Exhibit 10.3
 
SECURITY AGREEMENT
 
This Security Agreement, dated as of December 29, 2010 (this “Security
Agreement”), is made by Transgenomic, Inc., a Delaware corporation (the
“Company”), in favor of PGxHealth, LLC, a Delaware limited liability company
(together with its successors or assigns, “Secured Party”).  Capitalized terms
used and not otherwise defined herein are intended to have the meanings given to
them in the Purchase Agreement (as defined below).
 
Recitals
 
Whereas, Secured Party is a party to that certain Asset Purchase Agreement,
dated November 29, 2010, by and among the Company, Secured Party and Clinical
Data, Inc., a Delaware corporation (“Clinical Data”), as amended by that certain
Amendment to Asset Purchase Agreement, dated December 29, 2010, by and among the
Company, Secured Party and Clinical Data (the “Purchase Agreement”);
 
Whereas, pursuant to the terms of the Purchase Agreement, the Company has issued
to Secured Party (i) a secured promissory note dated as of the date hereof in
the initial aggregate principal amount of $8,639,650 (as amended, supplemented
or otherwise modified from time to time, the “First Note”) and (ii) a secured
promissory note dated as of the date hereof in the initial aggregate principal
amount of $988,500 (as amended, supplemented or otherwise modified from time to
time, the “Second Note” and together with the First Note, the “Notes”); and
 
Whereas, it is a condition to Secured Party’s acceptance of the Notes that the
Company shall have granted the security interests and undertaken the obligations
contemplated by the Notes and this Security Agreement.
 
Agreement
 
Now, Therefore, in consideration for the agreements set forth herein and in
order to induce Secured Party to consummate the transactions contemplated by the
Purchase Agreement, the Company hereby agrees with Secured Party as follows:
 
1.           Defined Terms.  When used in this Security Agreement, the following
terms shall have the following meanings (such meanings being equally applicable
to both the singular and plural forms of the terms defined):
 
“Collateral” shall have the meaning assigned to such term in Section 2 of this
Security Agreement.
 
“Contracts” means all contracts (including any customer, vendor, supplier,
service or maintenance contract), leases, licenses, undertakings, purchase
orders, permits, franchise agreements or other agreements (other than any right
evidenced by Chattel Paper, Documents or Instruments), whether in written or
electronic form, in or under which the Company now holds or hereafter acquires
any right, title or interest, including, without limitation, with respect to an
Account, any agreement relating to the terms of payment or the terms of
performance thereof.

 
 

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“Copyright License” means any agreement, whether in written or electronic form,
in which the Company now holds or hereafter acquires any interest, granting any
right in or to any Copyright or Copyright registration (whether the Company is
the licensee or the licensor thereunder) including, without limitation, licenses
pursuant to which the Company has obtained the exclusive right to use a
copyright owned by a third party.
 
“Copyrights” means all of the following now owned or hereafter acquired or
created (as a work for hire for the benefit of the Company) by the Company or in
which the Company now holds or hereafter acquires or receives any right or
interest, in whole or in part: (a) all copyrights, whether registered or
unregistered, held pursuant to the laws of the United States, any State thereof
or any other country; (b) registrations, applications, recordings and
proceedings in the United States Copyright Office or in any similar office or
agency of the United States, any State thereof or any other country; (c) any
continuations, renewals or extensions thereof; (d) any registrations to be
issued in any pending applications, and shall include any right or interest in
and to work protectable by any of the foregoing which are presently or in the
future owned, created or authorized (as a work for hire for the benefit of the
Company) or acquired by the Company, in whole or in part; (e) prior versions of
works covered by copyright and all works based upon, derived from or
incorporating such works; (f) income, royalties, damages, claims and payments
now and hereafter due and/or payable with respect to copyrights, including,
without limitation, damages, claims and recoveries for past, present or future
infringement; (g) rights to sue for past, present and future infringements of
any copyright; and (h) any other rights corresponding to any of the foregoing
rights throughout the world.
 
“Event of Default” means (i) any failure by the Company forthwith to pay or
perform any of the Secured Obligations, (ii) any report, information or notice
made to, obtained or received by Secured Party at any time after the date hereof
shall indicate that Secured Party’s security interest in the Collateral is not
prior to all other security interests or other interests in the Collateral
reflected in such report, information or notice, (iii) any breach by the Company
of any warranty, representation, or covenant set forth herein, and (iv) any
“Event of Default” as defined in the Notes.
 
