic thrombocytopenic purpura lasted approximately four years due in part to the difficulties associated with enrolling qualified patients. In addition, enrollment criteria have impacted the speed with which we were able to enroll patients in our European Phase 3 red blood cell system trial in chronic anemia patients and may impact other studies. Consequently, we may be unable to recruit suitable patients into clinical trials on a timely basis, if at all, which may lead to higher costs or the inability to complete the clinical trials. We cannot rely on interim results of trials to predict their final results, and acceptable results in early trials might not be repeated in later trials. Any trial may fail to produce results satisfactory to the FDA or foreign regulatory authorities. In addition, preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval. Negative or inconclusive results from a preclinical study or clinical trial, or adverse medical events during a clinical trial could cause a preclinical study or clinical trial to be repeated, require other studies to be performed or cause a program to be terminated, even if other studies or trials relating to a program are successful.
We have conducted many toxicology studies to demonstrate the safety of the platelet and plasma systems, and we have conducted and plan to conduct toxicology studies for the red blood cell system throughout the product development process. At any time, the FDA and other regulatory authorities may require further toxicology or other studies to further demonstrate our products’ safety, which could delay or preclude regulatory approval and commercialization. In addition, the FDA or foreign regulatory authorities may alter guidance at any time as to what constitutes acceptable clinical trial endpoints or trial design, which may necessitate a redesign of our product or proposed clinical trials and cause us to incur substantial additional expense or time in attempting to gain regulatory approval. Regulatory agencies weigh the potential risks of using our pathogen reduction products against the incremental benefits, which may be difficult or impossible to quantify.
If any additional product candidates receive approval for commercial sale in the U.S., or if we obtain approval for expanded label claims for the platelet system or plasma system, the FDA may require one or more post-approval clinical or in vitro studies as a condition of approval, such as the post-approval clinical study we are required to conduct in connection with the approval of the platelet system and the additional post-approval study that we are required to conduct on recovery and survival of platelets suspended in 100% plasma in connection with the recent expanded label claim that we received for the platelet system. Each of these studies and any additional studies that the FDA may require could involve significant expense and may require us to secure adequate funding to complete. In addition, enrollment of post-marketing studies may be difficult to complete timely if customers of blood centers are reluctant to accept conventional, non-INTERCEPT treated products once INTERCEPT products become available to them. Other regulatory authorities outside of the U.S. may also require post-marketing studies. Governments or regulatory authorities may impose new regulations or other changes or we may discover that we are subject to additional regulations that could further delay or preclude regulatory approval and subsequent adoption of our potential products. We cannot predict the adoption, implementation or impact of adverse governmental regulation that might arise from future legislative or administrative action. Furthermore, any guidance document or mandate that prescribes use of INTERCEPT may impose a compliance requirement on blood centers that operate and process blood components in a manner for which we do not yet have approved label claims. Our inability to meet such operational or processing constraints may impair our potential results permanently or until we are able to obtain such claims.
 Outside the U.S., regulations vary by country, including the requirements for regulatory and marketing approvals or clearance, the time required for regulatory review and the sanctions imposed for violations. In addition to CE mark documentation, countries outside the E.U. may require clinical data submissions, registration packages, import licenses or other documentation. Regulatory authorities in Japan, China, Taiwan, South Korea, Vietnam, Thailand, Singapore and elsewhere may require in-country clinical trial data, among other requirements, or that our products be widely adopted commercially in Europe and the U.S., or may delay approval decisions until our products are more widely adopted. In addition to the regulatory requirements applicable to us and to our products, there are regulatory requirements in several countries around the world, including the U.S., Germany, Canada, Austria, Australia and other countries, applicable to prospective customers of INTERCEPT Blood System products, the blood centers that process and distribute blood and blood products. In those countries, blood centers and other customers are required to obtain approved license supplements from the appropriate regulatory authorities before making available blood products processed with our pathogen reduction systems to
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hospitals and transfusing physicians. Our customers may lack the resources or capability to obtain such regulatory approvals. For example, in the U.S., blood centers are required to obtain site-specific licenses from CBER prior to eng aging in interstate transport of blood components processed using the INTERCEPT Blood System. In Germany, blood centers need to obtain marketing authorizations before they can submit for reimbursement or sell to hospitals. Significant product changes or ch anges in the way customers use our products may require amendments or supplemental approvals to licenses already obtained. Blood centers that do submit applications, supplements or amendments for manufacturing and sale may face disapproval or delays in app roval that could further delay or deter them from using our products. The regulatory impact on potential customers could slow or limit the potential sales of our products.
Red Blood Cell System
Our red blood cell system is currently in development and has not been commercialized anywhere in the world. Significant development and financial resources will be required to progress the red blood cell system into a commercially viable product and to obtain the necessary regulatory approvals for the product. Final development of the red blood cell system may never occur and failure can occur any time during the process. Any failure or delay in completing the development activities for the red blood cell system would prevent or delay its commercialization, which could materially and adversely affect our business, financial condition, results of operations, growth prospects and potential future market adoption of any of our products, including the red blood cell system. Many of the factors described above that can contribute to the failure or delay of a clinical trial could impact the trials we conduct for our red blood cell system. Even if we are successful in earlier clinical trials, the results of those early trials may not be predictive of results obtained in later and larger clinical trials of the red blood cell system or the results of routine use if we are able to commercialize the red blood cell system. In those cases, the FDA or foreign regulatory agencies may require us to conduct additional clinical trials or further studies or analysis which may be costly and time-consuming. Furthermore, regulators may require clinical data for our red blood cell system under each collection and processing method using various additive or storage solutions before they would grant approval for any such configuration. If we were unable to collect data under each configuration or if we elect to pursue certain configurations over others for initial approval, our market opportunity may be limited. In some instances, we are relying on contract research organizations and other third parties to assist us in designing, managing, monitoring and otherwise carrying out our clinical trials and development activities for the red blood cell system. We do not control these third parties and, as a result, they may not treat our activities as their highest priority, or in the manner in which we would prefer, which could result in delays, inefficient use of our resources and could distract personnel from other activities. Additionally, if we, our contract research organizations or other third parties assisting us or our study sites fail to comply with applicable good clinical practices, the clinical data generated in our trials may be deemed unreliable and the FDA or foreign regulatory agencies may require us to perform additional clinical trials before approving the red blood cell system for commercialization. We cannot assure you that, upon inspection, regulatory agencies will determine that any of our clinical trials comply with good clinical practices. In addition, our clinical trials must be conducted with product produced under the FDA’s cGMP regulations and similar regulations outside of the U.S. Our failure or the failure of our product manufacturers to comply with these regulations may require us to repeat or redesign clinical trials, which would delay the regulatory approval process. We must complete other prerequisites, including demonstration that our revised analytical method to test GMP manufactured compounds used in the red blood cell system show that they consistently meet specifications and additional CMC activities in order to proceed with our planned CE mark submission. In addition, existing lots of these red blood cell compounds manufactured under GMP may be dispositioned by regulators or ourselves as unsuitable for either commercial or clinical use which would impact our ability to produce INTERCEPT-treated red blood cells for ongoing and future clinical trials and may require changes to the manufacturing process of our red blood cell compounds or new production of the compounds, all of which would be costly and time consuming and impact our ability to perform under our contract with BARDA. We understand that one of our component suppliers for our red blood cell system is experiencing significant financial difficulties which may impact their ability to maintain standards suitable for GMP regulations or ability to exist as a going concern. While we are in the process of identifying alternate manufactures of the component, qualification of any alternate supplier will be time consuming and may cause delay in obtaining regulatory approval and will cause us to incur additional cost. Further, we are currently in the process of negotiating a commercial supply agreement with the manufacturer of the processing kits used in the red blood cell clinical trials. If we are unable to reach agreement on terms, our ability to complete the RedeS and ReCePI studies and any future Phase 3 clinical trials may be adversely impacted. There can be no guarantee that we will reach agreement or that, if an agreement is reached, that it will be on terms favorable to us.
 In 2003, we terminated Phase 3 clinical trials evaluating a prior generation of the red blood cell system in acute and chronic anemia patients. The trials were terminated due to the detection of antibody reactivity to INTERCEPT-treated red blood cells in two patients in the 2003 chronic anemia trial. Although the antibody reactivity was not associated with any adverse events, we developed process changes designed to diminish the likelihood of antibody reactivity in red blood cells treated with our modified process. In a subsequent Phase 1 clinical trial that we initiated in the fourth quarter of 2008 to evaluate recovery and survival of treated red blood cells with the modified process, there were no adverse events reported. Based on the results from that trial, we obtained approval for and commenced two Phase 3 clinical trials in Europe using the modified process in patients with acute and chronic anemia, respectively. We successfully completed the European Phase 3 acute anemia clinical trial and the European Phase 3 chronic anemia clinical trial, with the INTERCEPT Blood System for red blood cells meeting its primary efficacy and safety endpoints in both trials. However, we cannot assure you that the adverse events observed in the terminated 2003 Phase 3 clinical trials of our earlier red blood
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cell system will not be observed in the futu re. In addition, although our completed European Phase 3 clinical trials in acute anemia patients and chronic anemia patients using our modified process met their primary endpoints, we cannot assure you that the same or similar results will be observed in current and potential future clinical trials using our modified process.
 We will need to successfully conduct and complete each of the RedeS and ReCePI  studies as well as an additional Phase 3 clinical trial for chronic anemia in the U.S. before the FDA will consider our red blood cell product for approval.  There can be no assurance that we will be able to successfully complete these perquisite Phase 3 clinical trials or otherwise generate sufficient Phase 3 clinical data, nor can there be any assurance tha  t we and the FDA will agree to any trial protocol we propose or that we will otherwise obtain FDA clearance to initiate an additional Phase 3 clinical trial. In part, we will seek to introduce supplemental clinical data we obtained from European clinical trials, though we cannot assure you that we will be able to demonstrate comparability or that the FDA will allow supplemental clinical European data. The FDA will require us to  place a clinical hold on any clinical trial if we see a hemolytic reaction associated with treatment emergent antibodies with amustaline specificity in patients receiving INTERCEPT-treated red blood cells in that trial. Should we experience such an incident, we will need to investigate the underlying cause of the hemolytic reaction, which in many patient populations may be difficult for us to assess imputability which may lead to a complete halt of the clinical trial, may irreparably harm our red blood cell product’s reputation and we may be forced to suspend or terminate development activities related to the red blood cell system in the U.S ., which would have a material adverse effect on our business and business prospects. In addition, if we are unable to generate sufficient perquisite Phase 3 clinical data and/or reach agreement with the FDA on a Phase 3 clinical trial design for our red blood cell system, our agreement with BARDA will be severely limited  in scope or could be terminated altogether, and our ability to complete the development activities required for licensure in the U.S. may require additional capital beyond which we currently have. If alternative sources of funding are not available, we may be forced to suspend or terminate development activities related to the red blood cell system in the U.S .
 We completed our European Phase 3 clinical trials of our red blood cell system for acute anemia patients and separately for chronic anemia patients. Although we plan to complete additional development activities to support an anticipated CE mark submission for the red blood cell system, such development activities could prolong development of our red blood cell system, and we do not expect to receive any regulatory approvals of our red blood cell system in the next twelve months, if ever. We understand that while the data generated from our European Phase 3 clinical trials may be sufficient to receive CE mark approval, we may need to generate additional safety data from commercial use in order to achieve broad market acceptance. In addition, the European Phase 3 clinical trials in acute, and separately, chronic anemia patients, may need to be supplemented by additional, successful Phase 3 clinical trials for approval in certain countries. If such additional Phase 3 clinical trials are required, they would likely need to demonstrate equivalency of INTERCEPT-treated red blood cells compared to conventional red blood cells and the significantly lower lifespan for INTERCEPT-treated red blood cells compared to non-treated red blood cells may limit our ability to obtain regulatory approval for the product. A number of trial design issues that could impact efficacy, regulatory approval and market acceptance will need to be resolved prior to the initiation of further clinical trials. In addition, if we are unable to secure the full amount of funding contemplated by the BARDA agreement for any reason, our ability to complete the development activities required for potential licensure in the U.S. may require additional capital beyond which  we currently have, and we may be required to obtain additional capital in order to complete the development of and obtain any regulatory approvals for the red blood cell system. Further, while we believe that our available cash and cash equivalents and short-term investments, as well as cash to be received from product sales and under our agreement with BARDA, will be sufficient to meet our capital requirements for at least the next twelve months, if we are unable to generate sufficient product revenue, or access sufficient funds under our BARDA agreement or the public and private equity and debt capital markets, we may be unable to execute successfully on our operating plan. If alternative sources of funding are not available, we may be forced to suspend or terminate development activities related to the red blood cell system in the U.S . which would have a material adverse effect on our business and business prospects. If we are unsuccessful in advancing the red blood cell system through clinical trials, resolving process and product design issues or in obtaining subsequent regulatory approvals and acceptable reimbursement rates, we may never realize a return on our R&D expenses incurred to date for the red blood cell system program. Regulatory delays can al  so materially impact our product development costs. If we experience delays in testing, conducting trials or approvals, our product development costs will increase, which costs may not be reimbursable to us under the BARDA agreement. Even if we were to successfully complete and receive approval for our red blood cell system, potential blood center customers may object to working with a potent chemical, like amustaline, the active compound in the red blood cell system, or may require modifications to automate the process, which would result in additional development costs, any of which could limit any market acceptance of the red blood cell system. If the red blood cell system were to face such objections from potential customers, we may choose to pay for capital assets, specialized equipment or personnel for the blood center, which would have a negative impact on any potential contribution margin from red blood cell system sales. Additionally, the use of the red blood cell system may result in some processing loss of red blood cells. If the loss of red blood cells leads to increased costs, or the perception of increased costs for potential customers, or potential customers believe that the loss of red blood cells reduces the efficacy of the transfusion unit, or our process requires changes in blood center or clinical regimens, potential customers may not adopt our red blood cell system even if approved for commercial sale.
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Platelet and Plasma Systems
In 2007, we obtained a CE mark approval from E.U. regulators for our platelet system, and have subsequently received a renewal in 2012 and again in 2017, in accordance with the five year renewal schedule . We or our customers have received approval for the sale and/or use of INTERCEPT-treated platelets within the Europe in France, Switzerland, Germany and Austria. We or our customers may also be required to conduct additional testing in order to obtain regulatory approval in countries that do not recognize the CE mark as being adequate for commercializing the INTERCEPT Blood System in those countries. The level of additional product testing varies by country, but could be expensive or take a long time to complete. In addition, regulatory agencies are able to withdraw or suspend previously issued approvals due to changes in regulatory law, our inability to maintain compliance with regulations or other factors.
In 2006, we obtained a CE mark approval from E.U. regulators for our plasma system, and have subsequently received a renewal in 2011 and again in 2016, in accordance with the five year renewal schedule. We or our customers have received approval for the sale and/or use INTERCEPT-treated plasma within Europe in France, Switzerland, Austria and Germany. In some countries, including several in Europe, we or our customers may be required to perform additional clinical studies or submit manufacturing and marketing applications in order to obtain regulatory approval. If we or our customers are unable to obtain or maintain regulatory approvals for the use and sale or continued sale and use of INTERCEPT-treated platelets or plasma, market adoption of our products will be negatively affected and our growth prospects would be materially and adversely impacted.
The FDA has approved the platelet system for ex vivo preparation of pathogen-reduced apheresis platelet components collected and stored in InterSol and 100% plasma in order to reduce the risk of transfusion-transmitted infection, or TTI, including sepsis, and to potentially reduce the risk of transfusion-associated graft versus host disease, or TA-GVHD. Additionally, the FDA approved the plasma system for ex vivo preparation of plasma in order to reduce the risk of TTI when treating patients requiring therapeutic plasma transfusion. We have conducted and are conducting additional in vitro studies for our platelet system to potentially expand our label claims to include, among others, platelets collected from pooled random donors, storage of INTERCEPT-treated platelets for up to seven days rather than five days, and a new processing set for triple dose collections. Failure to obtain any of these label expansion claims may negatively affect market adoption and our growth prospects would be materially and adversely affected.
As a condition to the initial FDA approval of the platelet system, we are required to conduct a post-approval clinical study of the platelet system. Successful enrollment and completion of this study requires that we develop sufficient INTERCEPT production capabilities with U.S. blood center customers. Delays in delivering INTERCEPT systems to blood centers that can supply INTERCEPT-treated platelets to hospitals involved in the study may lead to increased costs to us and may jeopardize our ability to complete the study in a timeframe acceptable to the FDA. Furthermore, blood centers’ ability to produce INTERCEPT-treated platelets and supply hospitals enrolled in the study may be negatively impacted by a shortage of overall platelet availability, constraints in producing platelets in compliance with our approved claims or operational inefficiencies experienced as a result of INTERCEPT treatment. In addition, we must identify and contract with hospitals that have the desire and ability to participate and contribute to the study in a timely manner and who are willing to purchase INTERCEPT-treated platelets from our blood center customers. If we are unable to complete this study, in a timely manner or at all, or the results of this study reveal unacceptable safety risks, we could be required to perform additional studies, which may be costly, and even lose U.S. marketing approval of the platelet system. Further, we are required to conduct a post-approval recovery and survival clinical study in connection with the recent label expansion approval for the use of the platelet system to treat platelets suspended in 100% plasma. Successful enrollment and completion of this additional study will also require that we identify and contract with hospitals that have the desire and ability to participate and contribute to the study in a timely manner and who are willing to purchase INTERCEPT-treated platelets from our blood center customers. If we are unable to complete this study, in a timely manner or at all, or the results of this study reveal unacceptable safety risks, we could be required to perform additional studies, which may be costly. In addition to these studies, the FDA may also require us to commit to perform other lengthy post-marketing studies, for which we would have to expend significant additional resources, which could have an adverse effect on our operating results, financial condition and stock price. In addition, there is a risk that these studies will show results inconsistent with our previous studies. Should this happen, potential customers may delay or choose not to adopt the INTERCEPT Blood System and existing customers may cease use of the INTERCEPT Blood System.
The execution and completion of the RedeS and ReCePI  studies and planned or required clinical trials or studies will continue to result in additional costs, and will continue to require attention and resources from our clinical, regulatory and management teams, which may adversely affect our commercialization efforts and other regulatory and clinical programs.
Post-Marketing Approval
 We are also required to continue to comply with applicable FDA and other regulatory requirements now that we have obtained approval for the INTERCEPT Blood System for platelets and plasma. These requirements relate to, among other things, labeling, packaging, storage, advertising, promotion, record-keeping and reporting of safety and other information. In addition, our manufacturers and their
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facilities are required to comply with extensive FDA and foreign regulatory agency requirements, including, in the U.S., ensuri ng that quality control and manufacturing procedures conform to cGMP and current QSR requirements. As such, we and our contract manufacturers are subject to continual review and periodic inspections. Accordingly, we and others with whom we work must contin ue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We are also required to report certain adverse events and production problems, if any, to the FDA and foreign regulatory aut horities, when applicable, and to comply with requirements concerning advertising and promotion for our products. For example, our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the proh ibition of the promotion of unapproved, or off-label, use. If the FDA determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to re gulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if th ey consider our promotional or training materials to constitute promotion of an off-label use, or a violation or any other federal or state law that applies to us, such as laws prohibiting false claims for reimbursement. Any enforcement action brought by a federal, state or foreign authority could result in significant civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, additional reporting obligations and oversight if we become subject to a corporate inte grity agreement or other agreement to resolve allocations of non-compliance with these laws, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual damages, administrative burdens, and diminished profits and future earnings. In addition , our reputation could be damaged and adoption of the products could be impaired. Although our policy is to refrain from statements that could be considered off-label promotion of our products, the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion. In addition, the off- label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend, divert our management’s attention, result in substantial damage awards against us and harm our reputation.
Should a regulatory agency question a reported adverse event, we may not be able to rule out product failure as the cause, whether or not product failure is the cause of the reported adverse event. If a regulatory agency suspects or discovers problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility or the manufacturing process at the facility where the product is manufactured, or problems with the quality of product manufactured, or disagrees with the promotion, marketing, or labeling of a product, a regulatory agency may impose restrictions on use of that product, including requiring withdrawal of the product from the market. Our failure to comply with applicable regulatory requirements could result in enforcement action by regulatory agencies, which may include any of the following sanctions:
 	•	adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties;	
 	•	repair, replacement, recall or seizure of our products;	
 	•	operating restrictions or partial suspension or total shutdown of production;	
 	•	delaying or refusing our requests for approval of new products, new intended uses or modifications to our existing products and regulatory strategies;	
 	•	refusal to grant export or import approval for our products;	
 	•	withdrawing marketing approvals that have already been granted, resulting in prohibitions on sales of our products; and	
 	•	criminal prosecution.	
Any of these actions, in combination or alone, could prevent us from selling our products and harm our business. In addition, any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing or changing regulatory requirements may significantly and adversely affect our ability to successfully commercialize and generate additional product revenues from our platelet and plasma systems or any future products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to continue to generate product revenues from the sale of our platelet and plasma systems, our potential for achieving operating profitability will be diminished and the need for additional capital to fund our operations will be increased.
In addition, the regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.
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A  significant portion  of the funding for the development of the red blood cell system is expected to come from our BARDA agreemen  t, and if BARDA were to eliminate, reduce or delay funding from our agreement , this could have a significant, negative impact on our revenues and cash flows, and we may be forced to suspend or terminate our U.S. red blood cell development program or obtain  alternative sources of funding.
 We anticipate that a significant portion of the funding for the development of the red blood cell system will come from our agreement with  BARDA . In this regard, in June 2016, we entered into an agreement with BARDA. The agreement, including its subsequent modifications, provide for reimbursement of certain expenses incurred by us for up to approximately $186.2 million to support the development of the red blood cell system. However, our agreement with BARDA only reimburses certain specified development and clinical activities that have been authorized by BARDA pursuant to the base period and certain options of the agreement and the potential exercise of subsequent option periods. To date, BARDA has committed approximately $88.2 million under the base period of the agreement and options exercised  . Accordingly, our ability to receive any of the additional $98.0 million in funding provided for under the BARDA  agreement is dependent on BARDA exercising additional options under t  he agreement, which it may do or not do at its sole discretion. In addition, BARDA is entitled to terminate our BARDA  agreement for convenience at any time, in whole or in part, and is not required to provide continued funding beyond reimbursement of amoun  ts currently incurred and obligated by us as a result of contract performance. Moreover, the continuation of our BARDA  agreement depends in large part on our ability to meet development milestones previously agreed to with BARDA and on our compliance with certain operating procedures and protocols. BARDA may suspend or terminate the agreement should we fail to achieve key milestones, or fail to comply with the operating procedures and processes approved by BARDA and its audit agency. There can be no assurance that we will be able to achieve these milestones or continue to comply with these procedures and protocols. For instance, our RedeS study, which is being funded as part of our agreement with BARDA, is currently being conducted in Puerto Rico and Florida. Given the hurricanes and destruction to Puerto Rico in 2017, our ability to enroll patients and make meaningful progress with the RedeS study has been negatively impacted and the successful completion of the RedeS study will likely depend on increasing enrollment through sites outside of Puerto Rico. Our ability to meet the expectations of BARDA under our contract is largely dependent on our ability to attract, hire and retain personnel with competencies that are in short supply. In addition, in many instances we must identify third-party suppliers, negotiate terms acceptable to us and BARDA and ensure ongoing compliance by these suppliers with the obligations covered by our BARDA agreement. If we are unable to provide adequate supplier oversight or if sup  pliers are unable to comply with the requirements of the contract, our ability to meet the anticipated milestones may be impaired. There can also be no assurance that our BARDA  agreement  will not be terminated, that our BARDA  agreement will be extended through the exercise of subsequent option periods, that any such extensions would be on terms favorable to us, or that we will otherwise obtain the funding that we anticipate to obtain under our agreement with BARDA. Moreover, changes in government budgets an  d agendas may result in a decreased and deprioritized emphasis on supporting the development of pathogen reduction technology. If our BARDA  agreement  is terminated or suspended, if there is any reduction or delay in funding under our BARDA  agreement, or if BARDA determines not to exercise some or all of the options provided for under the agreement, our revenues and cash flows could be significantly and negatively impacted and we may be forced to seek alternative sources of funding, which may not be availabl  e on non-dilutive terms, terms favorable to us or at all. If alternative sources of funding are not available, we may be forced to suspend or terminate development activities related to the red blood cell system in the U.S.
 In addition, u  nder the BARDA ag  reement, BARDA will regularly review our development efforts and clinical activities. Under certain circumstances, BARDA may advise us to delay certain activities and invest additional time and resources before proceeding. If we follow such BARDA advice, overall red blood cell program delays and costs associated with additional resources for which we had not planned may result. Also, the costs associated with following such advice may or may not be reimbursed by BARDA under our agreement. Finally, we may de  cide not to follow the advice provided by BARDA and instead pursue activities that we believe are in the best interests of our red blood cell program and our business, even if BARDA would not reimburse us under our agreement.
 Unfavorable provisions in government contracts, including in our contract with BARDA, may harm our business, financial condition and operating results.
 U.S. government contracts typically contain unfavorable provisions and are subject to audit and modification by the government at its sole discretion, which will subject us to additional risks. For example, under our agreement with BARDA, the U.S. government has the power to unilaterally:
 	•	a  udit and object to any BARDA  agreement-related costs and fees on grounds that they are not allowab  le under the Federal Acquisition Regulation, or FAR, and require us to reimburse all such costs and fees;	
 	•	suspend or prevent us for a set period of time from receiving new contracts or grants or extending our existing agreement based on violations or suspected violations of laws or regulations;	
 	•	c  laim nonexclusive, nontransferable rights to product manufactured and intellectual property developed under the BARDA  agreement and may, under certain circumstances involving public health and safety, license such  inventions to third parties without our consent;	
 	•	c  ancel, terminate or suspend our BARDA  agreement  based on violations or suspected violations of laws or regulations;	
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 	•	t  erminate our BARDA agreement in whole or in part for the convenience of the government fo  r any reason or no reason, including if funds become unavailable to the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response;	
 	•	r  educe the scope and value of our BARDA agreement;	
 	•	d  ecline to exercise an option to continue the BARDA agreement;	
 	•	direct the course of the development of the red blood cell system in a manner not chosen by us;	
 	•	r  equire us to perform the option periods provided for under the BARDA  agreement even if doing so m  ay cause us to forego or delay the pursuit of other red blood cell program opportunities with greater commercial potential;	
 	•	take actions that result in a longer development timeline than expected;	
 	•	limit the government’s financial liability to amounts appropriated by the U.S. Congress on a fiscal-year basis, thereby leaving some uncertainty about the future availability of funding for the red blood cell program even after it has been funded for an initial period; and	
 	•	change certain terms and conditions  in our BARDA agreement.	
 Generally, government contracts, including our agreement with BARDA, contain provisions permitting unilateral termination or modification, in whole or in part, at the U.S. government’s convenience. Termination-for-convenience provisions generally enable us to recover only our costs incurred or committed (plus a portion of the agreed fee) and settlement expenses on the work completed prior to termination. Except for the amount of services received by the government, termination-for-de  fault provisions do not permit recovery of fees. In addition, in the event of termination or upon expiration of our BARDA  agreement, the U.S. government may dispute wind-down and termination costs and may question prior expenses under the contract and deny  payment of those expenses. Should we choose to challenge the U.S. government for denying certain payments under our BARDA  agreement, such a challenge could subject us to substantial additional expenses that we may or may not recover. Further, if our BARDA   agreement  is terminated for convenience, or if we default by failing to perform in accordance with the contract schedule and terms, a significant negative impact on our cash flows and operations could result.
 In addition, government contracts normally contain additional requirements that may increase our costs of doing business and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:
 	•	specialized accounting systems unique to government contracts;	
 	•	mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;	
 	•	public disclosures of certain contract information, which may enable competitors to gain insights into our research program;	
 	•	mandatory internal control systems and policies; and	
 	•	mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements.	
 If we fail to maintain compliance with these requirements, we may be subject to potential liability and to the termination of our BARDA agreement.
 Furthermore, we have entered into and will continue to enter into agreements and subcontracts with third par  ties, including suppliers, consultants and other third-party contractors, in order to satisfy our contractual obligations under our BARDA  agreement. Negotiating and entering into such arrangements can be time-consuming and we may not be able to reach agree  ment with such third parties. Any such agreement must also be compliant with the terms of our BARDA  agreement. Any delay or inability to enter into such arrangements or entering into such arrangements in a manner that is non-compliant with the terms of our  contract, may result in violations of our BARDA agreement.
 As a result of the unfavorable provisions in our BARDA  agreement, we must undertake significant compliance activities. The diversion of resources from our development and commercial programs to th  ese compliance activities, as well as the exercise by the U.S. government of any rights under these provisions, could materially harm our business.
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Laws and regulations affecting government contracts, including our BARDA  agreement , make it more costly and  difficult for us to successfully conduct our business. Failure to comply with these laws and regulations could result in significant civil and criminal penalties and adversely affect our business.
 We must comply with numerous laws and regulations relating  to the administration and performance of our BARDA  agreement  . Among the most significant government contracting regulations are:
 	•	the FAR and agency-specific regulations supplemental to the FAR, which comprehensively regulate the procurement, formation, administration and performance of government contracts;	
 	•	the business ethics and public integrity obligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of gratuities and funding of lobbying activities and incorporate other requirements such as the Anti-Kickback Statute, the Procurement Integrity Act, the False Claims Act and the U.S. Foreign Corrupt Practices Act;	
 	•	export and import control laws and regulations; and	
 	•	laws, regulations and executive orders restricting the exportation of certain products and technical data.	
 In addition, as a U.S. government contractor, we are required to comply with applicable laws, regulations and standards relating to our accounting practices and are subject to periodic audits and reviews. As part of any such audit or review, the U.S. government may review the adequacy of, and our compliance with, our internal control systems and policies, including those relating to our purchasing, property, estimating, compensation  and management information systems. Based on the results of its audits, the U.S. government may adjust our BARDA  agreement-related costs and fees, including allocated indirect costs. This adjustment could impact the amount of revenues reported on a historic basis and could impact our cash flows under the contract prospectively. In addition, in the event BARDA determines that certain costs and fees were unallowable or determines that the allocated indirect cost rate was higher than the actual indirect cost rate, BARDA would be entitled to recoup any overpayment from us as a result. In addition, if an audit or review uncovers any improper or illegal activity, we may be subject to civil and criminal penalties and administrative sanctions, including termination  of our BARDA  agreement, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. We could also suffer serious harm to our reputation if allegations of impropriety were made against us, which could cause our stock price to decline. In addition, under U.S. government purchasing regulations, some of our costs may not be reimbursable or allowed under our contracts. Further, as a U.S. government contractor, we are subject to an increased ris  k of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities as compared to private sector commercial companies.
If we or our third-party suppliers fail to comply with the FDA’s or other regulatory agency’s good manufacturing practice regulations, it could impair our ability to market our products in a cost-effective and timely manner.
In order to be used in clinical studies or sold in the U.S., our products are required to be manufactured in FDA-approved facilities. If any of our suppliers fail to comply with FDA’s cGMP regulations or otherwise fail to maintain FDA approval, we may be required to identify an alternate supplier for our products or components. Our products are complex and difficult to manufacture. Finding alternate facilities and obtaining FDA approval for the manufacture of the INTERCEPT Blood System at such facilities would be costly and time-consuming and would negatively impact our ability to generate product revenue from the sale of our platelet or plasma system in the U.S. and achieve operating profitability. Our red blood cell system also needs to be manufactured in FDA-approved facilities, several of which, are not currently FDA-approved. Failure of our suppliers to meet cGMP regulations and failure to obtain or maintain FDA approval will negatively impact our ability to achieve FDA approval for our red blood cell system or may require that we identify, qualify and contract with alternative suppliers, if they are available, which would be time consuming, costly and result in further approval delays.
We and our third-party suppliers are also required to comply with the cGMP and QSR requirements, which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. The FDA and other regulatory agencies audit compliance with cGMP and QSR requirements through periodic announced and unannounced inspections of manufacturing and other facilities. These audits and inspections may be conducted at any time. If we or our suppliers fail to adhere to cGMP and QSR requirements, have significant non-compliance issues or fail to timely and adequately respond to any adverse inspectional observations or product safety issues, or if any corrective action plan that we or our suppliers propose in response to observed deficiencies is not sufficient, the FDA or other regulatory agency could take enforcement action against us, which could delay production of our products and may include:
 	•	untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;	
 	•	unanticipated expenditures to address or defend such actions;	
 	•	customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;	
 	•	operating restrictions or partial suspension or total shutdown of production;	
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 	•	refusing or delaying our requests for premarket approval of new products or modified products;	
 	•	withdrawing marketing approvals that have already been granted;	
 	•	refusal to grant export or import approval for our products; or	
 	•	criminal prosecution.	
Any of the foregoing actions could have a material adverse effect on our reputation, business, financial condition and operating results. Furthermore, our key suppliers may not continue to be in compliance with all applicable regulatory requirements, which could result in our failure to produce our products on a timely basis and in the required quantities, if at all. In addition, before any additional products would be considered for marketing approval in the U.S. or elsewhere, our suppliers will have to pass an audit by the FDA or other regulatory agencies. We are dependent on our suppliers’ cooperation and ability to pass such audits. Such audits and any audit remediation may be costly. Failure to pass such audits by any of our suppliers would affect our ability to obtain licensure in the U.S. or elsewhere.
If we modify our FDA-approved products, we may need to seek additional approvals, which, if not granted, would prevent us from selling our modified products.
 Any modifications to the platelet and plasma systems that could significantly affect their safety or effectiveness, including significant design and manufacturing changes, or that would constitute a major change in their intended use, manufacture, design, components, or technology requires approval of a new PMA or PMA supplement. However, certain changes to a PMA-approved device do not require submission and approval of a new PMA or PMA supplement and may only require notice to FDA in a PMA Annual Report. The FDA requires every supplier to make this determination in the first instance, but the FDA may review any supplier’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. Our products could be subject to recall if the FDA determines, for any reason, that our products are not safe or effective or that appropriate regulatory submissions were not made. If new regulatory approvals are required, this could delay or preclude our ability to market the modified system. For example, due to the obsolescence of certain parts, we have redesigned the illuminators used in the platelet and plasma systems and we are qualifying new plastics for use in our disposable kits, and we will need to receive approval of both of these changes from the FDA. In addition, in order to address the entire market in the U.S., we will need to obtain approval for additional configurations of the platelet system, including triple dose collections and random donor platelets. Our approved labels from the FDA limit our current approvals to certain platelet collection platforms and a particular storage solution for the particular collection platform. For instance, our approved claims permit apheresis collection of platelets on the Fresenius Amicus device while stored in an additive solution or for apheresis collection of platelets collected on the Terumo Trima device and stored in 100% plasma. Such discrepant collection methodologies and storage solutions and conditions also exist for red blood cells. We may be required to provide the FDA with data for each permutation for which blood banking treatment practices exist which may be time consuming, costly and limit the potential size of the U.S. market that can use our products. We have conducted and may conduct additional in vitro studies for our platelet system to potentially expand our label claims to include, among others, platelets collected from pooled random donors, storage of INTERCEPT-treated platelets for up to seven days rather than five days, and a new processing set for triple dose collections. Our failure to obtain FDA and foreign regulatory approvals of new platelet and plasma product configurations could significantly limit product revenues from sales of the platelet and plasma systems. In any event, delays in receipt or failure to receive approvals, the loss of previously received approvals, or the failure to comply with any other existing or future regulatory requirements, could reduce our sales and negatively impact our profitability potential and future growth prospects. In addition, if the FDA or other regulatory or accrediting body were to mandate safety interventions, including the option of pathogen reduction technology, when we had not received approval for all operational configurations, the market to which we could sell our products may be limited until we obtain such approvals, if ever, or may be permanently impaired  if competing options are more broadly available. In addition, we may seek to expand use of our products under new PMA approvals or PMA supplements. For instance, we plan to perform additional studies and seek regulatory approval for INTERCEPT-treated extended storage cryoprecipitate from plasma and we may develop, test and seek approval for other biological plasma products. Such products may require or we may choose to pursue a change in business model whereby we are selling the finished component to hospitals rather than an illuminator and disposable kit to blood centers. We have no experience selling to hospitals nor do we have experience or expertise complying with regulations governing finished biologics. If we are unable to successfully market such products to hospitals or comply with unique regulations, our ability to monetize and deliver such products will be negatively impacted.
We operate a complex global commercial organization, with limited experience in many countries, including the U.S. We have limited resources and experience complying with regulatory, legal, tax and political complexities as we expand into new and increasingly broad geographies.
 We are responsible for worldwide sales, marketing, distribution, maintenance and regulatory support of the INTERCEPT Blood System. If we fail in our efforts to develop or maintain such internal competencies or establish acceptable relationships with third
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parties to support us in these areas on a timely basis, our ability to commercialize the INTERCEPT Blood System may be irreparably harm ed.
 We have a wholly-owned subsidiary, headquartered in the Netherlands, dedicated primarily to selling and marketing the platelet and plasma systems in Europe, the CIS and the Middle East. Our commercial activities for the U.S., Latin and South America and Asia are based out of our headquarters in Concord, California with certain support from our European headquarters in the Netherlands, with certain individuals servicing Latin and South America and Asia, domiciled outside of the U.S. Our commercial organization focused on the U.S. market has limited resources and is relatively inexperienced, and as a result, has limited to no experience selling and marketing our platelet and plasma systems. Given the large relative size of the American Red Cross, should they deploy INTERCEPT rapidly under our commercial agreement, our resources may be inadequate to fulfill the American Red Cross’ and other customers’ demands, which could result in a loss of product revenues or customer contracts, or both. We will need to maintain and may need to increase our competence and size in a number of functions, including sales, deployment and product support, marketing, regulatory, inventory and logistics, customer service, credit and collections, risk management, and quality assura  nce systems in order to successfully support our commercialization activities in all of the jurisdictions we currently sell and market, or anticipate selling and marketing, our products. Many of these competencies require compliance with U.S., E.U., South American, Asian and local standards and practices, including regulatory, legal and tax requirements, with some of which we have limited experience. In this regard, should we obtain regulatory approval in an increased number of geographies, we will need to ensure that we maintain a sufficient number of personnel or develop new business processes to ensure ongoing compliance with the multitude of regulatory requirements in those territories. Hiring, training and retaining new personnel is costly, time consuming and distracting to existing employees and management. We have limited experience operating on a global scale and we may be unsuccessful complying with the variety and complexity of laws and regulations in a timely manner, if at all. In addition, in some cases, the cost of obtaining approval and maintaining compliance with certain regulations and laws may exceed the product revenue that we recognize from such a territory, which would adversely affect our results of operations and could adversely affect our financial condition. Furthermore, we may choose to seek alternative ways to sell or treat blood components with our products. These may include new business models, which may include selling kits to blood centers, performing inactivation ourselves, staffing blood centers or selling services or other business model changes. We have no experience with these types of business models, or the regulatory requirements or licenses needed to pursue such new business models. Additionally, such business models may be viewed as a threat to existing customers. We cannot assure you that we will pursue such business models or if we do, that we will be successful or that our existing customers will not feel threatened.
 Further, in June 2016, the U.K. held a referendum in  which voters approved an exit from the  E.U., commonly referred to as “Brexit,”  and the U.K. government delivered a notice of withdrawal in March 2017, with the U.K. scheduled to exit the E.U. by April 2019. The withdrawal could, among other outcomes, disru  pt the free movement of goods, services and people between the U.K. and the E.U., undermine bilateral cooperation in key policy areas and significantly disrupt trade between the U.K. and the E.U. We may also face new regulatory costs and challenges as resu  lt of Brexit that could have a material adverse effect on our operations.  In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Altered re  gulations could add time and expense to the process by which our product candidates receive regulatory approval in the E.U. Given the lack of comparable precedent, it is unclear what financial, regulatory, trade and legal implications the withdrawal of the  U.K. from the E.U.  will  have and how such withdrawal  will affect us.
We rely on third parties to market, sell, distribute and maintain our products and to maintain customer relationships in certain countries.
 We have entered into distribution agreements, generally on a geographically exclusive basis, with distributors in certain regions. We rely on these distributors to obtain and maintain any necessary in-country regulatory approvals, as well as market and sell the INTERCEPT Blood System, provide customer and technical product support, maintain inventories, and adhere to our quality system in all material respects, among other activities. Generally, our distribution agreements require distributors to purchase minimum quantities in a given year over the term of the agreement. Failure by our distributors to meet these minimum purchase obligations may impact our financial results. In addition, failure by our distributors to provide an accurate forecast impacts our ability to predict the timing of product revenue and our ability to accurately forecast our product supply needs. While our contracts generally require distributors to exercise diligence, these distributors may fail to commercialize the INTERCEPT Blood System in their respective territories. For example, our distributors may fail to sell product inventory they have purchased from us to end customers or may sell competing products ahead of or in conjunction with INTERCEPT. In addition, initial purchases of illuminators or INTERCEPT disposable kits by these third parties may not lead to follow-on purchases of platelet and plasma systems’ disposable kits. Agreements with our distributors typically require the distributor to maintain quality standards that are compliant with standards generally accepted for medical devices. We may be unable to ensure that our distributors are compliant with such standards. Further, we have limited visibility into the identity and requirements of blood banking customers these distributors may have. Accordingly, we may be unable to ensure our distributors properly maintain illuminators sold or provide quality technical services to the blood banking customers to which they sell. In addition, although our agreements with our distributors generally require compliance with local anti-corruption laws, the U.S. Foreign Corrupt Practices Act, and other local and international regulations, we have limited ability to control the
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actions of our distributors to ensure they are in compliance. Noncompliance by a distributor could expose us t o civil or criminal liability, fines and/or prohibitions on selling our products in certain countries.
Currently, a fairly concentrated number of distributors make up a significant portion of our product revenue and we may have little recourse, short of termination, in the event that a distributor fails to execute according to our expectations and contractual provisions. In the past, we have experienced weaker than expected growth due to declining performance by certain of our distributors. Periodically, we transition certain territories to new distribution partners or our direct sales force where we believe we can improve performance relative to the distributor. Because new distribution partners or our direct sales force may have limited experience marketing and selling our products in certain territories, or at all, we cannot be certain that they will perform better than the predecessor distributor. In certain cases, our distributors hold the regulatory approval to sell INTERCEPT for their particular geography. Termination, loss of exclusivity or transitioning from these distributors would require us to negotiate a transfer of the applicable regulatory approvals to us or new distributors which may be difficult to do in a timely manner, or at all. We expect that our product revenue will be adversely impacted with the loss or transition of one or more of these distributors. If we choose to terminate distributor agreements, we would either need to reach agreement with, qualify, train and supply a replacement distributor or supply and service end-user customer accounts in those territories ourselves. Although our distribution agreements generally provide that the distributor will promptly and efficiently transfer its existing customer agreements to us, there can be no assurance that this will happen in a timely manner or at all or that the distributor will honor its outstanding commitments to us. In addition, terminated distributors may own illuminators placed at customer sites and may require us to repurchase those devices or require end-user customers to purchase new devices from us. Additionally, we may need terminated distributors to cooperate with us or a new distributor in transitioning sub-distributor relationships and contracts, hospital contracts, public tenders, or regulatory certificates or licenses held in their name. These factors may be disruptive for our customers and our reputation may be damaged as a result. Our distribution partners may have more established relationships with potential end user customers than a new distributor or we may have in particular territory, which could adversely impact our ability to successfully commercialize our products in these territories. In addition, it may take longer for us to be paid if payment timing and terms in these new arrangements are less favorable to us than those in our existing distributor arrangements. As we service end-user accounts directly rather than through distributors, we incur additional expense, our working capital is negatively impacted due to longer periods from cash collection from direct sales customers when compared to the timing of cash collection from our former distribution partners and we may be exposed to additional complexity including local statutory and tax compliance. Current or transitioning distributors may irreparably harm relationships with local existing and prospective customers and our standing with the blood banking community in general. In the event that we are unable to find alternative distributors or mobilize our own sales efforts in the territories in which a particular distributor operates, customer supply, our reputation and our operating results may be adversely affected. In addition, in territories where new distributors are responsible for servicing end-user accounts, there will be a period of transition in order to properly qualify and train these new distributors, which may disrupt the operations of our customers and adversely impact our reputation and operating results.
Our products are a novel technology in the U.S. and blood centers and clinicians have little to no experience with pathogen reduction systems. Further, we have no prior experience commercializing products in the U.S. We may be unable to develop and maintain an effective and qualified U.S. based commercial organization or educate blood centers, clinicians and hospital personnel. As a result, we may not be able to successfully educate the market on the value of pathogen reduction or commercialize our platelet and plasma systems in the U.S.
 Our ability to generate significant product revenue from our platelet and plasma systems depends in part on our ability to achieve market acceptance of, and to otherwise effectively market, our platelet and plasma systems in the U.S. Even if we are able to achieve market acceptance in the U.S. or newly commercialized markets, we have provided and may continue to provide adoption incentives which may negatively impact our reported sales. Successfully commercializing our products in the U.S. may take considerable time during which we will need to build relationships, additional routine-use data and trust from the industry. As a company, we have no prior experience in commercializing any products in the U.S., and we still need to attract, retain, train and support sales, marketing and scientific affairs personnel and other commercial talent. For example, we need to attract and retain medical science liaisons, or MSLs, to help educate hospitals and physicians on our products, clinical trial history and publications. MSLs are highly educated and trained professionals and the hiring and employment market for MSLs is highly competitive. As such, we need to commit significant additional management and other resources in order to maintain and expand our MSL team and sales and marketing functions. We may be unable to develop and maintain adequate MSL, sales and marketing capabilities for the U.S. market and we also may not be able to devote sufficient resources to the advertising, promotion and sales efforts for the platelet and plasma systems in the U.S. We will also have to compete with other life sciences and medical device companies to recruit, hire, train and retain the MSL, sales and marketing personnel that we anticipate we need. For these and other reasons, we may be unable to develop and maintain an effective and qualified U.S.-based commercial organization in a cost-effective manner or realize a positive return on our investment. If we are unable to develop and maintain an effective and qualified U.S.-based commercial organization in a timely manner or at all, we may fail to realize the full sales potential of our platelet and plasma systems in the U.S. In addition, should we seek and obtain approval for unique biological products created by use of the INTERCEPT blood system, including extended storage cryoprecipitate, we may choose to sell the treated end product directly to hospitals using our commercial organization. We have no experience selling
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biological end products directly to hospitals which may cause a distraction for our commercial organization or we may be viewed as a competitive threat to our blood center customers.
Our manufacturing supply chain exposes us to significant risks.
We do not own our own manufacturing facilities, but rather manufacture our products using a number of third party suppliers, many of whom are our sole suppliers for the particular product or component that we procure. We rely on various contracts and our relationships with these suppliers to ensure that the sourced products are manufactured in sufficient quantities, timely, to our exact specifications and at prices we agree upon with the supplier. The price that we pay to some of our suppliers is dependent on the volume of products or components that we order. If we are unable to meet the volume tiers that afford the most favorable pricing, our gross margins will be negatively impacted.
In October 2015, we amended and restated our manufacturing and supply agreement with Fresenius. Under the amended agreement, Fresenius is obligated to sell, and we are obligated to purchase finished disposable kits for the platelet, plasma and red blood cell kits from Fresenius with certain exceptions permitted. The initial term of the amended agreement extends through July 1, 2025, and is automatically renewed thereafter for additional two year renewal terms, subject to termination by either party upon (i) two years written notice prior to the expiration of the initial term or (ii) one year written notice prior to the expiration of any renewal term. We and Fresenius each have normal and customary termination rights, including termination for material breach. Fresenius is our sole supplier for the manufacture of these products. Fresenius may fail to manufacture an adequate supply of INTERCEPT disposable kits which would harm our business. Disruptions to our supply chain as a result of any potential ensuing protests, strikes or other work-stoppages would be detrimental to our business and operating results. While we and Fresenius recently entered into the amended agreement, in the event Fresenius refuses or is unable to continue operating under the amended agreement, we may be unable to maintain inventory levels or otherwise meet customer demand, and our business and operating results would be materially and adversely affected.
We also have contracts with other third-party suppliers, including Ash Stevens for the manufacture of amotosalen, our proprietary compound for reducing pathogens that is used in our platelet and plasma systems; Purolite, and separately, Porex, for the manufacture of components of the compound adsorption devices used in our platelet and plasma systems; and Nova for the manufacture of illuminators and certain components of the INTERCEPT Blood System. These independent suppliers are currently our sole qualified suppliers for such components and products.
Our manufacturing and supply agreement with Ash Stevens automatically extended at the end of 2017 and now continues until December 31, 2019, and will continue to automatically renew thereafter for periods of two years each, but may be terminated by Ash Stevens provided that Ash Stevens notifies us in writing at least two years in advance. We have not been notified by Ash Stevens of their intention to terminate the agreement. Although we are not subject to minimum annual purchase requirements under the manufacturing and supply agreement with Ash Stevens, we may be required to pay a maintenance fee of up to $50,000 a year if specified quantities of amotosalen are not purchased in any year. We have incurred these maintenance fees in the past and may incur these maintenance fees in future periods.
In April 2017, we entered into an amended and restated manufacturing and supply agreement with Porex for the continued supply of the compound adsorption. Porex is our sole supplier for certain components of and manufacturing of the compound adsorption devices. Under the amended and restated Porex agreement, we are no longer subject to a minimum annual purchase requirement; however, Porex has the right to terminate the agreement, upon twelve months’ prior written notice, if annual production falls below a mutually agreed threshold. If not sooner terminated, the amended and restated Porex agreement expires on December 31, 2019. In addition, we entered into an amended and restated supply agreement with Brotech Corporation d/b/a Purolite Company, or Purolite, for the supply of raw materials used to make the compound adsorption devices. The amended supply agreement expires in April 2021 and will automatically renew for an additional year unless either party has provided notice not to renew at least two years prior to the expiration. Under the terms of the amended agreement, pricing is volume based and is subject to annual, prospective adjustments based on a Producer Price Index subject to an annual cap. Our agreement with Nova, which manufacturers our illuminators, currently extends through September 2018 and is automatically renewable for one year terms, but may be terminated by Nova on at least twelve months’ prior written notice. We have not been notified by Nova of their intention to terminate the agreement.
 Facilities at which the INTERCEPT Blood System or its components are manufactured may cease operations for planned or unplanned reasons or may unilaterally change the formulations of certain commercially available reagents that we use, causing at least temporary interruptions in supply. Even a temporary failure to supply adequate numbers of INTERCEPT Blood System components may cause an irreparable loss of customer goodwill. Although we are actively evaluating alternate suppliers for certain components, we do not have qualified suppliers beyond those on which we currently rely, and we understand that Fresenius relies substantially on sole suppliers of certain materials for our products. In addition, suppliers from whom our contract manufacturers source components and raw materials may cease production or supply of those components to our contract manufacturers. For example, we understand that certain plastics used to make INTERCEPT disposable kits are no longer available. As a result, we and our manufacturers have
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identified alternate plastics and we have received CE Mark approval for our platelet product using the alternate plastics but will need to qualify and validate those plastics in the U.S. and for our plasma product in Europe before we can utilize them in commercial manufacturing . In addition, we understand that a compound adsorbent housing component is no longer available and an alternate housing will need to be qualified by Fresenius. Identification and qualification of alternate suppliers is time con suming and costly, and there can be no assurance that we will be able to demonstrate equivalency of alternate components or suppliers or that we will receive regulatory approval in the U.S. or other jurisdictions. If we conclude that supply of the INTERCEP T Blood System or components from suppliers is uncertain, we may choose to build and maintain inventories of raw materials, work-in-process components, or finished goods, which would consume capital resources faster than we anticipate and may cause our sup ply chain to be less efficient.
 Currently Nova is manufacturing illuminators to meet customer demand and maintain our own inventory levels. Subject to obsolescence, we may be required to identify and qualify replacement components for illuminators and in doing so, we may be required to conduct additional studies, which could include clinical trials to demonstrate equivalency or validate any required design or component changes. We and our customers rely on the availability of spare parts to ensure that customer platelet and plasma production is not interrupted. If we are not able to supply spare parts for the maintenance of customer illuminators, our ability to keep existing customers or sign up new customers may be negatively impacted. Due to the obsolescen  ce of certain parts, we have redesigned the illuminators used in the platelet and plasma systems, and we will need to receive approval of this redesign from the FDA. Our failure to obtain FDA and foreign regulatory approvals of a new illuminator could cons  train our ability to penetrate the U.S. market and may otherwise significantly limit product revenue from sales of the platelet and plasma systems. In any event, delays in receipt or failure to receive these approvals could reduce our sales and negatively impact our profitability potential and future growth prospects. Furthermore, we understand that components used in the redesigned illuminator are no longer commercially available beyond what we and Nova have stockpiled or to which we have access under final buy transactions. We will need to continue investing in subsequent versions of the illuminator to enhance functionality and manage obsolescence. In addition, our illuminators contain embedded proprietary software that runs on software code we have developed and that we own. Changes to certain components due to obsolescence, illuminator redesign or market demand, may require us to modify the existing software code or to develop new illuminator software. Our ability to develop new illuminator software, correct coding flaws and generally maintain the software code is reliant on third-party contractors who, in some cases, have sole knowledge of the software code. Our ability to develop and maintain the illuminator software may be impaired if we are not able to continue contracting with those key third-party contracted developers or if we are unable to source alternate employees or consultants to do so. Software development is inherently risky and may be time consuming and costly.
