EXHIBIT 10.1

 

UNSECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT

 

This Unsecured Convertible Promissory Note Purchase Agreement, dated on and as
of the date set forth on the signature pages hereto (this “Agreement”), is made
between Transgenomic, Inc., a Delaware corporation (the “Company”), the
undersigned purchaser(s) (each a “Purchaser” and, collectively with any
Additional Purchasers who become a party to this Agreement at a subsequent
Closing under Section A(3) below, the “Purchasers”) and each assignee of a
Purchaser who becomes a party hereto.

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and Regulation D promulgated thereunder, the Company desires
to offer, issue and sell to each of the Purchasers (the “Offering”), and each of
the Purchasers desires to purchase from the Company, an unsecured convertible
promissory note in the form attached as Exhibit A hereto (the “Note”); and

 

WHEREAS, concurrently with the execution of this Agreement, each Purchaser, as a
subordinated creditor, the Company and Third Security Senior Staff 2008 LLC, as
the Senior Agent (“Third Security”), are entering into that certain
Subordination Agreement, dated as of even date herewith, in order to provide for
the subordination of the obligation under the Note to the Company’s outstanding
debt held by entities affiliated with Third Security (the “Senior Creditors”)
and in order to set forth the relative rights and priorities of the Senior
Creditors and each Purchaser (the “Subordination Agreement”).

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration the
receipt and adequacy of which is hereby acknowledged, the Company and the
Purchasers agree as follows:

 

A.Subscription

 

(1)               Subject to the conditions to closing set forth herein, each
Purchaser hereby irrevocably subscribes for and agrees to purchase a Note for
the aggregate Subscription Amount set forth opposite such Purchaser’s name on
the signature pages hereto (the “Subscription Amount”). The Note shall be
convertible into equity securities of the Company (the “Conversion Shares”) as
provided in the Note. Each Note and the Conversion Shares are collectively
referred to as the “Securities”.

 

(2)               As soon as possible after the date hereof, the Company shall
hold the initial closing of the Offering (the “Initial Closing”). In the event
there is more than one closing, the term “Closing” shall apply to each such
closing unless otherwise specified.

 

(3)               After the Initial Closing, the Company may sell, on the same
terms and conditions as those contained in this Agreement, up to an aggregate of
$1,500,000 in additional Notes to one or more purchasers (the “Additional
Purchasers”) approved by the Company and acceptable to the Purchasers holding at
least a majority of the then-outstanding Notes; provided that (i) such
subsequent sale is consummated on or prior to January 31, 2015, and (b) each
Additional Purchaser shall become a party to this Agreement, the Note and the
Subordination Agreement by executing and delivering a counterpart signature page
to each of this Agreement, the Note and the Subordination Agreement.

 

 

 

 

 

(4)               Prior to the applicable Closing, each Purchaser shall deliver
the applicable Subscription Amount by check payable to the escrow account set
forth on Schedule A or by wire transfer to such escrow account in accordance
with the wire transfer instructions set forth on Schedule A, and such amount
shall be held in the manner described in Paragraph (5) below.

 

(5)               All payments for the Subscription Amount made by the
Purchasers will be deposited as soon as practicable for the undersigned’s
benefit in an escrow account. Any interest earned on such payments shall revert
back to the escrow agent and shall be used to offset the escrow account fees.
Payments for the Subscription Amount made by the Purchasers will be returned
promptly, without interest or deduction, if, or to the extent, the undersigned’s
subscription is rejected or the Offering is terminated for any reason.

 

(6)               Upon receipt by the Company of the requisite payment for a
Note to be purchased by a Purchaser, the Company shall, at the Closing: (i)
issue and deliver to the Purchaser a Note in favor of the Purchaser in a
principal amount equal to the Purchaser’s Subscription Amount, and (ii) deliver
to the Purchaser certificate stating that the representations and warranties
made by the Company in Section C of this Agreement were true and correct in all
material respects when made and are true and correct in all material respects on
the date of Closing relating to the Note subscribed for pursuant to this
Agreement as though made on and as of the Closing date (provided, however, that
representations and warranties that speak as of a specific date shall continue
to be true and correct as of the Closing with respect to such date).

 

(7)               Each Purchaser acknowledges and agrees that this Agreement
shall be binding upon such Purchaser upon the execution and delivery to the
Company of such Purchaser’s signed counterpart signature page to this Agreement
unless and until the Company shall reject the subscription being made hereby by
such Purchaser.

 

(8)               Each Purchaser agrees that the Company may reduce such
Purchaser’s Subscription Amount without any prior notice or further consent by
such Purchaser. If such a reduction occurs, the part of the Subscription Amount
attributable to the reduction shall be promptly returned, without interest or
deduction.

 

(9)               Each Purchaser acknowledges and agrees that the purchase of a
Note by such Purchaser pursuant to the Offering is subject to all the terms and
conditions set forth in this Agreement.