“Intellectual Property” means any intellectual property, in any medium, of any
kind or nature whatsoever, now or hereafter owned or acquired or received by the
Company or in which  the Company now holds or hereafter acquires or receives any
right or interest, and shall include, in any event, any Copyright, Trademark,
Patent, License, trade secret, customer list, marketing plan, internet domain
name (including any right related to the registration thereof), proprietary or
confidential information, mask work, source, object or other programming code,
invention (whether or not patented or patentable), technical information,
procedure, design, knowledge, know-how, software, data base, data, skill,
expertise, recipe, experience, process, model, drawing, material or record.
 
“IP Security Agreement” means the Intellectual Property Security Agreement of
even date herewith by and between the Company and Secured Party and all
Schedules thereto, as the same may from time to time be amended, modified,
supplemented or restated.

 
 

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“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests, whether in-bound or out-bound, whether in
written or electronic form, now or hereafter owned or acquired or received by
the Company or in which the Company now holds or hereafter acquires or receives
any right or interest, and shall include any renewals or extensions of any of
the foregoing thereof.
 
“Lien” means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
 
“Patent License” means any agreement, whether in written or electronic form, in
which the Company now holds or hereafter acquires any interest, granting any
right with respect to any invention on which a Patent is in existence (whether
the Company is the licensee or the licensor thereunder).
 
“Patents” means all of the following in which the Company now holds or hereafter
acquires any interest: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof and all applications for
letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country; (b) all reissues, divisions,
continuations, renewals, continuations-in-part or extensions thereof; (c) all
petty patents, divisionals and patents of addition; (d) all patents to issue in
any such applications; (e) income, royalties, damages, claims and payments now
and hereafter due and/or payable with respect to patents, including, without
limitation, damages, claims and recoveries for past, present or future
infringement; and (f) rights to sue for past, present and future infringements
of any patent.
 
“Permitted Lien” means: (a) material Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same have no priority over any of
Secured Party’s security interests created hereunder; (b) Liens (i) upon or in
any Equipment acquired or held by the Company to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment provided in each case such lien does not secure
more than the purchase price of such Equipment or (ii) existing on such
Equipment at the time of its acquisition, provided that the Lien is confined
solely to the Equipment so acquired, improvements thereon and the proceeds of
such Equipment; (c) leases or subleases and non-exclusive licenses or
non-exclusive sublicenses granted to others in the ordinary course of the
Company’s business if such are otherwise permitted under this Security Agreement
and do not interfere in any material respect with the business of the Company;
(d) any right, title or interest of a licensor under a license provided that
such license or sublicense does not prohibit the grant of the security interest
granted hereunder; (e) Liens arising from judgments, decrees or attachments to
the extent and only so long as such judgment, decree or attachment has not
caused or resulted in an Event of Default; (f) easements, reservations,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar Liens affecting real property not interfering in any material respect
with the ordinary conduct of the business of the Company; (g) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods; (h) Liens arising
solely by virtue of any statutory or common law provision relating to banker’s
liens, rights of setoff or similar rights and remedies as to deposit accounts or
other funds maintained with a creditor depository institution; and (j) Liens,
not otherwise permitted, which do not in the aggregate exceed $35,000 at any one
time.

 
 

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“Secured Obligations” means (a) the obligation of the Company to repay Secured
Party all of the unpaid principal amount of, and accrued interest on (including
any interest that accrues after the commencement of bankruptcy), the Notes, and
the performance when due of all covenants and agreements by the Company under
the Notes and this Security Agreement, and (b) the obligation of the Company to
pay any fees, costs or expenses of Secured Party under the Notes, this Security
Agreement, or the IP Security Agreement, if any.
 
“Trademark License” means any agreement, whether in written or electronic form,
in which the Company now holds or hereafter acquires any interest, granting any
right in and to any Trademark or Trademark registration (whether the Company is
the licensee or the licensor thereunder).
 
“Trademarks” means any of the following in which the Company now holds or
hereafter acquires any interest: (a) any trademarks, tradenames, corporate
names, company names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof and any applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country (collectively, the “Marks”); (b)
any reissues, extensions or renewals thereof; (c) the goodwill of the business
symbolized by or associated with the Marks; (d) income, royalties, damages,
claims and payments now and hereafter due and/or payable with respect to the
Marks, including, without limitation, damages, claims and recoveries for past,
present or future infringement; and (e) rights to sue for past, present and
future infringements of the Marks.
 