In the event that alternate manufacturers are identified and qualified, we will need to transfer know-how relevant to the manufacture of the INTERCEPT Blood System to such alternate manufacturers; however, certain of our supplier’s materials, manufacturing processes and methods are proprietary to them, which will impair our ability to establish alternate sources of supply, even if we are required to do so as a condition of regulatory approval. We may be unable to establish alternate suppliers without having to redesign certain elements of the platelet and plasma systems. Such redesign may be costly, time consuming and require further regulatory review and approvals. We may be unable to identify, select, and qualify such manufacturers or those third parties able to provide support for development and testing activities on a timely basis or enter into contracts with them on reasonable terms, if at all. Moreover, the inclusion of components manufactured by new suppliers could require us to seek new or updated approvals from regulatory authorities, which could result in delays in product delivery. We may not receive any such required regulatory approvals. We cannot assure you that any amendments to existing manufacturing agreements or any new manufacturing agreements that we may enter into will contain terms more favorable to us than those that we currently have with our manufacturers. Many of the existing agreements we have with suppliers contain provisions that we have been operating under for an extended period of time, including pricing. Should we enter into agreements or amend agreements with any manufacturer with less favorable terms, including pricing, our results of operations may be impacted, our recourse against such manufacturers may be limited, and the quality of our products may be impacted.
Raw materials, components or finished product may not meet specifications or may be subject to other nonconformities. In the past, non-conformities in certain component lots have caused delays in manufacturing of INTERCEPT disposable kits. Similarly, we have experienced non-conformities and out of specification results in certain component manufacturing needed for commercial sale and regulatory submissions. Non-conformities can increase our expenses and reduce gross margins or result in delayed regulatory submissions. Should non-conformities occur in the future, we may be unable to manufacture products to meet customer demand, which would result in lost sales and could cause irreparable damage to our customer relationships. Later discovery of problems with a product, manufacturer or facility may result in additional restrictions on the product, manufacturer or facility, including withdrawal of the product from the market. We are subject to risks and costs of product recall, which include not only potential out-of-pocket costs, but also potential interruption to our supply chain. In such an event, our customer relations could be harmed and we would incur unforeseen losses. For example, in April 2018, we instituted a voluntary recall of a specified lot of our disposable platelet kits after identifying the possibility of an incomplete seal where the tubing meets the base of the sampling pouch, which is used to obtain a sample of the INTERCEPT –treated platelets. We may voluntarily recall additional lots of disposable kits if this incomplete seal is identified in other lots. This voluntary recall may have a material adverse effect on the customers impacted and potentially impacted by the recall, as well as our relationship with such customers.
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In the event of a failure by Fresenius or other manufacturers to perform their obligations to supply components of the INTERCEPT Blood System to us, damages recoverable by us may be insufficient to compensate us for the full loss of business opportunity. Many of our su pply agreements contain limitations on incidental and consequential damages that we may recover. A supplier’s potential liability in the event of non-performance may not be sufficient to compel the supplier to continue to act in conformity with our agreeme nts. Our product supply chain requires us to purchase certain components in minimum quantities and may result in a production cycle of more than one year. Significant disruptions to any of the steps in our supply chain process may result in longer producti ons cycles which could lead to inefficient use of cash or may impair our ability to supply customers with product.
We may encounter unforeseen manufacturing difficulties which, at a minimum, may lead to higher than anticipated costs, scrap rates, or delays in manufacturing products. In addition, we may not receive timely or accurate demand information from distributors or customers, or may not accurately forecast demand ourselves for the INTERCEPT Blood System. Should actual demand for our products exceed our own forecasts or forecasts that customers provide, we may be unable to fulfill such orders timely, if at all. Should we be unable to fulfill demand, particularly if mandated by a public health authority, our reputation and business prospects may be impaired. Further, certain distributors and customers require, and potential future distributors or customers may require, product with a minimum shelf life. If customers requiring minimum shelf-lives order smaller quantities or do not purchase product as we anticipate, or at all, we may have elevated inventory levels with relatively short shelf-lives which may lead to increased write-offs and inefficient use of our cash. Should we choose not to fulfill smaller orders with minimum shelf lives, our product sales may be harmed. We will need to destroy or consume outdated inventory in product demonstration activities, which may in turn lead to elevated product demonstration costs and/or reduced gross margins. In order to meet minimum shelf-life requirements, we may need to manufacture sufficient product to meet estimated forecasted demand. As a result, we may carry excess work-in-process or finished goods inventory, which would consume capital resources and may become obsolete, or our inventory may be inadequate to meet customer demand. Our platelet and plasma systems’ disposable kits have 18 to 24 months shelf lives from the date of manufacture. Should we change or modify any of our product configurations or components, such future configurations of our products may not achieve the same shelf life that existing products have. We and our distributors may be unable to ship product to customers prior to the expiration of the product shelf life, a risk that is heightened if we elect to increase our inventory levels in order to mitigate supply disruptions. We have entered into certain public tenders, some which call for us to maintain certain minimum levels of inventory. If our suppliers fail to produce components or our finished products satisfactorily, timely, at acceptable costs, and in sufficient quantities, we may incur delays, shortfalls and additional expenses, or non-compliance with certain public tenders which may in turn result in permanent harm to our customer relations or loss of customers. In addition, certain large national customers, like those in France or the U.K. may choose to convert all of their operation to INTERCEPT. Should we or our suppliers encounter any manufacturing issues, we may not be able to satisfy all of the global demand or may have to allocate available product to certain customers which may negatively impact our customers operations and consequently, our reputation. Conversely, we may choose to overstock inventory in order to mitigate any unforeseen potential disruption to manufacturing which could consume our cash resources faster than we anticipate and may cause our supply chain to be less efficient.
Obsolescence or shortage of raw materials, key components of and accessories to the INTERCEPT Blood System, may impact our ability to supply our customers, may negatively impact the operational costs of our customers and may increase the prices at which we sell our products, resulting in slower than anticipated growth or negative future financial performance.
The manufacture, supply and availability of key components of, and accessories to, our products are dependent upon a limited number of third parties and the commercial adoption and success of our products is dependent upon the continued availability of these components or accessories. For example, our customers rely on continued availability of third-party supplied plastics, saline and reagents for processing, storing and manufacturing blood components. If the blood product industry experiences shortages of these components or accessories, the availability and use of our products may be impaired.
 With respect to the manufacture of our products, our third party manufacturers source components and raw materials for the manufacture of the INTERCEPT processing sets. Certain of these components are no longer commercially available, are nearing end-of-life or are available only from a limited number of suppliers. We and our third party manufacturers do not have guaranteed supply contracts with all of the raw material or component suppliers for our products, which magnify the risk of shortage and obsolescence and decreases our manufacturers’ ability to negotiate pricing with their suppliers. Any shortage or obsolescence of raw materials, components or accessories or our inability to control co  sts associated with raw materials, components or accessories, could increase our costs to manufacture our products. Further, if any supplier to our third party manufacturers is unwilling or unable to provide high quality raw materials in required quantities and at acceptable prices, our manufacturers may be unable to find alternative sources or may fail to find alternative suppliers at commercially acceptable prices, on satisfactory terms, in a timely manner, or at all. If any of these events were to occur, our product quality, competitive position, reputation and business could suffer, we could experience cancellations of customer orders, refusal by customers to accept deliveries or a reduction in our prices and margins to the detriment of our financial performance and results of operations.
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We are subject to federal, state and foreign laws governing our business practices which, if violated, could result in substantial penalties and harm our reputation and business.
 We are subject to a number of laws that affect our sales, marketing and other promotional activities by limiting the kinds of financial arrangements we may have with hospitals, physicians, healthcare providers or other potential purchasers of our products. These laws are often broadly written, and it is often difficult to determine precisely how these laws will be applied to specific circumstances. For example, within the E.U., the control of unlawful marketing activities is a matter of national law in each of the member states. The member states  of the E.U. closely monitor perceived unlawful marketing activity by companies. We could face civil, criminal and administrative sanctions if any member state determines that we have breached our obligations under its national laws. Industry associations also closely monitor the activities of member companies. If these organizations or authorities name us as having breached our obligations under their regulations, rules or standards, our reputation would suffer and our business and financial condition could be adversely affected.
In addition, there are numerous U.S. federal and state healthcare regulatory laws, including, but not limited to, anti-kickback laws, false claims laws, privacy laws, and transparency laws. Our relationships with healthcare providers and entities, including but not limited to, hospitals, physicians, healthcare providers and our customers are or will be subject to scrutiny under these laws. Violations of these laws can subject us to penalties, including, but not limited to, administrative, civil and criminal penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in federal and state healthcare programs, including the Medicare and Medicaid programs, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment of our operations. Healthcare fraud and abuse regulations are complex, and even minor irregularities can potentially give rise to claims that a statute or prohibition has been violated. The laws that may affect our ability to operate include, but are not limited to:
 	•	the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in exchange for or to induce, the referral of an individual for, the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid;	
 	•	federal false claims laws, including the federal False Claims Act, that prohibit, among other things, knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other federal payors that are false or fraudulent, or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government, and which may apply to entities that provide coding and billing advice to customers;	
 	•	the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented, a claim to a federal healthcare program that the person knows, or should know, is for an item or service that was not provided as claimed or is false or fraudulent;	
 	•	the federal Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program, including private payors, or making false statements relating to healthcare matters;	
 	•	HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform services for them that involve individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization, including mandatory contractual terms as well as directly applicable privacy and security standards and requirements;	
 	•	the Federal Trade Commission Act and similar laws regulating advertisement and consumer protections; and	
 	•	foreign or U.S. state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; U.S. state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government or otherwise restrict payments that may be made to healthcare providers; U.S. state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and U.S. state laws governing the privacy and security of certain health information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.	
 We are also subject to foreign laws and regulations covering data privacy and the protection of health-related and other personal information. In this regard, E.U. member states and other foreign jurisdictions, including Switzerland, have adopted data protection laws and regulations which impose significant compliance obligations. For example, the E.U. Data Protection Directive, as
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implemented into natio nal laws by the E.U. member states, imposes strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting. The E.U. Data Protection Directive prohib its the transfer of personal data to countries outside of the European Economic Area, or EEA, such as the U.S., which are not considered by the European Commission, or EC, to provide an adequate level of data protection. Switzerland has adopted similar res trictions. Although there are legal mechanisms to allow for the transfer of personal data from the EEA and Switzerland to the U.S., a judgment of the European Court of Justice that invalidated the EC decision on the U.S. safe harbor has increased uncertain ty around the adequacy of these legal mechanisms. This means that it will no longer be possible to transfer personal data from the E.U. to entities in the U.S. that rely on safe harbor certification as a legal basis for the transfer of such data. In additi on, data protection authorities from the different E.U. member states may interpret the E.U. Data Protection Directive and national laws differently, and guidance on implementation and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal data in the E.U. If we fail to comply with applicable data privacy laws, or if the legal mechanisms we rely upon to allow for the transfer of personal data from the EEA or Switzerland to the U.S. (or other countrie s not considered by the EC to provide an adequate level of data protection) are not considered adequate, we could be subject to government enforcement actions and significant penalties against us, and our business could be adversely impacted if our ability to transfer personal data outside of the EEA or Switzerland is restricted, which could adversely impact our operating results. Further, the European Commission has approved a new data protection regulation, known as the General Data Protection Regulation, or GDPR, which was officially adopted in April 2016 and will be applicable in May, 2018. This GDPR is intended to replace the current E.U. Data Protection Directive, and will introduce new data protection requirements and substantial fines for breaches of the data protection rules. The GDPR will increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional compliance mechanisms.
We are also subject to the U.S. Foreign Corrupt Practices Act and anti-corruption laws, and similar laws with a significant anti-corruption intent in foreign countries. In general, there is a worldwide trend to strengthen anticorruption laws and their enforcement. Any violation of these laws by us or our agents or distributors could create a substantial liability for us, subject our officers and directors to personal liability and also cause a loss of reputation in the market. We currently operate in many countries where the public sector is perceived as being more or highly corrupt. Our strategic business plans include expanding our business in regions and countries that are rated as higher risk for corruption activity, such as China, India and Russia. Becoming familiar with and implementing the infrastructure necessary to comply with laws, rules and regulations applicable to new business activities and mitigate and protect against corruption risks could be quite costly. In addition, failure by us or our agents or distributors to comply with these laws, rules and regulations could delay our expansion into high-growth markets, could damage market perception of our business and could adversely affect our existing business operations. Increased business in higher risk countries could also subject us and our officers and directors to increased scrutiny and increased liability.
Further, the United States Patient Protection and Affordable Care Act, or the ACA, among other things, amends the intent requirements of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act. Moreover, while we do not submit claims and our customers make the ultimate decision on how to submit claims, from time-to-time, we may provide reimbursement guidance to our customers. If a government authority were to conclude that we provided improper advice to our customers or encouraged the submission of false claims for reimbursement, we could face action against us by government authorities. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our business activities, including our relationships with healthcare providers and entities, including, but not limited to, hospitals, physicians, healthcare providers and our distributors, and certain sales and marketing practices, including the provision of certain items and services to our customers, could be subject to challenge under one or more of such laws.
To enforce compliance with the healthcare regulatory laws, federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
 In addition, there has been a recent trend of increased U.S. federal and state regulation of payments and transfers of value provided to healthcare professionals or entities. Section 6002 of the ACA, known as the Physician Payments Sunshine Act, imposes new annual reporting requirements on device manufacturers for payments and other transfers of value provided by them, directly or indirectly, to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their family members. A
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manufacturer’s failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investm ent interests may result in civil monetary penalties of up to an aggregate of $165,786 per year, and up to an aggregate of $1,105,241 per year for “knowing failures.” Manufacturers must submit reports by the 90th day of each subsequent calendar year. Due t o the difficulty in complying with the Physician Payments Sunshine Act, we cannot assure you that we will successfully report all payments and transfers of value provided by us, and any failure to comply could result in significant fines and penalties. Som e states, such as California and Connecticut, also mandate implementation of commercial compliance programs, and other states, such as Massachusetts and Vermont, impose restrictions on device manufacturer marketing practices and tracking and reporting of g ifts, compensation and other remuneration to healthcare professionals and entities. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and reporting requiremen ts in multiple jurisdictions increase the possibility that we may fail to comply fully with one or more of these requirements.
Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.
Most of these laws apply to not only the actions taken by us, but also actions taken by our distributors or other third party agents. We have limited knowledge and control over the business practices of our distributors and agents, and we may face regulatory action against us as a result of their actions which could have a material adverse effect on our reputation, business, results of operations and financial condition.
In addition, the scope and enforcement of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. U.S. federal or state regulatory authorities might challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, results of operations and financial condition. Any U.S. federal or state or foreign regulatory review of us, regardless of the outcome, would be costly and time-consuming. Additionally, we cannot predict the impact of any changes in these laws, whether or not retroactive. Compliance with these and other changing regulations will increase our costs and may require increasing management attention.
Legislative, regulatory, or other healthcare reforms may make it more difficult and costly for us to obtain regulatory approval of our products and to produce, market and distribute our products after approval is obtained.
Regulatory guidance and regulations are often revised or reinterpreted by the regulatory agencies in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our products. Delays in receipt of, or failure to receive, regulatory approvals for our new products or product configurations would have a material adverse effect on our business, results of operations and financial condition.
Federal and state governments in the U.S. have recently enacted legislation to overhaul the nation’s healthcare system. While the goal of healthcare reform is to expand coverage to more individuals, it also involves increased government price controls, additional regulatory mandates and other measures designed to constrain medical costs. The ACA significantly impacts the medical device industry. Among other things, the ACA:
 	•	imposes an annual excise tax of 2.3% on entities that manufacture or import eligible medical devices offered for sale in the U.S.;	
 	•	establishes a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical effectiveness research in an effort to coordinate and develop such research; and	
 	•	implements payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models.	
 Since its enactment, there have been judicial and Congressional challenges to numerous provisions of the ACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the  implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or the Tax Act, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including delaying imposition of the medical device excise tax on non-exempt medical devices through December 31, 2019. Congress may consider additional legislation to repeal or repeal and
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replace other elements of the ACA. Any repeal and replace legislation may have the effect of limiting the amounts that government agencies will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure, or may lead to significant deregulation, which could make the introduction of competing products and technologies much easier. Policy changes, incl uding potential modification or repeal of all or parts of the ACA or the implementation of new health care legislation could result in significant changes to the health care system, which could have a material adverse effect on our business, results of ope rations and financial condition.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, including the Bipartisan Budget Act of 2018, will stay in effect through 2027, unless additional congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 which, among other things, further reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. More recently, there has been heightened governmental scrutiny in the United States to control the rising cost of healthcare. For example, such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to pricing and reform government program reimbursement methodologies for pharmaceutical products, some of which are included in the Trump administration’s budget proposal for fiscal year 2019.
The Trump administration has publicly stated a core goal is to deregulate wherever possible. It is unclear if this contraction in regulation would also apply to guidance documents that would impact our industry. For example, the FDA has indicated that they will finalize guidance prescribing steps blood centers would have to comply with to safeguard platelet products from bacterial contamination. The initial draft guidance prescribed our technology as an option. Should the administration remove such guidance documentation, market uptake for INTERCEPT platelets may be impaired. Conversely, any significant deregulation could make the introduction of competing products and technologies much easier than the burden faced by us in order to receive FDA approval. We expect that additional U.S federal and state and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.
Our platelet and plasma products and product candidates are not compatible with some collection, production and storage methods or combinations thereof. Further, blood centers using INTERCEPT must have access to those certain devices, blood bags, assays or platelet additive solutions that are compatible with our products.
 The equipment and materials used to collect platelets vary by manufacturer and by geographic region. Platelets may be collected from a single donor by apheresis using an automated collection machine. Apheresis devices currently used in the U.S. and European markets differ, among other characteristics, in their ability to collect platelets in reduced volumes of plasma. Platelet collection device manufacturers may need to modify device collection parameters or software before a prospective customer could use INTERCEPT. If these manufacturers are not cooperative or are resistant to assist their customers or do not assist with making such modifications, the potential market for our products may be limited. Platelet concentrates may also be prepared from whole blood by pooling together platelets from multiple donors. There are two commonly used methods for preparing whole blood platelets: the buffy coat method, which is used extensively in Europe, and the pooled random donor method, which is used in the U.S. Our platelet system is designed to work with platelets collected and stored in storage solutions, called InterSol and SSP+, and for platelets suspended in 100% plasma. Fresenius is the exclusive manufacturer of InterSol and  MacoPharma of SSP+, both widely-used PASs. Many of our customers and prospective customers use InterSol or SSP+ in connection with INTERCEPT treatment. Similarly, many of our customers combine multiple plasma components from whole blood donations before treating the combined plasma product with INTERCEPT. Grifols makes such a product (Plasmix). Customers’ ability to use our INTERCEPT products may be impaired should manufacturers of those products, including those sold by Grifols, not provide access to the products allowing for the combination of multiple components. Should manufacturers of collection devices, compatible assays and blood bags, pooling sets or platelet additive solutions fail to obtain or maintain regulatory approval, experience unexpected production disruption, or decide to cease distribution of those respective products to customers and prospective customers, our ability to sell the INTERCEPT Blood System may be impaired and acceptance in the marketplace could be harmed.
 In order to address the entire market in the U.S., Japan, and potentially elsewhere, we will need to develop and test additional configurations of the platelet system. For example, in the U.S., we understand a significant number of platelet concentrates are derived from larger volumes collected from apheresis donors split into three therapeutic transfusable doses. Future configurations of the platelet system will be needed to treat platelet donations with such processing parameters. We estimate that the majority of platelets used in the U.S. are collected by apheresis, though a significant minority is prepared from pooled random donor platelets derived from whole blood collections. In addition, many blood centers may view pooled random donor platelets treated with INTERCEPT as an economically
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optimal approach. In order to gain regulatory approvals for a pathogen reduction system compatible with triple dose collections, and random donor platelets, we will need to perform additional product development and testing, including addit ional clinical trials. We have conducted and may conduct additional in vitro studies for our platelet system to potentially expand our label claims to include, among others, platelets collected from pooled random donors, storage of INTERCEPT-treated platel ets for up to seven days rather than five days, and a new processing set for triple dose collections. In the U.S, our approved labels for the platelet system from the FDA limit our current approvals to certain platelet collection platforms and a particular storage solution for the particular collection platform. For instance, our approved claims permit apheresis collection of platelets on the Fresenius Amicus d evice while stored in an additive solution or for apheresis collection of platelets collected on the Terumo Trima device and stored in 100% plasma. We may be required to provide the FDA with data for each permutation for which blood banking treatment pract ices exist which may be time consuming, costly and limit the potential size of the U.S. market that can use our products. Our failure to obtain FDA and foreign regulatory approvals of any new configurations could significantly limit product revenue from sa les of the platelet system. In addition, given that there is some loss of platelets using our product, blood centers may need to increase collection volumes in order to use our product and maintain an adequate concentration for a triple therapeutic dose. I n any event, delays in receipt or failure to receive approval could reduce our sales and negatively impact our profitability potential and future growth prospects. Similarly, to achieve market acceptance in certain geographies, we may be required to design , develop and test new product configurations for the platelet and plasma systems. In addition, if the FDA or other regulatory or accrediting body were to mandate safety interventions, including the option of pathogen reduction technology, when we had not received approval for all operational configurations, the market to which we could sell our products may be limited until we obtain such approvals , if ever, or may be permanently impaired if competing options are more broadly available. In addition, we wil l need to continue to generate acceptable data in order to conform with the evolving collection practices such as automated whole-blood collection. If we are unable to conform to evolving collection practices our ability to address those portions of the ma rket may be compromised. These development activities will increase our costs significantly and may not be successful. We may need to demonstrate the safety and efficacy of our platelet system using a variety of configurations before our platelet system wo uld be approved for such configurations. Delays in obtaining any future approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our product revenue and potential future profitability.
If our competitors develop products superior to ours, market their products more effectively than we market our products, or receive regulatory approval before our products, our commercial opportunities could be reduced or eliminated.
We expect our products will continue to encounter significant competition. The INTERCEPT Blood System products compete with other approaches to blood safety currently in use and may compete with future products that may be developed by others. Our success will depend in part on our ability to respond quickly to customer and prospective customer needs, successfully receive and maintain regulatory approvals, and adapt to medical and technological changes brought about by the development and introduction of new products. Competitors’ products or technologies may make our products obsolete or non-competitive before we are able to generate any significant product revenue. In addition, competitors or potential competitors may have substantially greater financial and other resources than we have. They may also have greater experience in preclinical testing, human clinical trials and other regulatory approval procedures. If competitors’ products experience significant problems, customers and potential customers may question the safety and efficacy of all pathogen reduction technologies, including the INTERCEPT Blood System. Such questions and concerns may impair our ability to market and sell the INTERCEPT Blood System.
Several companies have, or are developing, technologies that are, or in the future may be, the basis for products that will directly compete with or reduce the market for our pathogen reduction systems. A number of companies are specifically focusing on alternative strategies for pathogen reduction in platelets and plasma.
These alternative strategies may be more effective in reducing certain types of pathogens from blood products, including certain non-lipid-enveloped viruses, such as hepatitis A and E viruses, which our products have not demonstrated an ability to inactivate, or human parvovirus B-19, which is also a non-lipid-enveloped virus, for which our products have not demonstrated a high level of inactivation. While studies have demonstrated that our products can effectively inactivate a broad spectrum of pathogens in blood components, market adoption of our products may be reduced if customers determine that competitors’ products inactivate a broader range of pathogens that are of particular interest to the transfusion medicine community. In addition, customers and prospective customers may believe that our competitors’ products are safer, more cost effective or easier to implement and incorporate into existing blood processing procedures than INTERCEPT Blood System products. In Europe, several companies, including Grifols S.A., Octapharma AG, MacoPharma International and Kedrion Biopharma, are developing or selling commercial pathogen reduction systems or services to treat fresh frozen plasma.
 MacoPharma has received CE Mark for a UVC-based product for pathogen reduced platelets. MacoPharma currently has a Phase 3 clinical trial underway in Germany to generate additional data for expanded approvals. In addition, Terumo BCT, a subsidiary of Terumo Corporation, has developed a pathogen reduction system for blood products and has been issued CE marks for its system for both platelets and plasma. We further understand that Terumo BCT developed a pathogen reduction system for whole blood and has recently completed a clinical trial of its whole blood system in Ghana, receiving a Class II CE mark. Terumo BCT’s products may offer competitive advantages over our INTERCEPT Blood System. Terumo Corporation is a large Japanese-based, multinational
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corporation with more mature products and relationships than we have. Our ability to commercialize our products in certain markets, particularly in Japan, may be negatively affected by Terumo BCT’s resources and their pre-existing relationships with regulators and customers. Should Terumo BCT’s product be approved for use and commercialize d in Japan, our products would likely directly compete with their products and we believe we would likely either need to establish operations in Japan or partner with a local Japanese company.
Octapharma AG received FDA approval in January 2013 to sell treated fresh frozen plasma for certain indications and is currently commercially available. Should Octapharma enter into exclusive agreements with key customers, our plasma system may encounter market resistance and we will have a more limited market into which we can sell.
In addition, we understand that Octapharma received approval to sell fresh frozen plasma in France. Octapharma’s entry into the French market may pose a competitive threat to other pathogen reduced plasmas, including INTERCEPT and may in turn limit the potential market available to us in France.
Other companies developing competing products may also offer and sell other blood-banking products and services. As a result, competitors may have pre-existing long-term relationships with customers and may be able to offer synergies for both pathogen reduction and non-pathogen reduction products that we are unable to offer. Regulatory agencies may mandate use of competing products which would limit our ability to sell our products in those markets.
New methods of testing whole blood for specific pathogens have been approved by the FDA and in Europe, as have tests for bacteria in platelets. Other companies are marketing rapid, point-of-care bacterial tests, and developing synthetic blood product substitutes and products to stimulate the growth of platelets. Development and commercialization of any of these or other related technologies could limit the potential market for our products as would a mandate of any competing technology other than INTERCEPT.
We may be liable and we may need to withdraw our products from the market if our products harm people. We may be liable if an accident occurs in our controlled use of hazardous materials. Our insurance coverage may be inadequate to offset losses we may incur.
We are exposed to potential liability risks inherent in the testing and marketing of medical devices. We may be liable if any of our products cause injury, illness or death. Although we will have completed preclinical and clinical safety testing prior to marketing our products, there may be harmful effects caused by our products that we are unable to identify in preclinical or clinical testing. In particular, unforeseen, rare reactions or adverse side effects related to long-term use of our products may not be observed until the products are in widespread commercial use. Because of the limited duration and number of patients receiving blood components treated with the INTERCEPT Blood System products in clinical trials, it is possible that harmful effects of our products not observed in preclinical and clinical testing could be discovered after a marketing approval has been received. For example, in cases where we have obtained regulatory approval for our products, we have demonstrated pathogen reduction to specified levels based on well-established tests. However, there is no way to determine, after treatment by our products, whether our products have completely inactivated all of the pathogens that may be present in blood components. There is also no way to determine whether any residual amount of a pathogen remains in the blood component treated by our products and there is no way to exclude that such residual amount would be enough to cause disease in the transfused patient or was a result of a potential defect or lack of efficacy of our products. For ethical reasons, we cannot conduct human testing to determine whether an individual who receives a transfusion of a blood component containing a pathogen that was inactivated using the INTERCEPT Blood System might show positive results if tested for an antibody against that pathogen. While we believe, based on the clinical experience of our scientists, that the level of inactivated pathogens would likely be too small to induce a detectable antibody response in diagnostic tests, we cannot exclude that a transfused patient might show positive results if tested for an antibody against that pathogen. We could be subject to a claim from a patient that tests positive, even though that patient did not contract a disease. In addition, should personnel at clinical study sites or ultimately, potential customers, be harmed by amustaline, or believe they have been or could be harmed by amustaline, our insurance coverage may be insufficient to provide coverage for any related potential liabilities. Amustaline is considered a potent chemical and is the active compound of our red blood cell system.
We maintain product liability insurance, but do not know whether the insurance will provide adequate coverage against potential liabilities. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products.
Our research and development activities involve the controlled use of hazardous materials, including certain hazardous chemicals, radioactive materials and infectious pathogens, such as HIV and hepatitis viruses. Although we believe that our safety procedures for handling and disposing of hazardous materials are adequate and comply with regulatory requirements, we cannot eliminate the risk of accidental contamination or injury. If an accident occurs, we could be held liable for any damages that result.
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A recall of our products, either voluntarily or at the direction of the FD A or another governmental authority, or the discovery of serious safety issues with our products that leads to corrective actions, could have a significant adverse impact on us.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on an FDA finding that there is reasonable probability that the device would cause serious injury or death. Manufacturers may also, under their own initiative, recall a product if any material deficiency in a device is found or withdraw a product to improve device performance or for other reasons. The FDA requires that certain classifications of recalls be reported to the FDA within ten working days after the recall is initiated. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects or other deficiencies and issues. For example, in April 2018, we instituted a voluntary recall of a specified lot of our disposable platelet kits after identifying the possibility of an incomplete seal where the tubing meets the base of the sampling pouch, which is used to obtain a sample of the INTERCEPT –treated platelets. Regulatory agencies in other countries have similar authority to recall devices because of material deficiencies or defects in design or manufacture that could endanger health. Any recall would divert management attention and financial resources and could cause the price of our stock to decline, expose us to product liability or other claims and harm our reputation with customers. Such events could impair our ability to supply our products in a cost-effective and timely manner in order to meet our customers’ demands. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA or similar foreign governmental authorities. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA or foreign governmental authorities. If the FDA or foreign governmental authorities disagree with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA or a foreign governmental authority could take enforcement action for failing to report the recalls when they were conducted.
In addition, under the FDA’s medical device reporting regulations, we are required to report to the FDA any incident in which our products may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Repeated product malfunctions may result in a voluntary or involuntary product recall. We are also required to follow detailed recordkeeping requirements for all firm-initiated medical device corrections and removals, and to report such corrective and removal actions to FDA if they are carried out in response to a risk to health and have not otherwise been reported under the medical device reporting regulations. If we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal fines. We may also be required to bear other costs or take other actions that may have a negative impact on our sales as well as face significant adverse publicity or regulatory consequences, which could harm our business, including our ability to market our products in the future.
Any adverse event involving our products, whether in the U.S. or abroad could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection, mandatory recall or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results.
If we fail to obtain the capital necessary to fund our future operations or if we are unable to generate positive cash flows from our operations, we will need to curtail planned development or sales and commercialization activities.
 Our near-term capital requirements are dependent on various factors, including operating costs and working capital investments associated with commercializing the INTERCEPT Blood System, including in connection with the continuing U.S. commercial launch of our platelet and plasma systems, costs to develop different configurations of existing products and new products, including our illuminator, costs associated with planning, enrolling and completing ongoing studies, and the post-approval studies we are required to conduct in connection with the FDA approval of the platelet system, costs associated with pursuing potential regulatory approvals in other geographies where we do not currently sell our platelet and plasma systems, costs associated with conducting in vitro studies and clinical development of our red blood cell system in Europe and the U.S., costs associated with performing the agreed-upon activities under our BARDA agreement, and costs related to creating, maintaining and defending our intellectual property. Our long-term capital requirements will also be dependent on the success of our sales efforts, competitive developments, the timing, costs and magnitude of our longer-term clinical trials and other development activities related to our platelet, plasma and red blood cell systems, including required post-approval studies for the platelet system, market preparedness and product launch activities for any of our products in geographies where we do not currently sell our products, and regulatory factors. Until we are able to generate a sufficient amount of product revenue and generate positive net cash flows from operations, which we may never do, meeting our long-term capital requirements is in large part reliant on continued access to funds under our BARDA agreement and the public and private equity and debt capital markets, as well as on collaborative arrangements with partners, augmented by cash generated from operations and interest income earned on the investment of our cash balances. While we believe that our available cash and cash equivalents and short-term investments, as well as cash received from product sales  and under our agreement with BARDA, will be sufficient to meet
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our capital requirements for at least the next twelve months, if we are unable to generate sufficient product revenue, or access sufficient funds under our BARDA agreement or the public and private equity and debt capital markets, we may be unable to execute successfully on our operating plan . We have based our cash sufficiency estimate on assumptions that may prove to be incorrect. If our assumptions prove to be incorrect, we could consume our available capital re sources sooner than we currently expect or in excess of amounts than we currently expect, which could adversely affect our commercialization and clinical development activities.
We have borrowed and in the future may borrow additional capital from institutional and commercial banking sources to fund future growth, including pursuant to our amended and restated loan and security agreement, or the Amended Credit Agreement, with Oxford Finance, as described below, or potentially pursuant to new arrangements with different lenders. We may borrow funds on terms that may include restrictive covenants, including covenants that restrict the operation of our business, liens on assets, high effective interest rates, financial performance covenants and repayment provisions that reduce cash resources and limit future access to capital markets. In addition, we expect to continue to opportunistically seek access to the equity capital markets to support our development efforts and operations. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders.
 While we expect to receive significant funding under our five-year agreement with BARDA, our ability to obtain the funding we expect to receive under the agreement is subject to various risks and uncertainties, including with respect to BARDA’s ability to terminate the agreement for convenience at any time and our ability to achieve the required milestones under the agreement  . In addition, access to federal contracts is subject to the authorization of funds and approval of our research plans by various organizations within the federal government, including th  e U.S. Congress. The general economic environment, coupled with tight federal budgets, has led to a general decline in the amount available for government funding. If BARDA were to eliminate, reduce or delay funding  under our agreement, this would have a significant negative impact on the programs associated with such funding and could have a significant negative impact on our revenues and cash flows. In addition, if we are unable to generate sufficient perquisite Phase 3 clinical data and/or reach agreemen  t with the FDA on a Phase 3 clinical trial design for our red blood cell system,  our agreement with BARDA will be severely limited in scope or could be terminated altogether, and our ability to complete the development activities required for licensure in  the U.S. may require additional capital beyond which we currently have. If alternative sources of funding are not available, we may be forced to suspend or terminate development activities related to the red blood cell system in the U.S.
 As a result of economic conditions, general global economic uncertainty, political change, and other factors, we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. If we are unable to raise additional capital due to the volatile global financial markets, general economic uncertainty or other factors, we may need to curtail planned development or commercialization activities. In addition, we may need to obtain additional funds to complete development activities for the red blood cell system necessary for potential regulatory approval in Europe, if costs are higher than anticipated or we encounter delays. We may need to obtain additional funding to conduct additional randomized controlled clinical trials for existing or new products  , particularly if  we are unable to access any additional portions of the funding contemplated by our BARDA agreement, and we may choose to defer such activities until we can obtain sufficient additional funding or, at such time, our existing operations provide sufficient cash flow to conduct these trials.
Covenants in our Amended Credit Agreement restrict our business and operations in many ways and if we do not effectively manage our covenants, our financial conditions and results of operations could be adversely affected. In addition, our operations may not provide sufficient cash to meet the repayment obligations of our debt incurred under the Amended Credit Agreement.
 Our Amended Credit Agreement with Oxford Finance provides $40.0 million of term loan funds, due July 1, 2022, of which $30.0 million has been borrowed to date. All of our current and future assets, except for intellectual property and 35% of our investment in our subsidiary, Cerus  Europe B.V., are secured for our borrowings under the Amended Credit Agreement. The Amended Credit Agreement requires that we comply with certain covenants applicable to us and our subsidiary, including among other things, covenants restricting dispositions, changes in business, management, ownership or business locations, mergers or acquisitions, indebtedness, encumbrances, distributions, investments, transactions with affiliates and subordinated debt, any of which could restrict our business and operatio  ns, particularly our ability to respond to changes in our business or to take specified actions to take advantage of certain business opportunities that may be presented to us. In addition, receipt of a qualified audit opinion (other than as to going conce  rn or a qualification resulting solely from the scheduled maturity of term loans occurring within one year from the date such opinion is delivered) would be a violation of an affirmative covenant under the  Amended Credit Agreement. While we believe that our available cash and cash equivalents and short-term investments, as well as cash to be received from product sales and under our agreement with BARDA, will be sufficient to meet our capital requirements for at least the next twelve months , if we are unable to generate sufficient product revenue, or access sufficient funds under our BARDA agreement or the public and private equity and debt capital markets, we may be unable to execute successfully on our operating plan. Our failure to comply with any of the  covenants could result in a default under the Amended Credit Agreement, which could permit the lenders to declare all or part of any outstanding borrowings to be immediately due and payable, or to refuse to permit additional borrowings under the Amended Credit Agreement. If
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we are unable to repay those amounts, the lenders under the Amended Credit Agreement could proceed against the collateral granted to them to secure that debt, which would seriously harm our business. In addition, should we be unable to c omply with these covenants or if we default on any portion of our outstanding borrowings, the lenders can also impose a 5% penalty. O ur ability to access the final $10.0 million under the Amended Credit Agreement is subject to our ability to achieve a certain revenue threshold, which we have already met . Before we would consider accessing the final $10.0 million under the Amended Credit Agreement , we must first satisfy ourselves that we will have access to future alternate sources of capital, including cash flow from our own operations, equity capital markets or debt capital markets in order to repay any principal borrowed, which we may be unable to do, in which case, our liquidity and ability to fund our operation s may be substantially impaired.
Virtually all of our research and development activities and the significant majority of our general and administrative activities are performed in or managed from a single site that may be subject to lengthy business interruption in the event of a severe earthquake. We also may suffer loss of computerized information and may be unable to make timely filings with regulatory agencies in the event of catastrophic failure of our data storage and backup systems.
Virtually all of our research and development activities and the significant portion of our general and administrative activities are performed in or managed from our facilities in Concord, California, which are within an active earthquake fault zone. Should a severe earthquake occur, we might be unable to occupy our facilities or conduct research and development and general and administrative activities in support of our business and products until such time as our facilities could be repaired and made operational. Our property and casualty and business interruption insurance in general does not cover losses caused by earthquakes. While we have taken certain measures to protect our scientific, technological and commercial assets, a lengthy or costly disruption due to an earthquake would have a material adverse effect on us. We have also taken measures to limit damage that may occur from the loss of computerized data due to power outage, system or component failure or corruption of data files. However, we may lose critical computerized data, which may be difficult or impossible to recreate, which may harm our business. We may be unable to make timely filings with regulatory agencies in the event of catastrophic failure of our data storage and backup systems, which may subject us to fines or adverse consequences, up to and including loss of our ability to conduct business.
We recently signed a lease for a new corporate headquarters and laboratories and plan to move all of our research and development personnel and most of our selling general and administrative personnel in the United States to this new location. A move of this magnitude and complexity will be expensive and may be disruptive to our operations. For example, all of our laboratory equipment will need to be moved, many requiring calibration and validation prior to being ready for use in ongoing and new studies. Delays or problems resulting from the move may cause a delay in our ability to commence or complete these studies.
Significant disruptions of information technology systems or breaches of data security could adversely affect our business.
Our business is increasingly dependent on complex and interdependent information technology systems, including internet-based systems, databases and programs, to support our business processes as well as internal and external communications. As use of information technology systems has increased, deliberate attacks and attempts to gain unauthorized access to computer systems and networks have increased in frequency and sophistication. Our information technology, systems and networks are potentially vulnerable to breakdown, malicious intrusion and computer viruses which may result in the impairment of production and key business processes or loss of data or information. We are also potentially vulnerable to data security breaches—whether by employees or others—which may expose sensitive data to unauthorized persons. For example, we have in the past and may in the future be subject to “phishing” attacks in which third parties send emails purporting to be from reputable sources. Phishing attacks may attempt to obtain personal information, infiltrate our systems to initiate wire transfers or otherwise obtain proprietary or confidential information. Although we have not experienced any losses as a result of such attacks or any other breaches of data security, such breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of our employees, clinical trial patients, distributors, customers and others. Breaches and other inappropriate access can be difficult to detect and any delay in identifying them could increase their harm. While we have implemented security measures to protect our data security and information technology systems, such measures may not prevent such events. Any such breaches of security and inappropriate access could disrupt our operations, harm our reputation or otherwise have a material adverse effect on our business, financial condition and results of operations.
If we fail to attract, retain and motivate key personnel or to retain the members of our executive management team, our operations and our future growth may be adversely affected.
 We are highly dependent upon our executive management team and other critical personnel, including our specialized research and development, regulatory and operations personnel, many of whom have been employed with us for many years and have a significant amount of institutional knowledge about us and our products. We do not carry “key person” insurance. If one or more members of our executive management team or other key personnel were to retire or resign, our ability to achieve development, regulatory or operational milestones for commercialization of our products could be adversely affected if we are unable to replace them with employees of comparable knowledge and experience. In addition, we may not be able to retain or recruit other qualified individuals,
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and our efforts at knowledge transfer could be inadequate. If knowledge transfer, recruiting and retention efforts are inadequate, significant amounts of internal historical knowledge and expertise could become unavailable to us.
We also rely on our ability to attract, retain and motivate skilled and highly qualified personnel in order to grow our company. Competition for qualified personnel in the medical device and pharmaceutical industry is very intense. If we are unable to attract, retain and motivate quality individuals, our business, financial condition, ability to perform under our BARDA agreement, or results of operations and growth prospects could be adversely affected. Even if we are able to identify and hire qualified personnel commensurate with our growth objectives and opportunities, the process of integrating new employees is time consuming, costly and distracting to existing employees and management. Such disruptions may have an adverse impact on our operations, our ability to service existing markets and customers, or our ability to comply with regulations and laws.
All of the employees of our subsidiary, Cerus Europe B.V., are employed outside the U.S., including in France, where labor and employment laws are relatively stringent and, in many cases, grant significant job protection to certain employees, including rights on termination of employment. In addition, one of our manufacturing partners that we are dependent on is located in France and may have employees that are members of unions or represented by a works council as required by law. These more stringent labor and employment laws to the extent that they are applicable, coupled with the requirement to consult with the relevant unions or works’ councils, could increase our operational costs with respect to our own employees and could result in passed through operational costs by our manufacturing partner. If the increased operational costs become significant, our business, financial condition and results of operations could be adversely impacted.
Our ability to use our net operating loss carryforwards and certain other tax attributes is uncertain and may be limited.
Our ability to use our federal and state net operating loss, or NOL, carryforwards to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the NOL carryforwards, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our NOL carryforwards. On December 22, 2017, President Trump signed into law the Tax Act. Under the Tax Act, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the Tax Act. In addition, utilization of NOL carryforwards to offset potential future taxable income and related income taxes that would otherwise be due is subject to annual limitations under the “ownership change” provisions of Sections 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions, which may result in the expiration of NOL carryforwards before future utilization. In general, under the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research and development credit carryforwards) to offset its post-change taxable income or taxes may be limited. Our equity offerings and other changes in our stock ownership, some of which are outside of our control, may have resulted or could in the future result in an ownership change. Although we have completed studies to provide reasonable assurance that an ownership change limitation would not apply, we cannot be certain that a taxing authority would reach the same conclusion. If, after a review or audit, an ownership change limitation were to apply, utilization of our domestic NOL and tax credit carryforwards could be limited in future periods and a portion of the carryforwards could expire before being available to reduce future income tax liabilities.
We may not be able to protect our intellectual property or operate our business without infringing intellectual property rights of others.
Our commercial success will depend, in part, on obtaining and maintaining patent protection on our products and successfully defending our products against third-party challenges. Our technology will be protected from unauthorized use only to the extent that it is covered by valid and enforceable patents or effectively maintained as trade secrets. As a result, our success depends in part on our ability to:
 	•	obtain patents;	
 	•	protect trade secrets;	
 	•	operate without infringing upon the proprietary rights of others; and	
 	•	prevent others from infringing on our proprietary rights.	
 We cannot be certain that our patents or patents that we license from others will be enforceable and afford protection against competitors. Our patents or patent applications, if issued, may be challenged, invalidated or circumvented. Our patent rights may not provide us with proprietary protection or competitive advantages against competitors with similar technologies. Others may independently develop technologies similar to ours or independently duplicate our technologies. For example, we are aware of a recently expired U.S. patent issued to a third-party that covers methods to remove psoralen compounds from blood products. We have
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reviewed the patent and believe there exist substantial questions concerning its validity. We cannot be certa in, however, that a court would hold the patent to be invalid or not infringed by our platelet or plasma systems. In this regard, whether or not we have infringed this patent will not be known with certainty unless and until a court interprets the patent i n the context of litigation. In the event that we are found to have infringed any valid claim of this patent, we may, among other things, be required to pay damages. Our patents expire at various dates between 2018 and 2031. Recent patent applications will , if granted, result in patents with later expiration dates. In addition, we have a license from Fresenius to U.S. and foreign patents relating to the INTERCEPT Blood System, which expire at various dates between 2018 and 2024. Due to the extensive time re quired for development, testing and regulatory review of our potential products, our patents may expire or remain in existence for only a short period following commercialization. This would reduce or eliminate any advantage of the patents.
We cannot be certain that we were the first to make the inventions covered by each of our issued patents or pending patent applications or that we were the first to file patent applications for such inventions. We may need to license the right to use third-party patents and intellectual property to continue development and commercialization of our products, including in connection with our planned commercialization of the platelet and plasma systems in the U.S. We may not be able to acquire such required licenses on acceptable terms, if at all. If we do not obtain such licenses, we may need to design around other parties’ patents, or we may not be able to proceed with the development, manufacture or sale of our products.
Our patents do not cover all of the countries in which we are selling, and planning to sell, our products. We will not be able to prevent potential competitors from using our technology in countries where we do not have patent coverage. Further, the laws of some foreign countries may not protect intellectual property rights to the same extent as the laws of the U.S., including the CIS countries, China and India, jurisdictions where we are currently expanding our commercialization efforts through distributors. In certain countries, compulsory licensing laws exist that may be used to compel a patent owner to grant licenses to third parties, for reasons such as non-use of the patented subject matter within a certain period of time after patent grant or commercializing in a manner that is cost-prohibitive in the country. In those countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license for INTERCEPT to a third party, which could materially diminish the value of such patents. This could adversely impact our potential product revenue opportunities.
We may face litigation requiring us to defend against claims of infringement, assert claims of infringement, enforce our patents, protect our trade secrets or know-how or determine the scope and validity of others’ proprietary rights. Patent litigation is costly. In addition, we may require interference proceedings before the U.S. Patent and Trademark Office to determine the priority of inventions relating to our patent applications. Litigation or interference proceedings could be expensive and time consuming, and we could be unsuccessful in our efforts to enforce our intellectual property rights. We may rely, in certain circumstances, on trade secrets to protect our technology. However, trade secrets are difficult to protect. We protect our proprietary technology and processes, in part, by confidentiality agreements with employees, consultants and contractors. These agreements may be breached and we may not have adequate remedies for any breach or our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others, disputes also may arise as to the rights in related or resulting know-how and inventions.
As our international operations grow, we may be subject to adverse fluctuations in exchange rates between the U.S. dollar and foreign currencies, tariffs and other trade restrictions.
Our international operations are subject to risks typical of an international business, including, among other factors: differing political, economic, and regulatory climates, different tax structures and foreign exchange volatility. We do not currently enter into any hedging contracts to normalize the impact of foreign exchange fluctuations. As a result, our future results could be materially affected by changes in these or other factors.
 Product sales of the INTERCEPT Blood System sold outside of the U.S. are typically invoiced to customers in Euros. In addition, we purchase finished INTERCEPT disposable kits for our platelet and plasma systems and incur certain operating expenses in Euros and other foreign currencies. Our exposure to foreign exchange rate volatility is a direct result of our product sales, cash collection and cash payments for expenses to support our international operations. Foreign exchange rate fluctuations are recorded as a component of other income, net on our consolidated statements of operations. Significant fluctuations in the volatility of foreign currencies relative to the U.S. dollar may materially affect our results of operations. For example, the announcement of Brexit caused severe volatility in global currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we transact  business. Should this foreign exchange volatility continue or increase, it could cause volatility in our results of operations. In addition, in a period where the U.S. dollar is strengthening/weakening as compared to Euros and other currencies we transact in, our product revenues and expenses denominated in Euros or other foreign currencies are translated into U.S. dollars at a lower/higher value than they would be in an otherwise constant currency exchange rate environment.
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Currently we do not have a formal hedging program to mitigate the effects of foreign currency volatility. As our commercial operations grow globally, our ope rations are exposed to more currencies and as a result our exposure to foreign exchange risk will grow.
Additionally, the Trump administration has called for substantial changes to foreign trade policy and has recently imposed tariffs on certain U.S. imports. We also rely on various U.S. corporate tax provisions related to international commerce. If we are subject to new regulations, including those under the Tax Act, or if restrictions and tariffs increase our operating costs in the future, and we are not able to recapture those costs from our customers, or if such initiatives, regulations, restrictions or tariffs, including any retaliatory tariffs imposed by other countries on U.S. exports in response to the Trump administration import tariffs, make it more difficult for us to compete in overseas markets, our business, financial condition and results of operations could be adversely impacted.
We currently have a limited trading volume, which results in higher price volatility for, and reduced liquidity of, our common stock.
Our shares of common stock are currently quoted on the Nasdaq Global Market under the symbol “CERS.” The market for our common stock has been limited due to low trading volume and the small number of brokerage firms acting as market makers. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. The absence of an active trading market increases price volatility and reduces the liquidity of our common stock. As long as this condition continues, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered, which may limit our ability to effectively raise money. In addition, due to the limitations of our market and the volatility in the market price of our stock, investors may face difficulties in selling shares at attractive prices when they want to sell. As a result of this lack of trading activity, the quoted price for our common stock is not necessarily a reliable indicator of its fair market value.
We are obligated to develop and maintain proper and effective internal control over financial reporting. In the future, we may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weakness identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting.
Complying with Section 404 requires a rigorous compliance program as well as adequate time and resources. As a result of expanding our commercialization efforts, developing, improving and expanding our core information technology systems as well as implementing new systems to support our sales, supply chain activities and reporting capabilities, all of which require significant management time and support, we may not be able to complete our internal control evaluation, testing and any required remediation in a timely fashion. Additionally, if we identify one or more material weaknesses in our internal control over financial reporting, we will not be unable to assert that our internal controls are effective. For example, our management concluded that our internal control over financial reporting was ineffective as of December 31, 2014, because material weaknesses existed in our internal control over financial reporting related to the valuation of our inventory and cost of product revenue and the timeliness and accuracy of recording adjustments to certain accrued liabilities as reported on our consolidated balance sheets and statements of operations. Although we have been able to successfully remediate those internal control deficiencies, to the extent we identify future weaknesses or deficiencies, there could be material misstatements in our consolidated financial statements and we could fail to meet our financial reporting obligations. As a result, our ability to obtain additional financing, or obtain additional financing on favorable terms, could be materially and adversely affected which, in turn, could materially and adversely affect our business, our financial condition and the value of our common stock. If we are unable to assert that our internal control over financial reporting is effective in the future, or if our independent registered public accounting firm is unable to express an opinion or expresses an adverse opinion on the effectiveness of our internal controls in the future, investor confidence in the accuracy and completeness of our financial reports could be further eroded, which would have a material adverse effect on the price of our common stock.
65