 

B.Representations and Warranties of the Purchaser

 

Each of the Purchasers, severally and not jointly, hereby represents and
warrants to the Company and agrees with the Company as follows:

 

(1)               The Purchaser has been furnished with and has carefully read
the Company’s filings with the Securities and Exchange Commission (“the SEC”),
this Agreement, the form of Note attached hereto as Exhibit A, and the
Subordination Agreement (collectively the “Offering Documents”), and is familiar
with and understands the terms of the Offering. Specifically, and without
limiting in any way the foregoing representation, the Purchaser (i) has
carefully read and considered (A) the Company’s financial statements included in
the Company’s annual report on Form 10-K for the fiscal year ended December 31,
2013, as amended (the “2013 Form 10-K”), (B) the subsection of the 2013 Form
10-K entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” and the section of the 2013 Form 10-K entitled “Item 1.
Business,” (C) the financial results contained in each of the Company’s
quarterly reports on Form 10-Q for each of the periods ended March 31, 2014,
June 30, 2014 and September 30, 2014, (D) the subsection of each such Form 10-Q
entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” and (ii) fully understands all of the risks related to
the purchase of the Securities. The Purchaser has carefully considered and has
discussed with the Purchaser’s professional legal, tax, accounting and financial
advisors, to the extent the Purchaser has deemed necessary, the suitability of
an investment in the Securities for the Purchaser’s particular tax and financial
situation and has determined that the Securities being subscribed for by the
Purchaser are a suitable investment for the Purchaser. The Purchaser recognizes
that an investment in the Securities involves substantial risks, including the
possible loss of the entire amount of such investment.

 

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(2)               The Purchaser acknowledges that (i) the Purchaser has had the
opportunity to request copies of any documents, records, and books pertaining to
this investment and (ii) any such requested documents, records and books have
been made available for inspection by the Purchaser and the Purchaser’s
attorney, accountant or other advisor(s).

 

(3)               The Purchaser and the Purchaser’s advisor(s) have had: (i) the
opportunity to ask questions of and receive answers from representatives of the
Company or persons acting on behalf of the Company concerning the Offering as
the Purchaser has deemed necessary and all such questions have been answered to
the full satisfaction of the Purchaser, (ii) access to information about the
Company and its subsidiaries and their respective financial condition, results
of operations, business, properties, management and prospects sufficient to
enable the Purchaser to evaluate the Purchaser’s investment, and (iii) the
opportunity to obtain such additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. The Purchaser
understands that the Purchaser’s investment in the Securities involves a high
degree of risk. The Purchaser has sought such accounting, legal and tax advice
as the Purchaser has considered necessary to make an informed decision with
respect to the Purchaser’s acquisition of the Securities.

 

(4)               The Purchaser is not subscribing for Securities as a result of
or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar, meeting or conference whose
attendees have been invited by any general solicitation or general advertising.

 

(5)               If the Purchaser is a natural person, the Purchaser has
reached the age of majority or equivalent status in the jurisdiction in which
the Purchaser resides. Each Purchaser has adequate means of providing for the
Purchaser’s current financial needs and contingencies, is able to bear the
substantial economic risks of an investment in the Securities for an indefinite
period of time, has no need for liquidity in such investment and can afford a
complete loss of such investment.

 

(6)               The Purchaser has sufficient knowledge, sophistication and
experience in financial, tax and business matters to enable the Purchaser to
utilize the information made available to the Purchaser in connection with the
Offering, to evaluate the merits and risks of an investment in the Securities,
to make an informed investment decision with respect to an investment in the
Securities on the terms described in the Offering Documents, and has so
evaluated the merits and risks of such investment.

 

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(7)               The Purchaser will not sell or otherwise transfer the
Securities without registration under the Securities Act and applicable state
securities laws or an applicable exemption therefrom. The Purchaser acknowledges
that neither the offer nor sale of the Securities has been registered under the
Securities Act or under the securities laws of any state. The Purchaser
represents and warrants that the Purchaser is acquiring the Securities in the
ordinary course of business for the Purchaser’s own account, for investment and
not with a view toward resale or distribution within the meaning of the
Securities Act. The Purchaser has not offered or sold the Securities being
acquired nor does the Purchaser have any present intention, or agreement, plan
or understanding, directly or indirectly, with any person to sell, distribute or
otherwise dispose of such Securities (or any securities which are derivatives
thereof) either currently or after the passage of a fixed or determinable period
of time or upon the occurrence or non-occurrence of any predetermined event or
circumstances. The Purchaser is aware that (i) the Securities are not currently
eligible for sale in reliance upon Rule 144 promulgated under the Securities Act
and (ii) the Company has no obligation to register the Securities subscribed for
hereunder, except as provided in Section E hereof. The Purchaser is not a
registered broker-dealer under Section 15 of the Exchange Act or an entity
engaged in a business that would require the Purchaser to be so registered as a
broker-dealer.

 

(8)               The Purchaser acknowledges that the certificate(s)
representing the Conversion Shares, when issued upon conversion of the Note,
shall be stamped or otherwise imprinted with a legend substantially in the
following form:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED
BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS
TRANSFER AGENT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

Certificates evidencing the Conversion Shares shall not be required to contain
such legend or any other legend (i) following any sale of such Conversion Shares
pursuant to Rule 144, provided that neither the transferor nor the transferee is
an affiliate of the Company as defined therein, or (ii) if such Conversion
Shares are eligible for sale under Rule 144 without the requirement for the
Company to be in compliance with the current public information required under
Rule 144 as to such securities and without volume or manner-of-sale restrictions
or have been sold pursuant to the Registration Statement (as hereafter defined)
and in compliance with the obligations set forth in Section E(6) below, or (iii)
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff of
the Securities and Exchange Commission), in the case of subsections (i) through
(iii) above, to the extent reasonably determined by the Company’s legal counsel.
At such time and to the extent a legend is no longer required for the Conversion
Shares, the Company will use its best efforts to no later than five (5) trading
days following the delivery by a Purchaser to the Company or the Company’s
transfer agent of a legended certificate representing such Conversion Shares
(together with such accompanying documentation or representations as reasonably
required by counsel to the Company), deliver or cause to be delivered a
certificate representing such Conversion Shares that is free from the foregoing
legend.