“UCC” means the Uniform Commercial Code as the same may from time to time be in
effect in the State of Delaware (and each reference in this Security Agreement
to an Article thereof (denoted as a Division of the UCC as adopted and in effect
in the State of Delaware) shall refer to that Article (or Division, as
applicable) as from time to time in effect; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party’s security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Delaware, the term “UCC” shall mean the Uniform Commercial
Code (including the Articles thereof) as in effect at such time in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
 
In addition, the following terms shall be defined terms having the meaning set
forth for such terms in the UCC: “Account” (including health-care-insurance
receivables), “Account Debtor”, “Chattel Paper” (including tangible and
electronic chattel paper), “Commercial Tort Claims”, “Commodity Account”,
“Deposit Account”, “Documents”, “Equipment” (including all accessions and
additions thereto), “Fixtures”, “General Intangible”, “Goods”, “Instrument”,
“Inventory”, “Investment Property”, “Letter-of-Credit Right”, “Money”, “Payment
Intangibles”, “Proceeds”, “Promissory Notes”, “Securities Account”, and
“Supporting Obligations”.  Each of the foregoing defined terms shall include all
of such items now owned or hereafter acquired by the Company and wherever the
same may be located.  Any other capitalized terms used herein and not defined
herein shall have the meanings given to such terms in the Notes or Purchase
Agreement.

 
 

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2.           Grant of Security Interest.  As collateral security for the full,
prompt,  complete and final payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Secured Obligations and in
order to induce Secured Party to close the transactions contemplated by the
Purchase Agreement, the Company hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Secured Party, and hereby grants to Secured Party,
a security interest in all of the Company’s right, title and interest in, to and
under all of the assets of the Company, wherever the same may be located (all of
which being collectively referred to herein as the “Collateral”), including the
following:
 
(a)           All Accounts of the Company;
 
(b)           All Chattel Paper of the Company more particularly described on
Schedule B attached hereto;
 
(c)           The Commercial Tort Claims of the Company more particularly
described on Schedule A attached hereto;
 
(d)           All Commodity Accounts of the Company more particularly described
on Schedule C attached hereto;
 
(e)           All Contracts of the Company;
 
(f)           All Deposit Accounts of the Company more particularly described on
Schedule C attached hereto;
 
(g)           All Documents of the Company;
 
(h)           All General Intangibles of the Company, including, without
limitation, Intellectual Property;
 
(i)            All Goods of the Company, including without limitation,
Equipment, Inventory and Fixtures;
 
(j)           All Instruments of the Company, including, without limitation,
Promissory Notes more particularly described on Schedule B attached hereto;
 
(k)           All Investment Property of the Company more particularly described
on Schedule B attached hereto;
 
(l)            All Letter-of Credit Rights of the Company;
 
(m)          All Money of the Company;

 
 

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(n)           All Securities Accounts of the Company more particularly described
on Schedule C attached hereto;
 
(o)           All Supporting Obligations of the Company;
 
(p)           All property of the Company held by Secured Party, or any other
party for whom Secured Party is acting as agent, including, without limitation,
all property of every description now or hereafter in the possession or custody
of or in transit to Secured Party or such other party for any purpose,
including, without limitation, safekeeping, collection or pledge, for the
account of the Company, or as to which the Company may have any right or power;
 
(q)           All other goods and personal property of the Company, wherever
located, whether tangible or intangible, and whether now owned or hereafter
acquired, existing, leased or consigned by or to the Company; and
 
(r)           To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for and rents,
profits and products of each of the foregoing.
 
If the Company shall at any time acquire a Commercial Tort Claim, the Company
shall immediately notify Secured Party in a writing signed by the Company of the
brief details thereof and grant to Secured Party in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Security Agreement, with such writing to be in form and substance satisfactory
to Secured Party.

3.           Rights Of Secured Party; Collection Of Accounts.
 
3.1           Obligations of the Company.  Notwithstanding anything contained in
this Security Agreement to the contrary, the Company expressly agrees that it
shall remain liable under each of the Assumed Contracts to observe and perform
all the conditions and obligations to be observed and performed by it thereunder
and that it shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Assumed
Contract.  Secured Party shall not have any obligation or liability under any
Assumed Contract by reason of or arising out of this Security Agreement or the
granting to Secured Party of a lien therein or the receipt by Secured Party of
any payment relating to any Assumed Contract pursuant hereto, nor shall Secured
Party be required or obligated in any manner to perform or fulfill any of the
obligations of the Company under or pursuant to any Assumed Contract, or to make
any payment, or to make any inquiry as to the nature or the sufficiency of any
payment received by it or the sufficiency of any performance by any party under
any Assumed Contract, or to present or file any claim, or to take any action to
collect or enforce any performance or the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.