Provisions of our charter documents, our stockholder rights plan, our compensatory arrangements and Delawa re law could make it more difficult for a third party to acquire us, even if the offer may be considered beneficial by our stockholders.
Provisions of the Delaware General Corporation Law could discourage potential acquisition proposals and could delay, deter or prevent a change in control. The anti-takeover provisions of the Delaware General Corporation Law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. In addition, Section 203 of the Delaware General Corporation Law, unless its application has been waived, provides certain default anti-takeover protections in connection with transactions between us and an “interested stockholder”. Generally, Section 203 prohibits stockholders who, alone or together with their affiliates and associates, own more than 15% of the subject company from engaging in certain business combinations for a period of three years following the date that the stockholder became an interested stockholder of such subject company without approval of the board or the vote of two-thirds of the shares held by the independent stockholders. Our board of directors has also adopted a stockholder rights plan, or “poison pill,” which would significantly dilute the ownership of a hostile acquirer. Additionally, provisions of our amended and restated certificate of incorporation and bylaws could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders, including without limitation, the authority of the board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine. In addition, our executive employment agreements, change of control severance benefit plan and equity incentive plans and agreements thereunder provide for certain severance benefits in connection with a change of control of us, including single-trigger equity vesting acceleration benefits with respect to outstanding stock options, which could increase the costs to a third party acquirer and/or deter such third party from acquiring us.
The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.
The Tax Act significantly changes the Internal Revenue Code of 1986, as amended. The Tax Act, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate on future earnings to 21%, limitation of the future tax deduction for net interest expense, limitation of the deduction for future net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, changes in the treatment of offshore earnings regardless of whether they are repatriated, mandatory capitalization of research and development expenses, further deduction limits on executive compensation and modifying, repealing and creating many other business deductions and credits. Our federal net operating loss carryovers generated in 2018 and thereafter will be carried forward indefinitely pursuant to the Tax Act. We continue to examine the impact this tax reform legislation may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the Tax Act. The impact of the Tax Act on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our common stock.
 