 

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(9)               If this Agreement is executed and delivered on behalf of a
partnership, corporation, trust, estate or other entity: (i) such partnership,
corporation, trust, estate or other entity is duly organized, validly existing
and in good standing under the laws of the jurisdiction of the Purchaser’s
organization, (ii) such partnership, corporation, trust, estate or other entity
has the full legal right and power and all authority and approval required (a)
to execute and deliver this Agreement and all other instruments executed and
delivered by or on behalf of such partnership, corporation, trust or other
entity in connection with the purchase of the Securities by such Purchaser, and
(b) to purchase and hold such Securities; (iii) the signature of the party
signing on behalf of such partnership, corporation, trust, estate or other
entity is binding upon such partnership, corporation, trust, estate or other
entity; and (iv) such partnership, corporation, trust, estate or other entity
has not been formed for the specific purpose of acquiring such Securities.

 

(10)           If the Purchaser is a retirement plan or is investing on behalf
of a retirement plan, the Purchaser acknowledges that an investment in the
Securities poses additional risks, including the inability to use losses
generated by an investment in the Securities to offset taxable income.

 

(11)           The information contained in the purchaser questionnaire in the
form of Exhibit B attached hereto (the “Purchaser Questionnaire”) delivered by
the Purchaser in connection with this Agreement is complete and accurate in all
respects, and the Purchaser, at the time the Purchaser was offered the
Securities, was, and at the date hereof is, and on the Closing Date and on the
date on which the Purchaser elects to convert the Note will be, an “accredited
investor” as defined in Rule 501 of Regulation D under the Securities Act on the
basis indicated therein. The Purchaser shall indemnify and hold harmless the
Company and each officer, director or control person, who is or may be a party
or is or may be threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of or arising from any actual or alleged
misrepresentation or misstatement of facts or omission to represent or state
facts made or alleged to have been made by the Purchaser to the Company or
omitted or alleged to have been omitted by the Purchaser, concerning the
Purchaser or the Purchaser’s authority to invest or financial position in
connection with the Offering, including, without limitation, any such
misrepresentation, misstatement or omission contained in the Agreement or any
other document submitted by the Purchaser, against losses, liabilities and
expenses for which the Company or any officer, director or control person has
not otherwise been reimbursed (including attorney’s fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by the Company or
such officer, director or control person in connection with such action, suit or
proceeding. For the avoidance of doubt, such indemnification shall be the
several, and not joint, obligation of each Purchaser with respect to the
Purchaser’s own action or inaction as provided above.

 

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(12)           The information contained in the selling stockholder
questionnaire in the form of Exhibit C attached hereto (the “Selling Stockholder
Questionnaire”) delivered by the Purchaser in connection with this Agreement is
complete and accurate in all respects.

 

(13)           This Agreement has been duly executed and delivered by the
Purchaser and constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms and
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy.

 

(14)           The execution and delivery by the Purchaser of this Agreement and
the consummation of the transactions contemplated hereby will not result in the
violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority to or by which the
Purchaser is bound, or of any provision of the Purchaser’s organizational
documents (if applicable), and will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute (with due notice
or lapse of time or both) a default under, any lease, loan agreement, mortgage,
security agreement, trust indenture or other agreement or instrument to which
the Purchaser is a party or by which the Purchaser is bound or to which any of
the Purchaser’s properties or assets is subject, nor result in the creation or
imposition of any lien upon any of the properties or assets of the Purchaser.

 

(15)           No person will have, as a result of the transactions contemplated
by this Agreement, any valid right, interest or claim against or upon the
Company or any Purchaser for any brokers’, finders’ or financial advisory fees
or commissions pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Purchaser.

 

(16)           The Purchaser has independently evaluated the merits of the
Purchaser’s decision to purchase Securities pursuant to this Agreement, and the
Purchaser confirms that the Purchaser has not relied on the advice of any other
Purchaser’s business and/or legal counsel in making such decision. The Purchaser
understands that nothing in this Agreement or any other materials presented by
or on behalf of the Company to the Purchaser in connection with the purchase of
the Securities constitutes legal, tax or investment advice. The Purchaser has
consulted such legal, tax and investment advisors as the Purchaser, in the
Purchaser’s sole discretion, has deemed necessary or appropriate in connection
with the Purchaser’s purchase of the Securities.

 

(17)           The Purchaser has not directly or indirectly engaged in any Short
Sales involving the Company’s securities since the time that it was first
contacted by the Company with respect to the transactions contemplated hereby.
“Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Exchange Act and all types of
direct and indirect stock pledges, forward sale contracts, options, puts, calls,
short sales, swaps and similar arrangements (including on a total return basis),
and sales and other transactions through non-US broker dealers or foreign
regulated brokers. Notwithstanding the foregoing, in the case of a Purchaser
that is or is part of a multi-managed investment vehicle (a “Fund”) whereby
separate portfolio managers manage separate portions of such Fund’s assets and
the portfolio managers have no direct knowledge of the investment decisions made
by the portfolio managers managing other portions of such Fund’s assets, the
representation set forth above shall solely apply with respect to the portion of
assets of the Purchaser managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.

 

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(a)                The Purchaser’s residence (if an individual) or offices in
which its investment decision with respect to the Securities was made (if an
entity) are located at the address immediately below the Purchaser’s name on its
signature page hereto.