 
 

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3.2           Collections.  Secured Party authorizes the Company to collect its
Accounts constituting Collateral, provided that such collection is performed in
a prudent and businesslike manner, and Secured Party may, upon the occurrence
and during the continuation of any Event of Default and without notice, limit or
terminate said authority at any time.  Upon the occurrence and during the
continuance of any Event of Default, at the request of Secured Party, the
Company shall deliver all original and other documents evidencing and relating
to the performance of labor or service which created such Accounts constituting
Collateral, including, without limitation, all original orders, invoices and
shipping receipts.
 
3.3           Notification of Third Parties.  Secured Party may at any time,
upon the occurrence and during the continuance of any Event of Default, upon
written notice to the Company of its intention to do so, notify Account Debtors
of the Company on Accounts constituting Collateral, parties to the Assumed
Contracts of the Company, and obligors in respect of Instruments of the Company
constituting Collateral that the Accounts constituting Collateral and the right,
title and interest of the Company in and under such Assumed Contracts
and  Instruments constituting Collateral have been assigned to Secured Party and
that payments shall be made directly to Secured Party.  Upon the request of
Secured Party upon and during the pendency of an Event of Default, the Company
shall so notify such Account Debtors of the Company on Accounts constituting
Collateral, parties to such Assumed Contracts and obligors in respect of such
Instruments of the Company constituting Collateral.  Upon the occurrence and
during the continuance of any Event of Default, Secured Party may, in its name
or in the name of others, communicate with such Account Debtors, parties to such
Assumed Contracts, and obligors in respect of such Instruments to verify with
such parties, to Secured Party’s satisfaction, the existence, amount and terms
of any such Accounts, Contracts, Instruments or Chattel Paper.
 
4.           Representations And Warranties.  The Company hereby represents and
warrants to Secured Party that:
 
4.1           Ownership of Collateral.  Except for the security interest granted
to Secured Party under this Security Agreement and Permitted Liens, the Company
is the sole legal and equitable owner of each item of the Collateral in which it
purports to grant a security interest hereunder.
 
4.2           No Other Liens.  No effective security agreement, financing
statement, equivalent security or lien instrument or continuation statement
covering all or any part of the Collateral exists, except such as may have been
filed by the Company in favor of Secured Party pursuant to this Security
Agreement and except for Permitted Liens.
 
4.3           Security Interest.  This Security Agreement creates a legal and
valid first priority security interest on and in all of the Collateral in which
the Company now has rights.
 
5.           Covenants of the Company.  The Company covenants and agrees with
Secured Party that from and after the date of this Security Agreement and until
the Secured Obligations have been performed and paid in full:
 
5.1           Change of Jurisdiction of Organization, Relocation of Business or
Collateral.  The Company’s principal place of business and the place where its
records concerning the Collateral are kept is at Transgenomic, Inc., 12325 Emmet
Street, Omaha, Nebraska 68164, and the Company shall not change its jurisdiction
of organization, relocate its principal place of business, remove such records
or allow the relocation of any Collateral (except as allowed pursuant to
Section 6.2) without thirty (30) days prior written notice to Secured Party.

 
 

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5.2           Limitation on Liens on Collateral.  The Company shall not,
directly or indirectly, create, permit or suffer to exist, and shall defend the
Collateral against and take such other action as is necessary to remove, any
Lien on the Collateral, except for Permitted Liens and the Lien granted to
Secured Party under this Security Agreement.  The Company shall further use
commercially reasonable efforts to defend the right, title and interest of
Secured Party in and to any of the Company’s rights under the Collateral against
the material claims and demands brought by third parties.
 
5.3           Limitations on Modifications of Accounts, Etc.  Upon the
occurrence and during the continuance of any Event of Default, the Company shall
not, without Secured Party’s prior written consent, grant any extension of the
time of payment of any of the Accounts, Chattel Paper, Instruments or amounts
due under any Contract or Document, compromise, compound or settle the same for
less than the full amount thereof, release, wholly or partly, any person liable
for the payment thereof, or allow any credit or discount whatsoever thereon
other than trade discounts and rebates granted in the ordinary course of the
Company’s business.
 
5.4           Insurance.  The Company shall maintain insurance policies insuring
the Collateral against loss or damage from such risks and in such amounts and
forms and with such companies as are customarily maintained by businesses
similar to the Company.
 
5.5           Taxes, Assessments, Etc.  The Company shall pay promptly when due
all property and other taxes, assessments and government charges or levies
imposed upon, and all claims (including claims for labor, materials and
supplies) against the Equipment constituting Collateral, except to the extent
the validity thereof is being contested in good faith and adequate reserves are
being maintained in connection therewith.
 