ITEM 2.	 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	
None.
ITEM 3.	 DEFAULTS UPON SENIOR SECURITIES	
None.
ITEM 4.	 MINE SAFETY DISCLOSURES	
Not applicable.
ITEM 5.	 OTHER INFORMATION	
None.
66

ITEM 6.	 E XHIBITS	
 
Exhibit Number	 	Description of Exhibit	
 	 	 	
    3.1 (1)	 	Amended and Restated Certificate of Incorporation of Cerus Corporation.	
 	 	 	
    3.2 (1)	 	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Cerus Corporation.	
 	 	 	
    3.3 (6)	 	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Cerus Corporation.	
 	 	 	
    3.4 (1)	 	Certificate of Designation of Series C Junior Participating Preferred Stock of Cerus Corporation.	
 	 	 	
    3.5 (2)	 	Amended and Restated Bylaws of Cerus Corporation.	
 	 	 	
    4.1 (3)	 	Specimen Stock Certificate (see Exhibit 4.2 to Form S-1 Registration Statement filed with the SEC on January 8, 1997).	
 	 	 	
    4.2 (4)	 	Rights Agreement, dated as of November 3, 1999, as amended as of August 6, 2001, between Cerus Corporation and Wells Fargo Bank, N.A. (formerly known as Norwest Bank Minnesota, N.A.).	
 	 	 	
    4.3 (5)	 	Amendment to Rights Agreement, dated as of October 28, 2009, between Cerus Corporation and Wells Fargo Bank, N.A. (which includes the form of Rights Certificate as Exhibit B thereto).
 	
   10.1	 	Amended and Restated Non-Employee Director Compensation Policy, effective March 2, 2018.	
 	 	 	
   10.2	 	2017 and 2018 Executive Officer Compensation Arrangements.	
 	 	 	
   10.3 †	 	Lease, dated February 16, 2018, between Cerus Corporation and 1200 Concord, LLC.	
 	 	 	
   10.4(7)	 	Employment Letter, by and between Cerus Corporation and William M. Greenman, dated May 12, 2011.	
 	 	 	
   10.5(8)	 	Employment Letter, by and between Cerus Corporation and Laurence Corash, dated March 2, 2010.	
 	 	 	
   10.6(9)	 	1996 Equity Incentive Plan (see Exhibit 10.2 to Form S-1 Registration Statement filed with the SEC on September 4, 1996).	
 	 	 	
   10.7(9)	 	Form of Incentive Stock Option Agreement under the 1996 Equity Incentive Plan (see Exhibit 10.3 to Form S-1 Registration Statement filed with the SEC on September 4, 1996).	
 	 	 	
   10.8(9)	 	Form of Nonstatutory Stock Option Agreement under the 1996 Equity Incentive Plan (see Exhibit 10.4 to Form S-1 Registration Statement filed with the SEC on September 4, 1996).	
 	 	 	
   10.9(10)	 	1998 Non-Officer Stock Option Plan (see Exhibit 99.1 to Form S-8 Registration Statement filed with the SEC on March 24, 1999).	
 	 	 	
  10.10(11)	 	1999 Equity Incentive Plan, adopted April 30, 1999, approved by stockholders July 2, 1999 (see Exhibit 99.1 to Form S-8 Registration Statement filed with the SEC on August 4, 1999).	
 	 	 	
  10.11(9)	 	Form of Indemnity Agreement entered into between Cerus Corporation and each of its directors and executive officers (see Exhibit 10.1 to Form S-1 Registration Statement filed with the SEC on September 4, 1996).	
67

Exhibit Number	 	Description of Exhibit	
 	 	 	
  31.1	 	Certification of the Principal Executive Officer of Cerus Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
  31.2	 	Certification of the Principal Financial Officer of Cerus Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
  32.1 (12)	 	Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
101.INS 	 	XBRL Instance Document.	
 	 	 	
101.SCH 	 	XBRL Taxonomy Extension Schema Document.	
 	 	 	
101.CAL 	 	XBRL Taxonomy Extension Calculation Linkbase Document.	
 	 	 	
101.DEF	 	XBRL Taxonomy Extension Definition Linkbase Document.	
 	 	 	
101.LAB	 	XBRL Taxonomy Extension Label Linkbase Document.	
 	 	 	
101.PRE	 	XBRL Taxonomy Extension Presentation Linkbase Document.	

†	Registrant has requested confidential treatment for portions of this exhibit.	
(1)	Incorporated by reference to the like-described exhibit to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-21937), for the quarter ended September 30, 2012.	
(2)	Incorporated by reference to the like-described exhibit to the Registrant’s Current Report on Form 8-K (File No. 000-21937), filed with the SEC on June 19, 2008.	
(3)	Incorporated by reference to the like-described exhibit to the Registrant’s Registration Statement on Form S-1 (File No. 333-11341) and amendments thereto.	
(4)	Incorporated by reference to the like-described exhibit to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-21937), for the quarter ended June 30, 2009.	
(5)	Incorporated by reference to the like-described exhibit to the Registrant’s Current Report on Form 8-K (File No. 000-21937), filed with the SEC on October 30, 2009.	
(6)	Incorporated by reference to the like-described exhibit to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-21937), for the quarter ended June 30, 2014.	
(7)	Incorporated by reference to the like-described exhibit to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-21937), for the quarter ended June 30, 2014.	
(8)	Incorporated by reference to the like-described exhibit to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 8, 2010.	
(9)	Incorporated by reference to the like-described exhibit to the Registrant’s Registration Statement on Form S-1 (File No. 333-11341) and amendments thereto.	
(10)	Incorporated by reference to the like-described exhibit to the Registrant’s Registration Statement on Form S-8, dated March 24, 1999.	
(11)	Incorporated by reference to the like-described exhibit to the Registrant’s Registration Statement on Form S-8, dated August 4, 1999.	
(12)	This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission, and is not incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.	

 
68

SIGNA TURES
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, thereunto duly authorized.
 
 	 	CERUS CORPORATION	
 	 	 	
Date: May 8, 2018	 	/s/ Kevin D. Green	
 	 	Kevin D. Green	
 	 	Vice President, Finance and Chief Financial Officer
(on behalf of registrant and as Principal Financial Officer)	

69

Exhibit 10.1
 
Cerus Corporation
Amended and Restated Non-Employee Director Compensation Policy
Effective: January 1, 2012
Amended by Compensation Committee: February 13, 2014
Approved by Board of Directors: February 14, 2014
Amended by Board of Directors: April 19, 2017
Amended by Board of Directors: March 2, 2018
 
Each member of the Board of Directors (the “ Board ”) of Cerus Corporation (“ Cerus ”) who is not also serving as an employee of Cerus or any of its affiliates (each such member, a “ Director ”) will receive the compensation set forth in this Cerus Corporation Amended and Restated Non-Employee Director Compensation Policy (this “ Policy ”) for his or her Board service, as applicable.
Annual Cash Compensation
The annual cash compensation set forth below is payable to each Director, as applicable, in equal quarterly installments, payable in advance during the first 30 days of each quarter in which the service will occur.  If a Director joins the Board, or becomes Chairman of the Board or a Chairman or other member of any of the committees of the Board set forth below, in each case at a time other than effective as of the first day of the calendar year, each applicable element of the annual cash compensation set forth below will be pro-rated based on days served in the applicable calendar year, with the pro-rated amount paid for the first quarter in which the Director provides the service (payable not later than 30 days after the Director commences such service), and regular full quarterly amounts paid thereafter. The annual cash compensation is vested upon payment.

1.	Annual Cash Retainer:	
a. Chairman of the Board: $ 62,500
b. All other Directors: $ 40,000

2.	Committee Chair Service Fee:	
a. Chairman of the Audit Committee: $26,000
b. Chairman of the Compensation Committee: $15,000
c. Chairman of the Nominating and Corporate Governance Committee: $10,000

3.	Committee Member (non-Chair) Service Fee:	
a. Audit Committee: $13,000
b. Compensation Committee: $8,000
c. Nominating and Corporate Governance Committee: $6,000
1.

Equity Compensation
The equity compensation set forth below will be granted under the Cerus Corporation Amended and Restated 2008 Equity Incentive Plan (the “ Plan ”).  All stock options granted pursuant to this Policy will be non-statutory stock options, with an exercise price per share equal to 100% of the “Fair Market Value” (as defined in the Plan) of the underlying Cerus common stock on the date of grant, and a term of not more than ten (10) years from the date of grant.  All equity awards granted pursuant to this Policy will be made automatically in accordance with the terms of this Policy and the Plan, without the need for any additional corporate action by the Board or the Compensation Committee of the Board.  All equity awards granted pursuant to this Policy will become fully vested immediately prior to a “Change in Control” (as defined in the Plan), subject to the Director’s “Continuous Service” (as defined in the Plan) through such time.

1 .	Annual Grant, Non-Chair: On the date of each of Cerus’ Annual Meetings of Stockholders (each, an “ Annual Meeting ”), each Director, other than the Chairman of the Board, will be granted the following equity awards, provided that such individual: (i) is a Director on such date, (ii) has been a member of the Board for at least twelve (12) months prior to the date of the applicable Annual Meeting and (iii) will be continuing as a Director immediately following such date:	
(a) a stock option for the number of shares of Cerus common stock equal to (i) $62,500, divided by (ii) the Black-Scholes value of a stock option share, determined using the average daily closing sales price per share of Cerus common stock for the thirty (30) market trading days immediately prior to the grant date (the “ Average 30-Day Price ”), with the resulting number rounded down to the nearest whole share, with such stock option vesting in twelve (12) equal monthly installments following the date of grant, provided that the final vesting date will be the earlier of (x) the first anniversary of the date of grant or (y) the day prior to the next Annual Meeting, subject to the Director’s Continuous Service through the applicable vesting date; and
(b) a restricted stock unit award (“ RSU ”) for the number of shares of Cerus common stock equal to (i) $62,500, divided by (ii) the Average 30-Day Price, with the resulting number rounded down to the nearest whole share, with 100% of the shares subject to such RSU vesting on the earlier of (x) the first anniversary of the date of grant or (y) the day prior to the next Annual Meeting, subject to the Director’s Continuous Service through the applicable vesting date.

2 .	Annual Grant, Chair: On the date of each Annual Meeting, the Chairman of the Board will be granted the following equity awards, provided that such individual: (i) is a Director and the Chairman of the Board on such date, (ii) has been a member of the Board for at least twelve (12) months prior to the date of the applicable Annual Meeting and (iii) will be continuing as a Director and the Chairman of the Board immediately following such date:	
 (a) a stock option for the number of shares of Cerus common stock equal to (i) $78,000, divided by (ii) the Black-Scholes value of a stock option share, determined using the Average 30-Day Price, with the resulting number rounded down to the nearest whole share, with such stock option vesting in twelve (12) equal monthly installments following the date of grant,
2.

provided that the final vesting date will be the earlier of (x) the first anniversary of the date of grant or (y) the day prior to the next Annual Meeting, subject to the Director ’s Continuous Service through the applicable vesting date; and
(b) an RSU for the number of shares of Cerus common stock equal to (i) $78,000, divided by (ii) the Average 30-Day Price, with the resulting number rounded down to the nearest whole share, with 100% of the shares subject to such RSU vesting on the earlier of (x) the first anniversary of the date of grant or (y) the day prior to the next Annual Meeting, subject to the Director’s Continuous Service through the applicable vesting date.

3.	Initial Grant. On the date of the Director’s initial election to the Board (or, if such date is not a market trading day, the first market trading day thereafter), the Director will be granted the following equity awards:	
(a) a stock option for the number of shares of Cerus common stock equal to (i) $93,750, divided by (ii) the Black-Scholes value of a stock option share, determined using the average daily closing sales price per share of Cerus common stock for the thirty (30) market trading days immediately prior to the grant date (the “ Average 30-Day Price ”), with the resulting number rounded down to the nearest whole share, with such stock option vesting in thirty-six (36) equal monthly installments following the date of grant, subject to the Director’s Continuous Service through the applicable vesting date; and
(b) a restricted stock unit award (“ RSU ”) for the number of shares of Cerus common stock equal to (i) $93,750, divided by (ii) the Average 30-Day Price, with the resulting number rounded down to the nearest whole share, with such RSU vesting in three (3) annual installments following the date of grant, subject to the Director’s Continuous Service through the applicable vesting date, subject to the Director’s Continuous Service through the applicable vesting date.
 
3.

Exhibit 10.2
                                        
2017 and 2018 Executive Officer Compensation Arrangements
 
The compensation for the executive officers of Cerus Corporation regarding annual base salaries and target bonus percentages were as follows:

					
Name
 	2017 Annual
Base Salary as of March 1
 	2017 Targeted Bonus (paid in 2018)
 	2018 Annual
Base Salary as of March 1
 	2018 Targeted Bonus (to be paid in 2019)
 	
William M. Greenman
President and Chief Executive Officer	$600,000	60%	$620,000	60%	
Kevin D. Green
Vice President, Finance and Chief Financial Officer	$371,280	40%	$389,844	40%	
Richard Benjamin
Chief Medical Officer	$401,128	40%	$415,167	40%	
Laurence M. Corash
Chief Scientific Officer	$422,382	40%	$426,606	40%	
Vivek Jayaraman
Chief Commercial Officer	$404,000	40%	$414,100	40%	
Chrystal Menard
Chief Legal Officer and General Counsel	$377,520	40%	$386,958	40%	
Carol Moore
Senior Vice President, Regulatory Affairs and Quality	$346,343	40%	$355,002	40%	

Exhibit 10.3
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

 

 
 
LEASE
BETWEEN
1200 CONCORD, LLC 
(“Landlord”)
AND
CERUS CORPORATION 
(“Tenant”)
 
FEBRUARY 16 , 2018

 

 

 

 
The submission of this Lease by Landlord, its broker, agent or representative, for examination or execution by Tenant, does not constitute an option or offer to lease the Premises upon the terms and conditions contained herein or a reservation of the Premises in favor of Tenant; it being intended hereby that notwithstanding the preparation of space plans and/or tenant improvements plans, etc., and/or the expenditure by Tenant of time and/or money while engaged in negotiations in anticipation of it becoming the Tenant under this Lease, or Tenant’s forbearing pursuit of other leasing opportunities, or even Tenant’s execution of this Lease and submission of same to Landlord, that this Lease shall become effective and binding upon Landlord only upon the execution hereof by Landlord and its delivery of a fully executed counterpart hereof to Tenant.  No exception to the foregoing disclaimer is intended, nor shall any be implied, from expressions of Landlord’s willingness to negotiate with respect to any of the terms and conditions contained herein.

 
SPPI\54579\1338823.13

TABLE OF CONTENTS
Page

1.	FUNDAMENTAL LEASE PROVISIONS. 1	 	
2.	PREMISES. 4	 	
3.	TERM. 5	 	
4.	BASE RENT. 5	 	
5.	ADDITIONAL RENT. 6	 	
6.	SECURITY DEPOSIT/FIRST MONTH’S RENT. 10	 	
7.	HOLDING OVER. 10	 	
8.	USE OF PREMISES. 11	 	
9.	TAXES ON TENANT’S PROPERTY. 16	 	
10.	ALTERATIONS. 17	 	
11.	MAINTENANCE AND REPAIRS. 18	 	
12.	LIENS. 18	 	
13.	BUILDING SERVICES. 19	 	
14.	CABLING; TELECOMMUNICATIONS. 20	 	
15.	RIGHTS OF LANDLORD. 21	 	
16.	INDEMNIFICATION AND WAIVER. 24	 	
17.	INSURANCE. 24	 	
18.	WAIVERS OF SUBROGATION. 26	 	
19.	DAMAGE OR DESTRUCTION. 26	 	
20.	EMINENT DOMAIN. 28	 	
21.	DEFAULT. 28	 	
22.	ASSIGNMENT AND SUBLETTING. 31	 	
23.	SUBORDINATION; FINANCIAL REPORTS. 34	 	
24.	ESTOPPEL CERTIFICATE. 35	 	
25.	INTEREST ON PAST DUE OBLIGATION. 35	 	
26.	SALE OR TRANSFER BY LANDLORD; EXCULPATION. 35	 	
27.	LANDLORD’S RIGHT TO CURE DEFAULTS. 36	 	
28.	WAIVER. 36	 	
29.	FORCE MAJEURE. 36	 	
30.	PARKING. 37	 	
31.	SURRENDER OF PREMISES. 37	 	
32.	MISCELLANEOUS. 38	 	
33.	WAIVER OF JURY TRIAL; JUDICIAL REFERENCE. 42	 	
34.	OPTIONS. 43	 	
35.	LETTER OF CREDIT. 45	 	
36.	EXPANSION RIGHTS. 48	 	
37.	ADDITIONAL SIGNAGE RIGHTS. 52	 	
38.	EXISTING GENERATORS. 52	 	

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
i

LIST OF EXHIBITS
 
Exhibit A The Project
Exhibit B Site Plan
Exhibit C Space Plan
Exhibit D Work Letter
Exhibit E Memorandum of Confirming Terms
Exhibit F Lab Rules and Regulations
Exhibit F-1 Rules and Regulations of the Premises
Exhibit G Form of Insurance Certificate
Exhibit H Form of SNDA
Exhibit I Form of L-C
Exhibit J Sign Criteria
Exhibit K Janitorial Specifications
Exhibit L Exclusive Use Loading Dock

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
ii

BASIC LEASE DOCUMENT
THIS LEASE (“ Lease ”) is made and executed this 16th day of February, 2018 (the “ Effective Date ”), in the City of Concord, County of Contra Costa, State of California, by and between 1200 CONCORD, LLC , a Delaware limited liability company (“ Landlord ”), and CERUS CORPORATION , a Delaware corporation (“ Tenant ”), who agree as follows:
 1. FUNDAMENTAL LEASE PROVISIONS.
(a) Premises .
(i) Project .  That certain office/research and development project commonly known as 1200 Concord Ave. and 1220 Concord Ave., Concord, California as more fully described on Exhibit A attached hereto and incorporated herein (the “ Real Property ”).  The Project consists of (1) two (2) office buildings with an aggregate rentable square footage (the “ Rentable Area ”) of approximately 362,130 square feet, (2) the Facilities (as such terms is hereinafter defined in Section 5(a)(ii) , below) including, without limitation, a 4-level parking garage (the “ Parking Garage ”); and (3) the land on upon which such buildings, Facilities and other improvements are located, all as generally shown on the site plan attached as Exhibit B to this Lease (the “ Site Plan ”).  The Rentable Area of the Project, the Building (as defined below), and the Premises (as defined below) was calculated in accordance with the Office Buildings: Standard Methods of Measurement ANSI/BOMA Z65.1-2010 (Method B) (the “ BOMA Standards ”).  
(ii) Building .  That certain six (6) story office building located at 1220 Concord Ave., Concord, California 94520 as generally shown on the Site Plan with approximately 176,613 square feet of Rentable Area.  
(iii) Premises .   Approximately 65,092 square feet of Rentable Area (the “ Premises ”) consisting of those portions of the Building delineated and shown on the space plan designated as Exhibit C attached hereto and incorporated herein by this reference (the “ Space Plan ”) which is more specifically comprised of (i) approximately 13,781 Rentable Area of the “south wing” of the first floor of the Building (the “ First Floor South Wing Premises ”); (ii) 6,390 square feet of Rentable Area consisting of the “north wing” of the first floor of the Building (the “ First Floor North Wing Premises ”; and together with the First Floor South Wing Premises, the “ First Floor Premises ”); (iii) 14,908 square feet of Rentable Area consisting of the “north wing” of the fifth (5th) floor of the Building (the “ Fifth Floor Premises ”); and (iv) the entire sixth (6th) floor of the Building containing approximately 30,013 square feet of Rentable Area (the “ Sixth Floor Premises ” and together with the First Floor North Wing Premises and the Fifth Floor Premises, collectively, the “ Landlord Build Premises ”).
(b) (i) Term .   The Term shall commence on the “Commencement Date” (as defined below) and extend for one hundred thirty three (133) full calendar months (plus any partial month at the beginning of the Term), and may be extended pursuant to the “Extension Options” (as defined below) for two (2) periods of sixty (60) months each.

(ii)	Commencement Date .   The commencement date for the Landlord Build Premises (the “ Landlord Build Premises Commencement Date ”) shall occur on the later of (a) December 1, 2018, or (b) subject to the terms of Exhibit D hereto, sixty (60) days following the Substantial Completion of the Landlord’s Work (as such terms are defined in the Work Letter attached as Exhibit D hereto), such sixty (60) day period being referred to herein as the “ Tenant Build Out Period ”) .  The commencement date for the First Floor South Wing Premises (the “ First Floor South Wing Premises Commencement Date ”) shall occur on the earlier of (a) the date on which Tenant occupies the First Floor South Wing Premises and begins conducting business therein, or (b) December 1, 2018. The phrase “begins conducting business” (and other phrases of similar import) shall not include use of the applicable portion of the Premises by Tenant solely for the storage, construction, staging or the construction or installation of Tenant’s Work by Tenant pursuant to  Exhibit D    of this Lease.  As used herein, the term “ Commencement Date ” shall mean the date on which both the First Floor South Wing Premises Commencement Date and the Landlord Build Premises Commencement Date have occurred.  Notwithstanding the foregoing, if Tenant desires to begin conducting business in all or any part of the First Floor South Wing Premises, the First Floor North Wing Premises,	
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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	the Fifth Floor Premises, or the Sixth Floor Premises after the same are ready for occupancy but prior to December 1, 2018 (the applicable portion of the Premises being referred to herein as the “ Early Occupancy Space ”), then Tenant shall have the right to commence such business operations therein by providing written notice to Landlord prior to such use; provided, however, that (1) Tenant shall commence paying Rent hereunder; provided, however, that the Rent due hereunder shall be prorated based on a fraction the numerator of which is the Rentable Area of the Early Occupancy Space and the denominator of which is the Rentable Area of the Premises; (2) such use shall otherwise be in strict accordance with all of the terms and conditions of this Lease; and (3) such use shall not accelerate the Commencement Date hereunder.  For the avoidance of doubt, Tenant acknowledges and agrees that if Tenant exercises its right to commence business in the First Floor South Wing Premises, the First Floor North Wing Premises, the Fifth Floor Premises or the Sixth Floor Premises, whether concurrently or serially, prior to December 1, 2018, then the first date on which Tenant so operates within the entire Premises shall constitute the Commencement Date hereunder.  	
(iii)	Expiration Date .   The last day of the one hundred thirty-third first (133rd) full calendar month of the Term; provided, however, the Expiration Date may be accelerated or extended pursuant to the terms and conditions of this Lease.	
(iv)	Extension Option(s) :two (2) option(s) of sixty (60) months each.	
(c) Base Rent .

Months of Term	Base Rent Per Rentable Square Foot	Annual Base Rent	Monthly Installment
of Base Rent	
Commencement Date -12	$2.45	$1,913,704.80	$159,475.40	
13-24	$2.52	$1,971,115.94	$164,259.66	
25-36	$2.60	$2,030,249.42	$169,187.45	
37-48	$2.68	$2,091,156.90	$174,263.08	
49-60	$2.76	$2,153,891.61	$179,490.97	
61-72	$2.84	$2,218,508.36	$184,875.70	
73-84	$2.93	$2,285,063.61	$190,421.97	
85-96	$3.01	$2,353,615.52	$196,134.63	
97-108	$3.10	$2,424,223.99	$202,018.67	
109-120	$3.20	$2,496,950.70	$208,079.23	
121-132	$3.29	$2,571,859.23	$214,321.60	
133	$3.39	$2,649,015.01	$220,751.25	
 Tenant’s obligation to pay Base Rent for the Premises shall abate for the 36th, 48th, 60th, 72nd and 84th months of the Term (the total amount so abated being referred to herein as the “ Abated Rent ”). The right to the abatement set forth above shall be personal to the Tenant first named above together with any assignee that assumes the Lease pursuant to a Permitted Transfer (collectively, the “ Original Tenant ”) and shall not be transferable to any assignee, sublessee or other transferee of Original Tenant’s
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interest in this Lease.   Notwithstanding the foregoing, if Tenant is in monetary default hereunder beyond any applicable cure period on the date any such Abated Rent is scheduled to abate, such Abated Rent shall not abate and, instead, shall be due and payable as ordinarily scheduled .
(d) Tenant’s Proportionate Share
(i) Tenant’s Proportionate Share of Rentable Area in Building.  36.86%.
(ii) Tenant’s Proportionate Share of Rentable Area in the Project.  17.97%
(e) Base Year .   2019
(f) Security Deposit .   $0.00
(g) Tenant’s Required Liability Coverage .   $10,000,000.00
(h) Parking . 3.4 unreserved parking stalls per one thousand (1,000) rentable square feet of the Premises, for a total of 221 parking stalls as of the Effective Date which number shall be revised, as applicable, following the exercise of any options described in this Lease, at Zero Dollars ($0.00) per unreserved space per month during the initial Term hereof.  One-half (1/2) of the parking stalls shall be located in the Project’s surface parking lots and the remaining parking stalls shall be located in the Parking Garage.  
(i) Permitted Use . Solely for office, research and development laboratory, storage and other related legal uses consistent with the Private Restrictions (as defined below), and in conformity with the municipal zoning requirements of the City of Concord, California and all other Laws (as defined below).  Notwithstanding the foregoing, Tenant’s use of the Premises for research, development and laboratory uses shall be limited to the First Floor Premises throughout the Term.
(j) Address for Notices .
To Landlord: 120 0 Concord, LLC
c/o Sierra Pacific Properties
1800 Willow Pass Court
Concord, California  94520
Attn: President
Telephone:  [***]
E-mail: [***]
With copy to: 120 0 Concord, LLC
Attn:  Legal Dept.
4021 Port Chicago Highway
Concord, California 94520
Telephone:  [***]
Email: [***]
Address for Rent Payment to Landlord:
1800 Willow Pass Court
Concord, California  94520
To Tenant: Prior to the Commencement Date:
 
