Contract analysis

I. Executive Summary This memorandum analyzes the impact of the Genome Dx Therapeutics Inc. ("GDT") board of directors' May 22, 2024 resolution to defer the commercial launch of OncoPrecise GXP-47 indefinitely on GDT's compliance with the milestone covenant set forth in Section 7.14 of the Revolving Facility Credit Agreement (the "Credit Agreement") between GDT and Pacific Coast National Bank ("PCNB"), dated Septembe

II. Background A. The Revolving Facility On September 22, 2023, GDT entered into a Revolving Facility Credit Agreement with PCNB (Credit Agreement Reference: PCNB-GDT-RF-2023-0922). The key terms of the facility are as follows: Borrower: Genome Dx Therapeutics Inc. (EIN: 83-2947156), a Delaware corporation with its principal office located at 4720 Torrey Pines Road, Suite 300, San Diego, CA 92130. Lender: Pacific Coa

Section 7.14 of the Credit Agreement contains a milestone covenant that establishes a performance-based condition tied to GDT's Medicare reimbursement trajectory. The operative language of Section 7.14 provides, in relevant part: "Borrower shall, on or before December 31, 2024, obtain a final Medicare coverage determination (whether by LCD, NCD, or equivalent published coverage policy) for at least one proprietary la

III. Legal Analysis of the Milestone Covenant A. Threshold Question: Does the Existing GXP-12 LCD Satisfy Section 7.14? The core interpretive question presented by the GXP-47 launch deferral is whether Section 7.14's requirement that GDT "obtain a final Medicare coverage determination... for at least one proprietary laboratory-developed test developed by Borrower" can be satisfied by reference to the pre-existing LCD

1. Plain-Language Reading — "At Least One" Test. The covenant requires GDT to "obtain a final Medicare coverage determination... for at least one proprietary laboratory-developed test developed by Borrower." OncoPrecise GXP-12 is, indisputably, a proprietary laboratory-developed test developed by GDT. LCD L38472 is a "final Medicare coverage determination" in the form of an LCD — one of the specific coverage-determin

2. No Express Requirement for a "New" Determination. Section 7.14 does not explicitly state that GDT must obtain a "new" or "additional" Medicare coverage determination. It does not reference OncoPrecise GXP-47 by name or by any identifying characteristic that would distinguish it from OncoPrecise GXP-12. The covenant language is product-agnostic. If PCNB intended to require a new or additional coverage determination

3. Continuing Validity of LCD L38472. LCD L38472 remains in full force and effect. It has not been retired, revised, or rescinded by CFI. GDT continues to submit Medicare claims and receive reimbursement under the LCD. The coverage determination is operative and has ongoing commercial effect. If the purpose of the covenant was to ensure that GDT had a viable Medicare reimbursement pathway for at least one product — t

4. Industry Context and Commercial Reasonableness. Medicare coverage determinations — whether LCDs or NCDs — are not obtained instantaneously. They are the product of lengthy, resource-intensive regulatory processes involving clinical evidence compilation, MolDx technical assessment review, public notice-and-comment periods, and administrative deliberation. A construction of the covenant that treats a pre-existing, a

1. Verb Tense — "Shall... Obtain." The use of the future-tense construction "shall... obtain" in conjunction with a specific deadline ("on or before December 31, 2024") strongly implies a forward-looking obligation. The operative verb "obtain" denotes an affirmative action to be taken in the future — the procurement of something not yet in hand. As of the Credit Agreement's execution date of September 22, 2023, GDT h

2. Purposive Interpretation. The milestone covenant was almost certainly negotiated as a performance milestone tied to GDT's product pipeline and commercialization trajectory. At the time the Credit Agreement was negotiated in mid-to-late 2023, GDT's business plan and investor materials would have highlighted OncoPrecise GXP-47 as the company's principal growth catalyst — the next-generation product expected to subst

4. Negotiating History and Commercial Context. While we have not reviewed the full negotiating history or term sheet for the Credit Agreement (this review should be conducted by Whitford & Sable LLP), we expect that the drafting history may contain evidence confirming that the covenant was specifically intended to require a new coverage determination. The term sheet, credit committee memoranda, or correspondence betw

5. Lender's Likely Position. From a practical standpoint, PCNB's lending group would almost certainly take the position that the milestone covenant was a material inducement to extending the facility — designed to ensure that GDT's clinical-stage pipeline product would achieve a commercial reimbursement milestone within a defined period. Allowing GDT to point to a pre-existing, already-known LCD would, in PCNB's view

IV. Timeline and Cure Period Analysis A. Covenant Testing Date The covenant testing date under Section 7.14 is December 31, 2024. As of the date of this memorandum (May 28, 2024), approximately seven months remain before the testing date. We have assessed whether it would be feasible for GDT to satisfy the milestone covenant by obtaining a new Medicare coverage determination for OncoPrecise GXP-47 (or any other produ

V. Strategic Options and Recommendations Based on the foregoing analysis, we have identified four strategic options for GDT's consideration. We discuss each option and its associated risks, benefits, and practical considerations below, followed by our recommended course of action. A. Option 1: Proactive Engagement with PCNB for Covenant Waiver or Amendment We recommend that GDT proactively approach PCNB to discuss th

VI. Coordination with Other Advisors The milestone covenant issue implicates multiple aspects of GDT's legal, financial, and operational affairs. We recommend that GDT coordinate with the following advisors: Whitford & Sable LLP (Harrison Whitford; Danielle Reeves). Whitford & Sable LLP serves as GDT's regular outside counsel for corporate and credit agreement matters. Whitford & Sable should take the lead on any cov

VII. Limitations and Scope This memorandum is subject to the following limitations: This memorandum is limited to analyzing the milestone covenant implications arising from the OncoPrecise GXP-47 launch deferral. It does not constitute a comprehensive review of all covenants, representations, warranties, or other obligations under the PCNB Credit Agreement. Other provisions of the Credit Agreement may be relevant to

VIII. Appendices (Referenced) The following appendices are referenced in this memorandum and should be maintained as part of the privileged attorney-client file for this matter: Appendix A: Relevant excerpt of Section 7.14 of the Revolving Facility Credit Agreement between Genome Dx Therapeutics Inc. and Pacific Coast National Bank, dated September 22, 2023 (Credit Agreement Ref. PCNB-GDT-RF-2023-0922). Appendix B: C