Technology Business Tax Certificate Transfer Program (NOL)

MAY 1, 2014 Technology Business Tax Certificate Transfer Program (NOL) Clark Smith, Venture Officer Technology & Life Sciences John Rosenfeld, Director Bonds & Incentives

Agenda Program Overview Eligibility Criteria / 2013 Clarifications Statistics Q & A

Program Overview The Technology Business Tax Certificate Transfer Program enables approved Biotechnology and Technology Businesses with Net Operating Losses to sell their Unused Net Operating Loss Carryover (NOL) and Unused Research and Development Tax Credits (R&D Tax Credits) for at least 80% of the value of the tax benefit to a profitable corporate taxpayer in the State of New Jersey that is not an Affiliated Business. This allows Biotechnology and Technology Businesses with NOLs and R&D Tax Credits to turn those tax losses and credits into cash to buy equipment or facilities, or for other Allowable Expenditures. The New Jersey Economic Development Authority (NJEDA) determines eligibility, and the New Jersey Division of Taxation determines the value of the tax benefits (NOL and R&D Tax Credits).

Program Overview (continued) 1. The applicant must meet the Statutory and Regulatory definitions of Biotechnology Business or Technology Business. 2. The applicant must own or exclusively control Protected Proprietary Intellectual Property as defined in the Program Regulations. 3. The applicant and any entity owning/controlling, directly or indirectly, 50% or more of the applicant may not have Net Operating Income on either of its 2 most recent full year GAAP financial statements prepared by an independent CPA. 4. The applicant and all related entities combined must have fewer than 225 employees in the U.S. and more than the minimum number of Full-Time Employees working physically in New Jersey for at least 35 hours per week. 5. The applicant must offer health benefits under a group health plan to its Full-Time Employees.

Biotechnology Business An emerging corporation that has its headquarters or base of operations in this State; that owns, has filed for, or has a valid License to use Protected Proprietary Intellectual Property; and that is engaged in the research, development, production, or provision of Biotechnology for the purpose of developing or providing products or processes for specific commercial or public purposes, including but not limited to, medical, pharmaceutical, nutritional, and other health-related purposes, agricultural purposes, and environmental purposes. Biotechnology The continually expanding body of fundamental knowledge about the function of biological systems from the macro level to the molecular and sub-atomic levels, as well as novel products, services, technologies and sub-technologies developed as a result of insights gained from research advances which add to the body of fundamental knowledge.

Technology Business An emerging corporation that has a headquarters or base of operations located in New Jersey, That owns, has filed for, or has an exclusive License to use Protected Proprietary Intellectual Property whose primary business is the provision of a scientific process, product, or service and that employs some combination of the following: Highly educated and/or trained managers and workers employed in New Jersey Who use sophisticated scientific research service or production equipment, processes or knowledge to discover, develop, test, transfer or manufacture a product or service.

PPIP Evidence Required (Clarification for 2013) Summary of relevant patents or patent applications. Exclusive license agreement from the patent owner granting control of all aspects of the patent to commercialize technology. Copyright Registration documentation. The applicant will need to demonstrate both how the patent/registered copyright is for the technology that is the applicant s primary business as well as how the patent/registered copyright in and of itself enables the applicant to meet the Statutory definition of Biotechnology Business or Technology Business.

Unacceptable Criteria & IP Documentation Exclusive Distribution Agreement Exclusive Sales Agreement Exclusive Service Agreement Licensed Software such as Microsoft Windows or Oracle Trade Secrets, Trademarks Unregistered Copyright Longevity of Key Company Personnel

Financial Statement Requirements Attach the two most recent years of independent Certified Public Accountant (CPA) prepared financial statements or annual reports in accordance with GAAP (include footnotes). If the applicant is publicly held, please submit the most recent Form 10K. For applicants that are subsidiary corporations, include the two most recent parent company(ies ) financial statements which must also be prepared in accordance with GAAP (include footnotes) by an independent CPA. Include the two most recent financial statements prepared in accordance with GAAP (include footnotes) by an independent CPA of all affiliates as filed for federal income tax purposes.

Net Operating Income Eligibility Criteria Applicant cannot have positive Net Operating Income in any of the two most recent full years of ongoing operations, as determined on its GAAP financial statements. Applicant cannot be, directly or indirectly, 50% or more owned or controlled by another corporation that has demonstrated positive Net Operating Income in any of the two most recent full years of ongoing operations as determined on its GAAP financial statements. Applicant cannot be a part of a consolidated group of affiliated corporations, as filed for Federal Income Tax purposes, that has demonstrated positive Net Operating Income in any of the two most recent full years of ongoing operations as determined on its combined GAAP financial statements.