Cerus Corporation
2550 Stanwell Drive
Concord, California 94520
Attn: Lori Roll
Telephone:  [***]
Email: [***]
From and after the Commencement Date:
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Cerus Corporation
1220 Concord Avenue
Concord, California 94520
Attn: Lori Roll
Telephone:  [***]
Email: [***]
With copy to: Cooley LLP
Attn:  Marlena C. Schultz
101 California Street, 5 th Floor
San Francisco, CA 94111
Telephone:  [***]
Email: [***]
(k) Improvement Allowance/Improvement Work .   The sum of the Turnkey Improvement Allowance and the Tenant’s Work Allowance, each as defined in Exhibit D .  
(l) Guarantor(s) .   None.
(m) Building Standard Business Hours .   7:00 a.m. to 6:00 p.m., Monday through Friday, except for nationally recognized holidays.
(n) After Hours HVAC .   The rate for after-hours HVAC shall be Seventy-Five Dollars ($75.00) per hour for a full floor of the Building and Forty-Five Dollars ($45.00) per hour for one (1) “wing” of the Building.
(o) Administrative Fee .  Five percent (5%) of the applicable amount or charge.
(p) Letter of Credit .  Two Million Five Hundred Thousand Dollars ($2,500,000.00), as increased and decreased pursuant to Section 35 , below.
(q) Brokers .  CBRE (“ Tenant’s Broker ”) representing Tenant, and Newmark Cornish & Carey (“ Landlord’s Broker ”) representing Landlord.
 2. PREMISES.
(a) In consideration of Tenant’s agreement to pay Rent, as defined herein, and comply with the covenants and conditions herein contained, Landlord hereby leases to Tenant and Tenant hereby hires from Landlord, upon the terms and conditions set forth herein, the Premises.  The parties acknowledge that Exhibit B is intended only to show the general layout of the Project and Exhibit C is intended only to show the approximate location and outline of the Premises and that these exhibits do not constitute an agreement, representation or warranty as to the construction or precise area of the Premises, the Building, or the Project, as to the specific location or elements of, the Project, the Building, the Facilities, or the Parking Garage, or as to the access ways to the Premises, the Building, the Facilities, the Parking Garage or any other portion of the Project.  
 (b) The parties agree that the Rentable Area of the Project, the Building and the Premises shall be as set forth in Sections 1(a)(i) , (ii) and (iii) , respectively, and, subject to the terms of this Lease, shall be conclusive and binding on the parties.  Notwithstanding the foregoing, provided that Landlord receives a written request from Tenant within thirty (30) days after the Commencement Date, then within thirty (30) days after Landlord’s receipt of Tenant’s written request, Tenant, at its expense, may cause a licensed architect of Tenant’s choice to field measure the Premises to determine the exact Rentable Area of the Premises.  Tenant’s architect shall be accompanied by a representative of Landlord.  Such field measurement shall be made in accordance with the BOMA Standards.  If such measurement shows a variance from the Rentable Area of the Premises shown above, then within such thirty (30) day period Tenant shall notify Landlord of the variance.  If Landlord’s architect and Tenant’s architect cannot resolve the issue within thirty (30) days following such written notice, then the parties agree to the following method of resolving the dispute: (i) Landlord’s architect and Tenant’s architect shall select a non-interested third party architect (hereinafter referred to as the “ Third Architect ”), whose determination as to the Rentable Area of the Premises (which shall be calculated in accordance with the BOMA Standards) shall be binding
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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on the parties; and (ii) the parties shall share, equally, the cost of such Third Architect, except that in the event the Third Architect agrees with one of the parties as to the Rentable Area of the Premises (within twenty-five (25) square feet of such party ’ s measurement of the floor area), the other party shall bear the full cost of the Third Architect.  If Tenant fails to timely request such field measurement, then the Rentable Area set forth in Section 1(a)(i) of this Lease shall be deemed accurate and accepted by Tenant.
(c) Except as specifically set forth in this Lease and in the Work Letter attached hereto as Exhibit D (the “ Work Letter ”), Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises, and Tenant shall accept the Premises in its existing, “AS-IS” condition.  Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant’s business, except as specifically set forth in this Lease and the Work Letter.  The taking of possession of the Premises by Tenant shall conclusively establish that the Premises, the Building and the Project were at such time in good and sanitary order, condition and repair.  Notwithstanding anything to the contrary set forth in this Lease, Landlord hereby represents that, to its actual knowledge, as of the Landlord Build Commencement Date for the First Floor North Wing Premises, the Fifth Floor Premises and the Sixth Floor Premises, and as of the Delivery Date for the First Floor South Wing Premises, the plumbing, lighting, electrical, mechanical and HVAC systems serving such premises shall be in good working order and all base building systems provided to Tenant are in substantial compliance with all applicable Laws; provided, however, that those aspects of the Premises that were in substantial compliance with applicable Laws that were in force at the time of their installation and are in substantial compliance with applicable Laws via “grandfathering” do not need to comply with current Laws to satisfy the foregoing representation.  If a material breach of the foregoing representation exists, and Tenant, within forty five (45) days following the Landlord Build Commencement Date or Delivery Date, as applicable, delivers written notice to Landlord setting forth in reasonable detail a description of such material breach, Landlord shall, as Tenant’s sole and exclusive remedy, rectify the same at Landlord’s expense, and not as part of Operating Costs.  Notwithstanding anything in this Section 2(c) to the contrary, Landlord shall, at Landlord’s sole cost and expense, (i) cause the Landlord’s Work to be designed and constructed in accordance with the Work Letter and any other provisions of this Lease, (ii) correct Punch List Items (as defined in the Work Letter) in accordance with the Work Letter, and (iii) correct any latent defects in Landlord Work reported, in writing, by Tenant within 365 days of the Landlord Build Commencement Date; provided, however, that such latent defects were not caused by Tenant or anyone operating through or under Tenant.  
 3. TERM.
 (a) The term of this Lease (the “ Term ”) shall be that period set forth in Subsection 1(b)(i) hereof.  The Term shall commence on the Commencement Date set forth in Subsection 1(b)(ii) hereof and shall terminate without notice on the Expiration Date set forth in Subsection 1(b)(iii) , unless earlier terminated pursuant to the express terms and conditions hereof.  If the Commencement Date is not fixed in Subsection 1(b)(ii) hereof, once the Commencement Date is fixed, within ten (10) days of Tenant’s receipt of Landlord’s written request, Tenant shall deliver to Landlord the Memorandum Confirming Terms attached hereto and incorporated herein as Exhibit E , duly executed by Tenant.  Failure of Tenant to execute and deliver such certificate within ten (10) days following its request by Landlord shall constitute binding and conclusive acceptance of the Premises and acknowledgment by Tenant that the statements included in Exhibit E , as prepared by Landlord, are true and correct.  Notwithstanding the foregoing, Landlord shall deliver Tenant possession of the First Floor South Wing Premises for the construction of Tenant’s Work immediately following receipt of the applicable building permits for such work (the “ Delivery Date ”), and Tenant shall have access to the First Floor South Wing Premises from the Effective Date through the Delivery Date for planning purposes with the prior approval of Landlord, not to be unreasonably withheld, conditioned or delayed.  Tenant agrees (i) any such early entry by Tenant shall be at Tenant’s sole risk, (ii) Tenant shall not unreasonably interfere with the completion of Landlord’s Work, if applicable, (iii) Tenant shall not unreasonably interfere with Landlord or other tenants in the Building or the Project, (iv) Tenant shall comply with and be bound by all provisions of this Lease during the period of any such early entry except for the payment of
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Rent , (v ) prior to entry upon the First Floor South Wing Premises by Tenant and subject to Section 17 , Tenant agrees to pay for and provide to Landlord certificates evidencing the existence and amounts of liability insurance carried by Tenant, which coverage must comply with the provisions of this Lea se relating to insurance, and (vi ) Tenant shall, and shall cause Tenant ’ s Construction Agents (as defined in the Work Letter) to, comply with all Laws required to perform its work during the early entry on the Premises.
(b) If Landlord, for any reason, cannot deliver possession of (i) the Landlord Build Premises to Tenant on or prior to the Landlord Build Premises Commencement Date, and (ii) the First Floor South Wing Premises on the Delivery Date, then Tenant’s obligation to pay Rent and additional charges shall be delayed until such time as the applicable Premises are delivered to Tenant.  Except as set forth in the Work Letter, in the event of any such delay, neither the validity of this Lease nor the obligations of Tenant under this Lease, shall be affected by such failure to deliver possession and postponement of Tenant’s rental obligation prior to delivery of possession of the applicable Premises to Tenant shall be in sole satisfaction of all claims Tenant might otherwise have by reason of such Premises not being delivered on the date set forth herein.
(c) Tenant’s inability or failure to take possession of the Premises when delivered by Landlord shall not delay the commencement of the Term of this Lease or Tenant’s obligation to pay Rent.  Tenant acknowledges that Landlord has incurred, and shall continue to incur significant expenses as a consequence of the making of this Lease, including, without limitation, the cost of carrying vacant space in the Building, brokerage commissions and fees, legal and architectural fees, the costs of space planning and the costs of construction of improvements to the Premises.  All of said expenses shall be deemed included in measuring Landlord’s damages should Tenant Default under this Lease although such expenses shall not be duplicative of the items of damage to which Landlord may otherwise be entitled under Section 21 hereof.
 4. BASE RENT.
Tenant covenants to pay to Landlord during the Term hereof, at Landlord’s office at the address set forth in Subsection 1(j) hereof or to such other persons or at such other places as directed from time-to-time by written notice to Tenant from Landlord, a monthly rental (hereinafter referred to as the “ Base Rent ”) in the amount set forth in Subsection 1(c) hereof due and payable without demand, offset, deduction, or, except as otherwise expressly provided herein, abatement therefor, in advance on the first (1 st ) day of each calendar month; except that if Commencement Date occurs on a day other than the first (1 st ) day of a calendar month, then the Base Rent for the fraction for the month starting with the Commencement Date shall be paid on such Commencement Date, prorated on the basis of a thirty (30) day month.  Notwithstanding the foregoing, Tenant shall pay Base Rent (or any other amounts required hereunder) by bank wire or electronic funds transfer (“ EFT ”) or Automated Clearing House (“ ACH ”) and Landlord shall provide Tenant with wiring instructions or other reasonably necessary information to accomplish such EFT or ACH.  If any installment of Rent or any other charge due from Tenant is not received by Landlord or Landlord’s designee within three business days of when due then, at Landlord’s election and upon Landlord’s demand, Tenant shall pay to Landlord a late charge equal to five percent (5%) of such overdue amount, and in such event the parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of the late payment by Tenant; provided, however, that Landlord shall waive the imposition of the late charge for the first late payment in any twelve (12) month period during the Term provided Tenant pays such overdue amounts within five (5) Business Days following written notice from Landlord that such amounts are past due.  No late charge may be imposed more than once for the same late rental payment.  Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant’s default with respect to such overdue amount, nor prevent Landlord from exercising any other rights and remedies granted to it hereunder.
 5. ADDITIONAL RENT.
 Landlord hereby agrees to pay Landlord’s Base Costs for Operating Costs and Taxes (as defined below).  It is understood that the Base Rent specified in Section 1(c) and more fully described in Section 4 above, does not contemplate Landlord paying amounts in excess of Landlord’s Base Costs for Operating Costs and Taxes with respect to the Premises.  
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Therefore, in order that the rental payable throughout the Term of this Lease shall reflect any such excess amounts, the Base Rent payable by Tenant pursuant to Section 4 above shall be augmented by “ Additional Rent ” in accordance with the provisions of this Section 5 .
(a) Definitions .
(i) The term “ Landlord’s Base Costs ” shall mean the amount which is derived by multiplying the Rentable Area of the Premises times twelve (12), times the cost (i.e., Operating Costs and Taxes) per square foot of Rentable Area per month as shall actually be incurred by Landlord during the Base Year.
(ii) The term “ Operating Costs ” shall mean the sum of all expenses  paid or incurred by Landlord during any calendar year of the Term hereof in connection with the operation, maintenance, improvement, alteration, replacement, ownership, insurance (including earthquake, flood and/or terrorism insurance, if required by Landlord’s lender (“ Landlord’s Lender ”) or if maintained by the owner of Class A office buildings in Concord, California of comparable age and quality (“ Comparable Buildings ”), and management and repair of the Building, Facilities and the Project; provided, that any additional annual premium resulting from any new forms of insurance in any year after the Base Year shall be considered to be included in Operating Expenses for the Base Year.  For purposes of this Lease, the “ Facilities ” shall include, without limitation, all atriums, walkways, common areas, parking facilities, driveways, and both interior and adjacent landscaped and hardscaped areas and the Renovations.
 By way of example, Operating Costs shall include, without limitation: all expenses paid or incurred by Landlord during any calendar year of the Term for electricity, water, gas, and sewers, and similar utilities services in connection with the operation of the Building, the Facilities and the Project, and for utility taxes, charges, or other similar impositions paid or incurred by Landlord in connection therewith; maintenance, repair and replacement of HVAC, electrical plumbing, and the roof; commercially reasonable salaries, wages, bonuses, medical, and general welfare benefits and pension payments, payroll taxes, workers’ compensation, uniforms, and dry cleaning thereof for employees engaged in the operation, maintenance, and repair of the Building and Facilities and the Project; the cost of all premiums for property damage, liability, and all other insurance for the Building and Facilities and the Project carried by Landlord as reasonably determined by Landlord; the cost of all Building and the Project and cleaning supplies and materials; the cost of all charges for cleaning, maintenance, and service contracts and all other services with independent contractors deemed necessary by Landlord in connection with the building systems or common areas; the cost of periodic maintenance and repair and restoration of elevators, Building and the Project surfaces, including paint, floor, and wall coverings, and other surface materials on the exterior of the Building and Facilities, as well as repaving and restriping of the parking facilities; the cost of the professional services and management fees; supplies, tools, equipment and materials used in the operation, repair and maintenance of the Building and the Project and Facilities; fees, charges and other costs, including, without limitation, reasonable consulting fees, legal fees and accounting fees, of all contractors engaged by Landlord or otherwise reasonably incurred by Landlord in connection with the management, operation, maintenance and repair of the Building and Facilities and the Project; operation and maintenance of a room for delivery and distribution of mail to tenants of the Building and the Project as required by the U. S. Postal Service, along with any space Landlord provides for non-exclusive use by tenants, such as conference centers, exercise facilities and other building amenities (including, without limitation, an amount equal to the fair market rental value of the space used for such purposes which amount, to the extent related to the Renovations, shall be included in the calculation of the Operating Costs in the Base Year even if such Renovations are not completed until thereafter); payments under any easement, license, operating agreement, declaration, restrictive covenant, underlying or ground lease (excluding rent), or instrument pertaining to the sharing of costs by the Building or the Project; management of the Building or the Project, whether by Landlord or an independent contractor (including, without limitation, an amount equal to the fair market value of any manager’s office; provided, that if such manager’s office is located off-site, the fair market value of such office shall be equitably allocated among all buildings managed by such office) subject to the restrictions set forth herein; the cost of operating and maintaining any shuttle or similar transportation service for the benefit of the tenants of the Building or the Project, the cost of monitoring, investigating,
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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testing and remediation of Hazardous Materials (as defined below) in the Premises, subject to the limits set forth herein ; the costs and payments incurred under any of the Private Restrictions; the costs and payments incurred with the implementation and operation with respect to any transportation management program or similar program ; and Permitted Capital Expenditures, provided that such costs shall be amortized over the useful life of such expenditure , together with interest at the rate of five percent (5%) per annum, and such annual amortized portions shall be included as an Operating Expense without adjustment.  T he capital improvement and replacement expenses s et forth in this Section 5(a)(ii) of the Lease shall be limited to those which are: ( 1) reasonably expected by Landlord to produce an actual reduction in operating charges or energy consumption or effect other economies in the operation or maintenance of the Building , Facilities or Project in an amount equal to the greater of the actual reduction in Operating Expenses or the resulting amortization of such costs ; (2) required under any governmental law or regulation first enacted after the Commen cement Date (based on the then current interpretation thereof by applicable governmental entity(ies)) or new insurance requirement s; (3 ) acquired for the protection of the health and safety of the occupants of the Project; and (4) necessary to ensure the proper functioning of the Building’s roof, elevators, and HVAC systems (collectively, “ Permitted Capital Expenditures ” ).
 Notwithstanding the foregoing, Operating Costs shall not include interest, loan fees, amortization or other carrying costs paid in connection with any loan or loans secured by the Real Property of which the Premises are a part.  Further, Operating Costs shall also exclude (1) leasing commissions, costs, disbursements, and other expenses incurred for leasing, renovating, or improving space for tenants or  prospective tenants; (2) costs of electricity and other service sold to tenants (including Tenant) for which Landlord is to be reimbursed as a charge over the Rent payable under the lease with that tenant; (3) depreciation and amortization on the Building except as expressly permitted elsewhere herein; (4) costs incurred by Landlord because another tenant violated the terms of any lease; (5) advertising and promotional expenses; (6) repairs or other work needed because of fire, windstorm, or other casualty or cause to the extent insured against by Landlord except to the extent of deductibles paid by Landlord; (7) any costs, fines, or penalties incurred because Landlord violated any Laws; (8) costs for fine art; (9) any ground lease rental; (10) costs associated with the operating of the business of the ownership or entity which constitutes “Landlord,” as distinguished from the costs of Building operations, including, but not limited to, partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging, or hypothecating any of Landlord’s interest in the Building, Facilities, or Real Property, and costs on any disputes between Landlord and its employees (if any) not engaged in Building operation; (11) tax penalties incurred as a result of Landlord’s failure to make payments and/or file any tax or informational returns in a timely manner (unless such failure is the result of Tenant’s failure to pay such amounts as and when due hereunder); (12) costs arising from Landlord’s charitable or political contributions; (13) management fees to the extent such management fees exceed three percent (3%) of gross collections from the operation of the Project; (14) fees of any LEED certification or similar rating for the Building or Project (provided that monitoring and maintenance costs required to maintain such a rating or certification once obtained may be included in Operating Expenses); (15) costs incurred in connection with the initial development or improvement of the Building, Facilities or Project; (16) expenses in connection with services or other benefits of a type that are not provided to Tenant but which are provided to another tenant or occupant of the Project; (17) any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, this Lease or any other lease in the Project, or due to Landlord’s gross negligence or willful misconduct; (18) t  he cost of correcting any building code or other violations which were violations prior to the Commencement Date of this Lease; and (19) the cost of containing, removing, or otherwise remediating any contamination of the Project (including the underlying land and ground water) by any Hazardous Materials where such contamination was not caused by Tenant.  
 (iii) The term “ Taxes ” shall mean all:  (1) real property taxes (including, without limitation, increases in real property taxes caused by reappraisals that are the result of changes in the ownership of Landlord’s interest); (2) personal property taxes, charges, and assessments which are levied, assessed upon, or imposed by any governmental authority or political subdivision thereof during any calendar year of the Term hereof with respect to (w) the Building, Facilities, and Real Property, (x) any improvements, fixtures, and
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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equipment, (y) all other property of Landlord, real or personal, and (z) used in connection with the operation of the Building and/or Facilities and/or the Project (computed as if paid in permitted installments regardless of whether actually so paid); (3) any tax which shall be levied or assessed in addition to or in lieu of such real or personal property taxes (including, without limitation, any municipal income tax); and (4) any license fees, tax measured by or imposed upon rents, or other tax or charge upon Landlord’s business of leasing the Premises, other parts of the Building or Facilities or the Project, but shall not include any federal or state income tax, or any franchise, capital stock, estate, or inheritance taxes.  All assessments, taxes, fees, levies, and charges imposed by governmental agencies for services such as child care facilities, promotion of the arts, transportation, fire protection, street, sidewalk and road maintenance, refuse removal, and other public services generally provided without charge to owners or occupants prior to the adoption of Proposition 13, also shall be deemed included within the definition of Taxes for the purposes of this Lease.   In the event of any assessments, taxes, fees, levies or charges imposed during the Base Year which are not imposed in subsequent years, then Taxes for the Base Year shall be computed as if such assessments, taxes, fees, levies or charges were not charged during the Base Year.
Notwithstanding anything to the contrary contained in this Lease, the amount of Taxes for the Base Year shall be calculated exclusive of any reduction achieved under California Revenue and Taxation Code Section 51 (a “ Proposition 8 Reduction ”). If, in any year after the Base Year (an “ Adjustment Year ”), the amount of Taxes decreases as a result of a Proposition 8 Reduction, then for purposes of all subsequent years (including the year in which this decrease in Taxes occurs) the Taxes considered to be attributable to the Base Year shall be decreased by an amount equal to the decrease in Taxes during the Adjustment Year.  Conversely, if Taxes increase during any year after the Adjustment Year (a “ Readjustment Year ”) as a result of Landlord’s inability to secure and/or maintain a Proposition 8 Reduction greater than or equal to the Proposition 8 Reduction secured during the Adjustment Year, then for purposes of all subsequent years (including the comparison year in which this increase in Taxes occurs) the Taxes considered to be attributable to the Base Year shall be increased by an amount equal to the increase in Taxes during the Readjustment Year that resulted from Landlord’s inability to secure and/or maintain a Proposition 8 Reduction greater than or equal to the Proposition 8 Reduction secured during the Adjustment Year.  Landlord and Tenant acknowledge that the terms of this grammatical paragraph are not intended in any way to affect either (1) the statutory annual increase in Tax, as this statutory increase may be modified by subsequent legislation; or (2) the inclusion in or exclusion from Taxes of tax increases under Proposition 13.
(iv) The term “ Estimated Operating Costs ” shall mean the annual estimates of Tenant’s Proportionate Share of Operating Costs for each calendar year, after the Base Year, to be given by Landlord to Tenant pursuant to the terms hereof.
(v) The term “ Estimated Taxes ” shall mean the annual estimates of Tenant’s Proportionate Share of Landlord’s Taxes for each calendar year, after the Base Year, to be given by Landlord to Tenant pursuant to the terms hereof.
 (vi) The term “ Tenant’s Proportionate Share ” shall mean, with respect to Operating Costs and Taxes applicable to the Building, the proportion of the Rentable Area of the Premises to the Rentable Area of the Building, and, with respect to Operating Costs and Taxes applicable to the Project, the proportion of the Rentable Area of the Premises to the Rentable Area of the Project, which for this Lease is agreed by Landlord and Tenant to be the percentages set forth in Subsection 1(d) hereof, provided, however, that any Rentable Area of the Building or Project occupied by tenants who pay taxes directly to any taxing authority, carry their own insurance, or provide and pay for any other Operating Costs directly, as may be provided in their leases shall be reasonably adjusted by Landlord in the calculation of Operating Costs and Taxes.  In the event that during the Term, including any extensions thereof, the Building shares Facilities with other improvements within the Project, Tenant’s Proportionate Share of Operating Costs shall be separately calculated with respect to the Operating Costs and Taxes for any shared Facilities.  In calculating Tenant’s Proportionate Share of Operating Costs and Taxes for any shared Facilities, Tenant’s Proportionate Share of the Operating Costs and Taxes shall be equitably adjusted by Landlord to reflect the shared use, in a manner consistent with other Comparable Buildings, and Tenant shall be responsible for payment of all increases (and receive the benefits of any
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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decreases) in Tenant ’ s Proportionate Share of Operating Costs and Taxes allocable to any such shared Facility as compared to the same proportionate share of Operating Costs and Taxes for the prior year.
(vii) Landlord shall have the right, from time to time, to equitably allocate some or all of the Operating Costs and/or Taxes for the Project among different portions or occupants of the Project (the “ Cost Pools ”), in Landlord’s reasonable discretion.  Such Cost Pools may include the tenants of a particular building or buildings of the Project.  The Operating Costs and/or Taxes allocated to any such Cost Pool shall be allocated and charged to the tenants within such Cost Pool in an equitable manner, in Landlord’s reasonable discretion.  Further, if Landlord incurs Operating Costs or Taxes for the Building or the Project together with one or more other buildings or properties, whether pursuant to a reciprocal easement agreement, declaration, common area agreement or otherwise, such shared amounts shall be equitably prorated and apportioned between the Building or the Project, as applicable, and such other buildings or properties in Landlord’s reasonable discretion, in a manner consistent with other Comparable Buildings.
(b) Payment of Operating Costs and Taxes in Excess of Landlord’s Base Cost .   Tenant shall pay to Landlord, as Additional Rent, the following amounts in the manner specified:
(i) For each calendar year following the Base Year, Landlord shall furnish to Tenant prior to January 1 st , (or as soon thereafter as reasonably possible), a written statement showing in reasonable detail the Estimated Operating Costs and the Estimated Taxes for the next forthcoming calendar year.  At the first Base Rent payment date for the next calendar year following Tenant’s receipt of such statement (the “ then current calendar year ”) and at each of the other Base Rent payment dates for such then current calendar year, Tenant shall pay to Landlord as Additional Rent, one-twelfth (1/12 th ) of the amount equal to the difference between the sum of the Estimated Operating Costs and Estimated Taxes for the then current calendar year, and Landlord’s Base Costs; provided, however, that in no event shall Tenant receive a credit for any total amount calculated hereunder to be less than Landlord’s Base Costs.  In the event of the inability of Landlord for any reason to furnish said statement prior to January 1 st , as described above, Tenant shall continue to pay Additional Rent at the previous year’s amounts; provided, however, that, at the Base Rent payment date next following Tenant’s receipt of said statement, any Additional Rent which has accrued in excess of the amounts paid, if any, shall be paid.  
(ii) On or before April 30 th (or as soon thereafter as possible), in each calendar year, Landlord shall furnish to Tenant a written statement showing in reasonable detail the Operating Costs and Taxes for the preceding calendar year.  At the Base Rent payment date next following Tenant’s receipt of such statement, Tenant shall pay to Landlord as Additional Rent, in the event of an increase, or Landlord shall credit Tenant, in the event of a decrease, an amount equal to the excess of Tenant’s Proportionate Share of the sum of the Operating Costs and Taxes for the preceding calendar year, over Tenant’s Proportionate Share of the sum of the Estimated Operating Costs and Estimated Taxes previously given for such year; provided, however, that in no event shall Tenant receive a credit as provided herein for any total amount calculated hereunder to be less than Landlord’s Base Costs.  The obligations of Tenant and Landlord to make payments required under this Section shall survive the expiration or termination of this Lease for a period of not more than two years (provided that the foregoing limitation shall not apply to any amounts levied by any governmental authority or by any public utility companies which are attributable to the Term so long as Landlord delivers Tenant a bill for such amounts within one (1) year following Landlord’s receipt of the bill therefor) and Landlord’s failure to deliver the statement shall not be deemed a waiver of Landlord’s right to make the adjustments set forth herein.
 (iii) Tenant shall have the right to examine and review Landlord’s books and records pertaining to the prior year’s Operating Costs (“ Tenant’s Review ”), at Tenant’s expense, not more than one (1) time per calendar year, provided that (1) Tenant provides Landlord with written notice of its election to conduct Tenant’s Review no later than one hundred twenty (120) days following Tenant’s receipt of the Operating Costs statement and completes Tenant’s Review within ninety (90) days after giving such notice; (2) Tenant fully
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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and promptly pays all Rent, including Tenant ’ s Proportionate Share of Estimated Operating Costs as billed by Landlord pending the outcome of Tenant ’ s Review; (3) Tenant ’ s Review is conducted by a qualified employee of Tenant or by an accounting firm engaged by Tenant on a non-contingency fee basis; (4) Tenant and the person(s) conducting Tenant ’ s Review agree that they will not divulge the contents of Landlord ’ s books and records or the result of their examination to any other person, including any other tenant in the Building or the Project, other than Tenant ’ s attorneys, accountants, employees and consultants who have need of the information for purposes of administering this Lease for Tenant or as otherwise required by law. Tenant ’ s Review shall be conducted at Landlord ’ s office where the records are maintained during Landlord ’ s normal business hours and will not unreasonably interfere with Landlord ’ s normal business activities.  If Tenant ’ s Review demonstrates that Landlord has overstated Operating Costs, then Landlord shall reimburse Tenant for any overpayment of Tenant ’ s Proportionate Share of such Operating Costs within thirty (30) days of Landlord ’ s receipt of reasonably sufficient documentation of such overstatement from Tenant.  Similarly, if Tenant ’ s Review demonstrates that Landlord has understated Operating Costs, then Tenant shall pay to Landlord Tenant ’ s Proportionate Share of such underpayment within thirty (30) days after the completion of Tenant ’ s review.  Further, if Tenant ’ s Review demonstrates that Landlord has overstated the Operating Costs for the year revie wed by more than three percent (3 %), then Landlord shall reimburse Tenant for its reasonable out-of-pocket expenses incurred in conducting Tenant ’s Review within thirty (30) days of Landlord ’ s receipt of reasonably detailed documentation reflecting the cost of Tenant ’ s Review up to Ten Thousand Dollars ($10,00.00) .  If Landlord has not overstated Operating Costs or i f any such overstatement is three percent (3 %) or less, then Tenant ’ s Review shall be conducted at Tenant ’ s sole cost and expense.
(c) Payments of Additional Rent .
(i) Notwithstanding any other provision of this Section to the contrary, it is agreed that in the event that the Building is less than one hundred percent (100%) occupied by tenants in occupancy and paying full rent during any calendar year (including the Base Year), an adjustment shall be made in the computation of all Additional Rent hereunder to reflect at least a one hundred percent (100%) occupancy of the total Rentable Area of the Building.  The Operating Costs and Taxes for such year shall be deemed to be the amount of Operating Costs and Taxes which, in the reasonable opinion of Landlord, would have been incurred if (1) one hundred percent (100%) of the Rentable Area of the Building had been leased to tenants in occupancy and paying full Rent, and (2) the Building, Facilities, and Real Property were fully assessed.  Notwithstanding anything to the contrary in this Lease, should Landlord add any new categories of expenses which alone or in the aggregate result in a substantial increase in expenses, then the Base Year calculations shall be adjusted accordingly to include such new categories of expenses.  
(ii) Notwithstanding any other provision of this Section to the contrary, it is agreed that in no event shall Controllable Operating Costs (as defined below) for any calendar year during the initial Term of the Lease after the Base Year increase by more than four percent (4%) in excess of Controllable Operating Costs for the immediately preceding calendar year on a compounding basis.  For purposes of this Lease, “ Controllable Operating Costs ” shall mean all Operating Costs, excluding expenses related to Taxes, insurance, utilities, costs to comply with changes in Laws and other non-recurring expenses (i.e., those that do not occur on a regularly scheduled basis).
(iii) The determination of Tenant’s Proportionate Share of a cost hereunder shall be made by Landlord in its reasonable discretion, in a manner consistent with Comparable Buildings.  A statement of such determination shall be made available to Tenant upon demand.  Landlord’s estimates shall be based upon Landlord’s experience with actual costs and reasonable projections.
(iv) Base Rent, Additional Rent, late fees and all other amounts due to Landlord hereunder are collectively referred to in this Lease as “ Rent .”
 6. SECURITY DEPOSIT/FIRST MONTH’S RENT.
(a) Except as set forth in Section 22(d) , below, no security deposit is required in connection with this Lease.  
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(b) The Base Rent for the first (1 st ) full calendar month, excluding any free or reduced Base Rent, if any, of the Term shall be paid upon Tenant ’ s execution of the Lease.
 7. HOLDING OVER.
Tenant has no right to retain possession of the Premises or any part thereof beyond the expiration or sooner termination of this Lease.  Should Tenant, with or without Landlord’s written consent (which Landlord may withhold in its sole and absolute discretion), hold over after the termination of this Lease, Landlord may, at its option, serve notice upon Tenant that such hold over constitutes either:  (a) a month-to-month tenancy upon all the provisions of this Lease (except as to Term and Base Rent); or (b) a tenancy at sufferance.  If Landlord does not give said notice, Tenant’s hold over shall create a tenancy at sufferance, subjecting Tenant to all the covenants and obligations of this Lease.  In either event, during such holding over, Tenant shall pay in advance, Base Rent equal to (i) one hundred twenty-five percent (125%) of the current Base Rent at the time of termination of this Lease for the first three months; provided, however, that the foregoing premium shall not apply during the first (1st) month of such holdover period if Landlord and Tenant are negotiating an extension of the Lease in good faith during such thirty (30) day period, and (ii) thereafter, one hundred fifty percent (150%) of the current Base Rent at the time of termination of this Lease for the entire month regardless of whether or not the hold over encompasses the entire month together with all other charges payable hereunder.  There shall be no adjustment in the Base Year from which Operating Costs are calculated during any holding over period.  All options, if any, granted under the terms of this Lease which have not expired, terminated or already lapsed shall be deemed terminated and be of no further effect beginning on the first (1 st ) day of any such holding over period. The foregoing provisions of this Section are in addition to and do not affect Landlord’s right of re-entry or any other rights of Landlord hereunder or as otherwise provided by law.  Without limiting the foregoing but subject to the other terms and conditions of this Lease, Tenant shall also be responsible for any Claims made by any succeeding tenant founded upon Tenant’s failure to surrender all or any portion of the Premises following the termination of the Term and any damages sustained by Landlord resulting therefrom (collectively, “ Holdover Damages ”); provided, however, upon entering into a third-party lease which affects the Premises, Landlord shall deliver written notice (the “ New Lease Notice ”) of such lease to Tenant and Tenant shall not be responsible for such Holdover Damage until the earlier of (i) the date that occurs fifteen (15) days following the date Landlord delivers such New Lease Notice to Tenant, and (ii) the date such holdover commences.  
 8. USE OF PREMISES.
(a) The Premises shall be used and occupied by Tenant for the Permitted Use as defined in Subsection 1(i) hereof and for no other purpose without the prior written consent of Landlord.  The granting or withholding of such consent shall be at the sole discretion of the Landlord.
 (b) Tenant and its employees, agents, officers, directors, members, partners, contractors, vendors, guests, customers, visitors, shippers, suppliers, licensees, invitees, permitted successors, permitted assigns or permitted subtenants (each a “ Tenant Party ”; collectively, the “ Tenant’s Parties ”) shall not do or permit anything to be done in or about the Premises which does (i) jeopardize the structural integrity of the Building, or (ii) cause material damage to any part of the Premises.  Tenant and Tenant’s Parties shall not operate any equipment within the Premises which does (1) damage, overload, or impair the efficient operation of any electrical, plumbing, sewer, water, telecommunications, heating, ventilating, or air conditioning systems within or servicing the Premises or the Building; or (2) damage or impair the efficient operation of the sprinkler system (if any) within or servicing the Premises or Building.  Tenant shall not install any equipment or antennae on or make any penetrations of the exterior walls, floors, ceiling, walls or roof of the Building, except the Supplemental HVAC System and to the extent necessary for the installation of chemical hoods in the First Floor Lab Space; provided, however, that the Supplemental HVAC System and chemical hoods shall be installed pursuant to plans and specifications approved by Landlord and otherwise is in accordance with the terms of this Lease including, without limitation, the Work Letter.  Tenant shall not place any loads upon the floors, walls, ceiling, or roof systems which adversely affect the structural integrity of the Building or damage its floors, foundations, or supporting structural components.  Tenant shall be responsible for any damages to the
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Premises, Building, Facilities or Real Property caused by Tenant ’ s or Tenant ’ s Parties ’ installation and or use of fixtures including, but not limited to, water dispensers, water coolers, refrigerators with water dispensers and/or icemakers, freezers with icemakers, and all other similar equipment.  Tenant shall not use any areas outside the Premises for the storage of its materials, supplies, inventory, or equipment, and all such materials, supplies, inventory, or equipment shall at all times be stored in the Premises.  Tenant shall not commit, nor permit to be committed, any waste in or about the Premises or the Building.  Tenant shall not store any materials, or park any inoperative vehicles, recreational vehicles or equipment in the common areas including, but not limited to, the parking areas.  Tenant shall not conduct, or permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Landlord ’ s prior written consent, which may be withheld in Landlord ’ s sole and absolute discretion.
(c) Tenant and each Tenant Party shall abide by and shall promptly observe and comply with, at its sole cost and expense, all Laws and Private Restrictions, as defined herein, respecting the use and occupancy of the Premises, including, without limitation, all Laws governing access to the Premises and the use and/or disposal of Hazardous Materials, as defined herein, and shall defend, indemnify and hold Landlord harmless from any claims, damages or liability resulting from Tenant’s failure to so abide, observe, or comply.  Without limiting the foregoing, Landlord may perform, or require that Tenant perform, and Tenant shall be responsible for the cost of, all “path of travel” requirements of Title III of the Americans With Disabilities Act of 1990 (42 U.S.C §12101 et seq.) and the regulations and guidelines promulgated thereunder, as all of the same may be amended and supplemented from time to time (the “ ADA ”) but only to the extent triggered by Tenant’s Alterations (as defined below, but expressly including the Landlord’s Work and the Tenant’s Work), and Landlord may perform, or require Tenant to perform, and Tenant shall be responsible for the cost of, ADA Title III compliance in the Common Area necessitated by the Building being deemed to be a “public accommodation” instead of a “commercial facility” as a result of Tenant’s use of the Premises.  Tenant shall be solely responsible for requirements under Title I of the ADA relating to Tenant’s employees.  Tenant’s obligations hereunder shall survive the expiration or sooner termination of this Lease.  For purposes of this Lease, the term “ Laws ” shall mean any judicial decisions and any statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirements of any municipal, county, state, federal, or other governmental agency or authority having jurisdiction over the parties to this Lease, the Premises, Building, Facilities, or Real Property, or any of them, in effect either as of the Effective Date of this Lease or at any time during the Term, including, without limitation, any regulation, order or policy of any quasi-official entity or body (e.g. a board of fire examiners or a public utility or special district).  The term, “ Private Restrictions ”, for purposes of this Lease, shall mean (as they may exist or be modified from time-to-time) any and all covenants, conditions, and restrictions, private agreement, easements, and any other recorded documents or instruments affecting the use of the Building, Premises, Facilities, or Real Property; provided, however, that Landlord agrees that the Private Restrictions shall not discriminate among tenants of the Building or Real Property and shall not prohibit or otherwise unreasonably impair Tenant’s ability to operate in the Premises for the Permitted Use or increase Tenant’s obligations under the Lease other than to a de minimis extent.
(d) With respect to any insurance policies required or permitted to be carried by Landlord or Tenant in accordance with the provisions of this Lease, Tenant shall not conduct or permit any other person to conduct any activities or keep, store or use (or allow any other person) to keep, store or use any item or thing within the Premises or the Building which (i) is prohibited under the terms of such policies; (ii) would result in the termination of coverage afforded under any of such policies; (iii) would give the insurance carrier the right to cancel any of such policies; or (iv) would cause an increase in the rates (over standard rates) charged for the coverage afforded under any such policies.  Tenant shall comply with all requirements of any insurance company, insurance underwriter, or Board of Fire Underwriters which are necessary to maintain, at standard rates, the insurance coverages carried by either Landlord or Tenant pursuant to this Lease.
 (e) Subject to the terms of this Section, one (1) identification plaque at the entrance of the Premises suites and the elevator lobby on the Premises floors, as well as identification on the electronic Building directory in the main lobby area (if any), shall be provided by Landlord or, if no such electronic Building directory exists, then an identification panel on the
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Building directory, shall be provided by Landlord , all at Landlord’s sole cost and expense .  Tenant shall not place affix, paint, erect, inscribe or install any sign projection, awning, signal, or advertisement of any kind to any part of the Premises such that it is visible from outside of the Premises , the Building, the Facilities or the Project, including, without limitation, the inside or outside of windows or doors, without the consent of Landlord, which consent may be withheld in Landlord’s sole and absolute discretion .  Tenant may affix and maintain upon the exterior of the Premises suite (but inside the Building) only such signs, advertising, placards, names, insignia, trademarks, and descriptive material as shall have first received t he written approval of Landlord, in Landlord ’ s reasonable discretion, as to type, size, color, location, copy, nature, and display qualities.  Anything to the contrary in this Lease notwithstanding, Tenant shall not affix any sign to the roof; provided, however, that the foregoing prohibition shall not apply to Tenant ’ s Parapet Sign (as defined below).  All signs, including, without limitation, the identification sign and panel on the Building directory, shall be repaired, replaced, and maintained at Tenant ’ s sole cost and expense.   Notwithstanding the foregoing, Tenant shall have the right to place and display any signs, placards, descriptive material or window coverings in the Premises or Building as are required by applicable Law in connection with the Permitted Use; provided, however, that to the extent such applicable Law grants any discretion as to the type, size and location of any foregoing, then such type, size and location shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld.
 (f) Except as expressly set forth below, Tenant shall not use, receive, handle, generate, treat, store, transport, dispense or dispose of, or permit any of the foregoing with respect to any Hazardous Materials in, on, under, around or above the Premises now or at any future time (collective, “ Handle ” or “ Handling ”), except for de minimis quantities of typical cleaning and office supplies, all of which shall be stored, used and disposed of in accordance with applicable Laws, and, to the extent not prohibited by applicable Laws, will indemnify, defend (with counsel acceptable to Landlord) and save Landlord and Landlord’s employees, agents, officers, directors, members, shareholders, partners, contractors, vendors, guests, customers, visitors, shippers, suppliers, licensees, invitees, successors, assigns, affiliated entities, Lender(s) (each a “ Landlord Party ”; collectively, “ Landlord Parties ”) harmless from any and all liability, losses, claims, expenses (including attorneys’ fees and consultants’ fees and costs), judgments, and actions (collectively, “ Claims ”), incurred or suffered by, or asserted or awarded against Landlord, any Landlord Parties arising from injury to any person, including death, damage to or loss of use or value of real or personal property, and costs of investigation and cleanup with the existence of Hazardous Materials on the Premises during the Term.  The term “ Hazardous Materials ”, when used herein, shall include, but shall not be limited to, (i) any and all substances and materials defined or referred to as a medical waste,” “biological waste,” “biohazardous waste,” “biohazardous material” or any other term of similar import under any Laws, including but not limited to, California Health & Safety Code Sections 25105 et seq., and any regulations promulgated thereunder, as amended from time to time (collectively, “ Biohazardous Materials ”), and (ii) any substances, materials or wastes to the extent quantities thereof are regulated by the City of Concord or any other local governmental authority, the State of California, or the United States of America because of toxic, flammable, explosive, corrosive, reactive, radioactive or other properties that may be hazardous to human health or the environment, including asbestos and including any materials or substances that are listed in the United States Department of Transportation Hazardous Materials Table, as amended, 49 C.F.R. 172.101, or in the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. subsections 9601 et seq., or the Resource Conservation and Recovery Act, as amended, 42 U.S.C. subsections 6901 et seq., or any other applicable governmental regulation imposing liability or standards of conduct concerning any hazardous, toxic or dangerous substances, waste or material, now or hereafter in effect.  Except to the extent prohibited by applicable Laws, Tenant does hereby indemnify, defend and hold harmless Landlord and its agents and their respective officers, directors, beneficiaries, shareholders, partners, agents and employees from all Claims arising by, through or under Tenant, its agents, employees, contractors, servants and invitees and out of or in any way connected with any Handling, deposit, spill discharge or other release of Hazardous Materials (a “ Release ”) that occurs during the Term of this Lease, at or from the Premises, or which arises at any time from Tenant’s use or occupancy of the Premises, or from Tenant’s failure to provide all information, make all submissions, and take all steps required by all applicable governmental authorities.  Tenant’s obligations and liabilities under this paragraph shall survive the expiration or earlier termination of the Term.  Without limiting the
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foregoing or anything to the contrary contained in this Lease, if required by the holder of any mortgage or deed of trust encumbering the Building or the lessor under a ground lease of the Building, then Landlord may require Tenant to maintain an insurance policy insuring Landlord and such holder or lessor against any losses due to Tenant’s use of Hazardous Materials as provided herein; provided, that Landlord represents that, to the best of its knowledge, no such policy is required by the beneficiary of the deed of trust encumbering the Building as of the Effective Date.
Notwithstanding the foregoing, Landlord acknowledges that Tenant intends to use some or all of the First Floor Premises as a bio-pharmaceutical research and development facility and otherwise for the conduct by Tenant of its business in accordance with the Permitted Use, that such use, as conducted or proposed to be conducted by Tenant, requires the Handling of Hazardous Materials, and that Tenant shall therefore be permitted to engage in the foregoing in the First Floor Premises (but not elsewhere in the Premises) of necessary and reasonable quantities of Hazardous Materials customarily used in or incidental to the operation of a bio-pharmaceutical research and development facility and the other business operations of Tenant in the manner conducted or proposed to be conducted by Tenant hereunder (“ Permitted Hazardous Materials ”), provided that the foregoing shall comply with the following:
(i) Without limiting the generality of foregoing, Tenant shall comply at all times with all Laws applicable to any aspect of Tenant’s use of the Premises, the Building and the Project and of Tenant’s operations and activities in, on and about the Premises, the Building and the Project, and shall ensure at all times that Tenant’s Handling of Hazardous Materials on and about the Premises does not violate (x) the terms of any governmental licenses or permits applicable to the Building or Premises or to Tenant’s Handling of any Hazardous Materials therein, (y) any applicable requirements or restrictions relating to the occupancy classification of the Building and the Premises, (z) any Laws.
(ii) Tenant shall not spill, leak, pump, pour, emit, discharge, inject, allow to escape, leach, or migrate, dump or dispose into the air, land, surface water, groundwater or the environment (including without limitation the abandonment or discarding of receptacles containing any Hazardous Materials) any Hazardous Materials except to the extent authorized by permit at the Premises, the Building or on the Project, but, instead, shall arrange for off-site disposal under Tenant’s own name and Environmental Protection Agency waste generator number (or other similar identifying information issued or prescribed by any other governmental authority with respect to Biohazardous Materials or any other Hazardous Materials) and at Tenant’s sole expense, in compliance with applicable Laws and such commercially reasonable rules and regulations promulgated by Landlord in writing from time to time; provided, however, that (1) such rules shall not be binding on Tenant until Landlord has provided Tenant with at least thirty (30) days prior written notice of such rules and shall be effective on a prospective basis, (2) when possible, such rules shall contain specific, not discretionary, guidelines, and (3) such rules and regulations are generally consistent with those rules and regulations regarding the disposal of Hazardous Materials promulgated by other institutional owners of buildings in the vicinity that allow the Permit Use.
(iii) Tenant shall provide the following information and/or documentation to Landlord in writing prior to the Commencement Date, and thereafter shall update such information and/or documentation (x) annually, in January of each calendar year, (y) upon any material change in Tenant’s Hazardous Materials inventory or in Tenant’s business operations involving Hazardous Materials, and (z) at such other times as Landlord may reasonable request in writing from time to time (but no more frequently that two (2) additional times per twelve (12) consecutive period) which updates shall reflect any material changes in such information and/or documentation:
 (1) An inventory of all Hazardous Materials that Tenant Handles from time to time, or at the time of preparation of such inventory proposes or expects to Handle in connection with its operations at the Premises.  Such inventory shall include, but shall separately identify, any Hazardous Wastes and  Biohazardous Materials covered by the foregoing description.  If such inventory includes any Biohazardous Materials, then Tenant
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shall also discl ose in writing to Landlord the biosafety l evel designation associated with the use of such materials.
(2) Copies of all then existing permits, licenses, registrations and other similar documents issued by any governmental or quasi-governmental authority that authorize any Handling of Hazardous Materials in, on or about the Premises or the Project by any Tenant Party.
(3) Copies of all Material Safety Data Sheets (“ MSDSs ”), hazardous waste manifests, hazardous materials business plans, contingency plans, emergency procedures, permits, and reports (including, but not limited to, reports filed by Tenant with the federal Food & Drug Administration or any other regulatory authorities primarily in connection with the presence (or lack thereof) of any “select agents” or other Biohazardous Materials on the Premises, together with proof of filing thereof), if any, required to be completed with respect to operations of Tenant at the Premises from time to time in accordance with any applicable Laws.
(4) Any other information readily available to Tenant and reasonably requested by Landlord in writing from time to time, but not more than twice in any twelve (12) month period, in connection with (1) Landlord’s monitoring (in Landlord’s reasonable discretion) and enforcement of Tenant’s obligations under this Section and of compliance with applicable Legal Requirements in connection with any Handling or Release of Hazardous Materials in the Premises or Building or on or about the Project by any Tenant Party, (2) any inspections or enforcement actions by any governmental authority pursuant to any Law relating to the presence or Handling of Hazardous Materials in the Premises or Building or on or about the Project by any Tenant Party, and/or (3) Landlord’s preparation (in Landlord’s discretion) and enforcement of any reasonable rules and procedures relating to the presence or Handling by Tenant or any Tenant Party of Hazardous Materials in the Premises or Building or on or about the Project, including (but not limited to) any contingency plans or emergency response plans as described above.  
(iv) Tenant shall, within ten (10) business days following receipt by Tenant, provide Landlord with copies of all notices received by Tenant relating to any actual or alleged presence or Handling by any Tenant Party of Hazardous Materials in, on or about the Premises or any other portion of the Project, including, without limitation, any notice of violation, notice of responsibility or demand for action from any federal, state or local governmental authority or official in connection with any actual or alleged presence or Handling by any Tenant Party of Hazardous Materials in or about the Premises or any other portion of the Project.
(v) In addition to, and not in limitation of, Landlord’s rights under this Lease, upon not less than forty-eight (48) hours prior written request by Landlord, and not more than once in any twelve (12) month period (unless required by Applicable Law, or if Tenant is in default under this Lease or if Landlord requires access in connection with a potential sale, refinance or insuring of the Building and/or Project) Tenant shall grant Landlord and its consultants, as well as any governmental authorities having jurisdiction over the Premises or over any aspect of Tenant’s use thereof, reasonable access to the Premises at reasonable times to inspect Tenant’s Handling of Hazardous Materials in, on and about the Premises, and Landlord shall not thereby incur any liability to Tenant or be deemed guilty of any disturbance of Tenant’s use or possession of the Premises by reason of such entry; provided, however that Landlord shall use reasonable efforts to minimize interference with Tenant’s use of the Premises caused by such entry.  Notwithstanding Landlord’s rights of inspection and review of documents, materials and physical conditions under this Section with respect to Tenant’s Handling of Hazardous Materials, Landlord shall have no duty or obligation to perform any such inspection or review or to monitor in any way any documents, materials, physical conditions or compliance with Laws in connection with Tenant’s Handling of Hazardous Materials, and no third Party shall be entitled to rely on Landlord to conduct any such inspection, review or monitoring by reason of the provisions of this Section.
 (vi) Landlord reserves the absolute right to monitor, in Landlord’s reasonable discretion and at Landlord’s cost (the cost of which shall not be recoverable as an Operating Costs hereunder (except in the case of a breach of any of Tenant’s obligations
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under this Section, in which event such monitoring costs may be charged back entirely to Tenant and shall be reimbursed by Tenant to Landlord within ten (10) business days after written demand by Landlord from time to time, accompanied by supporting documentation reasonably evidencing the costs for which such reimbursement is claimed)), at such times and from time to time as Landlord in its reasonable discretion may determine through consult ants engaged by Landlord , (A) all aqueous and atmospheric discharges and emissions from the Premises during the Term by a Tenant Party, (B) Tenant ’ s compliance and the collective compliance of all tenants in the Building with requirements and restrictions relating to the occupancy classification of the Building (including, but not limited to, Hazardous Materials inventory levels of Tenant and all other tenants in the Building), and (C) Tenant ’ s compliance with all other requirements of this Section. Tenant acknowledges that any such monitoring, inspection or review is for the sole benefit of Landlord and shall not constitute a representation or warranty that Tenant’ s Handl ing of Hazardous Materials complies with the terms of this Lease and/or any applicable Laws.  Notwithstanding the foregoing, Landlord shall use commercially reasonable efforts to minimize any interference with Tenant’s operations in the Premises in connection with any such monitoring.  
(vii) If Landlord, Tenant or any governmental or quasi-governmental authority discovers any Release from the Premises during the Term by a Tenant Party in violation of this Section that, in Landlord’s reasonable determination, jeopardizes the ability of the Building or the Project to be in compliance with applicable Laws, or if Landlord discovers any other breach of Tenant’s obligations under this Section, then upon receipt of written notice from Landlord or at such earlier time as Tenant obtains knowledge of the applicable discharge, emission or breach, Tenant at its sole expense shall within a reasonable time (A) in the case of a Release in violation of this Lease and/or applicable Laws, cease the applicable discharge or emission and remediate any continuing effects of the discharge or emission until such time, if any, that the applicable discharge or emission is (y) in compliance with all applicable Laws to the satisfaction of the appropriate governmental agency with jurisdiction over the release, and/or (z) in compliance with the terms of this Lease, and (B) in the case of any other breach of Tenant’s obligations under this Section, take such corrective measures in order to cure or eliminate the breach as promptly as practicable and to remediate any continuing effects of the breach.
(viii) If Tenant or any Tenant Party Handles any Hazardous Materials in, on or about the Premises, the Building or the Project during the Term of this Lease, then no later than fifteen (15) days prior to the termination or expiration of this Lease, Tenant at its sole cost and expense shall obtain and deliver to Landlord a so called phase I environmental study, performed by an expert reasonably satisfactory to Landlord, evaluating, the presence or absence of any Tenant contamination in, on and about the Premises (including the loading dock).  Such study shall be conducted no earlier than the date of termination or expiration of this Lease.  Tenant at its sole expense shall promptly commence and diligently pursue to completion the required remedial actions as required by this Lease or by applicable Law and set forth in such report. Tenant’s obligations under this Subsection shall expressly survive the expiration of the Term of the Lease.
(ix) Notwithstanding any other provisions of this Lease, if Tenant Handles any Hazardous Materials in or about the Premises during the term of this Lease and, at the otherwise applicable termination or expiration of the Term of this Lease, Tenant has failed to remove from the Premises, the Building and the Premises all known Hazardous Materials Handled by a Tenant Party or has failed to complete any remediation or removal of Tenant’s Contamination and/or to have fully remediated, in compliance with this Lease and with all applicable Hazardous Materials Laws and other Laws, the Tenant’s Handling and/or Release (if applicable) of any such Hazardous Materials during the Term of this Lease, then for so long as such circumstances continue to exist,  Tenant shall be deemed to be occupying the Premises on a holdover basis without Landlord’s consent (notwithstanding such otherwise applicable termination or expiration of the Term of this Lease) and shall be required to continue pay Rent and other charges in accordance with the holdover provisions of this Lease until such time as all such circumstances have been fully resolved in accordance with the requirements of this Lease and with all applicable Hazardous Materials Laws and other Laws.  
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(x) Tenant agrees for itself and for its subtenants, employees, agents, and invitees to comply with the lab rules and regulations ( “ Lab Rules ” ) attached to this Lease as Exhibit F and with all reasonable modifications and additions thereto which Landlord may make from time to time.
(xi) Landlord shall indemnify, defend and hold Tenant harmless from any and all Claims which may at any time be imposed upon, incurred by, or asserted or awarded against Tenant which result from Hazardous Materials in quantities in violation of applicable Law and which either (A) existed on the Premises prior to Tenant’s occupancy, or (B) are caused by the negligence or willful misconduct of Landlord or Landlord’s representatives; provided, however, in no event shall a breach of the terms and conditions of this Lease by Tenant ever be deemed to be negligence by Landlord.
(g) Any use of the Premises, Building, Facilities, or Real Property in violation of the rules and regulations attached hereto as Exhibit F-1 and incorporated herein (the “ Rules and Regulations ”) is expressly prohibited.
(h) The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation, or requirement, shall be conclusive of the fact as between Landlord and Tenant.
(i) If any persistent and offensive odors (food, chemical or otherwise) generated from sources inside the Premises exit the Premises, then Tenant shall, promptly upon notice by Landlord, at Tenant’s sole expense, use diligent efforts to remove such odors and shall take all appropriate commercially reasonable measures to prevent such odors from exiting the Premises including, without limitation, installing charcoal filters and scrubbers at the offending sources and making whatever improvements or modifications to the other systems serving the Premises as are deemed necessary by Landlord to prevent such odors from exiting the Premises.  Further, if Tenant’s use of the Premises results in any noise and/or vibrations that can be heard or felt outside of the Premises, then Tenant shall, promptly upon notice by Landlord, at Tenant’s sole expense, use diligent efforts to immediately cease and desist the actions causing such noise and/or vibrations and take all necessary and commercially reasonable remedial actions to avoid such noise and vibrations.
(j) Landlord may (but shall have no obligation to) endeavor to achieve LEED (The Leadership in Energy and Environmental Design) certification from the USGBC (United States Green Building Council) (the “ LEED Certification ”).  If Landlord obtains the LEED Certification and then only for so long as Landlord maintains the applicable LEED Certification, Tenant shall, at Tenant’s sole cost and expense, (i) comply with such policies, programs and measures as may be required in order to maintain the LEED Certification, and (ii) comply with any and all requirements applicable to energy management imposed upon Landlord by federal or state governmental organizations required to maintain the LEED Certification; provided that such compliance (1) shall be at no material additional cost or liability to Tenant whether as part of Operating Costs or otherwise, and (2) shall not materially interfere with Tenants use of the Premises for the Permitted Use.
 (k) Tenant shall be responsible for promptly installing, maintaining and repairing web-enabled wireless water leak sensor devices designed to alert the Tenant on a twenty-four (24) hour seven (7) day per week basis if a water leak is occurring in the Premises (which water sensor device(s) located in the Premises shall be referred to herein as “ Water Sensors ”).  The cost of installation, maintenance and repair of the Water Sensors shall be borne equally by Landlord and Tenant.  The Water Sensors shall be installed in any areas in the Premises where water is utilized (such as labs, sinks, pipes, faucets, water heaters, coffee machines, ice machines, water dispensers, dishwashers and water fountains), and in locations that may be reasonably designated from time to time by Landlord (the “ Sensor Areas ”).  In connection with any Alterations affecting or relating to any Sensor Areas, Landlord may require Water Sensors to be installed or updated in Landlord’s reasonable discretion.  With respect to the installation of any such Water Sensors, Tenant shall obtain Landlord’s prior written consent, use an experienced and qualified contractor reasonably designated by Landlord, and comply with all of the other provisions of Section 10 of this Lease.  Tenant shall, at Tenant’s sole cost and expense, pursuant to Section 11 of this Lease keep any Water Sensors located in the Premises (whether installed by Tenant or someone else) in good working order, repair and
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condition at all times during the Lease Term and comply with all of the other provisions of this Lease.  Tenant will not be required to remove any Water Sensors at the expiration or earlier termination of this Lease.  Notwithstanding any provision to the contrary contained herein, Landlord has neither an obligation to monitor, repair or otherwise maintain the Water Sensors, nor an obligation to respond to any alerts it may receive from the Water Sensors or which may be generated from the Water Sensors .
(l) So long as Tenant leases and occupies the First Floor South Wing Premises, Tenant shall have (i) the exclusive use of the Building’s south wing north loading dock high loading door and immediately surrounding area (which shall be deemed part of the First Floor Premises for all purposes hereunder and is depicted on Exhibit L attached hereto), and (ii) non-exclusive use of the Building’s other loading docks in accordance with such commercially reasonable, non-discriminatory written rules as Landlord may promulgate from time to time.
 9. TAXES ON TENANT’S PROPERTY.
(a) Tenant shall be liable for and shall pay before delinquency taxes, assessments, license fees, and other similar charges levied against any personal property or trade fixtures placed by Tenant or at Tenant’s direction in or about the Premises.  On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments.  If any such taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays such taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if required by Tenant, Tenant shall, within ten (10) days of written demand, reimburse Landlord for the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that, in any such event, Tenant shall have the right, in the name of Landlord and with Landlord’s full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes so paid under protest, and any amount so recovered shall belong to Tenant.
(b) If Tenant’s improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the Real Property so as to become a part thereof, are assessed for Real Property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord’s standard improvements in other space in the Building are assessed, then the Taxes levied against Landlord, the Building or the Real Property by reason of such excess assessed valuation shall be governed by the provisions of Subsection (a), above.  If the records of the county assessor are available and sufficiently detailed to serve as a basis for determining whether said improvements are assessed at a higher valuation than Landlord’s standard improvements, such records shall be binding on both Landlord and Tenant.  If the records of the county assessor are not available or sufficiently detailed to serve as a basis for making said determination, the actual costs of construction shall be used.
 10. ALTERATIONS.
(a) Tenant shall make no alterations, decorations, additions, or improvements in or to the Premises without Landlord’s prior written consent and then only by contractors, vendors, or mechanics approved by Landlord (“ Alterations ”); provided, however, that Tenant shall be permitted to make Exempt Alterations, as defined herein, without the prior written consent of Landlord.  For purposes of this Lease, “ Exempt Alterations ” shall include only non-structural, non-mechanical, interior alterations which do not affect the Building’s systems or require a building or other permit issued by any governmental or quasi-governmental entity or agency; provided, however, that (i) such alterations shall conform to Comparable Buildings, (ii) such alterations shall cost less than Two Hundred Fifty Thousand Dollars ($250,000) in the annual aggregate, and (iii) Tenant shall provide Landlord with prior written notice of such Exempt Alterations.
 (b) All such alterations, including Exempt Alterations, shall be done at such times and in such manner as Landlord may from time-to-time reasonably designate.  Tenant covenants and agrees that all Alterations done by or pursuant to the direction and instruction of Tenant shall be performed (i) in full compliance with all Laws and the Private Restrictions; (ii)
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with contractors and/or vendors reasonably approved by Landlord; and (iii) pursuant to plans and specifications reasonably approved by Landlord, as the case may be.  Landlord’s review and approval of the plans and specifications for the Alterations shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all Laws.  Notwithstanding anything to the contrary contained in this Lease (including, without limitation, Section 31 , below) Landlord’s consent may be conditioned, among other things, on Tenant’s removing any such Alterations at the Expiration Date and repairing and restoring the Premises and the Building to the same condition as initially delivered to Tenant. Before commencing any work, Tenant shall (1) give Landlord at least ten (10) days written notice of the proposed commencement of such work, (2) provide Landlord with the necessary certificates of insurance as required by Section 17 below, and (3) secure, at Tenant’s own cost and expense, a completion and lien indemnity bond, reasonably satisfactory to Landlord, for said work if reasonably required by Landlord; provided, however, that so long as Tenant is not then in monetary default under this Lease, Landlord shall not require such bond unless the cost of such Alterations are reasonably likely to exceed One Million Dollars ($1,000,000.00).  Landlord shall have the right at all times to post notices of non-responsibility on the Premises and record verified copies thereof in connection with all work of any kind upon the Premises.  The complete set of construction documents outlining proposed interior improvements shall be furnished to Landlord before the construction commences.  An executed copy of the final building permit shall be provided to Landlord before the notice of non-responsibility shall be removed from the Premises.  Tenant shall pay to Landlord a supervision fee equal to one percent (1%) of the hard cost of such Alterations to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s supervision of or involvement with the Alterations; provided, however, that no fee shall be charged by Landlord in connection with an Exempt Alteration .  Promptly after completion of any Alterations, Tenant shall deliver to Landlord “as-built” plans and specifications (including all working drawings) for the Alterations, and cause a Notice of Completion to be recorded in the office of the Recorder of the County of Contra Costa in accordance with Section 3093 of the California Civil Code or any successor statute and furnish a copy thereof to Landlord upon recordation, and timely give all notices required pursuant to Section 3259.5 of the California Civil Code or any successor statute (failing which, Landlord may itself execute and file such Notice of Completion and give such notices on behalf of Tenant as Tenant’s agent for such purpose).
(c) Landlord shall have the right to inspect the construction of the Alterations; however, Landlord’s failure to inspect any portion of the Alterations shall in no event constitute a waiver of any of Landlord’s rights under this Section 10 , nor shall Landlord’s inspection of any portion of the Alterations constitute Landlord’s approval thereof.  If, as a result of Landlord’s inspection, Landlord disapproves of any portion of the construction of the Alterations, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved; provided that in no event shall Landlord disapprove of an item built as depicted on and in compliance with the plans and specifications approved by Landlord unless such items cause the Premises, the Building or the Project to be in violation of any applicable Law.  In the event Landlord disapproves of any matter that might adversely affect any building system, the structure or exterior appearance of the Building or any other tenant, Landlord may, after giving Tenant notice and a reasonable opportunity to cure (not to exceed ten (10) days), take such action as Landlord deems necessary, at Tenant’s expense and without incurring any liability on Landlord’s part, to correct any such matter, including, without limitation, causing the cessation of the applicable work.
 (d) Except as expressly agreed otherwise, all Alterations and Exempt Alterations, including, without limitation, wall coverings, draperies, floor coverings, built-in cabinet work, paneling, and the like (but excluding Tenant’s trade fixtures, if any, equipment, lab casework and equipment, and furnishings) shall become the property of Landlord upon expiration or sooner termination of this Lease, and shall remain upon and be surrendered with the Premises as part thereof.  Except as otherwise provided herein, Tenant shall not be required to restore any of the Landlord’s Work, the Tenant’s Work, Exempt Alterations or Alterations at the end of the Term.  Notwithstanding the foregoing, to the extent any Tenant’s Work, Exempt Alterations or Alterations are not in the nature of ordinary and customary general office fit-up (“ Non-Standard Alterations ”), Landlord may, by written notice to Tenant at the time of Landlord’s consent to such items (or, with respect to Exempt Alterations, within ten (10) business days following Landlord’s receipt of notice of the same together with reasonably
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detailed information describing the Exempt Alterations), require Tenant, at Tenant ’ s expense, to remo ve any Non-Standard Alterations , and to repair any damage to the Premises and Building caused by such removal and return the affected portion of the Premises to the condition that existed prior to the subject Non-Standard Alterations (all such work to be completed by Tenant prior to the expiration or earlier termination of this Lease with respect to the portion of the Premises that contains the app licable Non-Standard Alteration ).   Should Tenant make any alterations, additions, or improvements without the prior written approval of Landlord (other than Exempt Alterations) , Landlord may require that Tenant remove any or all of the same, and Tenant ’ s failure to so remove any alterations, additions, or improvements shall be deemed a default hereunder.
 11. MAINTENANCE AND REPAIRS.
(a) Tenant shall at Tenant’s sole cost and expense keep the entire Premises in good condition and repair; damage thereto from casualty and ordinary wear and tear excepted.  All damage or injury to the Premises, Building, Facilities or the Project caused by the act or negligence of Tenant or any Tenant Party shall be promptly repaired by Tenant at its sole cost and expense, to the condition in which it existed prior to such damage.  Landlord may make any repairs which are not promptly made by Tenant after written notice thereof from Landlord and charge Tenant for the cost thereof together with an Administrative Fee.  Tenant shall upon the expiration or sooner termination of the Term hereof surrender the entire Premises to Landlord in the same condition as when construction of tenant improvements was completed, ordinary wear and tear and damage from casualty excepted.  Landlord shall have no obligation to shampoo or replace the carpeting or window coverings or maintain the interior surface of any (i) exterior walls, (ii) windows, (iii) doors, or (iv) plate glass of the Premises during the Term or any extension thereof.  Except as expressly set forth in the Work Letter, Landlord shall have no obligation to alter, remodel, improve, repair, decorate, or paint the Premises or any part thereof.
(b) Anything contained in the foregoing Subsection 11(a) , to the contrary notwithstanding, Landlord shall repair and maintain the structural portions of the Building and Facilities, including the roof (provided that if Tenant installs a Supplemental HVAC System or any other equipment on the roof, Tenant shall pay all costs resulting from damage caused by or from the presence of such installations), basic plumbing, air conditioning, and electrical systems installed or furnished by Landlord.  If such maintenance and repairs are caused in part or whole by the act, neglect, fault, or omission of any duty by Tenant or any Tenant Party, Tenant shall pay to Landlord upon demand the reasonable cost of such maintenance and/or repairs plus an administrative fee equal to five percent (5%) of the cost of such maintenance and/or repairs.  Landlord shall not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant.  Except as provided in Section 19 hereof, there shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of any repairs, alterations, or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances, and equipment therein.  Tenant waives the right to make repairs at Landlord’s expense under Subsection 1 of Section 1932, Sections 1941 and 1942 of the California Civil Code, or any other such law, statute, or ordinance now or hereafter in effect.
 12. LIENS.
Tenant shall keep the Premises, Building, Facilities, Project and the Real Property free from any liens arising out of the work performed, materials furnished, or obligations incurred by Tenant or any Tenant Party.  Tenant further covenants and agrees that, should any mechanic’s lien be filed against the Premises, Building, Facilities, Project or Real Property for work claimed to have been done for, or materials claimed to have been furnished to Tenant, said lien will be discharged by Tenant, by bond or otherwise, within thirty (30) days after the filing thereof, at the cost and expense of Tenant.  
 13. BUILDING SERVICES.
 (a) Subject to the Rules and Regulations, Landlord agrees to furnish to the Premises (i) HVAC and lighting service during Building Standard Business Hours as set forth
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in Subsection 1(m) above, (ii) elevator service and electric current, and water for lavatory and drinking purposes on a 24-hours per day, 7-day per week basis, all in such reasonable quantities, in the good faith judgment of Landlord, but in no event less than that supplied by owners of Comparable Buildings for general office use, and (iii) water for laboratory purposes on a 24-hours per day, 7-day per week basis in quantities consistent with the Tenant’s Proportionate Share of the Building’s supply capacity; provided, that if such water  usage exceeds that which has been used by office tenants historically on a pro rata basis in the Building from 2013 to June 2017 , the Landlord and Tenant shall meet and confer in good faith to determine how to measure and  quantify such excess use.  Landlord shall provide janitorial services in accordance with Exhibit K attached hereto; provided, Tenant acknowledges and agrees that neither Landlord nor its janitorial contractor shall be obligated to provide any janitorial services to any laboratory or research and development space other than the removal of trash and recycling, and, at Tenant’s cost, strip and wax the floors on a quarterly basis.  Without limiting the foregoing, Tenant expressly acknowledges and agrees that neither Landlord nor its janitorial contractor shall be obligated to Handle any of Tenant’s Hazardous Materials (including, without limitation, any Biohazardous Materials in the Premises.  Notwithstanding the foregoing, Landlord agrees that its janitorial contractor shall remove and dispose of trash (which in no event shall include needles or other “sharps”) labeled “Biohazard Autoclave” that has been properly and lawfully treated and disposed of in legally required biohazardous disposal bags so long as the such disposal bags are lawfully able to be removed and disposed of with ordinary trash and refuse without any further treatment or handling.  If it is determined that such bags cannot be removed and disposed of with ordinary trash and refuse without further treatment or handling, then Tenant shall be solely responsible for the removal and disposal thereof.  Notwithstanding the foregoing or anything to the contrary contained in the Lease, Tenant shall be and remain the “generator” of all such Biohazardous Materials.  Further, Landlord may impose a reasonable additional charge for the usage of any additional or unusual janitorial services required because of any unusual tenant improvements in the Premises, the carelessness of Tenant, the unusual nature of Tenant’s business, or the removal of any refuse and rubbish from the Premises other than discarded materials placed in waste paper baskets and left for emptying as incidental to Tenant’s normal cleaning of the Premises.  Tenant shall comply with all Rules and Regulations which Landlord may reasonably establish for the proper functioning and protection of the air conditioning, heating, elevator and plumbing systems.  
 (b) Tenant shall not, without Landlord’s prior written consent, use heat-generating machines, machines other than standard office equipment, or lighting other than Building standard lights in the Premises, which may materially affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Subclause (a) above .  If Tenant uses water, heat or air conditioning in excess of that supplied by Landlord pursuant to Subclause (a) , or if Tenant uses electricity in excess of that typically used by office tenants of Comparable Buildings, then, as reasonably determined by Landlord, or if Tenant causes back-up or emergency generator use, then Tenant shall pay to Landlord, upon billing, the actual cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the increased cost directly to Landlord, on demand, at the rates charged by the public utility company furnishing the same, including the cost of installing, testing and maintaining of such additional metering devices.  Notwithstanding anything contained in this Lease to the contrary, unless such installation is at the request of Tenant, prior to the installation of any additional equipment or metering system by Landlord, Landlord shall provide Tenant with reasonably detailed evidence of Tenant’s excessive utility or service consumption and a period of thirty (30) days to verify and, if applicable, remedy such excessive utility or service consumption.  Tenant’s use of electricity shall never exceed the capacity of the feeders to the Building or the risers or wiring installation without the prior written consent of Landlord.  If Tenant desires to use heat, ventilation or air conditioning outside of the Building Standard Business Hours set forth in Section 1.1(m) above, then Tenant shall give Landlord such prior notice, if any, as Landlord shall from time to time establish as appropriate, of Tenant’s desired use in order to supply such utilities, and Landlord shall supply such utilities to Tenant at such hourly cost to Tenant (which shall be treated as Additional Rent) as set forth in Section 1.1(n) above, which shall be subject to adjustment from time-to-time based on inflationary factors, including, but
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not limited to, utility rates, union labor rates for building engineers, and other maintenance costs directly associated with these services.  Tenant shall separately sub meter the electricity and gas supplied to the supplemental heating, ventilation and air conditioning systems (the “ Supplemental HVAC System ”) which are contemplated to be installed by Tenant and set forth in the Work Letter together with the electricity supplied to the Building’s chilled water system to chill the water for the Supplemental HVAC System.  Tenant shall directly reimburse Landlord for the cost of the electricity and gas so consumed as shown on such submeters; provided, that Landlord shall credit Tenant [***] per month against such amounts (the “ Supplemental HVAC Credit ”) throughout the Term, adjusted annually to reflect change(s) in electrical costs .  Tenant shall supply the Supplemental HVAC System with chilled water at Tenant’s sole cost and expense.
(c) Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control (an “ Interruption Beyond Landlord’s Control ”); and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease.  Notwithstanding the foregoing, if the Premises, or a material portion of the Premises, are made untenantable for a period in excess of three (3) consecutive business days as a result of a service interruption that is not an Interruption Beyond Landlord’s Control and through no fault of Tenant, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Rent payable hereunder during the period beginning on the date Tenant provided notice of the service interruption to Landlord and ending on the day the service has been restored.  Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Section 13 .
 14. CABLING; TELECOMMUNICATIONS.
 (a) Tenant may install, maintain, replace, remove or use any Cables (as defined below), provided that (i) Tenant shall obtain Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, use an experienced and qualified contractor reasonably approved in writing by Landlord, and comply with all of the other provisions of this Lease, (ii) an acceptable number of spare Cables and space for additional Cables shall be maintained for existing and future occupants of the Project, as determined in Landlord’s reasonable opinion, (iii) the Cables shall be appropriately insulated to prevent excessive electromagnetic fields or radiation, shall be surrounded by a protective conduit reasonably acceptable to Landlord, and shall be identified in accordance with the Identification Requirements (as defined below), (iv) any new or existing Cables servicing the Premises shall comply with all applicable governmental laws and regulations, (v) intentionally omitted, (vi) Tenant shall pay all costs in connection therewith; (vii) all of Tenant Cables shall run between the telephone closet on the floor on which the Premises are located and shall not run through the Building risers without Landlord’s prior written consent (which consent Landlord may withhold in its sole and absolute discretion); and (viii) Landlord shall have the right to have all such work supervised by Project engineering/maintenance personnel.  All Cables shall be clearly marked with adhesive plastic labels (or plastic tags attached to such Cables with wire) to show Tenant’s name, suite number, telephone number and the name of the person to contact in the case of an emergency (1) at every ten feet (10’) outside the Premises for cables that traverse multiple floors or, on multi-tenant floors, that traverse space occupied by other tenants, and (2) at the Cables’ termination point(s) (collectively, the “ Identification Requirements ”).  Upon the expiration of the Term, or immediately following any earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, remove all Cables installed by Tenant, and repair any damage caused by such removal.  In the event that Tenant fails to complete such removal and/or fails to repair any damage caused by the removal of any
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Cables, Landlord may do so and may charge the cost thereof to Tenant.  In addition, Landlord reserves the right at any time to require that Tenant rectify or remove any Cables located in or serving the Premises which are installed in violation of these provisions, or which are at any time in violation of any laws or represent a dangerous or potentially dangerous condition.  For purposes of this Lease, “ Cables ” means, collectively, all electronic, phone and data cabling and related equipment that is installed by or for the benefit of Tenant whether located in the Premises or in other portions of the Project.
(b) Tenant acknowledges that Landlord may elect, in its sole and absolute discretion, to install and maintain (either itself or through a third party service provider) certain office and communications services (specifically including, without limitation, wireless communication equipment) in the Project, or any portion thereof (collectively, “ Landlord’s Communication Equipment ”).  Subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed, and subject to the terms and conditions set forth in this Lease, Tenant may install and maintain, at Tenant’s sole cost and expense, wireless communication equipment within the Premises (the “ Wireless Communication Equipment ”).  Such Wireless Communication Equipment shall be used for wireless communications within the Premises only, and shall be for the servicing of the operations conducted by Tenant from within the Premises.  Tenant shall not be entitled to license its Wireless Communication Equipment to any third party, nor shall Tenant be permitted to receive any revenues, fees or any other consideration for the use of such Communication Equipment by any third party.  Such Wireless Communication Equipment shall, in all instances, comply with applicable governmental laws, codes, rules and regulations.  Tenant hereby acknowledges and agrees that its use of the Wireless Communication Equipment (A) shall not be permitted to interfere with any wireless communication equipment or other equipment of any other occupant of the Project, (B) shall not be permitted to interfere with any wireless communication equipment or other equipment of any other third-party with whom Landlord has any third-party agreement, and (C) shall not be permitted to interfere with Landlord’s Communication Equipment.  Landlord shall use commercially reasonable efforts to ensure that Landlord’s Communication Equipment does not interfere with Tenant’s Wireless Communication Equipment; provided, however, Tenant hereby acknowledges and agrees that Landlord has made no warranty or representation to Tenant with respect to the suitability of the Premises for any wireless communications, specifically including, without limitation, with respect to the quality and clarity of any receptions and transmissions to or from the Wireless Communication Equipment and the presence of any interference with such signals whether emanating from Landlord’s Communication Equipment, the Project or otherwise.  In no event shall any such interfere with Tenant’s Wireless Communication Equipment have any effect on this Lease or give to Tenant any offset or defense to the full and timely performance of its obligations hereunder, or entitle Tenant to any abatement of rent or additional rent or any other payment required to be made by Tenant hereunder, or constitute any accrual or constructive eviction of Tenant, or otherwise give rise to any other claim of any nature against Landlord.
 15. RIGHTS OF LANDLORD.
 (a) Landlord and its agents, representatives, lenders, contractors and other designees shall at all reasonable times and upon not less than forty-eight (48) hours’ prior notice have the right, but not the obligation, to enter the Premises to (i) inspect the same; (ii) clean the same; (iii) show the Premises to prospective purchasers or tenants (as to prospective tenants, only during the last twelve (12) months of the Term); (iv) post notices of nonresponsibility; (v) improve, maintain, or repair the Premises, Facilities, or any other portion of the Building or Real Property; (vi) test and/or monitor groundwater or investigate the environmental condition of the Premises in compliance with the provisions of this lease; (vii) install, maintain, repair, replace, and relocate pipes, ducts, conduits, wires, meters, and other equipment within the demising walls, floors, bearing columns, roofs, and ceilings of the Premises; and (viii) complete any Renovations, as detailed below, and in the course of such Renovations, to close entrances, doors, corridors, elevators or other Building facilities, the Facilities, or the Real Property, or temporarily abate their operation, all without being deemed a deprivation of Tenant’s quiet enjoyment or an eviction or constructive eviction of Tenant and without abatement of Rent, and Landlord may for such purposes erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed; provided however that if any such work shall completely block Tenant from entering into all or any part of the Premises, then rent for such portion of the Premises shall be
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abated during the time that Tenant is denied access .  Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant ’ s business or loss of quiet enjoyment of the Premises caused by Landlord ’ s entry on the Premises pursuant to this Section; provided, however, that Landlord shall use commercially reasonable efforts to minimize its interference with Tenant and its use and enjoyment of the Premises.  Without limiting the foregoing, however, under no circumstances shall Landlord be liable for any lost business, lost profits, or other consequential damages or losses by reason of Landlord ’ s exercise of any of its rights under this Section.  Landlord shall have the right to use any and all means which Landlord may deem proper to obtain entry to the Premises in an emergency, and any entry to the Premises obtained by Landlord by any of said means shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant from the Premises or any portion thereof.  No provision of this Section shall be construed as obligating Landlord to make any entry or perform any repairs, alterations, or other activities other than those specifically set forth elsewhere in this Lease.
(b) Notwithstanding anything to the contrary contained in this Lease, Landlord hereby reserves the right from time-to-time to change the size, layout, and dimensions of the Building, Facilities, Real Property, and/or any part thereof, to subdivide the Real Property, locate, relocate, alter, and/or modify the number and location of buildings, building dimensions, the number of floors in any of the buildings, the parking areas, store dimensions, the nature of the businesses, activities and uses to be conducted and the common areas located from time-to-time on the Real Property or any part thereof, provided that Landlord’s changes to the Building do not affect Tenant’s lab operations.  By way of example only and without limiting Landlord’s rights under the preceding sentence, Landlord may (i) enlarge, add stores or offices to, reinforce, reduce, reconfigure, redesign, realign, re-paint, modify, and/or alter the Building and/or other Facilities, walkways, landscaped areas, and/or other areas of the Real Property, (ii) remove and/or demolish all or part of the Building, other buildings on the Real Property, structure(s), Facilities, and/or improvements on the Real Property, (iii) construct new building(s), structure(s), Facilities, and/or improvements on the Real Property, (iv) enlarge or reduce the size of the Real Property, make alterations therein, additions thereto, and construct improvements adjoining thereto (including, without limitations, parking decks, elevated parking Facilities, roofs, walls, solar panels, electric vehicle charging stations and other improvements over all or any part of the common area) to enclose the same or to un-enclose the same, and (v) relocate, add, and remove escalators, elevators, and stairs.  The preceding may include, but shall not be limited to, new buildings, facades, storefronts, entrances, flooring, ceilings, roofing, structural columns, bearing walls, demising partitions, additional mechanical and electrical systems and equipment and supplementary structural elements.  Landlord shall have complete and exclusive control of the design, structure, construction, materials, colors, architectural elements and aesthetics of such work, as well as all activities undertaken by Landlord in connection therewith.  Landlord reserves the right to use the exterior walls, demising walls, roof and area beneath, adjacent to and above the Premises (including the plenum within the Premises), and the right to install, use, maintain, repair and replace equipment, machinery, pipes, conduits and wiring serving other parts of the Real Property through the Premises in a manner and in locations which do not unreasonably interfere with Tenant’s use of the Premises and/or increase Tenant’s obligations.  Notwithstanding anything to the contrary contained herein, Landlord agrees that it shall use commercially reasonable efforts to ensure that its exercise of its rights hereunder do not unreasonably interfere with Tenant’s access to and use and enjoyment of the Premises and/or increase Tenant’s obligations.
 (c) Landlord shall have the right and privilege at all times of determining the nature and extent of the common area and of making such changes, rearrangements, additions and reductions therein from time-to-time as Landlord deems desirable, including, without limitation, the location, relocation, enlargement, reduction or addition of driveways, entrances and exits, automobile parking spaces, employee and customer parking areas, the direction and flow of traffic, establishment of protected areas, landscaped areas and any and all other Facilities of the common area, and the right at any time to locate on the common area permanent and/or temporary displays, carts, stand and/or other building(s) and/or improvements of any type.  Landlord reserves the right to convert the common area to retail or other uses as it deems desirable from time-to-time.  Landlord shall have the right (i) to close, if necessary, all or any portion of the common area to such extent as may be reasonably
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necessary to prevent a dedication thereof or the accrual of any rights of any person or of the public therein, (ii) to close temporarily all or any portion of the common area to discourage non-tenant or non-customer uses, (iii) to use portions of the common area while engaged in making additional improvements, repairs, or alterations to the Real Property, (iv) to do and perform such other acts in, to and with respect to, the common area as Landlord shall determine, in its business judgment, to be appropriate for the Real Property.  Notwithstanding any contrary provision contained in this Lease, services and facilities may be temporarily discontinued, and access to the Premises and the Building temporarily restricted in whole or in part during (1) such time as the Building is not open for business, and (2) any other times as are necessary for temporary purposes such as repairs, alterations, strikes or other purposes, in Landlord ’ s reasonable judgment; provided, however, that Landlord ’ s exercise of its rights hereunder shall not unreasonably interfere with Tenant ’ s access to and use and enjoyment of the Premises.  Notwithstanding the foregoing reservations of rights, except as otherwise expressly stated in this Lease, Landlord has no obligation whatsoever and has made no promises to repair, alter, remodel, improve, renovate, decorate, demolish, and/or add improvements to the Building, Facilities, or the Real Property, or any part thereof, and no representations respecting the condition of the Building, Facilities, or Real Property have been made by Landlord to Tenant except as specifically set forth in this Lease.   
(d) Without limiting Landlord’s rights under Subsection 15(c) , above, Tenant acknowledges and agrees that Landlord has disclosed, and hereby discloses, that Landlord intends to remodel and expand portions of the Project including, without limitation, the addition of a new tenant fitness center (the “ Fitness Center ”), a conference center with one (1) or more conference rooms (the “ Conference Center ”), a tenant lounge, and an outdoor patio (collectively, the “ Renovations ”), which Renovations Landlord shall use commercially reasonable efforts to complete prior to the Commencement Date.  Landlord shall provide Tenant with reasonable prior notice if Landlord’s contractors will need to access the Premises during such hours and on such days required by Landlord for the Renovations.  Landlord shall undertake the Renovations upon the Premises in a commercially reasonable manner so as to minimize interference with Tenant’s conduct of business upon the Premises (which shall not require Landlord to incur overtime or premium time charges); provided, however, the Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent.  Landlord shall have no responsibility, or for any reason be liable to Tenant, for any injury to or interference with Tenant’s business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises resulting from the Renovations (except to the extent such damage to or loss of any personal property arises solely from the gross negligence or willful misconduct of Landlord or its contractors), or for any inconvenience or annoyance occasioned by such Renovations.  Notwithstanding the foregoing, in no event shall Tenant be denied access to the Premises as a result of the Renovations.  Upon completion of the Renovations, Tenant shall have the non-exclusive right to the use thereof subject to such commercially reasonable rules and regulations relating to the scheduling and uses thereto but at no additional charge to Tenant (other than commercially reasonable deposits and replacement fees for access cards/keys and the payment of the Operating Costs related thereto).  If the Renovations increase the Rentable Area of the Building and/or the Premises, then the Rentable Area of the Premises and/or the Building shall be adjusted and all necessary adjustments to Tenant’s Proportionate Share of the Rentable Area in the Building shall be similarly adjusted.
(e) Landlord reserves the absolute right to effect such other tenancies on the Real Property as Landlord in the exercise of its sole business judgment shall determine to be in the interests of the Building or the Real Property including, without limitation, any retail, office, residential or commercial purposes.
(f) No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises is temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.
 16. INDEMNIFICATION AND WAIVER.
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Except to the extent caused by Landlord’s gross negligence, willful misconduct, violation of any applicable Law or breach of this Lease (which such violation or breach is not the result of a Tenant’s breach violation of any applicable Law or beach of this Lease), Tenant hereby agrees to indemnify, defend (with counsel reasonably acceptable to Landlord), and hold Landlord and all Landlord Parties harmless against and from any and all Claims arising from or related to Tenant ’ s use of the Premises (or work done thereto), Building, Facilities, Project or Real Property, or from the conduct of its business or from any activity, work, or thing done, permitted or suffered by Tenant and/or Tenant ’ s Parties in the Premises, Building, Facilities, Project or Real Property, and shall further indemnify, defend (with counsel reasonably acceptable to Landlord), and hold harmless Landlord and all Landlord Parties against and from any and all Claims arising from any breach or default in the performance of any obligation on Tenant ’ s part to be performed under the terms of this Lease, or arising from any act, neglect, fault, or omission of the Tenant or any Tenant Party, and from and against all costs, reasonable attorneys ’ fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon.  Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to Tenant ’ s property or any type of injury to Tenant or Tenant ’ s Parties in or upon the Premises, Building, Facilities, Project or Real Property from any cause whatsoever, and Tenant hereby waives all claims in respect thereof against Landlord, except any claims which are caused by the failure of Landlord to observe any of the terms and conditions of this Lease (and such failure has persisted for an unreasonable period of time after written notice of such failure to Landlord) and those that arise solely from the gross negligence or willful misconduct of Landlord or of its agents or employees.  Landlord shall not be liable to Tenant for any unauthorized or criminal entry of third parties into the Premises, Building, Facilities, Project or Real Property or for any death or any type of injury to persons or damage to property, or loss of property in and about the Premises, Building, Facilities, Project, or Real Property by or from any unauthorized or criminal acts of third parties, regardless of any breakdown, malfunction or insufficiency of the security measures, practices or equipment provided by Landlord.  Tenant shall defend (with counsel reasonably satisfactory to Landlord), indemnify and protect Landlord from any such Claims.  Tenant shall promptly notify Landlord in writing of any breakdown or malfunction of the security measures, practices, or equipment provided by Landlord as to which Tenant has knowledge.  Landlord shall not be liable to Tenant for interference with light or for any damage to Tenant or Tenant ’ s property from any cause beyond Landlord ’ s reasonable control.   Tenant waives all Claims against Landlord for damage to persons or property for any reason unless caused by or due to the gross negligence, willful misconduct, violation of applicable Laws or breach of this Lease of Landlord or Landlord Parties.
Except to the extent caused by Tenant’s gross negligence, willful misconduct, violation of any applicable Law or breach of this Lease, Landlord hereby agrees to indemnify, defend (with counsel reasonably acceptable to Tenant), and hold Tenant and all Tenant Parties harmless against and from any and all Claims resulting from Landlord’s acts of negligence or willful misconduct in the Facilities or the Premises or Landlord’s violation of any applicable Law or breach of this Lease; provided, however, Landlord shall not be liable for such damage or injury to the extent and in the proportion that the same is determined to be attributable to the gross negligence or misconduct of Tenant or any Tenant Parties; provided further, however, in no event shall Landlord’s liability exceed the amount of insurance proceeds actually received by Landlord pursuant to insurance coverage required to be maintained by Landlord under this Lease.
The terms, conditions, and obligations of this Section shall survive the expiration or earlier termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination.
 17. INSURANCE.
 (a) Throughout the Term of the Lease, all insurance required to be carried by Tenant or Tenant’s Parties hereunder shall be issued by responsible insurance companies, qualified to do business in the State of California, reasonably acceptable to Landlord and Landlord’s Lender(s) with a General Policyholders Financial Rating of at least A- and a financial size category rating of not less than Class “IX” as rated in the most current available Best’s Insurance Reports.  Each policy shall name Landlord and its allied entities and, at Landlord’s request, any other Landlord Party or Lender, as an additional insured, as their
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respective interests may appear.  All such insurance shall be written as primary policies, and any insurance carried by Landlord or any other additional insured shall be excess and non-contributory.  Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the Tenant, provided such blanket policies expressly afford coverage to the Premises and to Tenant as required by this Lease.  No insurance carried hereunder shall have a deductible greater than [***] .  Copies of all policies or certificates evidencing the existence of coverage and amounts of such insurance shall be delivered to Landlord by Tenant prior to Tenant ’ s access and/or occupancy of the Premises and any such certificates shall be substantially the form of Exhibit G attached hereto and incorporated herein or such other form as is reasonably approved by Landlord.   Tenant shall promptly notify Landlord if any such policy is canceled, reduced or materially modified.  Further, Tenant shall furnish Landlord with renewals or binders of any such policy at least ten (10) days prior to the expiration thereof.  Tenant agrees that if Tenant does not take out and maintain such insurance throughout the Term of the Lease, Landlord may (but shall not be required to) , after providing Tenant written notice and a reasonable opportunity to cure (not to exceed five (5) days), procure said insurance on Tenant ’ s behalf and charge Tenant the premiums together with the Administrative Fee, payable upon demand.
(b) At all times during the Term hereof, Tenant shall, at its sole cost and expense, maintain in effect the following insurance policies:
(i) Property Insurance covering (1) all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, (2) the Tenant Work and all other improvements which exist in the Premises as of the Commencement Date (excluding the Base Building) (the “ Original Improvements ”), and (3) all other Alterations to the Premises.  Such insurance shall be written on an “special causes of loss” basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for damage or other loss covered by a Special Causes of Loss policy including, without limitation, fire, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion.
(ii) Commercial General Liability Insurance on an occurrence form covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) arising out of Tenant’s operations, and contractual liabilities (covering the performance by Tenant of its indemnity agreements) including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than that actually carried by Tenant, which shall be no less than:
Bodily Injury and [***] each occurrence
Property Damage Liability [***] general aggregate
 