 

(b)               The Purchaser is aware that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of common Stock of the
Company, par value $0.01 per share (“Common Stock”), and other activities with
respect to the Common Stock by the Purchasers, and agrees to comply with such
rules.

 

C.Representations and Warranties of the Company

 

Except as set forth in the schedules delivered concurrently with the execution
and delivery of this Agreement (the “Disclosure Schedule”), which Disclosure
Schedule shall be deemed a part hereof and shall qualify the representations and
warranties of the Company set forth herein to the extent of the disclosure
contained in the corresponding section of the Disclosure Schedule, the Company
hereby makes the following representations and warranties to the Purchasers,
which representations and warranties shall survive the Closing and the purchase
and sale of the Notes.

 

(1)               Organization, Good Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
conduct its business as currently conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
in which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary, except where the
failure to be so qualified would not have or reasonably be expected to result in
a Material Adverse Effect. For purposes of this Agreement, “Material Adverse
Effect” means a material adverse effect on the results of operations, assets,
prospects, business or financial condition of the Company and its subsidiaries,
taken as a whole, except that any of the following, either alone or in
combination, shall not be deemed a Material Adverse Effect: (i) effects caused
by changes or circumstances affecting general market conditions in the U.S.
economy or which are generally applicable to the industry in which the Company
operates, provided that such effects are not borne disproportionately by the
Company; (ii) effects caused by earthquakes, hostilities, acts of war, sabotage
or terrorism or military actions or any escalation or material worsening of any
such hostilities, acts of war, sabotage or terrorism or military actions
existing as of the date hereof; (ii) effects resulting from or relating to the
announcement or disclosure of the sale of Securities or other transactions
contemplated by this Agreement; or (iv) effects caused by any event, occurrence
or condition resulting directly from or directly relating to the taking of any
action as required in accordance with this Agreement.

 

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(2)               Capitalization. The authorized capital stock of the Company
consists of 165,000,000 shares of stock of all classes. The authorized capital
stock is divided into 150,000,000 shares of Common Stock, $0.01 par value per
share, and 15,000,000 shares of Preferred Stock, $0.01 par value per share (the
“Preferred Stock”). As of the date hereof, there were 8,084,471 shares of Common
Stock issued and 4,029,502 shares of Preferred Stock issued and outstanding. As
of the date hereof, the Company had reserved 1,666,667 shares of Common Stock
for issuance to employees, directors and consultants pursuant to the Company’s
2006 Equity Incentive Plan, of which 833,398 shares of Common Stock are subject
to outstanding, unexercised options or stock appreciation rights as of such
date. Other than as set forth above, as set forth in footnote 9 to the financial
statements of the Company included in the Company’s Quarterly Report on Form
10-Q for the period ended September 30, 2014 or as contemplated to be sold
pursuant to this Agreement, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which the Company is a party or by
which either the Company is bound or obligating the Company to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of the Company or obligating the
Company to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement.

 

(3)               Issuance; Reservation of Shares. The issuance of the Notes has
been duly and validly authorized by all necessary corporate and stockholder
action and, when issued and paid for pursuant to this Agreement, will be validly
issued. The issuance of the Conversion Shares has been duly and validly
authorized by all necessary corporate and stockholder action, and, when issued
upon the due conversion of the applicable Note in accordance with the terms of
the Offering Documents, will be validly issued, fully paid and non-assessable
shares of Common Stock of the Company. The Company has reserved, and will
reserve at all times that the Notes remain outstanding, such number of shares of
Common Stock sufficient to enable the full conversion of the Notes into the
Conversion Shares.

 

(4)               Authorization; Enforceability. The Company has all corporate
right, power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Notes contemplated herein and
the performance of the Company’s obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms and subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy. The issuance and sale of the Notes
contemplated hereby will not give rise to any preemptive rights or rights of
first refusal on behalf of any person.

 

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(5)               No Conflict; Governmental and Other Consents.

 

(a)                The execution and delivery by the Company of this Agreement
and the consummation of the transactions contemplated hereby will not result in
the violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority to or by which the
Company is bound, or of any provision of the Amended and Restated Certificate of
Incorporation or Amended and Restated Bylaws of the Company, and will not
conflict with, or result in a breach or violation of, any of the terms or
provisions of, or constitute (with due notice or lapse of time or both) a
default under, any Material Agreement (as defined below), nor result in the
creation or imposition of any lien upon any of the properties or assets of the
Company.

 

(b)               No consent, approval, authorization or other order of any
governmental authority or other third party is required to be obtained by the
Company in connection with the authorization, execution and delivery of this
Agreement or with the authorization, issue and sale of the Securities, except
for such consents, approvals and authorizations that have been obtained and for
such post-Closing filings as may be required to be made with the SEC, The NASDAQ
Stock Market LLC (“NASDAQ”) and any state or foreign blue sky or securities
regulatory authority.

 

(6)               Litigation. There are no pending, or to the Company’s
knowledge threatened, legal or governmental proceedings against the Company that
would, if there were an unfavorable decision, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.