5.6           Maintenance of Records.  The Company shall keep and maintain at
its own cost and expense satisfactory and complete records of the
Collateral.  The Company shall not create any Chattel Paper without placing a
legend on the Chattel Paper acceptable to Secured Party indicating that Secured
Party has a security interest in the Chattel Paper.
 
5.7           Notification Regarding Changes in Intellectual Property.  The
Company shall:
 
(a)           promptly advise Secured Party in writing of any subsequent
ownership right or interest of the Company in or to any Copyright, Patent,
Trademark or License;
 
(b)           promptly give Secured Party written notice of any applications or
registrations of intellectual property rights pertaining to Patents or
Trademarks filed with the United States Patent and Trademark Office, including
the date of such filing and the registration or application numbers, if any; and
 
(c)           prior to the filing of any such applications or registrations,
shall execute such documents as Secured Party may reasonably request for Secured
Party to maintain its perfection and priority in such intellectual property
rights to be registered by the Company, and upon the request of Secured Party,
shall file such documents simultaneously with the filing of any such
applications or registrations.

 
 

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5.8           Defense of Intellectual Property.  The Company shall (a) protect,
defend and maintain the validity and enforceability of its Patents and
Trademarks, (b) use its commercially reasonable efforts to detect infringements
of its Patents and Trademarks and promptly advise Secured Party in writing of
material infringements detected and (c) not allow any of its Patents or
Trademarks to be abandoned, forfeited or dedicated to the public without the
prior written consent of Secured Party.
 
5.9           Further Assurances; Pledge of Instruments.  At any time and from
time to time, upon the written request of Secured Party, and at the sole expense
of the Company, the Company shall promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as
Secured Party may reasonably deem necessary or desirable to obtain the full
benefits of this Security Agreement, including, without limitation, (a) using
its commercially reasonable efforts to secure all consents and approvals
necessary or appropriate for the grant of a security interest to Secured Party
in any item of Collateral held by the Company or in which the Company has any
right or interest, (b) executing, delivering and causing to be filed any
financing or continuation statements (including “in lieu” continuation
statements) under the UCC with respect to the security interests granted hereby,
(c) filing or cooperating with Secured Party in filing any forms or other
documents required to be recorded with the United States Patent and Trademark
Office, United States Copyright Office, or any actions, filings, recordings or
registrations in any foreign jurisdiction or under any international treaty,
required to secure or protect Secured Party’s interest in the Collateral,
(d) transferring the Collateral to Secured Party’s possession (if a security
interest in such Collateral can be perfected only by possession), (e) at Secured
Party’s reasonable request, placing the interest of Secured Party as lienholder
on the certificate of title (or similar evidence of ownership) of any vehicle or
other item of Collateral owned by the Company which is covered by a certificate
of title (or similar evidence of ownership), (f) executing and delivering and
causing the applicable depository institution, securities intermediary,
commodity intermediary or issuer or nominated party under a letter of credit to
execute and deliver a collateral control agreement with respect to each Deposit
Account, Securities Account or Commodity Account or Letter-of-Credit Right in or
to which the Company now or hereafter has any right or interest in order to
perfect the security interest created hereunder in favor of Secured Party
(including giving Secured Party “control” over such Collateral within the
meaning of the applicable provisions of Article 8 and Article 9 of the UCC), (g)
at Secured Party’s reasonable request, executing and delivering or causing to be
delivered written notice to insurers of Secured Party’s security interest in, or
claim in or under, any policy of insurance (including unearned premiums) and (h)
at Secured Party’s reasonable request, using its commercially reasonable efforts
to obtain acknowledgments from bailees having possession of any Collateral with
a value in excess of $25,000 and waivers of liens from landlords and mortgagees
of any location where any of Collateral  with a value in excess of $25,000 may
from time to time be stored or located.  Secured Party may at any time and from
time to time file financing statements, continuation statements (including “in
lieu” continuation statements) and amendments thereto that describe the
Collateral as all assets of the Company or words of similar effect.  Any such
financing statements, continuation statements or amendments may be signed by
Secured Party on behalf of the Company and may be filed at any time in any
jurisdiction.  The Company also hereby authorizes Secured Party to file any such
financing or continuation statement (including “in lieu” continuation
statements) without the signature of the Company.

 
 

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6.           Negative Covenants.  The Company covenants and agrees with Secured
Party that from and after the date of this Security Agreement and until the
Secured Obligations have been performed and paid in full, the Company shall not,
and shall not permit any subsidiary to:
 
6.1           Indebtedness.  Create, issue, incur, assume, become liable in
respect of or suffer to exist any indebtedness for borrowed money other than the
indebtedness incurred under the Notes and this Security Agreement or
indebtedness incurred in connection with a Permitted Lien.
 