 	Personal Injury Liability	[***] each occurrence	
[***] general aggregate
 
(iii) Business income/extra expense insurance sufficient to pay Rent for a period of [***] months with a deductible not to exceed [***] waiting period.
(iv) Workers’ compensation insurance (statutory coverage) with employer’s liability in an amount not less than [***].
 (v) In the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries “Builder’s All Risk” insurance in an amount approved by Landlord (which shall in no event be less than the amount actually carried by Tenant) covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Subclause (b)(i) above immediately upon completion thereof.  In addition, Tenant shall obtain and deliver to Landlord certificates of insurance and applicable endorsements from all Third Party Contractors (defined below) at least seven (7) business
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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days prior to the commencement of work in or about the Premises by any vendor or any other third-party contractor (each, a “ Third Party Contractor ” ).  All such insurance shall (a) name Landlord, and any other party that Landlord so specifies, as an additional insured under such party ’ s liability policies (including, without limitation, with respect to premises operations and product-completed operations coverages) as required by Subclause (b)(ii) and this Subclause (b)(v) , (b) provide a waiver of subrogation in favor of Landlord under each such Third Party Contractor ’ s commercial general liability insurance, (c) be primary and any insurance carried by Landlord shall be excess and non-contributing, and (d) comply with Landlord ’ s minimum insurance requirements, with coverage amounts as reasonably required by Landlord, which shall in no event be less than the amount actually carried by any such Third Party Contractor.  
(c) Neither the limits of any coverage nor any deductible shall limit Tenant’s liability hereunder.
(d) Not less than every five (5) years during the Term of this Lease, Tenant and Landlord shall agree in writing on the full replacement cost of the leasehold improvements.  If, in the opinion of the Landlord or Landlord’s Lender(s), the amount or type of liability and property damage insurance coverage, or any other amount or type of insurance at that time is not adequate or not provided for herein, Tenant shall either acquire or increase the insurance coverage as required by either Landlord or Landlord’s Lender(s).
(e) Throughout the Term hereof, Landlord shall maintain fire and property damage insurance in so-called “Special Causes of Loss” form insuring Landlord (and such others as Landlord may designate) against loss from physical damage to the Building, Facilities, and Real Property with coverage for the full replacement value of the Building, Facilities and Real Property (excluding excavations) and against loss of rents for a period of not less than six (6) months.  Such fire and property damage insurance, at Landlord’s election but without any requirements on Landlord’s behalf to do so, (i) may be written in so-called “all risk” form, excluding only those perils commonly excluded from such coverage by Landlord’s then property damage insurer; (ii) may provide coverage for physical damage to the improvements so insured for up to the entire full actual replacement cost thereof; (iii) may be endorsed to cover loss or damage caused by any additional perils against which Landlord may elect to insure, including earthquake and/or flood; and/or (iv) may provide coverage for loss of rents for a period of up to twelve (12) months.  Landlord shall not be required to cause such insurance to cover any of Tenant’s personal property, inventory, and trade fixtures, or any modifications, alterations, or improvements made or constructed by Tenant to or within the Premises.  Landlord shall use commercially reasonable efforts to obtain such insurance at competitive rates.
 18. WAIVERS OF SUBROGATION.
Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each hereby waives any and all rights of recovery, claim, action or cause of action against the other for any loss or damage to any property of Landlord or Tenant, arising from any cause that (a) would be insured against under the terms of any property insurance or business interruption insurance required to be carried hereunder; or (b) is insured against under the terms of any property insurance or business interruption insurance actually carried, regardless of whether the same is required hereunder.  The foregoing waiver shall apply regardless of the cause or origin of such claim, including but not limited to the negligence of a party, or such party’s agents, officers, employees or contractors. The foregoing waiver shall not apply if it would have the effect, but only to the extent of such effect, of invalidating any insurance coverage of Landlord or Tenant.  Notwithstanding the above provisions set forth in this Section 18 , the release and waiver of subrogation contained herein shall not apply to Landlord’s deductible or any self-insured retention.
 19. DAMAGE OR DESTRUCTION.
(a) In the event the Building in which the Premises are located is damaged by any peril included within the classification of “Special Causes of Loss:”
(i) In the event of total destruction of the Building, this Lease shall automatically be terminated as of the date of such casualty.
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(ii) In the event of partial destruction of the Building, or of total or partial destruction of the Premises, Landlord shall upon issuance of all necessary permits, be responsible for repairing or restoring such damage, except in the circumstances hereinafter provided.  If the Premises or Building is damaged and (1) the repair or restoration thereof, in Landlord ’ s opinion, cannot be com pleted within two hundred eighty (280) days of the date of casualty ; (2) the repair or restoration is not covered by insurance required to be maintained by Landlord pursuant to this Lease , or the estimated cost thereof exceeds the insurance proceeds available for repair or restoration plus any amount which Tenant is obligated or elects to pay for such repair or restoration ; (3) the damage or destruction renders 30% of the Premises or Building wholly untenantable; (4) Landlord ’ s lender does not elect to make insurance proceeds available to Landlord f or repair and restoration; or (5 ) Tenant has vacated the Premises or is in default under this Lease beyond all applicable notice and cure periods , Landlord shall have the option to either terminate this Lease or to repair or restore the Premises or the Building.  In the event that Landlord elects to terminate this Lease, Landlord shall gi ve notice to Tenant within ninety (9 0) days after the occurrence of such damage, terminating this Lease as of the date specified in such notice, which date shall be not less sixty (60) days after the giving of such notice.  In the event such notice is given, this Lease shall expire and all interest of Tenant in the Premises shall terminate on the date specified in the notice, and the Rent (abated proportionately in the ratio to which Tenant ’ s use of said Premises has been impaired since the date of such partial destruction of the Building or of the Premises) shall be paid up to the date of termination.  Landlord shall refund to Tenant the Rent theretofore paid for any period of time subsequent to such date and return to Tenant the Letter of Credit .
(b) Upon any termination of this Lease under any of the provisions of this Section, the parties shall be released thereby without further obligation to the other from the date possession of the Premises is surrendered to the Landlord, except for items which have theretofore accrued and are then unpaid or expressly survive the expiration or earlier termination of this Lease.
(c) In the event Landlord repairs or restores as herein provided, the Rent to be paid under this Lease shall be abated proportionately in the ratio which Tenant’s use of said Premises has been impaired since the date of such partial destruction of the Building or of the Premises until Landlord has substantially completed the repair and restoration work in the Premises which it is required to perform, provided, that as a result of such casualty, Tenant does not occupy the portion of the Premises which is untenantable during such period.  Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of said Premises or for any inconvenience or annoyance occasioned by any such damage, repair or restoration.
(d) Notwithstanding any destruction or damage to the Premises, Building, Facilities, or Real Property, Tenant shall not be released from any of its obligations under this Lease except to the extent and upon the conditions expressly stated in this Section.  Notwithstanding anything to the contrary contained in this Section, should Landlord be delayed or prevented from repairing or restoring said damaged Premises for two hundred eighty (280) days from the date of the casualty, Tenant shall have the right to terminate this Lease until such time as Landlord substantially completes the repair or restoration provided, however, that if Landlord is delayed by reason of acts of God, war, governmental restrictions, inability to procure the necessary labor, materials or utilities, or other cause beyond the control of Landlord, then Tenant shall not have the right to terminate the Lease until three hundred (300) days from the date of the casualty have elapsed.  Landlord shall have the right to terminate this Lease in the event it is delayed or prevented from repairing or restoring the Premises for one (1) year from the date of the casualty if such delay is due to reasons of acts of God, war, governmental restrictions, Landlord’s inability to procure the necessary labor, materials or utilities, or other causes beyond the reasonable control of Landlord; provided, however, that such right shall terminate upon substantial completion of the repairs or restoration.  In the event either Landlord or Tenant terminates this Lease pursuant to this Section, such termination shall be effective upon thirty (30) days prior written notice.
(e) In the event of partial destruction of more than 15% of the Premises or Building due to any cause other than a peril included within the classification of “Special Causes of Loss,” Landlord may elect to terminate this Lease.
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(f) It is hereby acknowledged that if Landlord is obligated to, or elects to repair or restore as herein provided, Landlord shall be obligated to make repairs or restoration only of those portions of said Building and said Premises which were originally provided at Landlord ’ s expense (including, without limitation, the Landlord’s Work) , and the repair and restoration of items not provided at Landlord ’ s expense shall be the obligation of Tenant.  Tenant understands that Landlord will not carry insurance of any kind on Tenant ’ s furniture, furnishings, fixtures, or equipment, and that Landlord shall not be obligated to repair any damage thereto or replace the same.  Tenant agrees that, upon substantial completion of any repairs or restoration required herein, Tenant shall promptly replace or fully repair all of Tenant ’ s personal property, inventory, track fixtures and other improvements constructed by Tenant to like or similar conditions as existed at the time immediately prior to such damages or destruction.
(g) Notwithstanding anything to the contrary contained in this Section, either party shall have the right to terminate this Lease upon not less than thirty (30) days prior written notice when the damage resulting from any material casualty covered under this Section occurs during the last twelve (12) months of the term of this Lease or any extension thereof, whereupon this Lease shall terminate effective as of the date of such casualty and Landlord shall refund to Tenant the Rent theretofore paid for any period of time subsequent to such date and return to Tenant the Letter of Credit.
(h) The provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the Civil Code of the State of California, including any amendments thereto and any other law which may hereinafter be in force during the term of this Lease which authorizes the termination of the Lease upon the partial or complete destruction of the Premises, are hereby waived by Tenant.
 20. EMINENT DOMAIN.
If the whole of the Premises shall be taken, or such part thereof shall be taken as shall substantially interfere with Tenant’s use and occupancy of the balance thereof, under power of eminent domain, or sold, transferred, or conveyed in lieu thereof, either Tenant or Landlord may terminate this Lease as of the date of such condemnation or as of the date possession is taken by the condemning authority, whichever date occurs later.  If any part of the Building (other than the Premises), the Facilities, Project or Real Property, shall be so taken, sold, transferred or conveyed in lieu thereof, then Landlord shall have the right, at its option, to terminate this Lease as of the date of such condemnation or as of the date possession is taken by the condemning authority.  No award for any partial or entire taking shall be apportioned, and Tenant hereby assigns to Landlord any award which may be made in such taking or condemnation, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof; provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or require Tenant to assign to Landlord any award made to Tenant for the taking of personal property and fixtures belonging to Tenant and removable by Tenant at the expiration of the term hereof, as provided hereunder, or for the interruption of, or damage to Tenant’s business or for relocation expenses recoverable against the condemning authority.  In the event of a partial taking, or a sale, transfer, or conveyance in lieu thereof, which does not result in a termination of this Lease, Landlord shall, to the extent of the proceeds thereof, restore the Premises substantially to their condition prior to such partial taking and, thereafter and Rent shall be abated in the proportion which the square footage of the part of the Premises so made unusable bears to the amount of Rentable Area immediately prior to the taking.  No temporary taking of a part of the Premises or of the Building, Facilities, or Real Property shall give Tenant any right to terminate this Lease or to any abatement of Rent hereunder.  Tenant hereby waives the provisions of California Code of Civil Procedure Section 1265.130, which allows Tenant to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises.
 21. DEFAULT.
(a) Each of the following events shall constitute a default under this Lease by Tenant:
 (i) Failure by Tenant to make any payment of Rent or other payment required by this Lease within five (5) business days of when the same is due; provided,
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however, that Landlord will give written notice and an opportunity to cure any failure to pay Rent within five (5) business days of any such notice not more than once in any 12 month period and Tenant agrees that such notice shall be in lieu of and not in addition to, or shall be deemed to be, any notice required by Law ; or
(ii) The abandoning (which is deemed to include absence from the Premises for more than ten (10) days while in default of this Lease beyond any applicable notice or cure period) of the Premises by Tenant; or
(iii) The failure to maintain the insurance required by this Lease; provided, however, that Landlord will give written notice and an opportunity to cure any failure to maintain such required insurance within five (5) days of any such notice; provided, however, Landlord shall not be required to provide such five (5) days’ notice  more than once in any 24 month period it being agreed that the subsequent failure to maintain the insurance within such 24 month period shall be an immediate default hereunder; or
(iv) Any conveyance, assignment, mortgage, or subletting of this Lease not in strict accordance with the terms and conditions of this Lease; or
(v) The bankruptcy of Tenant (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); the taking of any action at the corporate or partnership level by Tenant to authorize any of the foregoing actions on behalf of Tenant; the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease unless possession is restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant’s assets located at the Premises, of Tenant’s interest in this Lease, where such seizure is not discharged within thirty (30) days; or
(vi) The failure by Tenant to deliver any subordination agreement pursuant to Section 23 within five (5) days of Landlord’s written notice that the time period provided in Section 23 has expired; or
(vii) The failure by Tenant to observe or perform any covenant, condition, or provision in this Lease not already specifically mentioned in this Subsection 21(a) , where such failure continues for thirty (30) days after written notice from Landlord notifying Tenant of such failure; provided, however, that if the nature of Tenant’s failure is such that more than thirty (30) days are reasonably required for its cure, 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.
(b) In the event of any default by Tenant, Landlord may promptly or at any time thereafter, upon notice and demand and without limiting Landlord in the exercise of any other right or remedy which Landlord may have by reason of such default or breach:
(i) Terminate Tenant’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord.  In such event, Landlord shall be entitled to recover from Tenant:
(1) The worth at the time of award of the unpaid Rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of the award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided;
(3) The worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such rental loss Tenant proves can reasonably be avoided; and
 (4) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or
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which, in the ordinary course of things, would be likely to result therefrom, including, but not limited to, the cost of recovering possession of the Premises, expenses of reletting (including advertising), brokerage commissions and fees, costs of putting the Premises in good order, condition and repair, including necessary renovation and alteration of the Premises, reasonable attorneys ’ fees, court costs, all costs for maintaining the Premises, all costs incurred in the appointment of and performance by a receiver to protect the Premises or Landlord ’ s interest under the Lease, and any other reasonable cost.
The “worth at the time of award” of the amounts referred to in Subclauses (1) and (2) above shall be computed by allowing interest at the rate of twelve percent (12%) per annum.  The “worth at the time of award” of the amount referred to in Subclause (3) above shall be computed by discounting such amount at one percentage (1%) point above the discount rate of the Federal Reserve Bank of San Francisco at the time of award.
(ii) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of California.
(c) Continue this Lease in full force and effect, whether or not Tenant has vacated or abandoned the Premises, and sue upon and collect any unpaid Rent or other charges, that have or thereafter become due and payable.  Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations).  Accordingly, if Landlord does not elect to terminate this Lease on account of any Default, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due.
(d) Continue this Lease in effect, but terminate Tenant’s right to possession of the Premises and re-enter the Premises and take possession thereof, whereupon Tenant shall have no further claim to the Premises without the same constituting an acceptance of surrender.
(e) In the event of any re-entry or retaking of possession by Landlord, Landlord shall have the right, but not the obligation, (i) to expel or remove Tenant and any other party who may be occupying the Premises, or any part thereof; and (ii) to remove all or any part of Tenant’s or any other occupant’s property on the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant.
Landlord may relet the Premises without thereby avoiding or terminating this Lease (if the same has not been previously terminated), and Tenant shall remain liable for any and all Rent and other charges and expenses hereunder.  For the purpose of reletting, Landlord is authorized to make such repairs or alterations to the Premises as may be necessary in the sole discretion of Landlord for the purpose of such reletting, and if a sufficient sum is not realized from such reletting (after payment of all costs and expenses of such repairs, alterations and the expense of such reletting (including, without limitation, reasonable attorney and brokerage fees) and the collection of rent accruing therefrom) each month to equal the Rent, then Tenant shall pay such deficiency each month upon demand therefor.  Actions to collect such amounts may be brought from time to time, on one or more occasions, without the necessity of Landlord’s waiting until the expiration of the Term.
(f) Without any further notice or demand, Landlord may enter upon the Premises, if necessary, without being liable for prosecution or claim for damages therefor, and do whatever Tenant is obligated to do under the terms of the Lease.  Tenant agrees to reimburse Landlord on demand for any reasonable expenses that Landlord may incur in effecting compliance with Tenant’s obligations under the Lease.  Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action, unless and only to the extent caused solely by the gross negligence or willful misconduct of Landlord (but subject to the other limitations on Landlord’s liability set forth in this Lease).
 (g) Tenant hereby waives, relinquishes and releases for itself and for all those claiming under Tenant any right of occupancy of the Premises following termination of this Lease, and any right to redeem or reinstate this Lease by order or judgment of any court or by any legal process or writ under present or future Laws, including, without limitation,
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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California Code of Civil Procedure Sections 473 and 1179, and California Civil Code Section 3275 .
 22. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign or transfer this Lease, or any interest therein, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person to occupy or use the Premises, or any portion thereof, or agree to any of the foregoing, without in each case first obtaining the written consent of Landlord, in accordance with Subsection 22(b) , below, which consent shall not be unreasonably withheld, conditioned or delayed.  Except for Permitted Transfer, for purposes of this Lease, if Tenant is a partnership, a transfer of any interest of a general partner, a withdrawal of any general partner from the partnership, or the dissolution of the partnership, shall be deemed to be an assignment of this Lease.  Except for Permitted Transfers, if Tenant is a corporation, unless Tenant is a public corporation whose stock is regularly traded on a national stock exchange, or is regularly traded in the over-the-counter market and quoted on NASDAQ, any dissolution, merger, consolidation, or other reorganization of Tenant, or sale or other transfer of a percentage of capital stock of Tenant which results in a change of controlling persons, or the sale or other transfer of substantially all of the assets of Tenant, shall be deemed to be an assignment of this Lease.  Except for a Permitted Transfer, neither this Lease nor any interest therein shall be assignable as to the interest of Tenant by operation of law, without the written consent of Landlord. Tenant shall not pledge, hypothecate or encumber this Lease, or any interest therein, without in each case first obtaining the written consent of Landlord, which consent shall not unreasonably be withheld.  Any such assignment, transfer, pledge, hypothecation, encumbrance, sublease, or occupation of, or the use of the Premises by any other person without such consent, other than a Permitted Transfer, shall be void.  Any consent to any assignment, transfer, pledge, hypothecation, encumbrance, sublease, or occupation or use of the Premises by any other person which may be given by Landlord shall not constitute a waiver by Landlord of the provisions of this Section 22 or a release of Tenant from the full performance by it of the covenants herein contained.  If Tenant believes that Landlord has unreasonably withheld its consent to a proposed assignment or subletting hereunder, then Tenant’s sole remedy will be to seek a declaratory judgment that Landlord has unreasonably withheld its consent, an order of specific performance, or mandatory injunction of Landlord’s agreement to give its consent.  Tenant shall not have any right to recover damages or to terminate this Lease and, in furtherance of the foregoing, Tenant hereby waives the provisions of Section 1995.310 of the California Civil Code, or any successor statute.
 (b) If Tenant desires at any time to assign this Lease or sublet all or any portion of the Premises, Tenant shall first notify Landlord at least thirty (30) days prior to the proposed effective date of the assignment or sublease, in writing, of its desire to do so and shall submit in writing to Landlord (i) the name of the proposed subtenant or assignee; (ii) the nature of the proposed subtenant’s or assignee’s business to be carried on in the Premises; (iii) the terms and conditions of the proposed sublease or assignment; and (iv) financial statements for the two (2) most recently completed fiscal years of the proposed sub-tenant or assignee, and a bank reference.  Thereafter, Tenant shall furnish such supplemental information as Landlord may reasonably request concerning the proposed sub-tenant or assignee.  At any time within fifteen (15) days after Landlord’s receipt of all the information specified above, Landlord may by written notice to Tenant elect to (1) consent to the sublease or assignment, or (2) reasonably disapprove of the sublease or assignment.  Such grounds may include, without limitation, a material increase in the impact upon the common areas of the Building, Facilities or Real Property, a material increase in the demands upon utilities and services supplied by Landlord, a possible material adverse effect upon the reputation of the Building from the nature of the business to be conducted or a reputation for financial reliability on the part of the proposed subtenant or assignee which is unsatisfactory in the reasonable judgment of Landlord.  If Landlord consents to the sublease or assignment within the 15-day period, Tenant may thereafter enter into such assignment or sublease of the Premises, or a portion thereof, upon the terms and conditions and as of the effective date set forth in the information furnished by Tenant to Landlord, provided that such assignment or sublease otherwise conforms to the terms and conditions of this Section 22 .  If Landlord does not respond within the 15-day period, then Tenant shall have the right to deliver a second notice (“ Second Transfer Notice ”) to Landlord requesting a response to such request, which Second Transfer Notice must include the following legend in capitalized and bold type displayed prominently on the top of the first
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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page of such notice:  “ LANDLORD HAS FAILED TO RESPOND TO A REQUEST FOR ASSIGNMENT OR SUBLETTING BY TENANT RELATING TO THE LEASE DATED __________ , 2018 BETWEEN LANDLORD AND TENANT FOR THE PROPERTY LOCATED AT 1220 CONCORD AVE. , CONCORD, CALIFORNIA (THE “LEASE”).   PURSUANT TO THE TERMS OF THE LEASE.  FAILURE OF LANDLORD TO RESPOND WITHIN FIVE (5) BUSINESS DAYS FOLLOWING RECEIPT OF THIS NOTICE SHALL RESULT IN THE AUTOMATIC APPROVAL BY LANDLORD OF SUCH ASSIGNMENT OR SUBLETTING .”    If Landlord fails to respond to Tenant’s request for consent to the proposed assignment or subletting within five (5) business days of its receipt of a Second Transfer Notice, then Landlord shall be deemed to have approved such request.   Both Tenant ’ s initial request and the Second Transfer Notice shall be delivered strictly in accordance with the notice provisions of this Lease including the delivery of copies of such notices to any persons or entities entitled to receive copies thereof.
(c) In the event that Tenant shall submit a written notice to Landlord under this Section to assign or sublet the Premises or request the consent of Landlord to any assignment or subletting, Landlord’s consent or the efficacy of such assignment or sublease (in the event Landlord’s consent is not required) shall be expressly conditioned upon Tenant’s payment of Landlord’s actual costs and expenses incurred in connection with each such transaction, including reasonable attorneys’, architects’, engineers’, or other consultants’ fees, but not to exceed Two Thousand Five Hundred Dollars ($2,500), within ten (10) business days following written demand therefor from Landlord accompanied by invoices reasonably substantiating such costs, whether Landlord terminates this Lease (or any portion thereof), consents to such assignment or subletting or withholds its consent thereto.
(d) As reasonable conditions to Landlord’s consent to any assignment or subletting of the Premises, Tenant agrees that Tenant shall pay to Landlord one-half (½) of all Rent and other consideration payable by the assignee or subtenant to Tenant (including, without limitation, any cancellation or termination fees) after deducting the Rent payable by Tenant under this Lease and Tenant’s cost for any improvements made to the Premises in order to prepare the Premises for subleasing and other commercially reasonable costs expended by Tenant in connection with such sublease, including, without limitation, market-rate brokerage and reasonable legal fees; provided, however, that such improvements are made in accordance with the terms and conditions of this Lease (the “ Transfer Premium ”).  Tenant shall pay all amounts due under this Clause (d) on monthly basis together with its payment of Rent hereunder.  Upon Landlord’s request, Tenant shall furnish a complete statement, certified by Tenant’s chief financial officer, describing in detail the calculations for the amount so paid.  If Landlord’s independent certified public accountant finds that the amounts paid by Tenant under this Clause (d) have been underpaid, Tenant shall, within thirty (30) days after demand, pay the deficient amount and Landlord’s cost of the audit.  If Tenant has understated such amounts due by more than five percent (5%), Tenant shall also pay for the costs of such audit.
(e) Notwithstanding any assignor or subletting including, without limitation, a Permitted Transfer (as defined below), Tenant shall at all times remain fully and primarily responsible for the payment of Rent and for compliance with all of Tenant’s other obligations under this Lease  Further, each assignee, transferee, or subtenant, other than Landlord, shall assume and be deemed to have assumed this Lease and shall be and remain liable jointly and severally with Tenant for the payment of the Rent and for the due performance or satisfaction of all of the provisions, covenants, conditions and agreements herein contained on Tenant’s part to be performed or satisfied.  No assignment or subletting shall be binding on Landlord unless such assignee or subtenant (as applicable) and Tenant shall deliver to Landlord a written assignment and assumption agreement or sublease (as applicable) in a form and with content acceptable to Landlord in its sole discretion.
(f) (i) In the event this Lease is assigned to any person or entity pursuant to provisions of the Bankruptcy Code, 11 USC §101, et seq., (the “ Bankruptcy Code ”), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall remain the exclusive property of Landlord, and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code.  Any and all monies or other consideration constituting Landlord’s property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid to or turned over to Landlord.
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(ii)	If Tenant, pursuant to this Lease, proposes to assign the same pursuant to the provisions of the Bankruptcy Code, to any person or entity who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to Tenant, the notice of the proposed assignment setting forth (1) the name and address of such person, (2) all the terms and conditions of such offer, and (3) the assurances referred to in Section 365(b)(3) of the Bankruptcy Code, shall be given to Landlord by Tenant no later than twenty (20) days after receipt of such offer by Tenant, but in any event no later than ten (10) days prior to such offer by Tenant, but in any event no later than ten (10) days prior to the date that Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into such assignment and assumption, and Landlord shall thereupon have the prior right and option, to be exercised by notice to Tenant given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commissions which may be payable out of the consideration to be paid such person for the assignment of this Lease.	
(iii)	Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on or after the date of such assignment.  Any such assignee shall, upon demand, execute and deliver to Landlord an instrument confirming such assumption.	
(iv)	The following factors may be considered by Landlord as necessary in order to determine whether or not the proposed assignee has furnished Landlord with adequate assurances of its ability to perform the obligations of this Lease the net worth and other financial elements of the proposed assignee.	
(v)	In the event Landlord rejects the proposed assignee, the rights, and obligations of the parties hereto shall continue to be governed by the terms of this Lease, and Tenant shall have all the rights of a Tenant under applicable California law.  	
 (g) Notwithstanding anything in this Section 22 to the contrary, and provided there is no uncured event of default under this Lease, Tenant shall have the right, without the written consent of Landlord, to (i) assign this Lease to an Affiliate, or to an entity created by merger, consolidation, reorganization (other than a reorganization as a result of bankruptcy) or recapitalization of or with Tenant, or to a purchaser of all or substantially all of Tenant’s assets, (ii) sublease the Premises or any part thereof to an Affiliate, (iii) assign this Lease to an entity which acquires all or a majority of the assets or interests (partnership, stock or other) of Tenant, (iv) a transfer of stock or partnership or membership interests in Tenant to an entity which acquires all or substantially all of such stock or interests in a bona fide M&A transaction, or (v) a sale or other transfer of corporate shares of capital stock (or any member interest if Tenant is a limited liability company) in Tenant in connection with either a bona fide financing for the benefit of Tenant or an initial public offering of Tenant’s stock on a nationally-recognized stock exchange (and, following any such public offering, the sale or transfer of any such shares shall be a Permitted Transfer), or (vi) transfers of shares of stock or membership interests in Tenant which result in a change in control over a period in excess of 12 consecutive months (each, a “ Permitted Transfer ”); provided, however, that (A) such Permitted Transfer is for a valid business purpose and not to avoid any obligations under this Lease; (B) the assignee or subtenant shall have, immediately after giving effect to such assignment, an aggregate tangible net worth (computed in accordance with GAAP and exclusive of goodwill) at least equal to the aggregate net worth (as so computed) of Tenant immediately prior to such assignment or on the Effective Date, whichever is greater; (C) no later than ten (10) days prior to the effective date of the Permitted Transfer, Tenant shall give notice to Landlord which notice shall include the full name and address of the assignee or subtenant, and a copy of all agreements executed between Tenant and the assignee or subtenant with respect to the Premises or part thereof, as may be the case; and (D) within ten (10) business days after Landlord’s written request, provide such reasonable documents or information which Landlord reasonably requests for the purpose of substantiating whether or not the Permitted Transfer is to an Affiliate or is otherwise in accordance with the terms and conditions of this Section 22(g) .  For purposes hereof, an “ Affiliate ” means any person or entity which is owned or controlled by, owns or controls, or is under common ownership and control with another party where “control” means the right to exercise, directly or indirectly,
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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more than fifty percent (50%) of the voting rights attributable to the equity interests of the entity.   
 23. SUBORDINATION; FINANCIAL REPORTS.
(a) This Lease is subject and subordinate to all ground or underlying leases, mortgages, and deeds of trust which now affect the Premises, Building, Facilities, and/or Real Property, and to all renewals, modifications, consolidations, replacements, and extensions thereof.  If the Lender(s) shall advise Landlord that they desire or require this Lease to be prior and superior thereto, upon written request of Landlord to Tenant, Tenant agrees promptly to execute, acknowledge, and deliver any and all documents or instruments which Landlord or such Lender(s) deem necessary or desirable for purposes thereof.  Landlord shall have the right to cause this Lease to be and become and remain subject and subordinate to any and all ground or underlying leases, mortgages, or deeds of trust which may hereafter be executed covering the Premises, Building, the Project and Real Property, or any renewals, modifications, consolidations, replacements, or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof.  Tenant agrees, within ten (10) business days after Landlord’s written request therefor, to execute, acknowledge, and deliver any and all commercially reasonable documents or instruments requested by Landlord, or that are necessary or proper to assure the subordination of this Lease to any such mortgages, deeds of trust, or leasehold estates; provided, however, that the foregoing provisions with respect to such election of subordination by Landlord shall not be effective unless the owner or holder of any such mortgage, deed of trust, or the lessor under any such leasehold estate shall execute with Tenant a non-disturbance and attornment agreement, in a form attached hereto as Exhibit H or such other form required by the holder of such mortgage or deed of trust or lessor under such leasehold estate, under which such owner, holder, or lessor shall agree to accept Tenant upon the terms and conditions contained in this Lease for the then unexpired Term hereof, in the event of termination of such leasehold estate or upon the foreclosure of any such mortgage or deed of trust, so long as Tenant agrees to pay Rent and observe and perform all of the provisions of this Lease to be observed and performed by Tenant.  Tenant covenants and agrees to attorn to the transferee of Landlord’s interest in the Building by foreclosure, deed in lieu of foreclosure or the exercise of any remedy provided in any mortgage, deed of trust or underlying leases if requested to do so by the transferee and to recognize the transferee as Landlord under this Lease.  Said transferee shall not be liable for:  (a) any acts, omissions, or defaults of Landlord that occurred prior to the sale or conveyance; or (b) the return of the Security Deposit unless actually paid to transferee.  Tenant further agrees, provided that it is given the address of Lender(s), to give written notice of any default by Landlord to Lender(s).  Tenant agrees that, before it exercises any rights or remedies under this Lease, the Lender(s) shall have the right, but not the obligation, to cure the default plus an additional thirty (30) days.  Tenant agrees that this cure period shall be extended by the time necessary for the holder of the mortgage or deed of trust to begin foreclosure proceedings and to obtain possession of the Building, Facilities, and/or Real Property.  Tenant further agrees that if any lender of Landlord or ground lessor requires a modification of this Lease that does not increase Tenant’s cost or expense or materially or adversely change Tenant’s rights and obligations, this Lease shall be so modified and Tenant shall execute whatever commercially reasonable documents are required and deliver them to Landlord within ten (10) business days after the request.
(b) Within twenty (20) days after the written request of Landlord, Tenant shall provide to Landlord current financial statement and financial statements of the two (2) years prior to the current financial statement year (collectively, “ Financial Reports ”).  Such Financial Reports shall be prepared in accordance with generally accepted accounting practices and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant.  Notwithstanding the foregoing Tenant shall not be required to provide Financial Reports more than once per Lease Year (except if Tenant is in monetary default hereunder or to the extent otherwise required by any lender or prospective purchaser of the Project); provided, further, however, that Tenant shall not be required to provide Financial Reports so long as (i) Tenant is a publicly-traded company, (ii) Tenant is in compliance with the financial reporting requirements from time to time established by the United States Securities and Exchanges Commission, and (iii) the Financial Reports are publicly available for free downloading in electronic format.  
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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24. ESTOPPEL CERTIFICATE.
Tenant shall at any time and from time-to-time, upon not less than ten (10) business days prior written notice from Landlord, execute, acknowledge, and deliver to Landlord (or any other party identified by Landlord) a statement in writing certifying, among other things, that (a) this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect); (b) the dates to which the Rent, Security Deposit, if any, and other charges, if any, are paid in advance, (c) there are no uncured defaults in Landlord’s performance (or if there are, describing the same); (d) Tenant has accepted the Premises demised under this Lease (or, if not, explaining the same); (e) that all tenant improvement obligations under the Lease have been satisfied by Landlord (or, if not, explaining the same); (f) that Landlord has no future tenant improvement obligations hereunder (or, if there are, describing the same); and (g) Tenant has commenced paying rent, and is not entitled to any further tenant improvements, rental abatements or offsets (or, if it is, explaining the same). It is expressly understood and agreed that Landlord, any prospective purchaser or encumbrancer of all or any portion of the Building, Facilities, or Real Property, or any other party identified by Landlord shall be entitled to rely upon any such statement.  If Tenant fails to deliver such estoppel certificate within the aforementioned ten (10)- business day period, then Landlord shall have the right to deliver a second notice (“ Estoppel Certificate Second Notice ”) to Tenant demanding the return of such estoppel certificate, which Estoppel Certificate Second Notice must include the following legend in capitalized and bold type displayed prominently on the top of the first page of such notice:  “ TENANT HAS FAILED TO DELIVER AN ESTOPPEL CERTIFICATE AS REQUIRED PURSUANT TO THE PROVISIONS OF THE LEASE DATED __________,2018 BETWEEN LANDLORD AND TENANT (THE “LEASE”).  FAILURE OF TENANT TO DELIVER SUCH ESTOPPEL CERTIFICATE WITHIN FIVE (5) DAYS FOLLOWING THIS NOTICE SHALL RESULT IN CERTAIN FACTS BEING CONCLUSIVELY BINDING ON TENANT .”  The Estoppel Certificate Second Notice shall be delivered in accordance with the notice provisions of this Lease including the delivery of copies of such notices to any persons or entities entitled to receive copies thereof.  If Tenant fails to deliver the estoppel certificate within five (5) days following delivery of an Estoppel Certificate Second Notice, then Tenant shall not be deemed in default but such failure shall be conclusive upon Tenant that (i) this Lease is in full force and effect without modification except as may be represented by Landlord; (ii) that there are no uncured defaults in Landlord’s performance; (iii) that not more than two (2) months’ Rent has been paid in advance; (iv) that Tenant has accepted the Premises demised under this Lease; (v) that all tenant improvement obligations under the Lease have been satisfied by Landlord; (vi) that Landlord has no future tenant improvement obligations hereunder; and (vii) Tenant has commenced paying rent, and is not entitled to any further tenant improvements, rental abatements or offsets.  
 25. INTEREST ON PAST DUE OBLIGATION.
Except as otherwise expressly provided in this Lease, any amount due from Tenant to Landlord hereunder which is not paid when due shall bear interest at the lesser of (a) ten percent (10%), or (b) the highest rate then allowed under the usury laws of the State of California (the “ Default Rate ”) from the date due until the date paid.
 26. SALE OR TRANSFER BY LANDLORD; EXCULPATION.
(a) In the event of any transfer or transfers of Landlord’s interest in the Premises, other than a transfer for security purposes only, the transferor shall automatically be relieved of any and all obligations and liabilities on the part of Landlord accruing from and after the date of such transfer; provided, however, that any funds in the hands of Landlord in which Tenant has an interest, at the time of such transfer, shall be turned over to the transferee and Landlord shall provide written notice thereof to Tenant, and thereafter Landlord shall be discharged from any further liability with reference to such funds.
 (b) NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY: (i) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER ACTUAL OR
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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CONSEQUENTIAL TO: TENANT ’ S PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (ii) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES, THE BUILDING, THE PROJECT OR THE REAL PROPERTY OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORD ’ S INTEREST IN THE BUILDING OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORD ’ S INTEREST IN THE BUILDING OR IN CONNECTION WITH ANY SUCH LOSS; AND (iii) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF LANDLORD OR ANY OF LANDLORD ’ S MANAGERS. MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD ’ S MANAGERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT ’ S BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.
 27. LANDLORD’S RIGHT TO CURE DEFAULTS.
All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be at its sole cost and expense and, except as otherwise specifically provided herein, without any abatement of Rent.  If Tenant shall fail to pay any sum of money, other than Rent, required to be paid by hereunder or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for twenty (20) days after written notice thereof by Landlord, Landlord may, but shall not be obligated to, and without waiving any rights of Landlord or releasing Tenant from any obligations of Tenant hereunder, to make such payment or perform such other act at Tenant’s cost.  All sums so paid by Landlord and all such necessary incidental costs together with interest thereon from the date of such payment by Landlord in connection with the performance of any such act by Landlord shall be considered Rent hereunder.  Except as otherwise in this Lease expressly provided, such Rent shall be payable to Landlord on demand, or at the option of Landlord, in such installments as Landlord may elect and may be added to any other Rent then due or thereafter becoming due under this Lease, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment thereof by Tenant as in the case of default by Tenant in the payment of any other Rent due hereunder.
 28. WAIVER.
 No delay or omission in the exercise of any right or remedy of Landlord on the occurrence of any default by Tenant shall impair such a right or remedy or be construed as a waiver.  The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Term or of Tenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.  No act or conduct of Landlord, including, without limitation, the acceptance of the keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term.  Only written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this Lease.  Landlord ’ s consent to or approval of any act by Tenant requiring Landlord ’ s consent or approval shall not be deemed to waive or render unnecessary Landlord ’ s consent to or approval of any subsequent act by Tenant.  Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Lease.
 29. FORCE MAJEURE.
Whenever a day is appointed herein on which, or a period of time is appointed within which, either party hereto is required to do or complete any act, matter or thing, the time for the doing or completion thereof shall be extended by a period of time equal to the number of days on or during which such party is prevented from, or is unreasonably interfered with, the doing or completion of such act, matter or thing because of strikes, lock-outs, embargoes, unavailability of labor, materials or utilities, wars, insurrections, rebellions, civil disorder, declaration of national emergencies, terrorist attacks, acts of God, or other causes beyond such party’s reasonable control (financial inability excepted); provided, however, nothing contained in this Section 29 shall excuse Tenant from the prompt payment of any Rent or other charge required of Tenant hereunder and; provided, further, the party suffering such occurrence uses commercially reasonable efforts to resume full performance of its obligations under this Lease as soon as reasonably practicable
 30. PARKING.
 Tenant shall rent from Landlord on a monthly basis throughout the Term hereof the number of parking passes at the rental rate set forth in Subsection 1(h) above (the “ Parking Charge ”), which amounts shall be due and payable at the same time Rent is to be paid.  From and after the first (1st) day of the first Extended Term (as defined below), if applicable, the Parking Charge may, from time to time, be adjusted to reflect current market rates; provided, however, that such adjusted Parking Charge must be substantially similar to the rates then being charged for comparable parking spaces that serve Comparable Buildings.  Tenant shall not be entitled to any abatement or offsets of the parking pass rental in the event Tenant does not utilize any or all of the passes.  Tenant’s parking passes shall be for the exclusive use of Tenant’s employees and shall give Tenant the non-exclusive right to park in spaces in the Project parking facilities including, without limitation, the Parking Garage).  Landlord, at all times, shall have sole and exclusive control of all parking facilities (including, without limitation, the Parking Garage) and common areas, including, without limitation, driveways, entrances, and exits, sidewalks and pedestrian passage ways, and pylon signs, and Landlord may at any time exclude any person from the use and occupancy thereof, except those persons using the parking facilities in accordance with the written consent of Landlord and in accordance with all regulations established by Landlord from time to time.  Landlord reserves the right to charge the public (including Tenant’s customers) a reasonable fee for the use of the Building’s parking facilities if similarly situated Comparable Buildings charge for such use.  Tenant agrees that Landlord assumes no responsibility of any kind whatsoever in reference to said automobile parking facilities or the use thereof by Tenant or any Tenant Party, or by anyone else.  Landlord specifically reserves the right to limit access to the parking facilities by means of attendant and/or other devices, and change the size, configuration, design, layout and all other aspects of the Project parking facilities at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent or the Parking Charge under this Lease, from time to time, close-off or restrict access to the Project parking facilities for purposes of permitting or facilitating any such construction, maintenance repairs, alteration or improvements provided that Tenant’s obligations are not increased and Tenant’s parking is not permanently decreased.  Landlord may, at its sole discretion, determine whether parking facilities shall be self-park, valet, valet-assist, surface, underground, multi-deck, where they shall be located and the number and location of electric vehicle charging stations, if any.  No delay or failure by Landlord to enforce its parking rules and regulations or its other rights hereunder, and no waiver by Landlord of any breach thereof, shall be deemed to be a waiver of any succeeding breach or prevent any subsequent or other
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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enforcement thereof by Landlord.  Subject to the foregoing, Landlord agrees to reserve at least ten (10) parking stalls in the parking facilities for visitors of the Project and maintain at least one (1) electric car charging station in the parking facilities .
 31. SURRENDER OF PREMISES.
(a) The voluntary or other surrender of this Lease by Tenant to Landlord, or a mutual termination thereof, shall not work a merger, and shall at the option of Landlord, operate as an assignment to it of any or all subleases or subtenancies affecting the Premises.
(b) Upon the expiration of the Term of this Lease, or upon any earlier termination of this Lease, Tenant shall quit and surrender possession of the Premises to Landlord in as good order and condition as the same are now or hereafter may be improved by Landlord or Tenant, reasonable wear and tear and repairs which are Landlord’s obligation excepted, and shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, all furniture, equipment, business and trade fixtures, free-standing cabinet work, movable partitioning and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and all similar articles of any other persons claiming under Tenant, unless Landlord exercises its option to have any subleases or subtenancies assigned to it, and Tenant shall repair all damage to the Premises resulting from such removal.  Notwithstanding the foregoing, Landlord reserves the right to require Tenant to keep all telecommunications cabling and equipment intact and in place; provided, however, that if Landlord does not exercise its option hereunder, Tenant shall nonetheless not cut or otherwise sever any such cabling but may unplug or disconnect it from any equipment being removed at the end of the Term.
(c) Any property of Tenant not removed by Tenant upon the expiration of the Term of this Lease (or within forty-eight (48) hours after a termination or re-entry by Landlord pursuant to Section 22 hereof) shall be considered abandoned.  Landlord shall give Tenant notice of its right to reclaim abandoned property pursuant to California Civil Code Section 1980, et. seq., and may, thereafter, remove any or all of such items and dispose of the same in any manner or store the same in a public warehouse or elsewhere for the account and at the expense and risk of Tenant.  Tenant hereby grants to Landlord a security interest in said abandoned property, in the event it is not reclaimed within the statutory period.  If Tenant shall fail to pay the cost of storing any such property after it has been stored for a period of thirty (30) days or more, Landlord, may sell any or all of such property at public or private sale, in such manner and at such time and places as Landlord, in its sole discretion, may deem proper without notice to or demand upon Tenant, and shall apply the proceeds of such sale:  (i) first, to the costs and expenses of such sale, including reasonable attorneys’ fees actually incurred; (ii) second, to the payment of the costs for the removal and storing of any such property; (iii) third, to the payment of any other sums of money which may then or thereafter be due to Landlord from Tenant under any of the terms hereof; and (iv) fourth, the balance, if any, to Tenant.
 32. MISCELLANEOUS.
(a) Any provision of this Lease, which shall prove to be invalid, void, or illegal, shall in no way affect, impair, or invalidate any other provision hereof and such other provisions shall remain in full force and effect.
(b) In the event of any litigation between Tenant and Landlord to enforce any provision of this Lease or any right of either party hereto, or to secure a judicial determination of any right or obligation of either party hereto, the unsuccessful party in such litigation shall pay to the successful party all costs and expenses, including reasonable attorneys’ fees, incurred therein.  Moreover, if either party hereto without fault is made a party to any litigation instituted by or against any other party to this Lease, such other party shall indemnify Landlord or Tenant, as the case may be, against and save it harmless from all costs and expense, including reasonable attorneys’ fees, incurred by it in connection therewith.
 (c) Each of Tenant’s covenants herein is a condition and time is of the essence with respect to the performance of every provision of this Lease, and the strict performance of each shall be a condition precedent to Tenant’s right to remain in possession of the Premises or to have this Lease continue in effect.  This Lease shall be construed as though the covenants
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord ’ s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord except as expressly set forth herein.
(d) This Lease has been negotiated at arms’ length between persons knowledgeable in business and real estate matters who have had the opportunity to confer with counsel in the negotiation hereof.  Accordingly, any rule of law or legal decision that would require interpretation of this Lease against the party that drafted it is not applicable and is waived, and this Lease shall be given a fair and reasonable interpretation in accordance with the meaning of its terms.  The section captions contained in this Lease are for convenience and do not in any way limit or amplify any term or provision of this Lease and shall have no effect on its interpretation.
(e) The terms “Landlord” and “Tenant” as used herein shall include the plural as well as the singular, and the neuter shall include the masculine and feminine genders.  The obligations herein imposed upon Tenant shall be joint and several as to each of the persons, firms, or corporations of which Tenant may be composed.
(f) This Lease, the exhibits, and any rider or addendum attached hereto constitute the entire agreement between the parties hereto with respect to the subject matter hereof, and no prior letters of intent, proposals, marketing materials, agreements or understandings pertaining to any such matter shall be effective for any purpose.  No provisions of this Lease may be amended or supplemented except by an agreement in writing signed by the parties hereto or their successors in interest.
(g) The submission of this Lease by Landlord, its agents, or representative for examination or execution by Tenant does not constitute an option or offer to lease the Premises upon the terms and conditions contained herein or a reservation of the Premises in favor of Tenant, it being intended hereby that this Lease shall only become effective upon the mutual execution hereof by Landlord and Tenant and delivery of a fully executed counterpart hereto to Tenant.
(h) Tenant shall observe faithfully and comply strictly with the Rules and Regulations and such other Rules and Regulations, modifications or amendments thereto, as Landlord may from time-to-time reasonably adopt for the safety, care, and cleanliness of the Building, Facilities and Real Property, and for the preservation of good order therein, provided that Tenant receives a copy of the same.  Tenant acknowledges receipt of the Rules and Regulations attached hereto as Exhibits F and F-1 .  Landlord shall not be liable to Tenant for violation or non-performance of any such Rules and Regulations or, for that matter, for the breach of any covenant or condition in any lease, by any other tenant or occupant of the Building.  Notwithstanding the foregoing, Landlord agrees to enforce the Rules and Regulations without discrimination among all tenants similarly affected.  If there is a conflict between the Rules and Regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail.
(i) This Lease shall be interpreted and enforced in accordance with the laws of the State of California, which shall apply in all respects, including statutes of limitation, to any disputes or controversies arising out of or pertaining to this Lease.
(j) Upon Tenant’s paying the Base Rent, Additional Rent, and other sums provided hereunder, and observing and performing all of the covenants, conditions, and provisions on Tenant’s part to be observed and performed hereunder, Tenant shall, during the Term, have quiet possession of the Premises subject to the terms, covenants, conditions, provisions and agreements of this Lease without interference by any persons lawfully claiming by or through Landlord.
(k) Except as otherwise provided in this Lease, all of the covenants, conditions, and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns.
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(l) In c onnection with the Lease, each party warrants and represents to the other that it has had dealings only with the brokers specified in Section 1(q).  Each party represents to the other that there are no other fees or commissions involved in this transaction other than those which may be owing to Tenant ’ s Broker and Landlord ’ s Broker .  Each party does hereby agree to defend, indemnify and hold the other harmless from all Claims, of any nature whatsoever, for any real estate commissions in connection herewith, or any other Claims of any nature whatsoever that may be raised by any real estate agents or brokers who may be claiming a commission as a result of services rendered to the other party in connection with this Lease.  Moreover, if Tenant enlists a broker to negotiate an expansion or renewal, commissions will be paid solely by Tenant directly to its broker, and Landlord will have no obligation for any real estate commission in connection t herewith and Tenant will defend, indemnify and hold Landlord harmless from all Claims for any real estate commissions in connection herewith or any other Claims of any nature whatsoever that may be raised by any real estate agents or brokers who may be claiming a commission as a result of services rendered to Tenant in connection with any such expansion or renewal.   Landlord shall pay all fees due to the Tenant’s Broker and Landlord’s Broker pursuant to a separate agreement.  
(m) All notices, demands, consents, approvals, requests or other communications which any of the parties to this Agreement may desire or be required to give hereunder shall be in writing and shall be given by (i) personal delivery, (ii) electronic mail, or (iii) a nationally recognized overnight courier service, fees prepaid.  The addresses noted in Subsection 1(j) of this Lease shall be that party’s address for delivery or mailing of notices.  Either party may, by written notice to the other party, specify a different address for notice, except that upon Tenant’s taking possession of the Premises, the Premises shall constitute Tenant’s address for notice.  A copy of all notices to Landlord shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereafter designate in writing.  A notice sent in compliance with the provisions of this Section shall be deemed given on the date of receipt (or attempted delivery if delivery is refused), except that any notice sent via electronic mail of a .PDF document shall be deemed given on the date sent (as evidenced by the sender’s “sent mail” mailbox and absence of a delivery failure message in the sender’s “inbox”, if sent via email) if sent or transmitted prior to 5:00 p.m. (Pacific Time) on a business day and, otherwise, on the next succeeding business day.  For purposes of this Agreement, the term “Pacific Time” means Pacific Standard Time or Pacific Daylight Savings Time, whichever is then applicable in San Francisco, California on the date in question.
(n) Tenant shall not record this Lease or a memorandum hereof, and any such recordation shall, at the option of Landlord, constitute an incurable default by Tenant hereunder.
(o) No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
(p) The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, or a termination by Landlord, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all such subtenancies.
(q) Intentionally Deleted.
(r) Tenant hereby acknowledges that the Rent payable to Landlord hereunder does not include the cost of guard service, safety patrol or other security measures, and that Landlord shall have no obligation whatsoever to provide the same.  Tenant assumes all responsibility for the protection of Tenant, its agents and invitees from acts of third parties.  Notwithstanding the foregoing, if Landlord elects to provide safety and/or security services at the Property, the costs of such services shall be paid by Tenant as an Operating Cost.
 (s) If at any time a dispute shall arise as to any amount or sum of money to be paid by one (1) party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum.  If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof,
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said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease.
(t) Tenant represents and warrants that the individuals executing this Lease are authorized to execute and deliver this Lease on behalf of Tenant.
(u) This Lease may be executed in counterparts, each of which shall constitute an original, but all of which together shall constitute one (1) and the same instrument.  The parties hereto consent and agree that this Lease may be signed and/or transmitted by electronic mail of a .PDF document or electronic signature technology (e.g., via DocuSign) and thereafter maintained in electronic form, and that such signed electronic record shall be valid and effective to bind the party so signing as a paper copy bearing such party’s hand-written signature.  The parties further consent and agree that the electronic signatures appears on this Lease shall be treated, for purposes of validity, enforceability and admissibility, the same as hand-written signatures.
(v) Landlord shall not be deemed a partner or a joint venturer with Tenant by reason of any provisions of this Lease.
(w) Tenant represents and warrants to Landlord that Tenant and all persons and entities owning (directly or indirectly) an ownership interest in Tenant are currently in compliance with and shall at all times during the Term (including any further extensions or renewals) remain in compliance with the regulations of the Office of Foreign Assets Control (“ OFAC ”) of the United States Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) and any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism), or other governmental action relating thereto.  
(x) Pursuant to California Civil Code § 1938, Landlord hereby states that the Premises have not undergone inspection by a Certified Access Specialist (“ CASp ”) (defined in California Civil Code § 55.52(a)(3)).  Pursuant to Section 1938 of the California Civil Code, Landlord hereby provides the following notification to Tenant: “A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law.  Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant.  The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction related accessibility standards within the premises.”  If Tenant requests to perform a CASp inspection of the Premises, then Tenant shall, at its sole cost and expense, retain a CASp approved by Landlord (provided that Landlord may designate the CASp, at Landlord’s option) to perform the inspection of the Premises (and only the Premises) at a time agreed upon by the parties, and such inspection shall include only the Premises.  Tenant shall provide Landlord with a copy of any report or certificate issued by the CASp (the “ CASp Report ”) and Tenant shall, at its sole cost and expense, promptly complete all modifications necessary to correct violations of construction related accessibility standards identified in the CASp Report within the Premises, which modifications will be completed as part of Tenant’s Work or as an Alteration, as applicable, notwithstanding anything to the contrary in this Lease.  Tenant agrees to keep the information in the CASp Report confidential except as necessary for the Tenant to complete such modifications.
(y) Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Term, occupy any space in the Building or Project.
 (z) Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any
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legal process or writ, Tenant ’ s right of occupancy of the Premises after any termination of this Lease.
(aa) Except as expressly permitted in this Subsection (aa) , neither party nor its agents, servants, employees, invitees and contractors will, without the prior written consent of the other party, disclose any Confidential Information of the other party to any third party. Information will be considered “ Confidential Information ” of a party if either: (i) it is disclosed by the party to the other party in tangible form and is conspicuously marked “Confidential”, “Proprietary” or the like; or (ii) it is disclosed by one party to the other party in non-tangible form and is identified as confidential at the time of disclosure. Each party will secure and protect the Confidential Information of the other party in a manner consistent with the steps taken to protect its own trade secrets and confidential information, but not less than a reasonable degree of care. The parties shall at all times keep this Lease and related operative documents confidential, except to the extent necessary to (A) comply with applicable law and regulations (including any securities laws), or (B) carry out the obligations set forth in this Lease; provided, however, that either party shall be allowed to disclose such information to the party’s assignees, subtenants, agents, employees, contractors, consultants, accounting, rating agencies or attorneys, as well as lenders (if any), investment bankers and venture capital groups, investors, with a need to know, and except to the extent that disclosure is necessary for a party to exercise its rights and perform its obligations under this Lease, provided, that, in all cases, the disclosure is no broader than necessary and the party who receives the disclosure agrees prior to receiving the disclosure to keep the information confidential. Except a result of a breach of this Lease, disclosure of information by either party shall not be prohibited if that disclosure is of information that is or becomes a matter of public record or public knowledge or from sources other than Tenant or Landlord or their respective agents, employees, contractors, consultants or attorneys.
(bb) To the extent a “green cleaning program” and/or a recycling program is implemented by Landlord in the Building and/or Project (each in Landlord’s sole and absolute discretion), Tenant shall, at Tenant’s sole cost and expense, comply with the provisions of each of the foregoing programs (e.g., Tenant shall separate waste appropriately so that it can be efficiently processed by Landlord’s particular recycling contractors).  To the extent Tenant fails to comply with any of Landlord’s recycling programs contemplated by the foregoing, Tenant shall be required to pay any contamination charges related to such non-compliance.
(cc) Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.
(dd) After the Commencement Date, subject to the provisions of this Lease, Tenant shall have access to the Premises twenty-four (24) hours per day, seven (7) days a week. The Building currently has a card key system for access to the Building.  Elevators of the Building may be programmed to require use of a card key to cause the elevators to stop on those floors of the Building in which the Premises are located, and Landlord and Tenant shall reasonably cooperate to coordinate such programming.
 33. WAIVER OF JURY TRIAL; JUDICIAL REFERENCE.
 (a) Landlord and Tenant agree that, other than an action by Landlord to obtain possession of the Premises or any action which seeks relief which can only be obtained by court proceeding, any action or proceeding by either of them against the other arising out of or in connection with this Lease, Tenant’s use or occupancy of the Premises, or any claim of injury or damage occurring in or about the Property or the Premises shall, upon the motion of either party, be submitted to general judicial reference pursuant to California Code of Civil Procedure Sections 638 et seq. or any successor statutes thereto (the “ Judicial Reference Statutes ”).  The parties shall cooperate in good faith to ensure that all necessary and appropriate parties are included in the judicial reference proceeding.  The general referee shall have the authority to try all issues, whether of fact or law, and to report a statement of decision to the court.  To the extent not inconsistent with the Judicial Reference Statutes, Landlord and Tenant shall use the procedures for arbitration and judicial reference, if any, adopted by Judicial Arbitration and Mediation Services/Endispute (“ JAMS ”), as relevant, or if JAMS is no longer in existence or available in this geographic location, the parties shall use those of the American Arbitration Association pertaining to commercial real estate to supplement the
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Judicial Reference Statutes, provided that the following rules and procedures shall apply in all cases unless the parties agree otherwise:
(i) The proceedings shall be heard in Contra Costa County, California;
(ii) Absent agreement to the contrary by the parties, the referee must be a retired judge.  Unless otherwise agreed, JAMS shall provide a list of three retired judges to the parties who may each strike one from the list, and the parties shall consent to appointment of the remaining person as the referee.  If JAMS is no longer in existence or available in this geographic location, then the American Arbitration Association shall provide said list.  If neither is in existence, then the trial court shall appoint the referee;
(iii) Any dispute regarding the selection of the referee shall be resolved by JAMS or the entity providing the reference services, or, if no entity is involved, by the court with appropriate jurisdiction;
(iv) The referee may require one or more pre-hearing conferences;
(v) The parties shall be entitled to discovery as allowed under state law.  The referee shall oversee discovery and may enforce all discovery orders in the same manner as any trial court judge;
(vi) A stenographic record of the trial may be made, provided that the record shall remain confidential except as may be necessary for post-hearing motions and any appeals;
(vii) The referee’s statement of decision shall contain findings of fact and conclusions of law to the extent applicable; and
(viii) The referee shall have the authority to rule on all post- hearing motions in the same manner as a trial judge.
The statement of decision of the referee upon all of the issues considered by the referee shall be binding upon the parties, and upon filing of the statement of decision with the clerk of the court, or with the judge where there is no clerk, judgment may be entered thereon.  The decision of the referee shall be appealable as if rendered by the court.  This provision shall in no way be construed to limit any valid cause of action which may be brought by any of the parties.
BY EXECUTION AND DELIVERY OF THIS LEASE, THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE FOREGOING AND ACCEPT THAT BY CHOOSING JUDICIAL REFERENCE THEY ARE GIVING UP THE RIGHT TO A JURY TRIAL.
IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) SUBJECT TO THE FOREGOING PROVISIONS OF THIS SECTION , THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, AND (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW.  THE PROVISIONS OF THIS SECTION SHALL SURVIVE THE EXPIRATION OF THE TERM OR EARLIER TERMINATION OF THIS LEASE.
 34. OPTIONS .  
 (a) Option To Renew .   Subject to the terms and conditions of Subsection 34(e) below, Tenant shall have two (2) option(s) (each an “ Option ”) to extend the Term of the Lease for sixty (60) months (the “ Extended Term ”) upon the same terms and conditions, except for (i) Base Rent, which shall be the Fair Market Rental Value, as defined below, of the Premises, and (ii) the cap on Controllable Operating Expenses shall not longer apply.  Tenant shall have the right to elect to renew the term for less than the entire Premises, but not less than one wing per floor and must retain at least one (1) full floor.  Each option shall be exercised by Tenant’s written notice to Landlord not less than two hundred seventy (270) days, nor more than three hundred sixty five (365) days, prior to the Lease Expiration Date and such notice shall identify which portions of the Premises are subject to such extension;
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provided, however, that if such notice does not specify which portions of the Premises are subject to such extension, then Tenant shall be deemed to have exercised its Option with respect to the entire Premises then being leased by Tenant .  If Tenant shall not have delivered its election notice to Landlord within the time period set forth above, then the Option(s) shall automatically terminate and the Term of the Lease shall not be so extended.   Upon successfully exercising an Option, the parties shall enter into an amendment to this Lease confirming the applicable Extended Term.  
(b) Fair Market Rental Value .   The term “ Fair Market Rental Value ” as utilized in this Section 34 shall mean the prevailing Fair Market Rental Value of the space in question, on and subject to the covenants and agreements of the Lease, including but not limited to consideration of the fact that the Lease allows adjustments in the Base Rent and further based upon the then-current rent for comparable office space in Comparable Buildings, such valuation to consider such comparable buildings as if such are leased on comparable terms as of the commencement date of the extension in question with those leasehold improvements then in place as are then contained within the Premises and taking into account the age, quality, use and layout of the existing improvements in the Premises, and taking into account items that professional real estate brokers or professional real estate appraisers customarily consider, including, but not limited to, rental rates, space availability, tenant size, tenant improvement allowances, parking charges and any other lease considerations, if any, then being charged or granted by Landlord or the lessors of such similar office buildings.  Such Fair Market Rental Value shall include prevailing fixed and/or annual increases in the Base Rent. Tenant’s BOMA square footage re-measurement, Tenant’s pro rata share of total Building square footage and after-hours HVAC charges, parking allotment ratios and rates are subject to change during the Extended Term.  Such determined Fair Market Rental Value shall be the then-current rent for the time period of Tenant’s notice of its exercising its option, not the commencement of the Extended Term.  If Tenant gives notice of exercise of the Option, Landlord shall submit to Tenant in writing of Landlord’s proposal as to the applicable Base Rent for the Extended Term within twenty (20) days following Landlord’s receipt of Tenant’s Option notice.  Within twenty (20) days of such notice from Landlord, if Tenant should disagree with Landlord’s proposal, Tenant shall so advise Landlord in writing and set forth Tenant’s proposal as to the proper rental to cause rental for the Premises to be not less than the Fair Market Rental Value.  Absent such notice, Base Rent shall be established at the commencement of such Extended Term as proposed by Landlord.  If Tenant gives notice of a proposed Base Rent, Landlord may accept Tenant’s proposal by written notice or seek to meet with Tenant in an attempt to arrive at a mutual agreement as to Base Rent.  If Landlord and Tenant, within fifteen (15) days of the date of response by Tenant rejecting Landlord’s proposal, shall not have agreed as to Base Rent for the Extended Term, then the determination of Base Rent shall be submitted for appraisal as provided below.
 If the Fair Market Rental Value is to be determined by appraisal, within ten (10) days after the expiration of the fifteen (15) day negotiation period, Landlord and Tenant shall each appoint a qualified M.A.I. appraiser with at least ten (10) years real estate experience in Contra Costa county in the San Francisco Bay Area, and give notice of such appointment to the other.  Such appraisers shall, within thirty (30) days after the appointment of the last of them to be appointed, complete their determinations of Fair Market Rental Value based on the standards set forth in the definition of Fair Market Rental Value stated above, and submit their appraisal reports separately and in writing to Landlord and Tenant.  Failure to complete its respective determination by either appraiser within the 30-day period shall automatically disqualify that late appraiser’s determined Fair Market Rental Value and both parties shall be bound by the other appraisal submitted within the 30-day period.  If the valuations vary by five percent (5%) or less from their arithmetic average, the Fair Market Rental Value shall be the arithmetic average of the two (2) valuations.  If the valuations vary by more than five percent (5%) from their arithmetic average, then the two (2) appraisers shall within ten (10) days after submission of the last appraisal report, appoint a third appraiser who shall be similarly qualified.  If the two (2) appraisers shall be unable to agree within ten (10) days on the selection of a third appraiser then either party may petition any judge having jurisdiction over the parties to appoint such third appraiser and shall do so within three (3) days thereafter.  Such third appraiser shall, within fifteen (15) days after his or her appointment, shall select either Landlord’s determination or Tenant’s determination of the Fair Market Rental Value, and shall have no right to propose a middle ground or to modify either of the two proposals or the provisions of this Lease.  The decision of the third appraiser shall be final and binding upon
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the parties, and may be enforced in accordance with the provisions of California law.  In the event of the failure, refusal or inability of the third appraiser to act, a successor shall be appointed in the manner that applied to the selection of the member being replaced.  Landlord and Tenant shall each pay the fee of its respective appraiser, and if a third appraiser is required, each party shall pay shall pay one-half (½) of the third appraiser ’ s fee.  Should the appraisal not be completed as necessary to determine the adjustment of Base Rent prior to commencement of the Extended Term, Base Rent shall be paid each month at the same rate as applicable to the last year of the initial Term or first Extended Term, as applicable, and if an increase or decrease is found due, the amount of such increase or decrease shall be paid to the party entitled thereto within thirty (30) days of notice of appraisal result being furnished to Landlord and Tenant, such payment to be for a period from the commencement of the Extended Term for each monthly rental installation which became due prior to the date the notice of appraisal result was given.
(c) Options Personal .   Each Option granted to Tenant in the Lease, or in any future amendment to the Lease, is personal to the Original Tenant and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than the Original Tenant.  The Options herein granted to Original Tenant are not assignable separate and apart from the Lease.
(d) Multiple Choices .   In the event that Tenant has any multiple options to extend or renew the Lease, a later option cannot be exercised unless the prior option to extend or renew the Lease has been so exercised.
(e) Effect of Default on Options .
(i) Tenant shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, during the time commencing from the date Landlord gives to Tenant a notice of a monetary default or material non-monetary default hereunder until the default alleged in said notice of default is cured.
(ii) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise an Option because of the provisions of Section 34(e)(i) above.
 35. LETTER OF CREDIT.
 (a) Delivery of Letter of Credit .  Tenant shall deliver to Landlord, as protection for the full and faithful performance by Tenant of all of its obligations under this Lease and for all losses and damages Landlord may suffer as a result of any uncured breach or default by Tenant under this Lease, an unconditional, irrevocable standby letter of credit (the “ L-C” ) in the amount set forth in Section 1(p) (the “ L-C Amount ”), substantially in the form attached hereto as Exhibit I running in favor of Landlord, drawn on Comerica Bank or a U.S. national bank having operations in California and an investment grade rating from Standard and Poor’s Professional Rating Service of “A” or a comparable rating from Moody’s Professional Rating Service (the “ Bank ”), and otherwise conforming in all respects to the requirements of this Section 35 , including, without limitation, all of the requirements of Section 35(b), below, all as set forth more particularly hereinbelow.  Tenant shall deliver the L-C to Landlord within twenty (20) days following Tenant’s execution of this Lease.  In the event Tenant fails to deliver to Landlord the L-C, as required herein, in the time period required in this Section 35(a) , then such failure by Tenant shall constitute a default by Tenant under this Lease, and, without limiting any of Landlord’s other rights and remedies hereunder, Landlord’s obligation to disburse the Improvement Allowance shall be suspended until such time as Tenant delivers to Landlord the L-C, and any delay in the construction of the Tenant’s Work as a result of Landlord not disbursing the Improvement Allowance shall be deemed a “Tenant Delay” (as that term is defined in the Work Letter).  Tenant shall pay all expenses, points and/or fees incurred by Tenant in obtaining and maintaining the L-C.  In the event of an assignment by Tenant of its interest in the Lease (and irrespective of whether Landlord’s consent is required for such assignment), the acceptance of any replacement or substitute letter of credit by Landlord from the assignee shall be subject to Landlord’s prior written approval, in Landlord’s reasonable discretion, and the reasonable attorney’s fees incurred by Landlord in connection with such determination shall be payable by Tenant to Landlord within thirty (30) days of receipt of invoice together with reasonable supporting evidence.  If Tenant delivers a 4th Floor
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ROFO Exercise Notice and/or a ROFO Exercise Notice (each as defined below) to Landlord, then within ten (10) business days after the final determination of the applicable rental rate to be charged in connection therewith, Landlord shall provide written notice to Tenant as to whether it will require , in its commercially reasonable discretion, an increase in the L-C Amount in connection therewith; provided, however, that in no event shall the L-C Amount be increased by more than $35.00 per square foot of Rentable Area attributable to such exercise notice space .   If applicable, Tenant shall, within ten (10) business days after receipt of such notice from Landlord, deliver to Landlord a new L-C (or amendment to the existin g L-C) in such increased amount .
(b) In General . The L-C shall be “callable” at sight, permit partial draws and multiple presentations and drawings, and be otherwise subject to the Uniform Customs and Practices for Documentary Credits (1993-Rev), International Chamber of Commerce Publication #500, or the International Standby Practices-ISP 98, International Chamber of Commerce Publication #590. Tenant further covenants and warrants as follows:
(i) Landlord Right to Transfer . The L-C shall provide that Landlord, its successors and assigns, may, at any time and without prior notice to Tenant and without first obtaining Tenant’s consent thereto, transfer (one or more times) all or any portion of its interest in and to the L-C to another party, person or entity, in connection with the assignment by Landlord of its rights and interests in and to this Lease, or separate from this Lease if such assignment is to Landlord’s lender. In the event of a transfer of Landlord’s interest in the Building, Landlord shall transfer the L-C, in whole or in part, to the transferee and, provided such assignee agrees to assume this Lease in writing, thereupon Landlord shall, be released by Tenant from all liability therefor from and after such transfer date, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said L-C to a new landlord.  In connection with any such transfer of the L-C by Landlord, Tenant shall, at Tenant’s sole cost and expense, execute and submit to the Bank such applications, documents and instruments as may be reasonably necessary to effectuate such transfer.
(ii) No Assignment by Tenant .  Tenant shall neither assign nor encumber the L-C or any part thereof. Neither Landlord nor its successors or assigns will be bound by any assignment, encumbrance, attempted assignment or attempted encumbrance by Tenant in violation of this Section.
(iii) Replenishment .  If, as a result of any drawing by Landlord on the L-C pursuant to its rights set forth in Section 35(c) below, the amount of the L-C shall be less than the L-C Amount, then Tenant shall, within ten (10) business days thereafter, provide Landlord with (x) an amendment to the L-C restoring such L-C to the L-C Amount or (y) additional L-Cs in an amount equal to the deficiency, which additional L-Cs shall comply with all of the provisions of this Section 35 , and if Tenant fails to comply with the foregoing, notwithstanding anything to the contrary contained in Section 21 above, the same shall constitute an incurable default by Tenant under this Lease (without the need for any additional notice and/or cure period).
(iv) Renewal; Replacement .  If the L-C expires earlier than the date (the “ L-C Expiration Date ”) that is sixty (60) days after the expiration of the Term of this Lease,  then Tenant shall deliver a new L-C or certificate of renewal or extension to Landlord at least sixty (60) days prior to the expiration of the L-C then held by Landlord, without any action whatsoever on the part of Landlord, which new L-C shall be irrevocable and automatically renewable through the L-C Expiration Date upon the same terms as the expiring L-C or such other terms as may be acceptable to Landlord in its reasonable discretion.  In furtherance of the foregoing, Landlord and Tenant agree that the L-C shall contain a so-called “evergreen provision,” whereby the L-C will automatically be renewed unless at least sixty (60) days’ prior written notice of non-renewal is provided by the issuer to Landlord; provided, however, that the final expiration date identified in the L-C, beyond which the L-C shall not automatically renew, shall not be earlier than the L-C Expiration Date.
 (c) Application of Letter of Credit .  Tenant hereby acknowledges and agrees that Landlord is entering into this Lease in material reliance upon the ability of Landlord to draw upon the L-C as protection for the full and faithful performance by Tenant of all of its
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obligations under this Lease and for all losses and damages Landlord may suffer (including, without limitation, damages that may be granted to Landlord under California Civil Code Section 1951.2) as a result of any breach or default by Tenant under this Lease.  Landlord shall have the right to draw down an amount up to the face amount of the L-C if any of the following shall have occurred or be applicable: (i) such amount is due to Landlord under the terms and conditions of this Lease, or (ii) Tenant has filed a voluntary petition under the Bankruptcy Code, or (iii) an involuntary petition has been filed against Tenant under the Bankruptcy Code, or (iv) the Bank has notified Landlord that the L-C will not be renewed or extended through the LC Expiration Date.  If Tenant shall be in default under this Lease beyond all applicable notice and cure periods or if any of the foregoing events identified in Sections 35(ii) through (iv) shall have occurred, then Landlord may, but without obligation to do so, and without notice to Tenant, draw upon the L-C, in part or in whole , but only to the extent necessary to cure the applicable default or pay the applicable damages , and the proceeds may be applied by Landlord (1) to cure any breach or default of Tenant, (2) against any Rent payable by Tenant under this Lease that is not paid when due and/or (3) to pay for all losses and damages that Landlord has suffered (including, without limitation, damages that may be granted to Landlord under California Civil Code Section 1951.2) as a result of any breach or default by Tenant under this Lease.  The use, application or retention of the L-C, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by any applicable Law, it being intended that Landlord shall not first be required to proceed against the L-C, and shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled.  Tenant agrees not to interfere in any way with payment to Landlord of the proceeds of the L-C, either prior to or following a “ draw ” by Landlord of any portion of the L-C, regardless of whether any dispute exists between Tenant and Landlord as to Landlord ’ s right to draw upon the L-C.  No condition or term of this Lease shall be deemed to render the L-C conditional to justify the issuer of the L-C in failing to honor a drawing upon such L-C in a timely manner.  Tenant agrees and acknowledges that (A) the L-C constitutes a separate and independent contract between Landlord and the Bank, (B) Tenant is not a third party beneficiary of such contract, and (C) in the event Tenant becomes a debtor under any chapter of the Bankruptcy Code, neither Tenant, any trustee, nor Tenant ’ s bankruptcy estate shall have any right to restrict or limit Landlord ’ s claim and/or rights to the L-C and/or the proceeds thereof by application of Section 502(b)(6) of the U. S. Bankruptcy Code or otherwise.
(d) Letter of Credit not a Security Deposit .  Landlord and Tenant acknowledge and agree that in no event or circumstance shall the L-C or any renewal thereof or any proceeds thereof be (i) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a “security deposit” within the meaning of such Section 1950.7. The parties hereto (x) recite that the L-C is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (“ Security Deposit Laws ”) shall have no applicability or relevancy thereto and (y) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws.
 (e) Proceeds of Draw .  In the event Landlord draws down on the L-C pursuant to this Section 35 , the proceeds of the L-C may be held by Landlord and applied by Landlord against any Rent payable by Tenant under this Lease that is not paid when due and/or to pay for all losses and damages that Landlord has suffered (including, without limitation, damages that may be granted to Landlord under California Civil Code Section 1951.2) as a result of any breach or default by Tenant under this Lease. Any unused proceeds shall constitute the property of Landlord and need not be segregated from Landlord’s other assets.  Landlord agrees that the amount of any proceeds of the L-C received by Landlord, and not (i) applied against any Rent payable by Tenant under this Lease that was not paid when due or (ii) used to pay for any losses and/or damages suffered by Landlord (including, without limitation, damages that may be granted to Landlord under California Civil Code Section 1951.2) as a result of any breach or default by Tenant under this Lease (the “ Unused L-C Proceeds ”), shall be paid by Landlord to Tenant (x) upon receipt by Landlord of a replacement L-C in the full L-C Amount, which replacement L-C shall comply in all respects with the requirements of this Section 35 , or (y) within thirty (30) days after the LC Expiration Date; provided, however, that if prior to the LC Expiration Date a voluntary petition is filed by Tenant, or an involuntary petition is filed against Tenant by any of Tenant’s creditors, under the Bankruptcy Code, then
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Landlord shall not be obligated to make such payment in the amount of the Unused L-C Proceeds until either all preference issues relating to payments under this Lease have been resolved in such bankruptcy or reorganization case or such bankruptcy or reorganization case has been dismissed.
(f) Decrease of Letter of Credit Amount .  Provided that, as of each anniversary of the Commencement Date (each such anniversary being referred to herein as a “ Reduction Date ”), Tenant is not in default under this Lease beyond any applicable notice and cure periods, and subject to the provisions of this Section 35(f), the L-C Amount shall be reduced as follows:
(i) On the first, second, third, fourth, fifth and eighth Reduction Date by ten percent (10%) of the L-C Amount as of the greater of (i) the Effective Date, (ii) the date of the exercise of any right of first offer or expansion rights enumerated in Section 35(a) , above; and
(ii) On the sixth and seventh Reduction Date by twenty percent (20%) of the L-C Amount as of the greater of (i) the Effective Date, (ii) the date of the exercise of any right of first offer or expansion rights enumerated in Section 35(a) , above.
In addition to the foregoing, from and after the fourth year of the Term, if Tenant has an operating profit, calculated in accordance with GAAP, less any principal outstanding on notes payable or other such formal debt (“ Indebtedness ”), for the two (2) immediately preceding consecutive years, then, on the next applicable Reduction Date, the L-C Amount shall be reduced by the greater of (A) the applicable reduction set forth above, or (B) the difference between (y) the combined operating profit in such two consecutive year period of positive operating profit less the greatest amount of Indebtedness outstanding during each of those two years, and (z) the then current L-C Amount; provided, however, that if the result of the reduction described in (B) is that the L-C Amount is less than or equal to one month’s Base Rent in effect on such Reduction Date, then the L-C Amount shall be reduced to one month’s Base Rent in effect on such Reduction Date.  
On or after any Reduction Date, Tenant may request, in writing, that Landlord deliver a written authorization of the applicable reduction to the issues of the L-C, which authorization Landlord shall deliver within ten (10) days following Tenant’s written request.  Tenant shall then have not less than thirty (30) days following delivery of the authorization by Landlord to tender to Landlord a replacement L-C or a certificate of amendment to the existing L-C conforming in all respects to the requirements of this Section 35 , in the amount of the applicable L-C Amount as of such Reduction Date.  Landlord shall return the original L-C deposited hereunder to Tenant within three (3) business days following Tenant’s delivery of a replacement L-C.
 36. EXPANSION RIGHTS.
(a) One Time First Right of First Opportunity For 4th Floor .
(i) Tenant is hereby granted the one time right to add to the Premises the north and/or south winds of the fourth (4th) floor of Building (the “ 4th Floor ROFO Space ”) when such space becomes Available (for purposes of this Section 36(a) only, the term “ Available ” shall mean that the existing lease (the “ Existing 4th Floor Lease ”) with the existing tenant of the 4th Floor ROFO Space (the “ Existing 4th Floor Tenant ”) has terminated, either by default, mutual agreement, or expiration of the term of such lease and of any renewal options, rights of first refusal or options or agreements of expansion related thereto).  The one time option per wing of the 4 th Floor ROFO Space referenced in this Subsection is hereinafter referred to as “ 4th Floor ROFO ”.  
 (ii) Prior to offering to lease any of the 4th Floor ROFO Space, Landlord shall notify Tenant in writing (the “ 4th Floor ROFO Notice ”), which 4th Floor ROFO Notice shall include the following: (1) the approximate date on which the 4th Floor ROFO Space will become available for occupancy by Tenant; (2) the Base Rent payable for the 4th Floor ROFO Space (which Base Rent shall be the Fair Market Rental Value of the 4th Floor ROFO Space as of the date such space is to be added to the Premises in accordance herewith); (3) the length of the term of the lease of the 4th Floor ROFO Space which, in no
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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event shall be more than one hundred (120) months ; and (4) the improvements, if any, Landlord is willing to make to the 4th Floor ROFO Space (which may be included in the determination of the Fair Market Rental Value).  Within ten (10) business days of Tenant ’ s receipt of the 4th Floor ROFO Notice, Tenant shall notify Landlord in writing of its irrevocable and unconditional election to exercise its right of first offer to lease all of the 4th Floor ROFO Space (the “ 4th Floor ROFO Exercise Notice ” ); provided, however, that Tenant ’ s right to exercise its 4th Floor ROFO shall be subject to the following:
(1) No monetary default, beyond any applicable notice and cure period, is occurring on the date Tenant exercises its right of first offer;
(2) Tenant has not previously assigned the Lease or sublet any part or all of the Premises except pursuant to a Permitted Transfer;
(3) Tenant must lease all of either the north or south wings of the 4th Floor ROFO Space;
(4) The 4th Floor ROFO must be exercised with at least two (2) full years remaining in the initial Term, unless Tenant exercises its option to renew contemporaneously with the exercise of the 4th Floor ROFO; and
(5) Tenant executes an amendment for the 4th Floor ROFO Space within twenty (20) business days after Landlord provides Tenant with a commercially reasonable document accurately reflecting the terms hereof.
(iii) If Tenant complies with each of the conditions set forth in this Section 36(a)(ii) , then Tenant shall take the 4th Floor ROFO Space in its then current “As-Is” condition, Tenant acknowledging and agreeing that Landlord shall have no obligation to improve, remodel or otherwise alter the 4th Floor ROFO Space nor shall Landlord have any obligation to provide any tenant improvement allowance to Tenant with respect to the 4th Floor ROFO Space except as may otherwise be expressly stated in the 4th Floor ROFO Notice; provided, however, that Landlord shall deliver such space free of all tenants, professionally cleaned and with the base shell and building systems in good working order.  If, however, Tenant fails to comply with each of the conditions set forth in this Section 36(a)(ii) within the time specified, all time periods herein for Original Tenant being of the essence, then, the 4th Floor ROFO shall automatically lapse and be of no further force and effect, and Landlord shall have the right to lease all or any part of the 4th Floor ROFO Space to a third party under the same or any other terms and conditions, whether or not such terms and conditions are more or less favorable than those offered to Tenant.  
(b) Fifth Floor Expansion Right .
(i) Tenant is hereby granted the option (“ 5th Floor Expansion Option ”) to add approximately 16,741 square feet of Rentable Area (“ 5th Floor Expansion Space ”) to the Premises for the balance of the Term, which 5th Floor Expansion Space consists of the “south wing” of the fifth (5th ) floor of the Building.  The one time option referenced in this Section 36(b) is hereinafter referred to as “ 5th Floor Expansion Right ”.  The 5th Floor Expansion Right must be exercised by Tenant, if at all, by written notice (such notice herein the “ 5th Floor Expansion Notice ”) delivered to Landlord on or before 5:00 p.m. Pacific Time on or before February 28, 2019 (“ Outside 5th Floor Expansion Right Exercise Date ”); provided, however, that Tenant shall have the right to extend the Outside 5th Floor Expansion Right Exercise Date three (3) times for one (1) month each by paying Landlord the product of $1.00 per square foot of Rentable Area of the 5th Floor Expansion Space (i.e., $16,741.00) for each such extension.  Each such payment shall be paid to Landlord on or before February 28, 2019, March 31, 2019 and April 30, 2019, respectively, and Tenant’s failure to pay such amount in a timely manner shall constitute a waiver of Tenant’s right to further extend the Outside 5th Floor Expansion Right.  If the 5th Floor Expansion Right is properly exercised, then the parties shall execute an amendment to this Lease ROFO Space within fifteen (15) business days after Landlord provides Tenant with a document accurately reflecting the terms hereof.
 (ii) The commencement of the term for the 5th Floor Expansion Space (“ 5th Floor Expansion Space Commencement Date ”) shall be the date the 5th Floor
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Expansion Space is delivered to Tenant and shall expire on the Expiration Date; provided, however, that Tenant’s obligation to pay Rent for the 5th Floor Expansion Space shall not commence until the ninetieth (90th) day following the 5th Floor Expansion Space Commencement Date .  Upon the 5th Floor Expansion Space Commencement Date, the 5th Floor Expansion Space shall be added to the Premises.  Tenant shall take the 5th Floor Expansion Space in an “ As-Is ” condition, Tenant acknowledging and agreeing that Landlord shall have no obligation to improve, remodel or otherwise alter such 5th Floor Expansion Space ; provided, however, that Landlord shall deliver such space free of all tenants, professionally cleaned and with the base shell and building systems in good working order; provided further, that Landlord shall provide Tenant with an improvement allowance for such space [***] per square foot of Rentable Area, prorated in accordance with Section 36(b)(iii) , below .      
(iii) The monthly Base Rent applicable to the 5th Floor Expansion Space shall be equal to the then current Base Rent payable hereunder with respect to the Premises on the 5th Floor Expansion Space Commencement Date and the Turnkey Improvement Allowance and the Abated Rent applicable to the 5th Floor Expansion Space shall be pro-rated based on the number of months remaining in the initial Term of the Lease from the 5th Floor Expansion Commencement Date.  
(iv) Notwithstanding anything to the contrary herein, the 5th Floor Expansion Option shall be effective only if (i) Tenant is not in default under this Lease beyond all applicable notice and cure periods either at the time of delivery of an 5th Floor Expansion Notice or on the 5th Floor Expansion Space Commencement Date, (ii) no event has occurred which with the giving of notice or the passage of time, or both, would constitute  a default hereunder, either at the time of delivery of an 5th Floor Expansion Notice or on the 5th Floor Expansion Space Commencement Date, and (iii) Tenant has not assigned its interest in the Lease or sublet the Premises (or any part thereof) except pursuant to a Permitted Transfer.  If Tenant fails to comply with each of the conditions set forth in this Section 36(b) within the time specified, then then the 5th Floor Expansion Option shall be null, void and of no further force or effect and, subject to Subsection (c) , below, Landlord shall thereafter have the right to lease the 5th Floor Expansion Space to any party or parties on terms deemed acceptable to Landlord in its sole and absolute discretion without any further obligation to Tenant under this Subsection (b) .
(c) Fifth Floor Right of First Refusal .
(i) Upon the expiration of Tenant’s 5th Floor Expansion Right without the timely and proper exercise thereof, Tenant shall thereafter have a continuing first right of refusal during the balance of the initial Term to lease the 5th Floor Expansion Space if Landlord receives a bona fide offer from a third party (the “ Offer ”) that Landlord is willing to accept (any such space, the “ 5th Floor ROFR Space ”).  If Landlord receives an Offer, then Landlord shall promptly deliver a copy of the Offer to Tenant (with all confidential information redacted except those relating to business terms) and Tenant shall have ten (10) business days from its receipt thereof to irrevocably exercise its right to lease the applicable ROFR Space by delivering written notice to Landlord (the “ 5th Floor ROFR Exercise Notice ”), provided:
(1) This right of first refusal is subordinate to the rights of existing tenants to the 5th Floor ROFR Space as of the date of execution of this Lease, if any;
(2) No monetary default, beyond any applicable notice and cure period, is occurring on the date Tenant exercises its right of first refusal;
(3) Tenant has not previously assigned the Lease or sublet any part or all of the Premises except pursuant to a Permitted Transfer;
(4) Tenant must lease all of the 5th Floor ROFR Space offered;
(5) This right of first refusal must be exercised with at least two (2) full years remaining in the initial Term, unless Tenant exercises its option to renew contemporaneously with the exercise of this option;
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(6) Tenant executes an amendment for t he 5th Floor ROFR Space within twenty (20 ) business days after Landlord provides Tenant with a commercially reasonable document accurately reflecting the terms of this Right of First Refusal.
(ii) The terms of the lease for the 5th Floor ROFR Space shall be the same as those set forth in the Offer.
(iii) If Tenant fails to comply with each of the conditions set forth in this Section 36(c) within the time specified, all time periods herein for Tenant being of the essence, then, with respect to the particular 5th Floor ROFR Space then being offered, Tenant’s right of first refusal will lapse and be of no further force and effect, and Landlord shall have the right to lease all or any part of such 5th Floor ROFR Space to a third party under the same or any other terms and conditions, whether or not such terms and conditions are more or less favorable than those offered to Tenant.  Notwithstanding the foregoing, if Tenant does not timely exercise its right of first refusal with respect to any such 5th Floor ROFR Space, and Landlord either (a) fails to enter into a lease for such ROFR Space within one hundred eighty (180) days after the expiration of the ten (10) business day period set forth above, or (b) the material economic terms to be paid by or provided to any third party for the applicable 5th Floor ROFR Space are better from a tenant’s perspective than the corresponding economic terms initially submitted by Landlord in the Offer by seven percent (7%) or more, then Landlord shall reoffer the space to Tenant at such varying material economic terms.
(d) On-going Right of First Offer.
(i) Tenant is hereby granted a continuing first right of offer to lease any contiguous space in the Building on the same floor as the Premises (as the same may be expanded from time to time) (any such space the “ ROFO Space ”) when such ROFO Space, if any, becomes Available (the term “Available” for purposes of this Section 36(d) shall mean that an existing lease (the “ Existing Lease ”) with an existing tenant of the ROFO Space (the “ Existing Tenant ”) has terminated, either by default, mutual agreement, or expiration of the term of such lease and of any renewal options, rights of first refusal or options or agreements of expansion related thereto).  The option referenced in this Section is hereinafter referred to as the “ ROFO ”.  
(ii) Prior to offering to lease any of the ROFO Space during the initial Term of the Lease, Landlord shall notify Tenant in writing (the “ ROFO Notice ”), which ROFO Notice shall include the following: (1) the specific location of the ROFO Space and Rentable Area compromising the ROFO Space; (2) the approximate date on which the ROFO Space will become available for occupancy by Tenant; (3) the Base Rent payable for the ROFO Space; (4) the length of the term of the lease of the ROFO Space which, in no event, shall be more than one hundred twenty (120) months; and (5) the improvements, if any, Landlord is willing to make to the ROFO Space.  Within ten (10) business days of Tenant’s receipt of the ROFO Notice, Tenant shall notify Landlord in writing of its irrevocable and unconditional election to exercise its right of first offer to lease all of the ROFO Space (the “ ROFO Exercise Notice ”); provided, however, that Tenant’s right to exercise its ROFO shall be subject to the following:
(1) No monetary default, beyond any applicable notice and cure period, is occurring on the date Tenant exercises its right of first offer;
(2) Tenant has not previously assigned the Lease or sublet any part or all of the Premises except to an Affiliate or pursuant to a Permitted Transfer;
(3) Tenant must lease all of the ROFO Space;
(4) The ROFO must be exercised with at least two (2) full years remaining in the initial Term, unless Tenant exercises its option to renew contemporaneously with the exercise of the ROFO; and
(5) Tenant executes an amendment or new lease for the ROFO Space within twenty (20) business days after Landlord provides Tenant with a commercially reasonable document accurately reflecting the terms hereof.
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(iii) If Tenant complies with each of the conditions set forth in this Section 36(d) , then Tenant shall take the ROFO Space in its then current “ As-Is ” condition, Tenant acknowledging and agreeing that Landlord shall have no obligation to improve, remodel or otherwise alter the ROFO Space nor shall Landlord have any obligation to provide any tenant improvement allowance to Tenant with respect to the ROFO Space except as may otherwise be expressly stated in the ROFO Notice ; provided, however, that Landlord shall deliver such space free of all tenants, professionally cleaned and with the base shell and building systems in good working order .  If, however, Tenant fails to comply with each of the conditions set forth in this Section 36(d) within the time specified, all time periods herein for Tenant being of the essence, then, the ROFO with respect to such ROFO Space shall automatically lapse and be of no further force and effect, and Landlord shall have the right to lease all or any part of the ROFO Space to a third party under the same or any other terms and conditions, whether or not such terms and conditions are more or less favorable than those offered to Tenant.
(e) Length of Term .  If (i) Tenant exercises the 4th Floor ROFO, the 5th Floor ROFR and/or the ROFO (each a “ Preferential Right ”); (ii) the term of Tenant’s lease (the “ Preferential Space Term ”) of the 4th Floor ROFO Space, the 5th Floor ROFR Space and/or the ROFO Space (each, “ Preferential Space ”) is for at least sixty (60) months; and (iii) the Term of the Lease for the balance of the Premises (including all previously added Preferential Space but excluding the Preferential Space then being added to the Premises) will terminate prior to the expiration of the Preferential Space Term (such date the “ Pre-Preferential Right Expiration Date ”), then, upon Tenant’s written notice (a “ Preferential Space Term Extension Notice ”), the Term of the Lease for the Premises then leased by Tenant (i.e., excluding the Preferential Space then being added to the Premises but including all prior Preferential Space added to the Premises) shall be extended such that it is coterminous with the Preferential Space Term (such period of time from the Pre-Preferential Right Expiration Date through the expiration of the applicable Preferential Space Term being referred to in this Subsection (e) as the “ Shoulder Term ”); provided, however, in order to be effective, each such Preferential Space Term Extension Notice shall (A) be in writing; (B) be delivered concurrently with Tenant’s 4th Floor ROFO Exercise Notice, 5th Floor ROFR Exercise Notice, or ROFO Exercise Notice, as applicable; (C) be irrevocable; and (D) apply to all, but not less than all, of the Premises then leased by Tenant hereunder.  Further, if Tenant timely elects to so extend the Term of the Lease, then the Base Rent for the Premises (excluding the Preferential Space then being added to the Premises pursuant to the applicable Preferential Right) commencing on the first day of such Shoulder Term shall equal 103% of the Base Rent charged during the last month of the Term and, thereafter, shall increase an additional 3% on each anniversary of the commencement of the Shoulder Term.  If Tenant does not deliver a proper Preferential Term Extension Notice as and when required hereunder, then the Term for the Premises (excluding the Preferential Space then being added) shall terminate upon the expiration of the then applicable Term and the term of the Lease with respect to the applicable Preference Space shall expire on the last day of the Preferential Space Term.  Tenant’s election to extend the Term for the Shoulder Term shall not constitute an exercise of Tenant’s Options pursuant to Section 34 above.
(f) Priority of Tenant’s Rights .  Tenant acknowledges and agrees that Tenant’s rights with respect to the 4th Floor of the Building shall initially be governed by Section 36(a) , above and that Tenant shall have no rights with respect to the 4th Floor of the Building pursuant to Section 36(d) unless and until its rights under Section 36(a) have lapsed or expired.
(g) Rights Personal To Original Tenant .  Tenant acknowledges and agrees that Tenant’s rights under this Section 36 are personal to the Original Tenant, may only be exercised during the initial Term of the Lease, and may only be exercised and utilized by Original Tenant and not any assignee, sublessee or other transferee of Original Tenant’s interest in the Lease.
 37. ADDITIONAL SIGNAGE RIGHTS .
(a) Project Monument Sign .  
 (i) Subject to the receipt of all necessary governmental and private approvals (if any) on terms acceptable to Landlord (collectively, the “ Monument Sign Approvals ”), Landlord agrees to construct one or more multi-tenant monument signs at the
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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entrances of the Project (‘each a “ Project Monument Sign ” and, collectively, the “ Project Monument Signs ”) Tenant shall have the righ t to display its corporate name and/or logo on one of the Project Monument Signs as designated by Landlord; provided, however, that Tenant agrees (1) the display of such name shall comply with Landlord’s signage criteria (the “ Sign Criteria ”); provided, however, that if no Sign Criteria exists at such time, then such display shall be subject to Landlord’s prior written consent, which consent shall not be unreasonably withheld, (2) to maintain the display of its name in good order and condition throughout the Term, and (3) to pay for all costs of designing, installing, maintaining, repairing and removing its name on the applicable Project Monument Sign.  
(ii) Notwithstanding anything in Section 37(a)(i) , above, Tenant acknowledges and agrees that (1) as of the Effective Date, Landlord has neither applied for nor is in receipt of the Monument Sign Approvals; provided, however, Landlord agrees that it shall apply for the Monument Sign Approvals within one hundred eighty (180) days of the Effective Date, (2) Landlord has not made any representations or warranties to Tenant that Landlord will be successful in obtaining the Monument Sign Approvals, and (3) if Landlord fails to obtain the Monument Sign Approvals for any reason whatsoever, then Landlord shall not be in default hereunder nor shall such failure otherwise affect any of Tenant’s obligations hereunder.  Tenant further acknowledges sand agrees that Tenant shall not have the right to display its name on any of the Project Monument Signs, if Landlord does not (A) allow a multiple display of tenant signs on the Project Monument Sign or (B) Landlord does not permit another occupant of the Project who leases space equal to or less than the amount of Rentable Area leased by Tenant to display is name on the Project Monument Sign.  Furthermore, Landlord, in its sole and absolute discretion, may determine which tenants may display a sign on the monument, subject to the foregoing rights of Tenant, and shall have the right to replace or relocate the Project Monument Signs at any time during the Term.
(b) Building Parapet Signage .  So long as Tenant leases and occupies at least 45,000 square feet of Rentable Area in the Building and has not sublet more than 20% thereof (except pursuant to a Permitted Transfer), Tenant shall be permitted to install a sign displaying the “Cerus Corporation” name and logo (including the logo’s standard font, and color) on the exterior parapet of the Building (the “ Parapet Sign ”); provided, however, that Tenant shall obtain Landlord’s prior written approval, not to be unreasonably withheld, conditioned or delayed, of the location, size, plans and specifications for the Parapet Sign and, at its sole cost and expense, shall obtain all necessary governmental permits for such sign.  At Tenant’s election, the Parapet Sign shall either be north or west facing.  Tenant shall install its approved Parapet Sign at a time mutually agreed upon by Landlord and Tenant, it being understood and agreed that Landlord, at Tenant’s cost, shall have the right to supervise such installation.  Throughout the Term, Tenant shall pay for all electricity (if any) consumed by the Parapet Sign, and shall maintain the sign in good condition and repair and in compliance with the Sign Criteria, if any, and all applicable Laws.  Upon the expiration or termination of the Term or at such time as Tenant no longer leases and occupies at least the amount of space referenced in the first sentence of this subsection, Tenant, at its sole cost and expense, shall remove the Parapet Sign and repair all damage to the Building resulting therefrom, and make all repairs necessary to return the area of the Building on which such sign was installed to its condition prior to the installation of the sign, ordinary wear and tear excepted.  
(c) Rights Personal To Original Tenant .  Tenant acknowledges and agrees that Tenant’s rights under this Section 37 are personal to the Original Tenant and may only be exercised and utilized by Original Tenant and not any assignee, sublessee or other transferee of Original Tenant’s interest in the Lease.
 38. EXISTING GENERATORS .
 Subject to Landlord’s reasonable rules and regulations, Tenant shall have the non-exclusive rights to utilize the existing two (2) on site emergency generators and related tanks and equipment serving the Building (collectively, the “ Existing Generators ”).  Tenant acknowledges that (a) the Existing Generators were installed by a prior owner or occupant of the Building and that Landlord makes no representation or warranty to as to the fitness of the Existing Generators for Tenant’s proposed use thereof, or the condition of the Existing Generators or the compliance thereof with applicable Laws; and (b) Tenant’s use the Existing Generators is at Tenant’s sole risk and that Landlord shall have no liability to Tenant in
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
56