 

(7)               Accuracy of Reports. All reports required to be filed by the
Company within the twelve months prior to the date of this Agreement (the “SEC
Reports”) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), have been filed with the SEC, except where the failure to file on a
timely basis would not have or reasonably be expected to result in a Material
Adverse Effect and would not have or reasonably be expected to result in any
limitation or prohibition on the Company’s ability to register the Conversion
Shares for resale on Form S-3 if the Company is eligible to use Form S-3 for a
secondary offering, and, otherwise, on Form S-1, or any Purchaser’s ability to
use Rule 144 to resell any Securities. The SEC Reports complied at the time of
filing in all material respects with the requirements of their respective forms
and were complete and correct in all material respects as of the dates at which
the information was furnished, and contained (as of such dates) no untrue
statements of a material fact nor omitted to state any material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading.

 

(8)               Financial Information. The Company’s financial statements that
appear in the SEC Reports have been prepared in accordance with United States
generally accepted accounting principles (“GAAP”), except in the case of
unaudited statements as permitted by Form 10-Q of the SEC or as may be indicated
therein or in the notes thereto, applied on a consistent basis throughout the
periods indicated, and such financial statements fairly present in all material
respects the financial condition and results of operations of the Company as of
the dates and for the periods indicated therein.

 

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(9)               Accounting Controls. The Company and each of its subsidiaries
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management’s general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management’s general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

 

(10)           Sarbanes-Oxley Act of 2002. The Company is in compliance, in all
material respects, with all applicable provisions of the Sarbanes-Oxley Act of
2002 and all rules and regulations of the SEC or other governmental, regulatory
(including self-regulatory) or similar agency or organization, promulgated
thereunder or implementing the provisions thereof that are in effect.

 

(11)           Absence of Certain Changes. Since the date of the Company’s
financial statements included in the Company’s Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 2014, there have been no events,
occurrences or developments that have had or would reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect, except
in each case as expressly described in the SEC Reports.

 

(12)           Investment Company. The Company is not an “investment company”
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the SEC thereunder.

 

(13)           Subsidiaries. To the extent required under applicable SEC rules,
Exhibit 12.1 to the 2013 Form 10-K sets forth each subsidiary of the Company,
showing the jurisdiction of its incorporation or organization. For the purposes
of this Agreement, “subsidiary” shall mean any company or other entity of which
at least 50% of the securities or other ownership interest having ordinary
voting power for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company or any of
its other subsidiaries.

 

(14)           Certain Fees. No brokers’, finders’ or financial advisory fees or
commissions will be payable by the Company or any subsidiary with respect to the
transactions contemplated by this Agreement.

 

(15)           Material Agreements. Except as set forth in the SEC Reports,
neither the Company nor any subsidiary is a party to any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement, a
copy of which would be required to be filed with the SEC as an exhibit to Form
10-K (each, a “Material Agreement”). The Company and each of its subsidiaries
has in all material respects performed all the obligations required to be
performed by them to date under the foregoing agreements, have received no
notice of default by the Company or the subsidiary that is a party thereto, as
the case may be, and, to the Company’s knowledge, are not in default under any
Material Agreement now in effect.

 

10

 

 

 

(16)           Transactions with Affiliates. Except as set forth in the SEC
Reports, none of the executive officers or directors of the Company and, to the
Company’s knowledge, none of the employees of the Company, is presently a party
to any transaction with the Company (other than for services as employees,
officers and directors) that would be required to be disclosed pursuant to Item
404 of Regulation S-K promulgated under the Securities Act.

 

(17)           Taxes. The Company and each of the subsidiaries has prepared and
filed (or requested valid extensions thereof) all federal, state, local, foreign
and other tax returns for income, gross receipts, sales, use and other taxes and
custom duties (“Taxes”) required by law to be filed by it. The Company and each
subsidiary has paid or made provisions for the payment of all Taxes shown to be
due on such tax returns and all additional assessments, and adequate provisions
have been and are reflected in the financial statements of the Company and the
subsidiaries for all current Taxes to which the Company or any subsidiary is
subject and which are not currently due and payable except where the failure to
so pay or make provision for any such Taxes would not have or reasonably be
expected to result in a Material Adverse Effect. There are no unpaid taxes in
any material amount claimed to be due by the Company or any Subsidiary by the
taxing authority of any jurisdiction.

 

(18)           Insurance. The Company and its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as the Company believes are prudent and customary in the
businesses in which the Company and its subsidiaries are engaged. Neither the
Company nor any of its subsidiaries has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without an increase in cost significantly greater than
general increases in cost experienced for similar companies in similar
industries with respect to similar coverage.

 

(19)           Environmental Matters. Except as disclosed in the SEC Reports, to
the Company’s knowledge, all real property owned, leased or otherwise operated
by the Company and its subsidiaries is free of contamination from any substance,
waste or material currently identified to be toxic or hazardous pursuant to,
within the definition of a substance which is toxic or hazardous under, or which
may result in liability under, any Environmental Law (as defined below),
including, without limitation, any asbestos, polychlorinated biphenyls,
radioactive substance, methane, volatile hydrocarbons, industrial solvents, oil
or petroleum or chemical liquids or solids, liquid or gaseous products, or any
other material or substance (“Hazardous Substance”) which has caused or would
reasonably be expected to cause or constitute a threat to human health or
safety, or an environmental hazard in violation of Environmental Law or to
result in any environmental liabilities. Neither the Company nor any of its
subsidiaries has caused or suffered to occur any release, spill, migration,
leakage, discharge, disposal, uncontrolled loss, seepage, or filtration of
Hazardous Substances that would reasonably be expected to result in a Material
Adverse Effect. The Company and each subsidiary has generated, treated, stored
and disposed of any Hazardous Substances in compliance with applicable
Environmental Laws. There are no investigations, proceedings or litigation
pending or, to the Company’s knowledge, threatened against the Company, any of
its subsidiaries or any of the Company’s or its subsidiaries’ facilities
relating to Environmental Laws or Hazardous Substances. “Environmental Laws”
shall mean all federal, national, state, regional and local laws, statutes,
ordinances and regulations, in each case as amended or supplemented from time to
time, and any judicial or administrative interpretation thereof, including
orders, consent decrees or judgments relating to the regulation and protection
of human health, safety, the environment and natural resources.