Employment Eligibility Criteria Total U.S. employment cannot exceed 224 employees, including employees of all affiliates, parents, and subsidiaries. Minimum Number of Full Time Employees in New Jersey Incorporated/Formed At Time of Application and Sale of Tax Benefits Less than 3 years (as of 6/30) 1 More than 3 years, but less than 5 years (as of 6/30) 5 More than 5 years (as of 6/30) 10

Employment Eligibility The minimum number of Full-Time Employees working in New Jersey to qualify for the program is to be considered from the earliest incorporation or formation date of the applicant or its earliest predecessor entity, irrespective of the corporate structure or tax status of the entity at time of formation/incorporation. A Full-Time Employee is a person employed by a new or expanding Biotechnology or Technology Business for at least 35 hours a week and whose wages are subject to withholding tax in New Jersey (W2). Must spend at least 80% of their time working in New Jersey. To qualify as a Full-Time Employee, the employee must be offered health benefits under a group health plan.

Employment Eligibility (continued) (Clarifications for 2013) To be counted as a Full-Time Employee, the employee may not be: An independent contractor, a consultant, an intern, a temporary employee, or be in a temporary position for the new or expanding Biotechnology or Technology Business, or Exempt from withholding under the New Jersey Gross Income Tax Act, such as Pennsylvania residents, who are exempt pursuant to a Reciprocal Income Tax Agreement between New Jersey and Pennsylvania. For all employees hired in the current year, the applicant must provide the offer letters, resumes, and job descriptions. For all employees, the applicant must indicate if an employee is currently seeking a college degree and any relationship between any employee and any other employee, shareholder, or investor.

Employment Eligibility (continued) (Clarifications for 2013) When an applicant leases its staff from a Professional Employment Organization (PEO), the PEO must: Write a letter on applicant s behalf indicating the number of Full-Time Employees working in New Jersey at least 80% of the time leased to the applicant as of: December 31, 2012; and June 30, 2013 The PEO letter must also include the state in which each employee works, thestate in which h each employee resides and how many employees have submitted a Certificate of Non-Residence for exemption from the New Jersey Gross Income Tax. The PEO must submit the IRS form 941 payroll report for the applicant.

Annual Allocation Innovation Zones $10,000,000* General Pool $50,000,000 Total Annual Allocation $60,000,000 Unused balances of annual $10 million Innovation Zone (IZ) allocation for business in any of the three IZs (sections s of Camden, Newark & Greater New Brunswick Area) revert e to the General Pool for use by businesses not located in IZs.

Maximum Lifetime Value Of Surrendered Tax Benefits $15,000,000 Tax Benefit Calculation Example Net Operating Loss (NOL) $3,000,000 Assume 80% Allocation Factor (2012 Avg.) X 80% Corporate Business Tax Rt Rate X 9% Tax Benefit Available for Sale $216,000 Minimum i Sl Sale Pi Price: 80% $172,800

Who Can Buy the Tax Benefits & for How Much? The NOLs & R&D Tax Credits may be acquired by an un-affiliated profitable New Jersey business in exchange for private financial assistance. The purchaser of the benefits must pay at least 80% of the value of the benefits being surrendered. The seller of the tax credits may use the sale proceeds to assist in the funding of any Allowable Expenditures related to the new or expanding emerging gbiotechnology or Technology Business.

Affiliated Business Test Sale of Tax Benefits The buyer cannot directly or indirectly own or control 5% or more of the voting rights or 5% or more of the value of all classes of stock of both the taxpayer receiving the benefits and a corporation that is surrendering the benefits.

Recapture Of Tax Benefits In the event a selling business fails to maintain a headquarters or base of operation in the State during the five years following the receipt of the private financial assistance, the EDA will allow the selling business to retain 20 percent of the face value of the tax credit certificate for each full year the business remains in New Jersey. Exception: Liquidation of Biotechnology or Technology Business Move Out of State Within Recapture Percentage of the Face Value of the Corporation Business Tax Benefit Transfer Certificate 1 Year of Sale 100% 2 Years of Sale 80% 3 Years of Sale 60% 4 Years of Sale 40% 5 Years of Sale 20%

Statistics 2012 2011 2010 2009 2008 Applicants 72 83 89 113 107 Total Allocation $60 million $60 million $30 million $60 million $60 million Average Innovation Zone Award $793,520 $1,621,741 $2,524,364 $1,314,354 354 $848,434434 Average Award $923,077 $800,000 $319,297 $612,244 $750,000 Average Sl Sale Pi Price $93 $.93 $93 $.93 $93 $.93 $92 $.92 $92 $.92 Highest Award $4,580,318 $9,459,430 $2,524,364 $4,473,692 $3,273,562 Lowest Award $15,556 $21,475 $14,640 $11,793 $21,355

Application Fee: $2,500* PLEASE NOTE: The application is now a fully online application, and can be accessed at www.njeda.com/nol. No paper applications or payments will be accepted. Application deadline is on June 30 th at 11:59 PM. Any applications submitted after this time will not be accepted. The 2014 Online Application and Frequently Asked Questions are available at www.njeda.com/nol * Non-refundable

Q & A For additional info please email: NOL@njeda.com www.njeda.com/nol Thank you