connection therewith. TENANT FURTHER ACKNOWLEDGES AND AGREES THAT, TO THE FULLEST EXTENT PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE TO TENANT OR TENANT ’ S PROPERTY ARISING FROM OR RELATED TO TENANT ’ S USE OF THE EXISTING GENERATORS .
 
[SIGNATURES FOLLOW ON NEXT PAGE]
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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SIGNATURE PAGE TO
LEASE
BETWEEN
1200 CONCORD, LLC
AND
CERUS CORPORATION
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

LANDLORD:
 
1200 CONCORD, LLC , a Delaware limited liability company
 
By: Seecon Investments, LLC, a California limited liability company, its sole member
 
By: /s/ Albert D. Seeno, Jr.
Name: Albert D. Seeno, Jr.
Its: Manager
By: /s/ Douglas W. Messner
Name: Douglas W. Messner
Its: Authorized Agent
Date: February 16, 2018	TENANT:
 
CERUS CORPORATION , a Delaware corporation
 
By: /s/ Kevin D. Green
Name: Kevin D. Green
Its: VP, Finance and Chief Financial Officer
By:
Name:
Its:
Date: February 13, 2018	

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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EXHIBIT A
THE PROJECT

 
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit A, Page 1

EXHIBIT B
SITE PLAN

 
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit B, Page 1

EXHIBIT C
SPACE PLAN

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit C, Page 1

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
2

 
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
3

EXHIBIT D
WORK LETTER
 
THIS WORK LETTER (this “ Work Letter ”) is attached to and a part of that certain Lease dated February ___, 2018 (the “ Lease ”), by and between 1200 CONCORD, LLC , a Delaware limited liability company (“ Landlord ”), and CERUS CORPORATION , Delaware corporation (“ Tenant ”).  All references in this Work Letter to Sections of the “Work Letter” shall mean the relevant portions of this Work Letter.  Capitalized terms not otherwise defined in this Work Letter shall have the meanings given to such terms in the Lease.
 
 1. Landlord’s Work .  
1.1 Landlord’s Work .  Landlord shall construct the Landlord’s Work (as defined below) through contractors selected by Landlord in consultation with Tenant, as further described below, at Landlord’s sole cost and expense (except as otherwise set forth herein), in accordance with the Approved Construction Drawings (as hereinafter defined) and the provisions of this Work Letter.  All work described in this Work Letter for which Landlord is responsible for completing may be collectively referred to herein as “ Landlord’s Work ”.  Landlord’s Work with respect to the Premises consists of two separate components: the “Base Building Work ” (which consist of those improvements described on Schedule 1 attached hereto and incorporated herein) and the “ Turnkey Improvements ” (which consists of those improvements to the First Floor North Wing Premises, the Fifth Floor Premises, the Sixth Floor Premises and, if applicable, the 5 th Floor Expansion Premises (but not the First Floor South Wing Premises) described in the Approved Construction Documents (as defined below) provided, however, in no event shall the Turnkey Improvements include (a) the Finishing Work (as defined below); (b) the Tenant’s Work (as defined below); and (c) any costs or expenses of any consultants retained by Tenant with respect to design, procurement, installation or construction of improvements or installations, whether real or personal property, for the Premises.)  
1.2 Turnkey Improvement Costs .
(a) For purposes of this Work Letter, “ Turnkey Improvements Costs ” shall include, without limitation, the following: (i) all design fees, engineering fees, and consultants’ fees incurred by Landlord and Tenant in connection with the design and engineering of the Turnkey Improvements, including the costs of space plans and all plans and specifications; (ii) governmental agency plan check, permit, and other fees; (iii) sales and use taxes; (iv) Title 24 fees; (v) testing and inspection costs; (vi) the cost of materials, labor, and supplies; (vii) the general contractor’s overhead and profit; (viii) all other costs expended or to be expended in connection with the construction of the Turnkey Improvements; and (ix) Landlord’s administration and supervisory fee of 2% percent of the Turnkey Improvement Allowance (as defined below) actually distributed to Tenant.
 (b) Landlord shall pay all Turnkey Improvements Costs associated with the Turnkey Improvements depicted on the Approved Construction Documents, [***] per square foot of Rentable Area of the First Floor North Wing Premises, Sixth Floor Premises, Fifth Floor Premises and, if applicable the 5 th Floor Expansion Space (the “ Turnkey Improvement Allowance ”).  Within ten (10) business days after completion of the Approved Construction Documents,  Landlord shall solicit a bid from not less than three (3) contractors selected by Landlord (the “ Bids ”), which Bids shall be promptly delivered to Tenant, and, unless otherwise agreed by Tenant, Landlord shall select the lowest responsive bid of the Bids received; provided, however, that if the any other responsive bid is within five percent (5%) of the lowest responsive bid, then Landlord shall have the right to select such higher bid without Tenant’s prior written consent.  Landlord shall afford Tenant a reasonable time (not to exceed five (5) business days following Landlord’s submission to Tenant of the Bids) to value engineer the Landlord’s Work.  Within five (5) business days following Landlord’s submission to Tenant of the Bids or revised Bids, as the case may be, Landlord and Tenant shall have approved in writing a cost proposal, based on the lowest responsive Bid, for the cost of completing the Turnkey Improvements, which details the application of the Turnkey Improvement Allowance and shows any overage in the estimated aggregate cost for the Turnkey Improvements in excess of the Turnkey Improvement Allowance (the “ Balance ”).    The contract with the general contractor selected as a result of the bid process described above shall be on a fixed price contract and shall be entered into by Landlord promptly following such bid process.  If a Balance exists, Tenant shall pay 50% thereof prior to the commencement of the commencement of the Landlord’s Work, and the remaining 50% upon written notice from Landlord that the Turnkey Improvement Allowance has been fully utilized.  Without limiting Landlord’s rights and remedies
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 1

for Tenant’s failure to pay any installment of the Balance, each day of delay of such payment shall constitute a Tenant Delay hereunder.  If upon completion of the work of the Turnkey Improvements the actual cost to complete the Turnkey Improvements was greater than the Turnkey Improvement Allowance and the Balance, then Tenant shall promptly pay to Landlord any additional amounts which were incurred or oth erwise paid by Landlord with twenty (2 0) business days of its receipt of Landlord ’ s notice (which notice shall be accompanied by reasonable supporting documentation).  Notwithstanding the foregoing, if during the construction of the Turnkey Improvements, Landlord receives written notice of any increase in costs from the initial bid (other than as a result of a Change Order (as defined below) , it shall promptly provide notice thereof to Tenant.  Any unused or unfunded portion of the Turnkey Improvement Allowance shall be added to the Tenant ’ s Work Allowance (as defined below) and may be used for Allowance Items (as defined below) for the Lab Work (as defined below).  Landlord and Tenant acknowledge and agree that the Turnkey Improvement Allowance will be used only for the purpose of that work depicted in the Approved Construction Documents, and that the Turnkey Improvement Allowance, and all of it, shall be utilized only for the benefit of the Premises.  To the extent that the Turnkey Improvement Allowance is not fully utilized for the construction of the Turnkey Improvements, following completion of the Turnkey Improvements, then any remaining amount of the Turnkey Improvement Allowance shall be added to and comprise part of the Tenant’s Work Allowance (as defined below) .
(c) The Turnkey Improvement Allowance shall be distributed by Landlord directly to the architects, engineers, contractors, and other professionals retained to design and construct the Turnkey Improvements.  Under no circumstances will any portion of the Turnkey Improvement Allowance be paid directly to Tenant by Landlord unless the same becomes part of the Tenant’s Work Allowance pursuant to Section 1.2(b) , above (in which case such amount shall be disbursed in accordance with Section 2.6 , below).
1.3 Completion of Landlord’s Work.  
(a) Subject to events of force majeure described in Section 29 of the Lease (“ Force Majeure ”), Landlord shall use commercially reasonable efforts to achieve Substantial Completion (as defined below) of the Landlord’s Work on or before October 1, 2018 (the “ Anticipated Delivery Date ”).  Landlord will give Tenant at least ten (10) business days’ prior written notice of the date on which the Landlord’s Work is Substantially Complete.  Landlord and Tenant shall then arrange a mutually convenient time, no later than five (5) business days after Tenant’s receipt of such notice, for Tenant and Landlord to conduct a walk-through inspection of the Landlord’s Work.  During the inspection, Landlord shall compile a punchlist of items yet to be completed.  If Tenant shall fail to inspect the Landlord’s Work within five (5) days after the receipt of Landlord’s notice, then the Landlord’s Work shall be deemed completed and satisfactory in all respects, and the date set forth in Landlord’s notice shall be deemed the date on which Landlord achieved Substantial Completion.  For purposes of this Lease, “ Substantially Complete ” (or any variation thereof) shall mean: (i) with respect to the Base Building Work, the completion of all work and improvements set forth on Schedule 1 attached hereto and receipt of all governmental sign-offs and approvals with respect thereto, and (ii) with respect to the Turnkey Improvements, the completion of the Turnkey Improvements in accordance with the Approved Construction Documents and the issuance of a temporary certificate of occupancy (or the legal equivalent) by appropriate governmental officials for the First Floor North Wing Premises, Fifth Floor Premises, Sixth Floor Premises and, if applicable, the 5 th Floor Expansion Premises (if legally required as a condition of occupancy).  Substantial Completion of the Landlord Work shall be deemed to have occurred notwithstanding a requirement to complete “punch list” or similar minor corrective work so long as such corrective work does not materially impair Tenant’s ability to construct the Tenant’s Work.  Upon Substantial Completion of the Landlord’s Work, Landlord shall have no further obligation to construct improvements or construct modifications to or changes in Landlord’s Work, except to complete the punchlist of Landlord’s Work remaining to be completed or to correct defects in the Landlord’s Work pursuant to the immediately following paragraph.  
(b) Landlord agrees to use commercially reasonable efforts to complete any and all punchlist items within thirty (30) days following the date of Substantial Completion of the Landlord’s Work.
 (c) If Substantial Completion of the Landlord’s Work is not achieved on or before the thirtieth (30th) day following the Anticipated Delivery Date, then Landlord shall not be in default hereof nor shall Landlord be liable to Tenant for damages but, instead, as Tenant’s sole and exclusive remedy, Tenant shall be entitled to a credit against Base Rent hereunder in the amount of one (1) day of Base Rent for every day that Substantial Completion is actually delayed beyond the thirtieth (30th) day after the Anticipated Delivery Date; provided, however, the Anticipated Delivery
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 2

Date shall be extended by one (1) day for each day that achievement of Substantial Completion is delayed due to any Tenant Delay or an event of Force Majeure (the “ Delay Rent Credits ” ).  The parties agree that the actual damages to be suffered by Tenant in the event of a delay in achieving Substantial Completion by the Anticipated Delivery Date would be extremely difficult if not impossible to ascertain and that the amount of Delay Rent Credits set forth in this Section is a reasonable estimate of the actual damages to be suffered by Tenant and that such sum represents liquidated damages and not a penalty.  By executing this provision where indicated below, each party specifically confirms the accuracy of the statements made above and the fact that each party fully understood the consequences of these liquidated damages provisions at the time this Lease was made.
Landlord’s Initials:   /s/ DM /s/ ADS ___ Tenant ’s Initials:   /s/ KDG ____
 
(d) If Landlord has not Substantially Completed the Landlord’s Work on or before the date that is one hundred and twenty (120) days following the Anticipated Delivery Date (the “ Outside Delivery Date ”), then Landlord shall not be in default hereunder nor shall Landlord be liable to Tenant for damages (except for the abatement of rent set forth above) but, instead, as Tenant’s sole and exclusive remedy, Tenant shall have the right to deliver a notice to Landlord (a “ Tenant Termination Notice ”) electing to terminate this Lease effective upon the date occurring ten (10) days following receipt by Landlord of the Tenant Termination Notice (the “ Termination Effective Date ”); provided, however, that (i) the Anticipated Delivery Date and the Outside Delivery Date each shall be extended by the number of days that Substantial Completion is delayed due to Force Majeure and Tenant Delay, and (ii) notwithstanding anything to the contrary set forth in the Lease or in this Work Letter and regardless of the actual date of Substantial Completion of the Landlord’s Work, the date of Substantial Completion shall be deemed to be the date Landlord’s Work would have been Substantially Completed absent any Tenant Delay. If Tenant delivers a Tenant Termination Notice to Landlord, then Landlord shall have the right to suspend the occurrence of the termination of this Lease for a period ending thirty (30) days after the Termination Effective Date by delivering to Tenant, prior to the Termination Effective Date, written notice that it is Landlord’s good faith judgment that Substantial Completion of the Landlord’s Work shall occur within thirty (30) days after the Termination Effective Date (the “ Termination Extension Notice ”).  If Substantial Completion occurs prior to the expiration of such thirty-day period, then the Tenant Termination Notice shall be of no force or effect, but if Substantial Completion does not occur within such thirty-day period (except for reasons of Force Majeure and Tenant Delay), then this Lease shall terminate upon the expiration of such thirty-day period.  
(e) The term “ Tenant Delay ” as used in this Work Letter shall mean any delay that Landlord may encounter in the performance of Landlord’s obligations under this Work Letter which delays Substantial Completion beyond the Anticipated Delivery Date and/or the Outside Delivery Date because of any of Tenant’s (or any of Tenant’s Construction Agents’ (as defined below)) acts or omissions of any nature, whether committed willfully, negligently, intentionally, or otherwise, that result in any delay including, without limitation, any: (i) delay attributable to Change Orders  (as defined below) as well as any delays incurred in investigating and processing any Change Order or otherwise caused by a Change Order issued at Tenant’s request; (ii) delay attributable to postponement of any Turnkey Improvements at the request of Tenant; (iii) delay attributable to the errors or other insufficiency in the Construction Drawings; (iv) delay by Tenant in furnishing information, making submittals or giving any other approvals or authorizations within the time limits set forth in this Work Letter, or if no time is set forth for such performance in this Work Letter, then a reasonable time, time being of the essence; and (v) delay attributable to the failure of Tenant to pay, when due, any amounts required to be paid by Tenant pursuant to this Work Letter or the Lease including, without limitation, any Balance and Excess Costs (as defined below).  Tenant shall reimburse Landlord for any and all additional costs incurred by Landlord arising out of or in any way related to the Tenant Delays and Tenant hereby releases Landlord from and against any and all liability arising out of or in any way related to such Tenant Delays.  
 2. Tenant’s Work  .  
 2.1 Tenant’s Work .  Subject to the terms of the Lease and this Work Letter, Tenant shall be solely responsible for the design and construction of all alterations, additions and improvements that (a) Tenant may deem necessary or appropriate to prepare the First Floor South Wing Premises for initial occupancy by Tenant under the Lease and otherwise approved by Landlord in accordance herewith (the “ Lab Work ”), and (b) the installation of trade fixtures, equipment, furniture, furnishings, telephone equipment, cabling for any of the foregoing or other personal property to be
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 3

used in the Premises by Tenant (hereinafter “ Finishing Work ” ) .   The Lab Work and the Finishing Work are be collectively referred to herein as the “ Tenant ’ s Work ” .
2.2 Design of Tenant’s Work and Turnkey Improvements .  
(a) Selection of Architect and Engineers; Construction Documents .  Tenant has retained Bull Stockwell Allen (the “ Tenant’s Architect ”) to prepare the Construction Documents (as defined below) for the Turnkey Improvements and the Lab Work.  Tenant shall retain an engineering consultants selected by Tenant (the “ Tenant’s Engineers ”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work in the First Floor South Wing Premises; provided, however, the Tenant’s Engineers shall be reasonably satisfactory to Landlord and shall be licensed by the State of California; provided, further, however, that if Tenant does not use the engineers designated by Landlord, then Landlord may retain, as an Allowance Item (as defined below), its own engineer to review the Construction Documents and consult with the Tenant’s Engineers regarding the same.  Tenant shall not replace Tenant’s Architect or Tenant’s Engineers without Landlord’s prior written consent and then only with an architect or engineer reasonably acceptable to Landlord.  The plans and drawings to be prepared by Tenant’s Architect and the Tenant’s Engineers hereunder shall be known collectively as the “ Construction Documents .”  All Construction Documents shall be subject to Landlord’s reasonable approval, which shall not be unreasonably withheld, conditioned, or delayed except to the extent such changes, modifications or alterations related to the structural components of the Building and/or the mechanical, engineering, plumbing or life safety systems of the Building (in which case Landlord may withhold its approval it is sole discretion).  Tenant will use commercially reasonable efforts to submit a complete set of Construction Drawings for Landlord’s approval by April 1, 2018 and, in no event, later than May 1, 2018.  If Tenant fails to submit a complete set of Construction Drawings by April 1, 2018 and such failure delays Landlord’s ability to achieve Substantial Completion by the Anticipated Delivery Date, then Tenant agrees that the Tenant Build-Out Period shall be reduced (1) day for each two (2) days that Tenant is delayed in making such submission; provided, however, that the Tenant Build-Out Period shall not be reduced more than fifteen (15) days pursuant to this sentence.  Without limiting the foregoing, Tenant further agrees that each day after May 1, 2018 until the date Tenant submits a complete set of Construction Drawings shall constitute a Tenant Delay hereunder.  Landlord shall advise Tenant, in writing, within ten (10) business days after Landlord’s receipt of the Construction Documents if the same is unsatisfactory or incomplete in any respect (and specify in such written notice the unsatisfactory items).  If Landlord fails to respond within such ten (10) business day period, then Tenant shall deliver a second notice (“ Second Approval Request Notice ”) to Landlord requesting a response to such request for approval, which Second Approval Request Notice must include the following legend in capitalized and bold type displayed prominently on the top of the first page of such notice:  “ LANDLORD HAS FAILED TO RESPOND TO A REQUEST FOR APPROVAL OF TENANT IMPROVEMENTS BY TENANT RELATING TO THE LEASE DATED FEBRUARY __ , 2018 BETWEEN LANDLORD AND TENANT FOR THE PROPERTY LOCATED AT 1220 CONCORD AVE., CONCORD, CALIFORNIA (THE “LEASE”) PURSUANT TO THE TERMS OF THE LEASE.  FAILURE OF LANDLORD TO RESPOND WITHIN FIVE (5) BUSINESS DAYS FOLLOWING THIS NOTICE SHALL RESULT IN THE AUTOMATIC APPROVAL BY LANDLORD OF SUCH SUBMITTAL. ”  Tenant’s Second Approval Request Notice shall be delivered strictly in accordance with the notice provisions of this Lease including the delivery of copies of such notices to any persons or entities entitled to receive copies thereof.  If Landlord fails to respond within the 5-business day period set forth in the Second Approval Notice, then Tenant’s submittal shall be deemed approved by Landlord.  Tenant and Tenant’s Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Tenant’s Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith.  Landlord’s review of the Construction Documents shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review the same for quality, design, compliance with Laws or other like matters.  Accordingly, notwithstanding that any Construction Documents are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Documents, and Tenant’s waiver and indemnity set forth in the Lease shall specifically apply to the Construction Documents.
 (b) Final Construction Documents .  To the extent provided to Tenant by Landlord, Tenant shall supply the Tenant’s Architects and Tenant’s Engineers with a complete
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 4

listing of standard and non-standard equipment and specifications, including, without limitation, HVAC requirements, electrical requirements and special electrical receptacle requirements for the Premises, to enable the Tenant’s Engineers and the Tenant’s Architect to complete the Final Construction Documents (as defined below) in the manner as set forth below.  Tenant shall promptly cause the Tenant ’ s Architect and the Tenant’s Engineers to complete the architectural and engineering drawings for the Turnkey Improvements and the Tenant’s Work and Tenant’s Architect shall compile a fully-coordinated set of architectural, structural (if required), mechanical, electrical and plumbing construction documents in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “ Final Construction Documents ” ) and shall submit the same to Landlord for Landlord ’ s approval, which approval shall not be unreasonably withheld, conditioned or delayed except to the extent such changes, modifications or alterations related to the structural components of the Building and/or the mechanical, engineering, plumbing or life safety systems of the Building (in which case Landlord may withhold its approval it is sole and absolute discretion).  Tenant shall supply Landlord with two (2) copies signed by Tenant of such Final Construction Documents.  Landlord shall advise Te nant, in writing, within five (5 ) business days after Landlord ’ s receipt of the Final Construction Documents for the Lab Work if the same is approved, or unsatisfactory or incomplete in any respect (and specify in such written notice the unsatisfactory or incomplete items).  Landlord ’ s approval of the Final Construction Documents as provided above shall not be unreasonably withheld, conditioned, or delayed.   If Landlord fails to respond within the said 5 -business day period , then Tenant shall deliver a Second Approval Request Notice in accordance with Section 2.2(a) , above, and Landlord’s failure to respond within three (3) days of its receipt thereof, shall constitute Landlord ’ s approval thereof .  If the Final Construction Documents are not approved, then Tenant shall have the right to modify the proposed Final Construction Documents and resubmit to Landlord for review in accordance with the process above until such Final Construction Documents have been approved by Landlord or deemed approved.  
(c) Approved Construction Documents .  The Final Construction Documents as approved, or deemed approved by Landlord in accordance with Section 2.2(b) above shall be referred to herein as the “ Approved Construction Documents ”.  Upon the determination of the Approved Construction Documents, Landlord and Tenant shall promptly confirm the same in writing and Tenant’s Architect shall use commercially reasonable efforts to submit the same to the appropriate municipal authorities for all applicable building permits on or before thirty days following the date that the Construction Documents are submitted to Landlord for approval; provided, however, that each day after such 30 day period until the date of submission shall constitute a Tenant Delay hereunder.  Upon receipt of such permits, Tenant shall proceed with the completion of the Tenant’s Work in accordance with the Approved Construction Documents, all permits, approvals and Laws.  Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the First Floor South Wing Premises and that obtaining the same shall be Tenant’s sole responsibility; provided, however, that Landlord shall cooperate, at no cost to Landlord, with Tenant in executing permit applications and performing other ministerial acts necessary to enable Tenant to obtain any such permit or certificate of occupancy.  No material changes, modifications or alterations in the Approved Construction Documents may be made without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed except to the extent such changes, modifications or alterations related to the structural components of the Building and/or the mechanical, engineering, plumbing or life safety systems of the Building (in which case Landlord may withhold its approval it is sole and absolute discretion).
2.3 Construction & Installation of Tenant’s Work .  
(a) Tenant’s Selection of Contractors .
(i) The Contractor .  A general contractor shall be retained by Tenant to construct Tenant’s Work.  Such general contractor (“ Tenant’s General Contractor ”) shall be (1) subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed, (2) licensed in the State of California, (3) insured in accordance with the provisions of this Work Letter, and (4) experienced in constructing improvements similar to the Tenant’s Work including, without limitation, the Lab Work.  
 (ii) Tenant’s Construction Agents .  Tenant shall require that Tenant’s General Contractor give Landlord a scheduled list of all subcontractors, laborers, materialmen, and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, together with the Tenant’s General Contractor, the Tenant’s Architect, the Tenant’s Engineers and the Project Manager, collectively, “ Tenant’s Construction Agents ”).  The Tenant’s Construction Agents shall be (1) subject to Landlord’s prior written approval, which approval shall not be unreasonably
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 5

withheld, conditioned or delayed, ( 2 ) licensed in the State of California , ( 3 ) insured in accordance with the provisions of this Work Letter , and (4) experienced in constructing improvements similar to the Tenant’s Work including, without limitation, the Lab Work .  
(b) Construction of the Tenant’s Work by Tenant’s Construction Agents .  
(i) Conditions for Tenant’s Construction Agents and Tenant’s Work .  Tenant and Tenant’s Construction Agents’ construction of the Tenant’s Work shall comply with the following:  (1) the Tenant’s Work shall be constructed in accordance with the Approved Construction Documents and all Laws; and (2) Tenant and Tenant’s Construction Agents shall abide by all reasonable rules made by Landlord and Landlord’s property manager from time to time including without limitation, use of freight, loading dock and service elevators, storage of materials, coordination of work with Landlord’s contractors and contractors of other lessees, noise, and vibration abatement, after-hours work and any other matter in connection with this Work Letter, including, without limitation, the construction of the Tenant’s Work.  
(ii) Indemnity .  Without limiting the terms and conditions of the Lease, Tenant agrees to indemnify, protect, defend and hold Landlord and the other Landlord Parties harmless against any and all Claims arising from or in any way related to (1) the Tenant’s Work, (2) any negligence or willful misconduct of Tenant or Tenant’s Construction Agents, or anyone directly or indirectly employed by any of them, (3) Tenant’s non-payment of any amount arising out of the Tenant’s Work (except where such non-payment is solely the result of Landlord’s failure to disburse the Tenant’s Work Allowance as and when required hereunder), or (4) Tenant’s disapproval of all or any portion of any request for payment from Tenant’s Construction Agents.  Such indemnity by Tenant shall also apply with respect to any and all Claims related in any way to Landlord’s performance of any ministerial acts reasonably necessary (x) to permit Tenant to complete the Tenant’s Work and (y) to enable Tenant to obtain any building permit or certificate of occupancy for all or any portion of the Premises.  
(iii) Requirements of Tenant’s Construction Agents .  Each of Tenant’s Construction Agents shall guarantee to Tenant and for the benefit of Landlord that the portion of Tenant’s Work for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof.  Each of Tenant’s Construction Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the completion of the work performed by such contractor or subcontractors.  The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of Tenant’s Work, and/or the Premises, the Building, the Facilities and/or the Project that may be damaged or disturbed thereby.  All such warranties or guarantees as to materials or workmanship of or with respect to Tenant’s Work shall be contained in the contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either.  Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement.
(c) Insurance Requirements .  Prior to the commencement of the construction of Tenant’s Work (or any part thereof), Landlord shall receive from Tenant certificates of insurance with endorsements from Tenant’s General Contractor and each of Tenant’s Construction Agents, evidencing commercial general liability, automobile liability and workers’ compensation (to be carried by Tenant’s General Contractor and each of Tenant’s Construction Agents) in an amount and with coverage reasonably acceptable to Landlord, but in no event less than [***].  Each policy issued pursuant to this Work Letter shall name Landlord and all its allied entities and, at Landlord’s request, any other Landlord Party or Lender, as an additional insured with respect to the named insured’s work.  All insurance shall be written as primary policies and any insurance carried by Landlord and all its allied entities shall be excess and non-contributory.  Copies of all policies or certificates of insurance with the additional insured endorsement for the named insured’s work (CG2010 1185 or its equivalent complies with this request; provided, however, that any form of insurance that limits coverage to “ongoing operations” or otherwise does not grant additional insured status under the products/completed operations coverage shall not be deemed the equivalent of the 2010 11/5 endorsement) and proof of primary, non-contributory coverage shall be delivered to Landlord by Tenant at least three (3) days prior to the commencement of any alterations, modifications or improvements hereunder (as depicted on Schedule 2 of this Work Letter attached hereto and made a part hereof).
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 6

(d) Governmental Compliance .   Tenant ’ s Work shall comply in al l respects with the following: ( i ) the applicable Laws; ( ii ) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and ( iii ) building material manufacturer ’ s specifications.
(e) The term “ Landlord Delay ” as used in this Work Letter shall mean any actual delays in the substantial completion of Tenant’s Work caused by: (i) Landlord’s failure to fully and timely comply with the deadlines expressly set forth in this Work Letter unless such failure to fully and timely comply is the result of a Tenant Delay, (ii) Landlord’s failure to provide reasonable access to the Premises, the loading docks, the service elevators and other areas in connection with Tenant’s performance of the Tenant Work so long as Tenant has otherwise complied with the terms and conditions of this Lease relating to such access, (iii) Landlord’s failure to fund the Tenant’s Work Allowance as expressly set forth in this Work Letter provided that Tenant has otherwise satisfied all of the obligations related to such disbursement, and (iv) any other actual delay to the extent resulting solely from the wrongful acts or omissions of Landlord or its agents, employees or contractors and Landlord fails to cure such delay within one (1) Business Day after receipt of written notice of such delay.
(f) The First Floor South Wing Premises Commencement Date shall be delayed on a day for day basis for any Landlord Delay; provided, however, any delays due to Force Majeure or Tenant Delays shall be deducted from the number of Landlord Delays, if any.
2.4 The Tenant’s Work Allowance; Disbursement .  
(a) The Tenant’s Work Allowance .  Landlord shall, subject to the terms and conditions of the Lease and this Work Letter, provide Tenant with an allowance [***] per square foot of Rentable Area of the First Floor South Wing Premises (the “ Tenant’s Work Allowance ”) to be applied to the cost of the Tenant’s Work.  Tenant shall be entitled to the Tenant’s Work Allowance to be used for Allowance Items (as defined below).  In no event shall Landlord be obligated to make disbursements for the Tenant’s Work in excess of the Tenant’s Work Allowance except and only to the extent that any portion of the Turnkey Improvement Allowance is added to the Tenant’s Work Allowance in accordance with Section 1.2(b) , above.   
(b) Disbursement of the Tenant’s Work Improvement Allowance .
(i) Allowance Items .  The Tenant’s Work Allowance shall be disbursed by Landlord only for the following items and costs (collectively the “ Allowance Items ”):
(1) Payment of the fees of the Tenant’s Architect and the Project Manager including, without limitation, all space planning fees and other design costs actually paid by Tenant (as documented by invoices);
(2) Payment of the fees of the Tenant’s Engineers including, without limitation, all space planning fees and other design costs performed by the Engineers and actually paid by Tenant (as documented by invoices);
(3) The payment of plan check, permit and license fees relating to construction of the Lab Work;
(4) The cost of construction of Lab Work, including, without limitation, testing and inspection costs, hoisting and trash removal costs, and contractors’ fees and general conditions;
(5) The cost of any changes to the Construction Documents or Lab Work required by all applicable Laws, including, without limitation, all applicable building codes;
(6) The costs of Landlord’s engineer and any other consultants retained by Landlord in connection with Landlord’s review of the Design Documents and Constructions Drawings;
(7) Sales and use taxes; and
(8) Landlord’s administration and supervisory fee of 1%  percent of the hard costs of Tenant’s Work.
(ii) Disbursement of the Tenant’s Work Allowance .   Landlord shall pay the Tenant’s Work Allowance in installments as follows:
 (1) Landlord shall make progress payments to Tenant from Tenant’s Work Allowance for the hard or soft costs of Tenant’s Work (including design and engineering services and permits obtained) performed during the previous month, less a retainage
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 7

of ten percent (10%) of each progress payment to Tenant’s Contractor for work performed in the prior month (“ Retainage ”), such that if all conditions set forth in this Work Letter to Landlord’s obligation to make a progress payment have been satisfied and (i) the invoice for which Tenant seeks a progress payment for Tenant’s Contractor states that the Retainage has been deducted from the total amount owed, the progress payment will be for entire amount that is then payable under such invoice, and (ii) the invoice for which Tenant seeks a progress payment does not state that the Retainage has been deducted from the total amount owed to Tenant’s Contractor, the progress payment will be for ninety percent (90%) of the amount invoiced by Tenant’s Contractor.
(2) If Landlord receives Tenant’s request (together with the supporting documentation required hereunder) for a disbursement from the Tenant Work Allowance on or before the twenty-fifth (25th) day of a month, Landlord will make such disbursement not later than on the last day of the first calendar month following the calendar month during which Landlord received such request. If Landlord receives Tenant’s request (together with the supporting documentation required hereunder) for a disbursement from the Tenant Work Allowance after the twenty-fifth (25th) day of a month, Landlord will make such disbursement within thirty five (35) days.   Each of Tenant’s requisitions for a disbursement from Landlord’s Contribution shall be signed by Tenant’s Representative, shall set forth the names of each contractor and subcontractor to whom payment is due or for which Tenant seeks reimbursements for payments made by Tenant and the amount thereof, and shall be accompanied by: (A) with respect to the first requisition, copies of conditional waivers and releases of lien upon progress payment in such form as Landlord reasonably requires from all of Tenant’s contractors and material suppliers covering all work and materials for which the progress payment is being made; (B) after the first requisition, copies of conditional waivers and releases of lien upon progress payment in such form as Landlord reasonably requires from all of Tenant’s contractors and material suppliers covering all work and materials for which the progress payment is being made, together with copies of unconditional waivers and releases of lien upon progress payment in such form as Landlord reasonably requires from all of Tenant’s contractors and material suppliers covering all work and materials which were the subject of previous progress payments by Landlord and Tenant; (C) a certification from Tenant’s Architect that the work for which the requisition is being made has been substantially completed in accordance with the Approved Construction Drawings; and (D) with respect the first requisition, proof that Tenant’s General Contractor and each of Tenant’s Construction Agents maintain the insurance required hereunder . 
(3) Landlord shall disburse the Retainage within thirty (30) days after the following requirements are satisfied: (A) all building permits for Tenant’s Work have been issued by the applicable governmental authorities and copies of such building permits have been delivered to Landlord; (B) all required inspections of Tenant’s Work by the applicable governmental agencies have taken place and the completed Tenant’s Work has passed all such inspections; (C) Tenant has completed all of Tenant’s Work; (D) Tenant has submitted to Landlord a complete Close Out Package (as defined below); (E) executed, final unconditional lien waivers for all work performed, and materials furnished, to Tenant’s General Contractor, all Tenant’s Construction Agents, as well as an affidavit from Tenant’s General Contractor that no liens exist as a result of Tenant’s Work; (F) a certification from Tenant’s Architect that the Premises were constructed in accordance with the Approved Construction Drawings; and (G) proof that Tenant’s General Contractor and Tenant’s Construction Agents maintain the insurance required hereunder.  All items of Tenant’s Work paid for with the Tenant’s Work Allowance shall be deemed Landlord’s property under the terms of the Lease.
(4) Limitations .  Notwithstanding anything in the Lease or this Work Letter to the contrary, (A) Tenant shall cause the Tenant’s Work Allowance to be used solely for Allowance Items on or before the first (1st) anniversary of the Commencement Date (the “ Deadline for Use ”); (B) any amounts of the Tenant’s Work Allowance not applied for within ninety (90) days after the first (1st) anniversary of the Commencement Date shall be forfeited; and (C) Landlord shall have no obligation to provide or disburse all or any portion of the Tenant’s Work Allowance so long a monetary event of default by Tenant is continuing under the Lease.
3. Change Orders .
 3.1 Tenant shall not request or make any changes or substitutions to the Approved Construction Drawings (a “ Change Order ”) without Landlord’s prior written approval, which approval shall not be unreasonably withheld; provided, however, that Landlord may disapprove, in its sole and absolute discretion, any such changes or substitutions that: (a) do not conform to applicable Laws or are disapproved by any governmental agency; (b) require power consumption
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 8

and/or Building services beyond the level normally provided to the Building ; or (c) overload the floors .  
3.2 Without limiting the foregoing or anything else in this Work Letter, if Tenant hereafter proposes changes to the Approved Construction Drawings (each, a “ Voluntary Change Order ”), then, to the extent such Voluntary Change Order affects the Landlord’s Work, Landlord shall give Tenant a written estimate of (i) the cost of engineering and design services and the construction contractor services to prepare a Voluntary Change Order in accordance with such request; and (ii) the cost of work to be performed pursuant to such Voluntary Change Order (“ Excess Costs ”), which excess costs shall include a construction management fee payable to Landlord for its coordination and review of the Voluntary Change Order in an amount equal to two percent (2%) of the hard construction costs of the Voluntary Change Order; and (iii) the time delay expected because of such requested Voluntary Change Order.  Within ten (10) days following Tenant’s receipt of the foregoing written estimate, Tenant shall notify Landlord in writing whether it approves such written estimate.  If Tenant approves such written estimate, then Tenant shall, within ten (10) days thereafter, deliver by good check made payable to the order of Landlord or by Federal wire transfer the amount of the Excess Costs, and the foregoing shall constitute Landlord’s authorization to proceed with the Voluntary Change Order.  If such written authorization is not received by Landlord within such ten (10) day period, then Landlord shall not be obligated to prepare the Voluntary Change Order or perform any work in connection therewith.  Upon completion of the work of the Voluntary Change Order and submission of the final cost thereof by Landlord to Tenant, Tenant shall promptly pay to Landlord any costs in excess of the Excess Costs paid by Tenant which were incurred or otherwise paid by Landlord in completing the Voluntary Change Order.
3.3 If any changes to the Approved Construction Drawings are necessitated as a result of the insufficiency thereof (each, a “ Involuntary Change Order ”), and such Involuntary Change Order affects the Landlord’s Work and will result in costs in excess of the Turnkey Improvement Allowance, then Tenant shall pay the applicable Excess Costs within ten (10) days following Tenant’s receipt of Landlord’s written demand by good check made payable to the order of Landlord or by Federal wire transfer the amount of the Excess Costs.  Upon completion of the work of the Involuntary Change Order and submission of the final cost thereof by Landlord to Tenant, Tenant shall promptly pay to Landlord any costs in excess of the Excess Costs paid by Tenant which were incurred or otherwise paid by Landlord in completing the Involuntary Change Order.  If an Involuntary Change Order only affects the Tenant’s Work, then Tenant shall be solely responsible for all costs and expenses thereof subject, however, to the Tenant’s Work Allowance.
4. Test Fit Allowance .   Tenant acknowledges and agrees that, prior to the Effective Date, Landlord provided Tenant or Tenant’s Architect with an additional allowance of $0.15 per rentable square foot of the Premises in order to allow Tenant to direct the Tenant’s Architect to develop preliminary space plans for the Building (the “ Test Fit Allowance ”). The Test Fit Allowance is not part of and shall not be deducted from the Turnkey Improvement Allowance, the Tenant’s Work Allowance or any other allowances provided hereunder.  
 