 

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(20)           Intellectual Property Rights and Licenses. The Company and its
subsidiaries own or have the right to use any and all information, know-how,
trade secrets, patents, copyrights, trademarks, trade names, software, formulae,
methods, processes and other intangible properties that are of a such nature and
significance to the business that the failure to own or have the right to use
such items would be reasonably likely to have a Material Adverse Effect
(“Intangible Rights”). The Company (including its subsidiaries) has not received
any notice that it is in conflict with or infringing upon the asserted
intellectual property rights of others in connection with the Intangible Rights,
and, to the Company’s knowledge, neither the use of the Intangible Rights nor
the operation of the Company’s businesses is infringing or has infringed upon
any intellectual property rights of others. All payments have been duly made
that are necessary to maintain the Intangible Rights in force. No claims have
been made, and to the Company’s knowledge, no claims are threatened, that
challenge the validity or scope of any Intangible Right of the Company or any of
its subsidiaries.

 

(21)           Labor, Employment and Benefit Matters.

 

(a)                There are no existing, or to the best of the Company’s
knowledge, threatened strikes or other labor disputes against the Company or any
of its subsidiaries. Except as set forth in the SEC Reports, there is no
organizing activity involving employees of the Company or any of its
subsidiaries pending or, to the Company’s or its subsidiaries’ knowledge,
threatened by any labor union or group of employees. There are no representation
proceedings pending or, to the Company’s or its subsidiaries’ knowledge,
threatened with the National Labor Relations Board, and no labor organization or
group of employees of the Company or its subsidiaries has made a pending demand
for recognition.

 

(b)               Except as set forth in the SEC Reports, neither the Company
nor any of its subsidiaries is, or during the five years preceding the date of
this Agreement was, a party to any labor or collective bargaining agreement and
there are no labor or collective bargaining agreements which pertain to
employees of the Company or its subsidiaries.

 

(c)                Each employee benefit plan is in compliance in all material
respects with all applicable law.

 

(22)           Compliance with Law. The Company is in compliance in all material
respects with all applicable laws. The Company has not received any notice of,
nor does the Company have any knowledge of, any material violation (or of any
investigation, inspection, audit or other proceeding by any governmental entity
involving allegations of any violation) of any applicable law involving or
related to the Company which has not been dismissed or otherwise disposed of.
The Company has not received written notice or otherwise has any knowledge that
the Company is charged with, threatened with or under investigation with respect
to, any material violation of any applicable law. Neither the Company nor any of
its subsidiaries nor, to the knowledge of the Company, any employee or agent of
the Company or any subsidiary has made any contribution or other payment to any
official of, or candidate for, any federal, state or foreign office in violation
of any law. The Company and, to the Company’s knowledge, its directors,
officers, employees and agents have complied in all material respects with the
Foreign Corrupt Practices Act of 1977, as amended, and any related rules and
regulations.

 

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(23)           Ownership of Property. Except as set forth in the Company’s
financial statements included in the SEC Reports, each of the Company and its
subsidiaries has (i) good and marketable fee simple title to its owned real
property, if any, free and clear of all liens; (ii) a valid leasehold interest
in all leased real property, and each of such leases is valid and enforceable in
accordance with its terms (subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies, and to
limitations of public policy) and is in full force and effect, and (iii) good
title to, or valid leasehold interests in, all of its other properties and
assets free and clear of all liens.

 

(24)           Compliance with NASDAQ Listing Requirements. The Company is in
compliance in all material respects with all currently effective NASDAQ
continued listing requirements and corporate governance requirements.

 

(25)           No Integrated Offering. Assuming the accuracy of each Purchaser’s
representations and warranties set forth in Section B hereof, neither the
Company, nor to the Company’s knowledge, any of its affiliates or other person
acting on the Company’s behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would cause the Offering of the Notes to be integrated with
prior offerings by the Company for purposes of the Securities Act, when
integration would cause the Offering not to be exempt from the requirements of
Section 5 of the Securities Act.

 

(26)           General Solicitation. Neither the Company nor, to its knowledge,
any person acting on behalf of the Company, has offered or sold a Note by any
form of “general solicitation” within the meaning of Rule 502 under the
Securities Act. To the knowledge of the Company, no person acting on its behalf
has offered a Note for sale other than to the Purchasers and certain other
“accredited investors” within the meaning of Rule 501 under the Securities Act.

 

D.Understandings

 

Each of the Purchasers understands, acknowledges and agrees with the Company as
follows:

 

(1)               The Company may terminate this Offering or reject any
subscription at any time in its sole discretion. The execution of this Agreement
by the Purchaser or solicitation of the investment contemplated hereby shall
create no obligation on the part of the Company to accept any subscription or
complete the Offering.