6.2           Disposition of Collateral.  Sell, lease, transfer or otherwise
dispose of any of the Collateral, or attempt or contract to do so, other than
(a) the sale of Inventory, (b) the granting of non-exclusive Licenses, and (c)
the disposal of worn-out or obsolete Equipment, all in the ordinary course of
the Company’s business.
 
6.3           Restricted Payments.  (a) Make any payment or prepayment of
principal of, premium, if any, or interest on, or redemption, purchase,
retirement, defeasance (including in-substance or legal defeasance), sinking
fund or similar payment with respect to, any indebtedness for borrowed money, or
(b) declare or pay any dividend (other than dividends payable solely in common
stock of the Person making such dividend) on, or make any payment on account of,
or set apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any capital stock of
the Company or any subsidiary, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly, whether in
cash or property or in obligations of the Company or any subsidiary
(collectively, “Restricted Payments”).
 
7.           Secured Party’s Appointment as Attorney-in-Fact; Performance by
Secured Party.
 
(a)           Subject to Section 7(b) below, the Company hereby irrevocably
constitutes and appoints Secured Party, and any officer or agent of Secured
Party, with full power of substitution, as its true and lawful attorney-in-fact
with full, irrevocable power and authority in the place and stead of the Company
and in the name of the Company or in its own name, from time to time at Secured
Party’s discretion, for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute and deliver any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Security Agreement and, without limiting the
generality of the foregoing, hereby gives Secured Party the power and right, on
behalf of the Company, without notice to or assent by the Company to do the
following:
 
(i)           to ask, demand, collect, receive and give acquittances and
receipts for any and all monies due or to become due under any Collateral and,
in the name of the Company, in its own name or otherwise to take possession of,
endorse and collect any checks, drafts, notes, acceptances or other Instruments
for the payment of monies due under any Collateral and to file any claim or take
or commence any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Secured Party for the purpose of collecting any
and all such monies due under any Collateral whenever payable;

 
 

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(ii)           to pay or discharge any Liens, including, without limitation, any
tax lien, levied or placed on or threatened against the Collateral, to effect
any repairs or any insurance called for by the terms of this Security Agreement
and to pay all or any part of the premiums therefor and the costs thereof, which
actions shall be for the benefit of Secured Party and not the Company;
 
(iii)          to (1) direct any person liable for any payment under or in
respect of any of the Collateral to make payment of any and all monies due or to
become due thereunder directly to Secured Party or as Secured Party shall
direct, (2) receive payment of any and all monies, claims and other amounts due
or to become due at any time arising out of or in respect of any Collateral,
(3) sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other Instruments and
Documents constituting or relating to the Collateral, (4) commence and prosecute
any suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral, (5) defend any suit, action or
proceeding brought against the Company with respect to any Collateral,
(6) settle, compromise or adjust any suit, action or proceeding described above,
and in connection therewith, give such discharges or releases as Secured Party
may deem appropriate, (7) license, or, to the extent permitted by an applicable
License, sublicense, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any Copyright, Patent or Trademark throughout
the world for such term or terms, on such conditions and in such manner as
Secured Party shall in its discretion determine and (8) sell, transfer, pledge,
make any agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though Secured Party were the absolute owner thereof
for all purposes; and
 
(iv)          to do, at Secured Party’s option and the Company’s expense, at any
time, or from time to time, all acts and things which Secured Party may
reasonably deem necessary to protect, preserve or realize upon the Collateral
and Secured Party’s security interest therein in order to effect the intent of
this Security Agreement, all as fully and effectively as the Company might do.
 
(b)           Secured Party agrees that, except upon the occurrence and during
the continuation of an Event of Default, it shall not exercise the power of
attorney or any rights granted to Secured Party pursuant to this Section 7.  The
Company hereby ratifies, to the extent permitted by law, all that said attorney
shall lawfully do or cause to be done by virtue hereof.  The power of attorney
granted pursuant to this Section 7 is a power coupled with an interest and shall
be irrevocable until the Secured Obligations are completely and indefeasibly
paid.
 
(c)           If the Company fails to perform or comply with any of its
agreements contained herein and Secured Party, as provided for by the terms of
this Security Agreement, shall perform or comply, or otherwise cause performance
or compliance, with such agreement, the reasonable expenses, including
reasonable attorneys’ fees and costs, of Secured Party incurred in connection
with such performance or compliance, together with interest thereon at a rate of
interest equal to the highest per annum rate of interest charged on the Loans,
shall be payable by the Company to Secured Party within five (5) business days
of demand and shall constitute Secured Obligations secured hereby.