 5. HVAC Work, HVAC Allowance; Disbursement .  
 (a) HVAC Work .  Tenant shall have the right to install a Supplemental HVAC System on the roof of the loading dock in a location approved in advance by Landlord (the “ HVAC Work ”). The manner of Tenant’s design and installation of any the Supplemental HVAC System shall be governed by the terms and conditions of this Lease including, without limitation, Article 10 hereof. Without limiting foregoing, Tenant shall not be permitted to install the Supplemental HVAC System unless (i) such Supplemental HVAC System and the HVAC Work conforms to the specifications and requirements set forth in the drawings and specifications prepared by a licensed professional (the “ HVAC Drawings ”), which HVAC Drawings shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned  or delayed, (ii) Landlord approves, which approval shall not be unreasonably withheld, conditioned or delayed, the size, capacity, power, location and proposed placement and method of installation of such Supplemental HVAC System, and (iii) Tenant obtains, at its sole cost and expense, and provides copies to Landlord of all necessary governmental permits and approvals for the installation of the Supplemental HVAC System upon the Building.  If appropriate or required, Tenant, at Landlord's direction, shall cause the Supplemental HVAC System to be painted in a nonmetallic paint and/or screened.  In addition, if the HVAC Work will penetrate the roof of the Building, then Tenant shall complete such work in accordance with the reasonable requirements of Landlord’s roofing contractor in order to protect Landlord's roof warranties and unless Landlord approves, in writing,
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 9

any such effect on the Building’ s structure or service systems or any such structural alteration, which approval may be granted or withheld by Landlord in its reasonable discretion.  The Supplemental HVAC System shall be installed by the HVAC Contractor (as defined below) and thereafter shall be properly maintained by Tenant, at Tenant's sole expense.  At the expiration or earlier termination of the Term, the Supplemental HVAC System shall , at Landlord’s election, be removed from the roof of the Building at Tenant's sole cost and expense and that portion of the roof of the Building that has been affected by the Supplemental HVAC System shall be returned to substantially the condition it was in prior to the installation of the Supplemental HVAC System.  Tenant shall pay all subscription fees, usage charges and hookup and disconnection fees associated with Tenant's use of the Supplemental HVAC System and Landlord shall have no liability therefor.  All of the provisions of this Lease, including, without limitation, the insurance, maintenance, repair, release and indemnification provisions shall apply and be applicable to Tenant's installation, operation, maintenance, replacement and removal of the Supplemental HVAC System.  
(b) HVAC Contractor . Prior to the commencement of the HVAC Work, Tenant’s General Contractor shall solicit at least three (3) separate bids from independent, qualified HVAC contractors licensed in the State of California and reasonably acceptable to Landlord to perform all of HVAC Work.  Each Bids shall be promptly delivered to Landlord, and, unless otherwise agreed by Landlord, Tenant shall select the lowest of the three bids.  The contractor selected to complete the HVAC Work shall be referred to herein as the “ HVAC Contractor ”.  
(c) HVAC Allowance .  Landlord shall, subject to the terms and conditions of the Lease and this Work Letter, provide Tenant with a one-time allowance [***] (the “ HVAC Allowance ”) to be applied to the cost of the HVAC Work.  Tenant shall be entitled to use the HVAC Allowance solely for HVAC Allowance Items (as defined below).  In no event shall Landlord be obligated to make disbursements for the HVAC Work in excess of the HVAC Work Allowance.   
(d) Disbursement of the HVAC Allowance .
(i) Allowance Items .  The HVAC Allowance shall be disbursed by Landlord only for the following items and costs (collectively the “ HVAC Allowance Items ”):
(1) The cost of the HVAC Work, including, without limitation, the cost of the HVAC unit(s), exhaust systems for the HVAC units, loading dock roof structural upgrades, sound attenuation, vibration mitigation.
(2) The cost of screening, roof repair, roof access, OSHA compliance and associated governmental compliance.
(3) The costs of Landlord’s engineer and any other consultants retained by Landlord in connection with Landlord’s review of the Design Documents and Constructions Drawings;
(4) Sales and the use taxes; and
(5) Landlord’s administration and supervisory fee of 1%  percent of the hard costs of HVAC Work.
Notwithstanding the foregoing, engineering and design work  costs, permitting, third party inspections and air distribution in the Premises are not HVAC Allowance Items and may not be paid for with the HVAC Allowance but such amounts can be included in the Allowance Items for the Tenant Work Allowance.
(ii) Disbursement of the HVAC Allowance .   Landlord shall pay the HVAC Work Allowance as follows:
(1) Landlord shall make progress payments to Tenant from HVAC Allowance for the hard or soft costs of HVAC Work performed during the previous month, less a retainage of ten percent (10%) of each progress payment to Tenant’s HVAC Contractor for work performed in the prior month (“ Retainage ”), such that if all conditions set forth in this Work Letter to Landlord’s obligation to make a progress payment have been satisfied and (i) the invoice for which Tenant seeks a progress payment for Tenant’s HVAC Contractor states that the Retainage has been deducted from the total amount owed, the progress payment will be for entire amount that is then payable under such invoice, and (ii) the invoice for which Tenant seeks a progress payment does not state that the Retainage has been deducted from the total amount owed to Tenant’s HVAC Contractor, the progress payment will be for ninety percent (90%) of the amount invoiced by Tenant’s HVAC Contractor.
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 10

(2) If Landlord receives Tenant’s request (together with the supporting documentation required hereunder) for a disbursement from the HVAC Work Allowance on or before the twenty-fifth (25th) day of a month, Landlord will make such disbursement not later than on the last day of the first calendar month following the calendar month during which Landlord received such request. If Landlord receives Tenant’s request (together with the supporting documentation required hereunder) for a disbursement from the HVAC Allowance after the twenty-fifth (25th) day of a month, Landlord will make such disbursement within thirty five (35) days.   Each of Tenant’s requisitions for a disbursement from the HVAC Allowance shall be signed by Tenant’s Representative, shall set forth the names of each contractor and subcontractor to whom payment is due or for which Tenant seeks reimbursements for payments made by Tenant and the amount thereof, and shall be accompanied by: (A) with respect to the first requisition, copies of conditional waivers and releases of lien upon progress payment in such form as Landlord reasonably requires from all of Tenant’s contractors and material suppliers covering all work and materials for which the progress payment is being made; (B) after the first requisition, copies of conditional waivers and releases of lien upon progress payment in such form as Landlord reasonably requires from all of Tenant’s contractors and material suppliers covering all work and materials for which the progress payment is being made, together with copies of unconditional waivers and releases of lien upon progress payment in such form as Landlord reasonably requires from all of Tenant’s contractors and material suppliers covering all work and materials which were the subject of previous progress payments by Landlord and Tenant; (C) a certification from Tenant’s Architect that the work for which the requisition is being made has been substantially completed in accordance with the Approved Construction Drawings ; and (D) with respect the first requisition, proof that Tenant’s HVAC Contractor and each of Tenant’s Construction Agents maintain the insurance required hereunder . 
(3) Landlord shall disburse the Retainage within thirty (30) days after the following requirements are satisfied: (A) all building permits for the HVAC Work has been issued by the applicable governmental authorities and copies of such building permits have been delivered to Landlord; (B) all required inspections of HVAC Work by the applicable governmental agencies have taken place and the completed HVAC Work has passed all such inspections; (C) Tenant has completed all of the HVAC Work; (D) Tenant has submitted to Landlord a complete Close Out Package; (E) executed, final unconditional lien waivers for all work performed, and materials furnished, to Tenant’s HVAC Contractor, all Tenant’s Construction Agents, as well as an affidavit from Tenant’s HVAC Contractor that no liens exist as a result of the HVAC Work; and (F) proof that Tenant’s HVAC Contractor and Tenant’s Construction Agents maintain the insurance required hereunder.  All items of HVAC Work paid for with the HVAC Allowance shall be deemed Landlord’s property under the terms of the Lease.
(4) Limitations .  Notwithstanding anything in the Lease or this Work Letter to the contrary, (A) Tenant shall cause the HVAC Allowance to be used solely for HVAC Allowance Items on or before the first (1st) anniversary of the Commencement Date (the “ Deadline for Use ”); (B) any amounts of the HVAC Allowance not applied for within ninety (90) days after the first (1st) anniversary of the Commencement Date shall be forfeited; and (C) Landlord shall have no obligation to provide or disburse all or any portion of the HVAC Allowance so long a monetary event of default by Tenant is continuing under the Lease.
(e) Notwithstanding anything to the contrary contained in this Lease, if roof repairs and/or roof replacements to the Building (the “ Roof Repairs ”) are reasonably necessary, Landlord agrees to use commercially reasonable efforts to complete such repairs in a manner so as to not impact the performance of the Supplemental HVAC System.  If such Roof Repairs could in any way affect the performance of the Supplemental HVAC System, Landlord and Tenant shall, diligently work together in good faith to determine how such Roof Repairs can be performed in a manner so as to limit any impact on the performance of the Supplemental HVAC System.  
6. General Provisions .  
 6.1 Close Out Package .  Within thirty (30) days following the date that Tenant first conducts business at the Premises and, in all events, prior to the disbursement of the Final Disbursement, Tenant shall deliver to Landlord the following (collectively, the “ Close-Out Package ”) (a) two (2) sets of complete “as built” drawings (including, but not limited to, mechanical, electrical, plumbing, fire-protection, fire-alarm and architectural as-built drawings)  and CADD files of the Premises; (b) specifications for all disciplines (where used as a part of the contract documents for Tenant’s Work and HVAC Work); (c) operations and maintenance manuals, operating instructions, warranties and guarantees for all Tenant furnished fixed equipment; (d) copies of all permits, certificates of insurance and business licenses; (e) an original, wet stamped
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 11

approved (by design discipline and governing authorities) permit set and all changes thereto for all disciplines (alternately cd reproducible copies of all permit sets may be substituted provided all governmental approval stamps and signatures are legible and sufficiently dark to reproduce); (f) a valid Notice of Completion evidencing the document has been recorded in the Official Records of Contra Costa County ; and (g) an original certificate of occupancy for the Premises and completed signed inspection cards.  In the event that Tenant does not deliver to Landlord the any of the foregoing within the periods prescribed above, Landlord shall have the right to procure the same on Tenant ’ s behalf and at Tenant ’ s expenses.  Tenant shall reimburse Landlord within thirty (30) days following receipt from Landlord of a statement specifying the costs and fees incurred by Landlord in securing the same.
6.2 Meetings .  Following the commencement of construction of the Tenant’s Work, Tenant shall hold at least weekly meetings with Tenant’s Architect and Tenant’s General Contractor regarding the progress of construction of the Tenant’s Work.  Landlord and/or its agents shall receive prior notice of, and shall have the right to attend, all such meetings.  
 
6.3 Tenant Representative .  Tenant has designated Kevin Green, Lori Roll and Chrystal Menard as its sole representatives with respect to the matters set forth in this Work Letter, who shall each individually have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter, until further written notice to Landlord.
6.4 Landlord’s Representative .  Landlord has designated Doug Messner as Landlord’s sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter.
6.5 Utilities .  During the construction of Tenant’s Work, Landlord shall provide Tenant during Building Standard Business Hours, at no cost to Tenant, non-exclusive access to the Building’s restrooms on the 1st, 5th and 6th floors of the Building (except to the extent Landlord is improving the same), Building loading docks, parking, electricity, cold water, and HVAC service.  Tenant shall, however, pay for all trash and debris removal.
6.6 Tenant’s Default .  Notwithstanding any provision to the contrary contained in the Lease or this Work Letter, upon the occurrence of a default on the part of Tenant under the Lease beyond any applicable notice and cure periods, the filing of a bankruptcy proceeding or upon a default by Tenant under this Work Letter prior to substantial completion of the Turnkey Improvements, then (a) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Improvement Allowance and/or Landlord may cause any and all engineers, architects, contractors, and any other persons associated with the design or construction of the Turnkey Improvements to cease work thereon, and any delay in completion of the Turnkey Improvements shall be deemed a Tenant Delay; and (b) all other obligations of Landlord under the Lease and this Work Letter shall be abated until such time as such default is cured in accordance with the terms of the Lease, or this Work Letter, as applicable.
6.7 Access .  During the period of construction of the Landlord’s Work, Tenant shall check in with the site superintendent and comply with instructions therefrom prior to entering the Landlord Build Premises and otherwise in accordance with the terms and conditions of this Lease.
6.8 Force and Effect .  The terms and conditions of this Work Letter supplement the Lease and shall be construed to be a part of the Lease and are incorporated in the Lease.  Without limiting the generality of the foregoing, any default by Tenant hereunder shall have the same force and effect as a default under the Lease.  Should any inconsistency arise between this Work Letter and the Lease as to the specific matters which are the subject of this Work Letter, the terms and conditions of this Work Letter shall control.

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 12

Schedule 1
Base Building Work
 
1. Landlord , at Landlord’s sole cost and expense, shall update the elevator lobbies and restrooms that service the First Floor Premises, the Fifth Floor Premises and the Sixth Floor Premises with building standard finishes and otherwise in accordance with the Final Plans.
 
2. All existing raised floor within the Premises shall be in good working order and condition.
 
3. All electrical, HVAC, back-up generator, fire, and life safety systems serving the Premises shall be in good working order and condition.

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 13

Schedule 2
Form of Insurance Certificate

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 14

 

 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit D, Page 15

EXHIBIT E
MEMORANDUM CONFIRMING TERMS
THIS MEMORANDUM CONFIRMING TERMS is made as of __________, 20___, with reference to that certain Lease (hereinafter referred to as the “ Lease ”) dated __________, 20___, by and between 1200 CONCORD, LLC, a Delaware limited liability company, as “ Landlord ” therein, and CERUS CORPORATION, a Delaware corporation, as “ Tenant ”, for the demised premises situated at 1220 Concord Ave., Concord, California.
The undersigned hereby confirms the following:
1. In accordance with the provisions of the Lease, the Commencement Date of the Term is __________, 20___, and, unless sooner terminated or extended, the Expiration Date of the Term is __________, 20___.
2. Tenant accepted possession of the Premises (as described in the Lease) on __________, 20___, and acknowledges that the Premises are in good order, condition, and repair; and that the improvements, if any, required to be constructed for Tenant by Landlord under the Lease have been so constructed and are satisfactorily completed in all respects.
3. The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Lease.
4. Tenant has commenced paying rent and is not entitled to any further tenant improvements, rentable abatements or offsets except: [Insert “None” if none] __________.
5. Tenant has not made any prior assignment, hypothecation or pledge of said Lease or of the rents thereunder.
TENANT:
CERUS CORPORATION,
a Delaware corporation
 
By:
Name:
Its:
By:
Name:
Its:
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit E, Page 1

EXHIBIT F
LAB RULES AND REGULATIONS
1. All laboratory equipment (glass and cage washers, sinks, cabinetry, tanks, water production units, sterilizers, centrifuges, etc.) being used must be properly insulated for noise to prevent interruption of other tenants’ business.  Landlord reserves the right to reasonably request certain equipment be insulated prior to occupancy.  Should other tenants complain of noise, lab tenant will be responsible for abating any noise issues, at their sole cost.
2. Notwithstanding anything to the contrary contained in the Lease, all damage to property due to leaks from lab equipment will be the sole responsibility of the Tenant.  Should damage occur in other tenant spaces, any and all damages and clean-up will be the responsibility of the equipment owner.
3. No animal activities shall be permitted within the Premises.
4. All exterior signage relating to laboratory operations (i.e. visible to common areas including corridors) must be kept to the minimum required by Law.  All signs must have Landlord ’s approval prior to installation, except to the extent required by Law in which case Landlord’s consent shall not be required; provided, however, that to the extent such applicable Law grants any discretion as to the type, size and location of any foregoing, then such type, size and location shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld.

 
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit F, Page 1

EXHIBIT F-1
RULES AND REGULATIONS OF THE PREMISES

1.	Landlord shall have the right to control and operate the public portions of the Building and Facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally.  No tenant shall invite to the Premises or permit the visit of persons in such numbers or under such conditions as to interfere with the use and enjoyment of the Building, its entrances, corridors, elevators, parking facilities, and grounds referred herein as the Premises.	
2.	Landlord reserves the right to close and keep locked all entrance and exit doors of the Building outside of normal business hours as Landlord may deem to be advisable for the protection of the property.  All tenants, their employees, or other persons entering or leaving the Building at any time when it is so locked may be required to sign the Building register when so doing, and the watchman in charge may refuse to admit to the Building while it is so locked Tenant or any of Tenant’s employees, or any other person, without a pass previously arranged, or other satisfactory identification showing its right of access to the Building at such time.	
3.	Landlord reserves the right to exclude or expel from the Premises any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall, in any manner, do any act in violation of any of the Rules and Regulations of the Premises or in violation of any law, order, ordinance, or governmental regulation.	
4.	Canvassing, soliciting, or peddling in the Premises is prohibited and each tenant shall cooperate to prevent the same.	
5.	Sidewalks, doorways, vestibules, halls, stairways, and similar areas shall not be obstructed by tenants or their officers, agents, servants, and employees, or used for any purpose other than ingress and egress to and from the Premises and for going from one part of the Building to another part of the Building.	
6.	Plumbing fixtures and appliances shall be used only for the purposes for which constructed and no sweeping, rubbish, rags, or other unsuitable material shall be thrown or placed therein.  Any stoppage or damage resulting to any such fixtures or appliances from misuse on the part of a tenant or such tenant’s officers, agents, servants, and employees shall be paid by such tenant.	
7.	No signs, posters, advertisements, or notices shall be painted or affixed on any of the exterior windows or exterior doors or other part of the Premises visible from outside the Premises, except of such color, size, and style, and in such places, as shall be first approved in writing by Landlord.  Tenant shall use commercially reasonable efforts to minimize the number and size of all penetrations created by nails, hooks, screws, or other hardware.	
8.	A directory will be placed by Landlord, at Landlord’s own expense, in the lobby of the Building.  No other directories shall be permitted without Landlord’s approval.	
9.	Except as agreed as part of the Landlord’s Work, Tenant’s Work or any Alterations, Landlord shall have the power to prescribe the weight and position of safes or other heavy equipment on all Premises, which may over stress any portion of the floor.  All damage done to the Building by the improper placing of heavy items, which overstress the floor, will be repaired at the sole expense of tenant.	
10.	Tenant shall notify the Building manager when safes or other heavy equipment are to be taken into or out of the Building.  Moving of such items shall be done only after receiving permission from Landlord and under its supervision, which permission shall not be unreasonably withheld, conditioned or delayed.	
11.	Corridor doors shall be kept closed.  When the Building is not in use, the corridor doors shall be left locked.	
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit F-1, Page 1

12.	Deliveries within the Building shall be made by using the service elevator during hours which will be reasonably determined by Landlord from time-to-time.  Prior approval must be obtained from Landlord for any deliveries that must be received after normal working hours.	
13.	Tenant shall cooperate with Building employees in keeping the Premises neat and clean.	
14.	Nothing shall be swept or thrown into the corridors, halls, elevator shafts, or stairways.  No animals, or any other creatures shall be brought into or kept in or about the Building, excluding Guide Dogs for the Blind.  	
15.	Should a tenant require telegraphic, telephonic, annunciator, or any other communication service, Landlord will direct the electricians and installers where and how the wires are to be introduced and placed, and none shall be introduced or placed except as Landlord shall direct.	
16.	Tenant shall not make or permit any unseemly, disturbing, or improper noises, odors, or vibrations on the Premises, nor permit the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other tenants, nor otherwise interfere in any way with other tenants, or persons having business with them.	
17.	Tenant shall not cook or permit any cooking on the Premises, except for the use of catering kitchens (provided that no hood is required and odors do not extend outside of the Premises), microwave cooking and use of coffee machines and similar kitchen appliances by Tenant's employees for their own consumption.  Tenant shall not cause or permit any unusual or objectionable cooking odor to be produced upon or emanate from the Premises.	
18.	No equipment of any kind shall be operated on the Premises that unreasonably annoy any other tenant in the Building without the prior written consent of Landlord.	
19.	Except as otherwise expressly provided in the Lease (and then only in strict accordance therewith), Tenants shall not use or keep in the Premises any flammable or explosive fluid or substance or any illuminating material, unless it is battery powered, UL approved.	
20.	Landlord has the right, but not the obligation, to evacuate the Premises in event of emergency or catastrophe.	
21.	All electrical fixtures hung in the Premises must be fluorescent and of quality, type, design, bulb color, size, and general appearance approved by Landlord.	
22.	No water cooler, air conditioning unit or system, or other apparatus shall be installed or used by Tenant without prior written consent of Landlord, which consent shall not be unreasonably withheld.	
23.	No awnings or other projections over or around the windows or entrances of the Premises shall be installed by any tenant.  Tenant shall not change or alter the window coverings in any manner.  Notwithstanding the foregoing, Tenant shall be allowed to cover the windows of the First Floor Lab Space as needed in connection with the operation of such space in accordance with the Permitted Use; provided, however, that all such window coverings shall be subject to Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed but may be conditioned upon Tenant’s agreement to remove such window coverings upon the expiration of earlier termination of the Lease.  Notwithstanding the foregoing, Tenant shall not be required to obtain Landlord’s consent for any window coverings required by Law in connection with the Permitted Use; provided, however, that if the applicable Law provide any discretion in the type or nature of window coverings, then such window coverings shall be subject to Landlord’s prior written consent, which consent shall not be unreasonably withheld.	
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit F-1, Page 2

24.	Landlord is not responsible to any tenant for the non-observance or violation of the Rules and Regulations by any other tenant.	
25.	No tenant shall, at any time, occupy any part of the Premises as sleeping or lodging quarters.	
26.	No tenant shall obtain or accept for use in the Premises, janitorial services, ice, coffee service, catering, barbering, or bootblacking from any person not authorized by Landlord in writing to furnish such services, which authorization shall not be unreasonably withheld, conditioned or delayed.	
27.	Tenant shall not advertise the business, profession, or activities of Tenant in any manner, which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining thereto or use the name of the Premises for any purpose other than that of the business address of Tenant.	
28.	Landlord reserves the right to rescind any of these rules and make such other and further reasonable, non-discriminatory rules and regulations as in the reasonable judgment of Landlord shall from time-to-time be needed for the safety, protection, care, and cleanliness of the Premises, the operation thereof, the preservation of good order therein, and the protection and comfort of its tenants, their agents, employees and invitees, which rules when made and notice thereof given to a tenant shall be binding upon him in like manner as if originally herein prescribed.	
29.	Tenant shall exercise control over its employees, agents, and invitees so that they do not litter the Premises and shall be responsible for any additional expense, which Landlord incurs to remedy any littering by such persons.	
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit F-1, Page 3

EXHIBIT G
FORM OF INSURANCE CERTIFICATE

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit G, Page 1

 
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit , Page 2

EXHIBIT H
FORM OF SNDA
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT  AGREEMENT (this “ Agreement ”) is entered into as of ________________, 20__ (the “ Effective Date ”) by and between ACORE CAPITAL MORTGAGE, LP , a Delaware limited partnership (“ Administrative Agent ”), as administrative agent for DELPHI CRE FUNDING LLC , a Delaware limited liability company (together with its successors and assigns, the “ Lender ”), and ________________, a ________________ (together with its permitted successors and assigns, the “ Tenant ”), with reference to the following facts:

A.	________________, a ________________, whose address is ______________________________ (the “ Landlord ”) owns fee simple title or a leasehold interest in the real property described in Exhibit “A” attached hereto (the “ Property ”).	
B.	Lender is the current holder of a loan to Landlord in the original principal amount of [________________] Dollars ($[________________]) (the “ Loan ”).	
C.	The Loan is secured by, among other things, that certain [Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing] dated ________________, 20__ in favor of Lender, recorded in the ________________ County Clerk’s Office as Instrument Number _____________ in Book _______, Page _______ (as may be further amended, increased, renewed, extended, spread, consolidated, severed, restated, or otherwise changed from time to time, the “ Deed of Trust ”).	
D.	Pursuant to that certain [Lease] effective ________________, [as amended by ________________] (the “ Lease ”), Landlord demised to Tenant a portion of the Property consisting of the following (the “ Leased Premises ”):  __________________________.	
E.	Tenant and Lender desire to agree upon the relative priorities of their interests in the Property and their rights and obligations if certain events occur.	
NOW, THEREFORE, for good and sufficient consideration, Tenant and Lender agree:
1. Definitions .  The following terms shall have the following meanings for purposes of this Agreement.
a. Foreclosure Event .  A “Foreclosure Event” means:  (i) foreclosure under the Deed of Trust; (ii) any other exercise by Lender of rights and remedies (whether under the Deed of Trust or under applicable law, including bankruptcy law) as holder of the Loan and/or the Deed of Trust, as a result of which a Successor Landlord becomes owner of the Property; or (iii) delivery by Landlord to Lender (or its designee or nominee) of a deed or other conveyance of Landlord’s interest in the Property in lieu of any of the foregoing.
b. Former Landlord .  A “Former Landlord” means Landlord and any other party that was landlord under the Lease at any time before the occurrence of any attornment under this Agreement.
c. Offset Right .  An “Offset Right” means any right or alleged right of Tenant to any offset, defense (other than one arising from actual payment and performance, which payment and performance would bind a Successor Landlord pursuant to this Agreement), claim, counterclaim, reduction, deduction, or abatement against Tenant’s payment of Rent or performance of Tenant’s other obligations under the Lease, arising (whether under the Lease or under applicable law) from Landlord’s breach or default under the Lease.
d. Rent .  The “Rent” means any fixed rent, base rent or additional rent under the Lease.
e. Successor Landlord .  A “Successor Landlord” means any party that becomes owner of the Property as the result of a Foreclosure Event.
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SNDA ([Tenant/Lease]) - [Concord Airport Plaza]

f. Termination Right .  A “ Termination Right ” means any right of Tenant to cancel or terminate the Lease or to claim a partial or total eviction arising (whether under the Lease or under applicable law) from Landlord ’ s breach or default under the Lease.
g. Other Capitalized Terms .  If any capitalized term is used in this Agreement and no separate definition is contained in this Agreement, then such term shall have the same respective definition as set forth in the Lease.
2. Subordination .  Subject to the terms of this Agreement, the Lease, as the same may hereafter be modified, amended or extended,  shall be, and shall at all times remain, subject and subordinate to the terms conditions and provisions of the Deed of Trust, the lien imposed by the Deed of Trust, and all advances made under the Deed of Trust.
3. Nondisturbance, Recognition and Attornment .
a. No Exercise of Deed of Trust Remedies Against Tenant .  So long as the Tenant is not in default under this Agreement or under the Lease beyond any applicable grace or cure periods (an “Event of Default”), Lender (i) shall not terminate or disturb Tenant’s possession of the Leased Premises under the Lease, except in accordance with the terms of the Lease and this Agreement and (ii) shall not name or join Tenant as a defendant in any exercise of Lender’s rights and remedies arising upon a default under the Deed of Trust unless applicable law requires Tenant to be made a party thereto as a condition to proceeding against Landlord or prosecuting such rights and remedies.  In the latter case, Lender may join Tenant as a defendant in such action only for such purpose and not to terminate the Lease or otherwise adversely affect Tenant’s rights under the Lease or this Agreement in such action.
b. Recognition and Attornment .  Upon Successor Landlord taking title to the Property (i) Successor Landlord shall be bound to Tenant under all the terms and conditions of the Lease (except as provided in this Agreement); (ii) Tenant shall, subject to the terms of this Agreement, recognize and attorn to Successor Landlord as Tenant’s direct landlord under the Lease as affected by this Agreement; and (iii) the Lease shall continue in full force and effect as a direct lease, in accordance with its terms (except as provided in this Agreement), between Successor Landlord and Tenant.  Tenant hereby acknowledges notice that pursuant to the Deed of Trust and assignment of rents, leases and profits, Landlord has granted to the Lender an absolute, present assignment of the Lease and Rents which provides that Tenant continue making payments of Rents and other amounts owed by Tenant under the Lease to or at the direction of the Landlord and to recognize the rights of Landlord under the Lease until notified otherwise in writing by the Lender.  After receipt of such notice from Lender, the Tenant shall thereafter make all such payments directly to the Lender or as the Lender may otherwise direct, without any further inquiry on the part of the Tenant.  Landlord consents to the foregoing and waives any right, claim or demand which Landlord may have against Tenant by reason of such payments to Lender or as Lender directs.
c. Further Documentation .  The provisions of this Article 3 shall be effective and self-operative without any need for Successor Landlord or Tenant to execute any further documents.  Tenant and Successor Landlord shall, however, confirm the provisions of this Article 3 in writing upon request by either of them within ten (10) days of such request.
4. Protection of Successor Landlord .  Notwithstanding anything to the contrary in the Lease or the Deed of Trust, Successor Landlord shall not be liable for or bound by any of the following matters:
a. Claims Against Former Landlord .  Any Offset Right that Tenant may have against any Former Landlord relating to any event or occurrence before the date of attornment, including any claim for damages of any kind whatsoever as the result of any breach by Former Landlord that occurred before the date of attornment.  The foregoing shall not limit either (i) Tenant’s right to exercise against Successor Landlord any Offset Right otherwise available to Tenant because of events occurring after the date of attornment or (ii) Successor Landlord’s obligation to correct any conditions that existed as of the date of attornment and violate Successor Landlord’s continuing obligations as landlord under the Lease.
 b. Prepayments .  Any payment of Rent that Tenant may have made to Former Landlord more than thirty (30) days before the date such Rent was first due and payable under the Lease with respect to any period after the date of attornment other than, and only to the extent that, (i) the Lease
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
expressly required such a prepayment or such prepayment shall have been expressly approved by Successor Landlord or (ii) a prepayment that has been actually received by Successor Landlord .
c. Payment; Security Deposit; Work .  Any obligation:  (i) to pay Tenant any sum(s) that any Former Landlord owed to Tenant unless such sums, if any, (a) shall have been actually delivered to Lender by way of an assumption of escrow accounts or otherwise or (b) shall have been expressly approved by Lender or contained in the Lease; (ii) with respect to any security deposited with Former Landlord, unless such security deposit was actually delivered to Lender; (iii) to commence or complete any initial construction of improvements in the Leased Premises or any expansion or rehabilitation of existing improvements thereon; (iv) to reconstruct or repair improvements following a fire, casualty or condemnation not required to be insured under the Lease or for the costs of any restorations in excess of any proceeds recovered under any insurance required to be carried under the Lease; or (v) arising from representations and warranties related to Former Landlord.
d. Modification, Amendment or Waiver .  Any modification or amendment of the Lease, or any waiver of the terms of the Lease, made without Lender’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.
e. Surrender, Etc.   Any consensual or negotiated surrender, cancellation, or termination of the Lease, in whole or in part, agreed upon between Landlord and Tenant, unless effected unilaterally by Tenant pursuant to the express terms of the Lease or expressly approved by Lender.
5. Exculpation of Successor Landlord .  Notwithstanding anything to the contrary in this Agreement or the Lease, Successor Landlord’s obligations and liability under the Lease shall never extend beyond Successor Landlord’s (or its successors’ or assigns’) interest, if any, in the Leased Premises from time to time, including insurance and condemnation proceeds, security deposits, escrows, Successor Landlord’s interest in the Lease, and the proceeds from any sale, lease or other disposition of the Property (or any portion thereof) by Successor Landlord (collectively, the “Successor Landlord’s Interest”).  Tenant shall look exclusively to Successor Landlord’s Interest (or that of its successors and assigns) for payment or discharge of any obligations of Successor Landlord under the Lease as affected by this Agreement.  If Tenant obtains any money judgment against Successor Landlord with respect to the Lease or the relationship between Successor Landlord and Tenant, then Tenant shall look solely to Successor Landlord’s Interest (or that of its successors and assigns) to collect such judgment.  Tenant shall not collect or attempt to collect any such judgment out of any other assets of Successor Landlord.
6. Lender’s Right to Cure .  Notwithstanding anything to the contrary in the Lease or this Agreement, before exercising any Offset Right or Termination Right:
a. Notice to Lender .  Tenant shall provide Lender with notice of the breach or default by Landlord giving rise to same (the “Default Notice”) and, thereafter, the opportunity to cure such breach or default as provided for below.
b. Lender’s Cure Period .  After Lender receives a Default Notice, Lender shall have a period of thirty (30) days beyond the time available to Landlord under the Lease in which to cure the breach or default by Landlord.  Lender shall have no obligation to cure (and shall have no liability or obligation for not curing) any breach or default by Landlord, except to the extent that Lender agrees or undertakes otherwise in writing.  In addition, as to any breach or default by Landlord the cure of which requires possession and control of the Property, provided that Lender undertakes by written notice to Tenant to exercise reasonable efforts to cure or cause to be cured by a receiver such breach or default within the period permitted by this paragraph, Lender’s cure period shall continue for such additional time (the “Extended Cure Period”) as Lender may reasonably require to either:  (i) obtain possession and control of the Property with due diligence and thereafter cure the breach or default with reasonable diligence and continuity; or (ii) obtain the appointment of a receiver and give such receiver a reasonable period of time in which to cure the default.
7. Miscellaneous .
 a. Notices .  Any notice or request given or demand made under this Agreement by one party to the other shall be in writing, and may be given or served by hand-delivered personal service, or by depositing the same with a reliable overnight courier service or by deposit in the United States mail, postpaid, registered or certified mail, and addressed to the party to be notified, with return receipt requested or by telefax transmission, with the original machine- generated transmit
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
confirmation report as evidence of transmission.  Notice deposited in the mail in the manner hereinabove described shall be effective from and after the expiration of three (3) days after it is so deposited; provided , however , delivery by overnight courier service shall be deemed effective on the next succeeding business day after it is so deposited and notice by personal service or telefax transmission shall be deemed effective when delivered to its addressee or within two (2) hours after its transmission unless given after 3:00 p.m. on a business day, in which case it shall be deemed effective at 9:00 a.m. on the next business day.  For purposes of notice, the addresses and telefax number of the parties shall, until changed as herein provided, be as follows:

 	i.	If to the Lender, at:	
 Delphi CRE Funding LLC
c/o ACORE Capital Mortgage, LP
80 E. Sir Francis Drake Blvd., Suite 2A
Larkspur, California 94939
 Attention:  Stew Ward, Managing Partner
Email:  notices@acorecapital.com

 	ii.	If to the Tenant, at:	

Attention:  
Email:  
b. Successors and Assigns .  This Agreement shall bind and benefit the parties, their successors and assigns, any Successor Landlord, and its successors and assigns.  If Lender assigns the Deed of Trust, then upon delivery to Tenant of written notice thereof accompanied by the assignee’s written assumption of all obligations under this Agreement, all liability of the assignor shall terminate.
c. Entire Agreement .  This Agreement constitutes the entire agreement between Lender and Tenant regarding the subordination of the Lease to the Deed of Trust and the rights and obligations of Tenant and Lender as to the subject matter of this Agreement.
d. Interaction with Lease and with Deed of Trust .  If this Agreement conflicts with the Lease, then this Agreement shall govern as between the parties and any Successor Landlord, including upon any attornment pursuant to this Agreement.  This Agreement supersedes, and constitutes full compliance with, any provisions in the Lease that provide for subordination of the Lease to, or for delivery of nondisturbance agreements by the holder of, the Deed of Trust.
e. Lender’s Rights and Obligations .  Except as expressly provided for in this Agreement, Lender shall have no obligations to Tenant with respect to the Lease.  If an attornment occurs pursuant to this Agreement, then all rights and obligations of Lender under this Agreement shall terminate, without thereby affecting in any way the rights and obligations of Successor Landlord provided for in this Agreement.
f. Interpretation; Governing Law .  The interpretation, validity and enforcement of this Agreement shall be governed by and construed under the internal laws of the State in which the Leased Premises are located, excluding such State’s principles of conflict of laws.
g. Amendments .  This Agreement may be amended, discharged or terminated, or any of its provisions waived, only by a written instrument executed by the party to be charged.
h. Due Authorization .  Tenant represents to Lender that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions.  Lender represents to Tenant that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions.
i. Execution .  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
IN WITNESS WHEREOF, Lender and Tenant have caused this Agreement to be executed as of the date first above written.

 	LENDER :

ACORE CAPITAL MORTGAGE, LP ,
a Delaware limited liability company
 
By:     ACORE Capital, LP,
a Delaware limited partnership,
its Authorized Signatory
 
By:      ACORE Capital GP, LLC,
a Delaware limited liability company, its general partner

By:__________________________
Name: ____________________
Title:  _____________________

 
 	 
TENANT :

____________________________ 
 a ___________________________

By:_________________________
Name:
Title:	
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
LANDLORD ’ S CONSENT
Landlord consents and agrees to the foregoing Agreement, which was entered into at Landlord’s request.  The foregoing Agreement shall not alter, waive or diminish any of Landlord’s obligations under the Deed of Trust or the Lease.  The above Agreement discharges any obligations of Lender under the Deed of Trust and related loan documents to enter into a nondisturbance agreement with Tenant.  Landlord is not a party to the above Agreement.

 	LANDLORD :

____________________________ 
 a ___________________________
 
By:___________________________
Name:
Title:	
Dated:  __________________, 20__	 	
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SNDA ([Tenant/Lease]) - [Concord Airport Plaza]

ADMINISTRATIVE AGENT ’ S ACKNOWLEDGMENT

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

 

State of California
County of _____________________________)
On _________________________ before me, ________________________________________ (insert name and title of the officer)
personally appeared ____________________________________________________________,
who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ______________________________ (Seal)
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SNDA ([Tenant/Lease]) - [Concord Airport Plaza]

TENANT ’ S ACKNOWLEDGMENT

	
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.	
State of California )
County of __________ )
On _____________________________, 20__, before me, ________________________, a Notary Public, personally appeared _______________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ____________________________________ (Seal)
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SNDA ([Tenant/Lease]) - [Concord Airport Plaza]

LANDLORD ’ S ACKNOWLEDGMENT

	
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.	
State of California )
County of __________ )
On _____________________________, 20__, before me, ________________________, a Notary Public, personally appeared _______________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ____________________________________ (Seal)

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
LIST OF EXHIBITS
If any exhibit is not attached hereto at the time of execution of this Agreement, it may thereafter be attached by written agreement of the parties, evidenced by initialing said exhibit.
Exhibit “A” - Legal Description of the Land

[TO BE PROVIDED]

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
EXHIBIT I
FORM OF L-C

SPECIMEN LANGUAGE ONLY
EXHIBIT A
COMERICA BANK HAS PREPARED THIS SPECIMEN UPON THE REQUEST AND BASED ON THE INFORMATION PROVIDED. NO REPRESENTATION AS TO THE ACCURACY OR WILLINGNESS FOR COMMITMENT IS MADE BY COMERICA BANK TO ISSUE THIS LETTER OF CREDIT IN THIS OR ANY OTHER FORM. WHEN SIGNED, THIS EXHIBIT A WILL BECOME AN INTEGRAL PART OF THE CORRESPONDING STANDBY LETTER OF CREDIT APPLICATION AND AGREEMENT.
 
    APPROVED BY Cerus Corporation
    APPLICANT'S SIGNATURE___________________________________________ DATE____________________________

		
Beneficiary:
1200 Concord, LLC
c/o Sierra Pacific Properties
Attn: President
1800 Willow Pass Court
Concord, CA 94520
 
 	Applicant:
Cerus Corporation
550 Stanwell Dr.
Concord, CA, 94520

Specimen Date:
December 28, 2017
 	Date and Place of Expiry:
December 1, 2018 office of Issuing Bank
or any automatically extended date, as herein defined.
 	
Amount:
 USD 2,500,000.00  Two Million Five Hundred Thousand Only United States Dollars
 	 	
We hereby open our Irrevocable Standby Letter of Credit no. <<Instrument ID>> in your favor, for account of Cerus Corporation for a sum not exceeding USD 2,500,000.00 (Two Million Five Hundred Thousand and 00/100 U.S. Dollars) available by your draft(s) at sight on Comerica Bank when accompanied by:
 
1. The original of this Irrevocable Standby Letter of Credit and Amendment(s) if any.
 
2. Beneficiary’s statement on its letterhead dated and signed by the Beneficiary, indicating name and title of the signer using either of the wording as follows:
 
A. The undersigned hereby certifies this draw in the amount of (insert amount in words) U.S. Dollars (USD (insert amount in figures)) under your Irrevocable Standby Letter of Credit no. <<Instrument ID>> represents funds due and owing to us pursuant to the terms of that certain lease by and between 1200 Concord, LLC, and Cerus Corporation, as tenant, and/or any amendment to the lease or any other agreement between such parties related to the lease.
 
or
 
B. The undersigned hereby certifies that we have received a written notice of Comerica Bank’s election not to extend their Irrevocable Standby Letter of Credit no. <<Instrument ID>> and have not received a replacement Letter of Credit or any other financial assurance satisfactory to us from Cerus Corporation.
 
Special Conditions:
 
All signatures must be manually executed in original.
 
All information required whether indicated by blanks, brackets or otherwise, must be completed at the time of drawing.
 
Partial drawings and multiple presentations may be made under this Irrevocable Standby Letter of Credit, provided, however, that each such demand that is paid by us shall reduce the amount available under this Irrevocable Standby Letter of Credit.
 
 It is a condition of this Irrevocable Standby Letter of Credit that it shall be deemed automatically extended without amendment for a period of one year from the present or any future expiration date, unless at least thirty (30) days prior to the expiration date we send you notice by overnight courier that we elect not to extend this Irrevocable Standby Letter of Credit for any such additional period.  A copy of this notice will also be sent for information only, in the same manner to: 1200 Concord LLC c/o Sierra Pacific Properties, Attn: President, 1800 Willow Pass Court, Concord, CA 94520 and to 1200 Concord LLC 4021 Port Chicago Highway, Concord, California 94520 Attn: Legal Department. The original notification will be sent to the Beneficiary at the address indicated above, unless a change of address is otherwise notified by you to us in writing by receipted mail or courier. In no event, and without further notice from ourselves, will this Irrevocable Standby Letter of Credit be extended beyond December 1, 2028 which shall be the final expiration date of this Irrevocable Standby Letter of Credit.
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit I, Page 1

 
This Irrevocable Standby Letter of Credit may be successively transferable in its entirety (but not in part) up to the then available amount in favor of a nominated Transferee ("Transferee"), assuming such transfer to such Transferee is in compliance with all applicable U.S. laws and regulations. If transferred, this Standby Letter of Credit must be returned to us together with our transfer form (available upon request), duly executed. In case of any transfer, the draft and any required statement must be executed by the Transferee and where the Beneficiary's name appears within this Irrevocable Standby Letter of Credit, the Transferee’s name is automatically substituted therefore. At the time of the transfer request, the original of this Irrevocable Standby Letter of Credit and any amendment(s) thereto must be provided. Comerica Bank will not assume or undertake any liability or responsibility for verifying, validating or authenticating the authority or rights of any party(ies) requesting the transfer of this Irrevocable Standby Letter of Credit or executing any document(s) in connection therewith.
 
All fees relating to this Irrevocable Standby Letter of Credit, including any and all transfer related costs shall be paid by the Applicant.
 
Notwithstanding any preprinted wording to the contrary on our standard transfer form, payment of all transfer fees is for the Applicant’s account.
 
In the event this Irrevocable Standby Letter of Credit is transferred to a new Beneficiary, the provision in the “automatic extension” clause reading: “A copy of this notice will also be sent for information only, in the same manner to: 1200 Concord LLC c/o Sierra Pacific Properties, Attn: President, 1800 Willow Pass Court, Concord, CA 94520 and to 1200 Concord LLC 4021 Port Chicago Highway, Concord, California 94520 Attn: Legal Department.” is to be disregarded, as it only applied to the first beneficiary.
 
All drafts required under this Irrevocable Standby Letter of Credit must be marked: ''Drawn under Comerica Bank Irrevocable Standby Letter of Credit no. <<Instrument ID>>.''
 
In the case of cancellation, the original Irrevocable Standby Letter of Credit and all Amendments thereto must be returned to us together with a written request from Beneficiary referencing this Irrevocable Standby Letter of Credit number and authorizing its cancellation.
 
All documents are to be dispatched in one lot by courier service or hand delivery to Comerica Bank International Trade Services, 2321 Rosecrans Ave., 5th fl., El Segundo, CA 90245, Attn: Standby Letter of Credit Dept.
 
All communications to us with respect to this Irrevocable Standby Letter of Credit must be addressed to our office located at International Trade Services, 2321 Rosecrans Ave., 5 th floor, El Segundo, CA 90245 to the attention of Standby Letter of Credit Dept. and must include this Irrevocable Standby Letter of Credit number.
 
This Irrevocable Standby Letter of Credit sets forth in full the terms of our undertaking and such undertaking shall not be in any way modified, amended or amplified by reference to any document, instrument or agreement referred to herein or in which this Irrevocable Standby Letter of Credit is referred to or to which this Irrevocable Standby Letter of Credit relates, and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement.
 
We hereby engage with you that all drawing(s) made under and in compliance with the terms of this Irrevocable Standby Letter of Credit will be duly honored if drawn and presented for payment at our office located at Comerica Bank International Trade Services, 2321 Rosecrans Ave., 5th Fl., El Segundo, CA 90245, Attn: Standby Letter of Credit Dept. on or before the expiration date of this credit, or any automatically extended date.
 
We further acknowledge and agree that upon receipt of the documentation required herein, we will honor your draws against this Irrevocable Standby Letter of Credit without inquiry into the accuracy of Beneficiary’s signed statement and regardless of whether Applicant disputes the content of such statement.
 
Except so far as otherwise expressly stated herein, this Irrevocable Standby Letter of Credit is subject to the ''International Standby Practices'' (ISP 98) International Chamber of Commerce (Publication No. 590) (the “Uniform Customs”).  This Irrevocable Standby Letter of Credit shall be deemed to be issued under the laws of the State of California, and shall, as to matters not otherwise governed by the Uniform Customs, be governed by and construed in accordance with the laws of the State of California, without regard to the principals of conflicts of law.

END OF SPECIMEN FORMAT

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit I, Page 2

EXHIBIT J
SIGN CRITERIA
 
NONE

 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit J, Page 1

Exhibit K
Janitorial Specifications
Daily:
 
Vacuum carpeted traffic lanes, spot clean as necessary (spots limited to approx. size of half dollar).
Wet or dry mop all non-carpeted floor areas.
Empty all trash and recycling receptacles and any other items clearly marked “Trash/Basura ” or “Recycling”, wipe out containers as necessary and replace liners.
Remove recyclable items from a central location within the suite as needed.
Remove fingerprints, smudges etc. from light switches.
Clean all drinking fountains.
Clean and wipe kitchen sinks and counter tops.
Wipe kitchen/break room table tops and chairs.
Wipe front of refrigerator, dishwasher and ice maker.
Empty all restroom trash receptacles, replace liners.
Wash, disinfect all basins, bowls, commode seats and urinals.  
Damp wipe all partitions, piping, toilet seat hinges, flushometers and other metal surfaces.
Toilet seats are to be left in the upright position.
Spot wash restroom walls and doors.
Clean all restroom mirrors and bright work.
Report any restroom fixtures not working properly.
Restock all restroom supplies and paper products.
Turn off all lights and secure/lock all doors.
Removal of trash and recycling in lab areas.  Subject to the terms and conditions of Section 13(a) of the Lease, such removal of trash shall include trash labeled “Biohazard Autoclave” that has been properly and lawfully treated and disposed of in legally required biohazardous disposal bags; provided, however, in no event shall such trash include needles or other “sharps”.
 
Weekly:
 
Dust tops of file cabinets, chair rails, door louvers, window sills and similar horizontal surfaces.
Remove fingerprints and smudges from glass panels at suite entrances and within suites.
Vacuum all carpet.
 
Monthly:
 
High dust corners, edges, tops of tall file cabinets etc.
Spray buff and polish all non-carpeted floor areas as needed.
Clean, wipe chair legs, bases.
 
Quarterly:
 
Dust and wipe clean window blinds.
Machine scrub restroom floors.
Deep carpet cleaning, at Tenant’s request and Tenant’s sole cost.
Strip and wax floors in lab areas, at Tenant’s request and Tenant’s sole cost.  

 
 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit K, Page 1

Exhibit L
Exclusive Use Loading Dock

 
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit L, Page 1

Exhibit 31.1
CERTIFICATION
I, William M. Greenman, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Cerus Corporation;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
Date: May 8, 2018	 	/s/ William M. Greenman 	
 	 	William M. Greenman	
 	 	President and Chief Executive Officer
(Principal Executive Officer)	

Exhibit 31.2
CERTIFICATION
I, Kevin D. Green, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Cerus Corporation;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
Date: May 8, 2018	 	/s/ Kevin D. Green 	
 	 	Kevin D. Green	
 	 	Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)	

Exhibit 32.1
CERTIFICATION
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), William M. Greenman, the Chief Executive Officer of Cerus Corporation (the “Company”) and Kevin D. Green, the Chief Financial Officer of the Company, hereby certify that, to the best of their knowledge:
1. The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018, and to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and
2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 8th day of May, 2018.
 
/s/ William M. Greenman 	
William M. Greenman	
President and Chief Executive Officer (Principal Executive Officer)	
 	
/s/ Kevin D. Green 	
Kevin D. Green	
Vice President, Finance and Chief Financial Officer (Principal Financial Officer)	
 
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Cerus Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.