 

(2)               The Purchaser hereby acknowledges and agrees that the
subscription hereunder is irrevocable by the Purchaser, and that, except as
required by law, the Purchaser is not entitled to cancel, terminate or revoke
this Agreement or any agreements of the Purchaser hereunder and that if the
Purchaser is an individual this Agreement shall survive the death or disability
of the Purchaser and shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

 

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(3)               No federal or state agency or authority has made any finding
or determination as to the accuracy or adequacy of the Offering Documents or as
to the fairness of the terms of the Offering nor any recommendation or
endorsement of the Securities. Any representation to the contrary is a criminal
offense. In making an investment decision, each of the Purchasers must rely on
its own examination of the Company and the terms of the Offering, including the
merits and risks involved.

 

(4)               The Offering is intended to be exempt from registration under
the Securities Act by virtue of Section 4(2) of the Securities Act and the
provisions of Regulation D thereunder, which is in part dependent upon the
truth, completeness and accuracy of the statements made by the Purchaser herein
and in the Purchaser Questionnaire.

 

(5)               Notwithstanding the registration obligations provided herein,
there can be no assurance that the Purchaser will be able to sell or dispose of
the Securities. It is understood that in order not to jeopardize the Offering’s
exempt status under Section 4(2) of the Securities Act and Regulation D, any
transferee may, at a minimum, be required to fulfill the investor suitability
requirements thereunder.

 

(6)               The Purchaser acknowledges that the Offering is confidential
and non-public and agrees that all information about the Offering (including the
existence and terms of this Agreement) shall be kept in confidence by the
Purchaser until the public announcement of the Offering by the Company.

 

(7)               The Purchaser acknowledges that the foregoing restrictions on
the Purchaser’s use and disclosure of any such confidential, non-public
information contained in the above-described documents restricts the Purchaser
from trading in the Company’s securities to the extent such trading is on the
basis of material, non-public information of which the Purchaser is aware.
Except for the terms of the Offering Documents and the fact that the Company is
considering consummating the transactions contemplated therein, the Company
confirms that neither the Company nor, to its knowledge, any other person acting
on its behalf, has provided any of the Purchasers or their agents or counsel
with any information that constitutes material, non-public information.

 

(8)               The Purchaser agrees that beginning on the date hereof until
the later of (a) the date upon which the Note is converted in full into shares
of Common Stock in accordance with the terms of the Note and (b) the Maturity
Date (as defined in the Note), the Purchaser will not enter into any Short
Sales.

 

E.Registration Rights

 

(1)               Certain Definitions. For purposes of this Section E, the
following terms shall have the meanings ascribed to them below.

 

(a)                “Prospectus” means the prospectus included in the
Registration Statement (including, without limitation, a prospectus that
includes any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the Offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

 

14

 

 

 

(b)               “Registrable Securities” shall mean the Conversion Shares
issued upon conversion of a Note as provided herein, including any securities
issued or issuable upon any stock split, dividend or other distribution,
adjustment, recapitalization or similar event with respect to the foregoing;
provided that, the Conversion Shares and other applicable securities of the
Company held by a Purchaser shall cease to be Registrable Securities upon the
earliest to occur of the following: (i) a sale pursuant to a Registration
Statement or Rule 144 under the Securities Act (in which case, only such
security sold by such Purchaser (or transferee thereof) shall cease to be a
Registrable Security); or (ii) such securities first becoming eligible for
resale by such Purchaser (or transferee thereof) under Rule 144 without the
requirement for the Company to be in compliance with the current public
information requirement thereunder and without volume or manner-of-sale
restrictions.

 

(c)                “Registration Statement” means the registration statement
required to be filed under this Section E, including the Prospectus, amendments
and supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.

 

(2)               Registration Statement.

 

(a)                The Company shall use its best efforts to cause to prepare
and file with the SEC (i) a Registration Statement (the “Initial Registration
Statement”) covering the resale of all Registrable Securities for an offering to
be made on a continuous basis pursuant to Rule 415 by January 31, 2016 with
respect to any Registrable Securities issued upon conversion of any Note on or
before November 30, 2015 (the “Initial Registration Statement”), and (ii) an
additional Registration Statement covering the resale of all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule 415
by January 31, 2017 with respect to any remaining Registrable Securities issued
upon conversion of any Note that have not previously been registered on a
Registration Statement (such date of actual filing, the “Filing Date”). The
Registration Statement shall be on Form S-3, if the Company is eligible to use
Form S-3 for a secondary offering, and, otherwise, on Form S-1, and shall
contain (except if otherwise directed by the Purchasers) a “Plan of
Distribution” substantially in the form attached hereto as Exhibit D. Each
Purchaser will furnish to the Company in writing the information specified in
Item 507 or 508 of Regulation S-K, as applicable, of the Securities Act for use
in connection with the Registration Statement or prospectus or preliminary
prospectus included therein. Each Purchaser agrees to promptly furnish
additional information required to be disclosed in order to make the information
previously furnished to the Company by such Purchaser not materially misleading.
The Registration Statement shall register the Registrable Securities for resale
by the holders thereof.

 

(b)               The Company shall use its commercially reasonable efforts to
cause the Initial Registration Statement to be declared effective by the SEC on
or prior to March 31, 2016 and the Additional Registration Statement be declared
effective by the SEC on or prior to March 31, 2017, and shall use its best
efforts to keep the Registration Statement continuously effective under the
Securities Act until the earliest of (i) the one-year anniversary of the
applicable effective date of such Registration Statement or (ii) the date when
all Registrable Securities covered by such Registration Statement have been sold
(the “Effectiveness Period”).

 

15

 

 

 

(c)                The Company shall notify each Purchaser in writing promptly
(and in any event within one business day) after receiving notification from the
SEC that the Registration Statement has been declared effective.