 
 

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8.           Rights And Remedies Upon Default.  After any Event of Default shall
have occurred and while such Event of Default is continuing:
 
(a)           Secured Party may exercise in addition to all other rights and
remedies granted to it under this Security Agreement, the IP Security Agreement,
the Notes or the Purchase Agreement and under any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and
remedies of a secured party under the UCC.  Without limiting the generality of
the foregoing, the Company expressly agrees that in any such event Secured
Party, without demand of performance or other demand, advertisement or notice of
any kind (except the notice specified below of time and place of public or
private sale) to or upon the Company or any other person (all and each of which
demands, advertisements and notices are hereby expressly waived to the maximum
extent permitted by the UCC and other applicable law), may (i) reclaim, take
possession, recover, store, maintain, finish, repair, prepare for sale or lease,
shop, advertise for sale or lease and sell or lease (in the manner provided
herein) the Collateral, and in connection with the liquidation of the Collateral
and collection of the accounts receivable pledged as Collateral, use any
Intellectual Property, Intellectual Property Right or process used or owned by
the Company and (ii) forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, and may forthwith sell, lease, assign, give
an option or options to purchase or sell or otherwise dispose of and deliver
said Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange or broker’s board or
at any of Secured Party’s offices or elsewhere at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk.  To the extent the Company has the right to do so, the Company
authorizes Secured Party, on the terms set forth in this Section 8 to enter the
premises where the Collateral is located, to take possession of the Collateral,
or any part of it, and to pay, purchase, contact, or compromise any encumbrance,
charge, or lien which, in the opinion of Secured Party, appears to be prior or
superior to its security interest.  Secured Party shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption the
Company hereby releases.  The Company further agrees, at Secured Party’s
request, to assemble the Collateral and make it available to the Secured Party
at places which Secured Party shall reasonably select, whether at the Company’s
premises or elsewhere.  Secured Party shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale as provided in
Section 8(f), below and only after so paying over such net proceeds and after
the payment by Secured Party of any other amount required by any provision of
law, need Secured Party account for the surplus, if any, to the Company.  To the
maximum extent permitted by applicable law, the Company waives all claims,
damages, and demands against Secured Party arising out of the repossession,
retention or sale of the Collateral.  The Company agrees that Secured Party need
not give more than ten (10) days’ notice  of the time and place of any public
sale or of the time after which a private sale may take place and that such
notice is reasonable notification of such matters. The Company shall remain
liable for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all amounts to which Secured Party is
entitled from the Company, the Company also being liable for the attorney costs
of any attorneys employed by Secured Party to collect such deficiency.

 
 

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(b)           As to any Collateral constituting certificated securities or
uncertificated securities, if, at any time when Secured Party shall determine to
exercise its right to sell the whole or any part of such Collateral hereunder,
such Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under Securities Act of 1933, as amended
(as so amended the “Act”), Secured Party may, in its discretion (subject only to
applicable requirements of law), sell such Collateral or part thereof by private
sale in such manner and under such circumstances as Secured Party may deem
necessary or advisable, but subject to the other requirements of this
Section 8(b), and shall not be required to effect such registration or cause the
same to be effected.  Without limiting the generality of the foregoing, in any
such event Secured Party may, in its sole discretion, (i) in accordance with
applicable securities laws, proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Collateral or
part thereof could be or shall have been filed under the Act; (ii) approach and
negotiate with a single possible purchaser to effect such sale; and
(iii) restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment, and not with a view
to the distribution or sale of such Collateral or part thereof.  In addition to
a private sale as provided above in this Section 8(b), if any of such Collateral
shall not be freely distributable to the public without registration under the
Act at the time of any proposed sale hereunder, then Secured Party shall not be
required to effect such registration or cause the same to be effected but may,
in its sole discretion (subject only to applicable requirements of law), require
that any sale hereunder (including a sale at auction) be conducted subject to
such restrictions as Secured Party may, in its sole discretion, deem necessary
or appropriate in order that such sale (notwithstanding any failure so to
register) may be effected in compliance with the Bankruptcy Code and other laws
affecting the enforcement of creditors’ rights and the Act and all applicable
state securities laws.
 
(c)           The Company agrees that in any sale of any of such Collateral,
whether at a foreclosure sale or otherwise, Secured Party is hereby authorized
to comply with any limitation or restriction in connection with such sale as it
may be advised by counsel is necessary in order to avoid any violation of
applicable law (including compliance with such procedures as may restrict the
number of prospective bidders and purchasers, require that such prospective
bidders and purchasers have certain qualifications and restrict such prospective
bidders and purchasers to persons who will represent and agree that they are
purchasing for their own account for investment and not with a view to the
distribution or resale of such Collateral), or in order to obtain any required
approval of the sale or of the purchaser by any governmental authority, and the
Company further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall Secured Party be liable nor accountable to the Company for any
discount allowed by the reason of the fact that such Collateral is sold in
compliance with any such limitation or restriction.
 
(d)           The Company also agrees to pay all fees, costs and expenses of
Secured Party, including, without limitation, reasonable attorneys’ fees,
incurred in connection with the enforcement of any of its rights and remedies
hereunder.

 
 

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(e)           The Company hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
 
(f)           The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Secured Party in the
following order of priorities:
 
First, to Secured Party in an amount sufficient to pay in full the costs of
Secured Party in connection with such sale, disposition or other realization,
including all fees, costs, expenses, liabilities and advances incurred or made
by Secured Party in connection therewith, including, without limitation,
attorneys’ fees;
 
Second, to Secured Party in an amount equal to the then unpaid Secured
Obligations; and
 
Finally, upon payment in full of the Secured Obligations, to the Company or its
representatives, in accordance with the UCC or as a court of competent
jurisdiction may direct.
 
9.           Indemnity.  The Company agrees to defend, indemnify and hold
harmless Secured Party and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Security
Agreement; and (b) all losses or expenses in any way suffered, incurred, or paid
by Secured Party as a result of or in any way arising out of, following or
consequential to transactions between Secured Party and the Company, under this
Security Agreement (including without limitation, reasonable attorneys fees and
expenses), except for losses arising from or out of Secured Party’s gross
negligence or willful misconduct.
 
10.           Limitation on Secured Party’s Duty in Respect of
Collateral.  Secured Party shall be deemed to have acted reasonably in the
custody, preservation and disposition of any of the Collateral if it takes such
action as the Company requests in writing except during an Event of Default, but
failure of Secured Party to comply with any such request shall not in itself be
deemed a failure to act reasonably, and no failure of Secured Party to do any
act not so requested shall be deemed a failure to act reasonably.
 
11.           Reinstatement.  This Security Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against the Company for liquidation or reorganization, should the Company become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of the
Company’s property and assets, and shall continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee of the Secured Obligations, whether as a “voidable preference,”
“fraudulent conveyance,” or otherwise, all as though such payment or performance
had not been made.  In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.

 
 

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12.          Miscellaneous.

 
12.1           Waivers; Modifications.  None of the terms or provisions of this
Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Company and Secured Party.
 
12.2           Termination of this Security Agreement.  Subject to Section 9
hereof, this Security Agreement shall terminate upon the payment and performance
in full of the Secured Obligations.
 
12.3           Successor and Assigns.  This Security Agreement and all
obligations of the Company hereunder shall be binding upon the successors and
assigns of the Company, and shall, together with the rights and remedies of
Secured Party hereunder, inure to the benefit of Secured Party, any future
holder of the Notes and their respective successors and assigns.
 
12.4           Governing Law.  In all respects, including all matters of
construction, validity and performance, this Security Agreement and the Secured
Obligations arising hereunder shall be governed by, and construed and enforced
in accordance with, the laws of the State of Delaware applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflict of laws, except to the extent that the UCC provides for the
application of the law of another state.
 
12.5           Counterparts.  This Security Agreement may be executed in
counterparts and by facsimile signatures, any one of which need not contain the
signatures of more than one Party and each of which shall be an original, but
all such counterparts taken together shall constitute one and the same
instrument.  The exchange of copies of this Security Agreement or amendments
thereto and of signature pages by facsimile transmission or by e-mail
transmission in portable digital format (or similar format) shall constitute
effective execution and delivery of such instrument(s) as to the Parties and may
be used in lieu of the original Security Agreement or amendment for all
purposes.  Signatures of the Parties transmitted by facsimile or by e-mail
transmission in portable digital format (or similar format) shall be deemed to
be their original signatures for all purposes.
 
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In Witness Whereof, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
 

 
COMPANY:
     
Transgenomic, Inc.
       
By:
/s/ Craig J. Tuttle
   
Craig J. Tuttle
   
President and Chief Executive Officer

 
SECURED PARTY:
 
PGxHealth, LLC
 
By:  PGxHealth Holdings, Inc.
Its:  Sole Member
 
By: /s/ Caesar J.
Belbel                                                                                     
 
Printed Name:  Caesar J.
Belbel                                                                        
 
Title:  Executive Vice President and Chief Legal Officer                      
         
 
[Signature Page to Security Agreement]

 
 

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