 

(d)               Upon the occurrence of any Event (as defined below), as
partial relief for the damages suffered therefrom by the Purchasers (which
remedy shall not be exclusive of any other remedies which are available at law
or in equity; and provided further that the Purchasers shall be entitled to
pursue an action for specific performance of the Company’s obligations under
Paragraph (2)(b) above and any such actions at law, in equity, for specific
performance or otherwise shall not require any such Purchaser to post a bond),
the Company shall pay to each Purchaser, as liquidated damages and not as a
penalty (it being agreed that it would not be feasible to ascertain the extent
of such damages with precision), such amounts and at such times as shall be
determined pursuant to this Paragraph (2)(d). For such purposes, each of the
following shall constitute an “Event”:

 

(i)                 the Filing Date does not occur on or prior to the applicable
filing date set forth above, in which case the Company shall pay an amount in
cash equal to one thousand dollars ($1,000) for each day after the applicable
filing date set forth above in which the Filing Date does not occur; or

 

(ii)               the Registration Statement is not declared effective on or
prior to the applicable effectiveness date set forth above (the “Required
Effectiveness Date”), in which case the Company shall pay an amount in cash
equal to one thousand dollars ($1,000) for each day after the applicable
effectiveness date set forth above in which the Required Effectiveness Date does
not occur.

 

The payment obligations of the Company under this Paragraph (2)(d) shall be
cumulative.

 

(3)               Registration Procedures. In connection with the Company’s
registration obligations hereunder, the Company shall:

 

(a)                (i) prepare and file with the SEC such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the Registrable
Securities for the Effectiveness Period; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; and (iii) respond as
promptly as reasonably possible to any comments received from the SEC with
respect to the Registration Statement or any amendment thereto and as promptly
as reasonably possible provide true and complete copies of all correspondence
from and to the SEC relating to the Registration Statement that pertains to the
holders of Registrable Securities as “Selling Stockholders” but not any comments
that would result in the disclosure to such holders of material and non-public
information concerning the Company.

 

16

 

 

 

(b)               Notify the Purchasers as promptly as reasonably possible, and
(if requested by the Purchasers) confirm such notice in writing no later than
one (1) trading day thereafter, of any of the following events: (i) the SEC
notifies the Company whether there will be a “review” of the Registration
Statement; (ii) the SEC comments in writing on the Registration Statement (in
which case the Company shall deliver to the holders of the Registrable
Securities a copy of such comments that pertain to such holders as “Selling
Stockholders” or to the “Plan of Distribution” and all written responses
thereto, but not information that the Company believes would constitute material
and non-public information); (iii) the SEC or any other Federal or state
governmental authority in writing requests any amendment or supplement to the
Registration Statement or Prospectus or requests additional information related
thereto; (iv) if the SEC issues any stop order suspending the effectiveness of
the Registration Statement or initiates any action, claim, suit, investigation
or proceeding (a “Proceeding”) for that purpose; (v) the Company receives notice
in writing of any suspension of the qualification or exemption from
qualification of any Registrable Securities for sale in any jurisdiction, or the
initiation or threat of any Proceeding for such purpose; or (vi) the financial
statements included in the Registration Statement become ineligible for
inclusion therein or any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference is untrue in any material respect or any revision to the Registration
Statement, Prospectus or other document is required so that it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

 

(c)                Use its reasonable best efforts to avoid the issuance of or,
if issued, obtain the withdrawal of (i) any order suspending the effectiveness
of the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

 

(d)               If requested by a Purchaser, promptly deliver to such
Purchaser, without charge, such reasonable number of copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Purchaser may reasonably request. The Company hereby
consents to the use of such Prospectus and each amendment or supplement thereto
by each of the selling Purchasers in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

 

(e)                (i) In the time and manner required by NASDAQ, prepare and
file with NASDAQ an additional shares listing application covering all of the
Registrable Securities and a notification form regarding the change in the
number of the Company’s outstanding shares of Common Stock; (ii) use its
reasonable best efforts, regardless of listing or similar costs, to take all
steps necessary to cause such Registrable Securities to be approved for listing
on NASDAQ as soon as possible thereafter; (iii) provide to the Purchasers notice
of such listing; and (iv) use its reasonable best efforts, regardless of listing
or similar costs, to maintain the listing of such Registrable Securities on
NASDAQ.

 

17

 

 

 

(f)                Prior to any resale of Registrable Securities by a Purchaser,
use its commercially reasonable efforts to register or qualify or cooperate with
the selling Purchaser in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or “blue sky” laws of such
jurisdictions within the United States as any Purchaser requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required for any such purpose to (i) qualify
generally to do business as a foreign corporation in any jurisdiction wherein it
would not be otherwise required to qualify but for the requirements of this
Paragraph (3)(f), (ii) subject itself to taxation; or (iii) file a general
consent to service of process in any such jurisdiction.

 

(g)               Upon the occurrence of any event described in Paragraph
(3)(b)(vi) above, as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the affected Registration
Statement or a supplement to the related Prospectus or any document incorporated
or deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration Statement
nor such Prospectus will contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the Company may suspend sales pursuant
to the Registration Statement for a period of up to sixty (60) days (unless the
holders of at least two-thirds of the Registrable Securities consent in writing
to a longer delay of up to an additional thirty (30) days) no more than once in
any twelve-month period if the Company furnishes to the holders of the
Registrable Securities a certificate signed by the Company’s Chief Executive
Officer stating that in the good faith judgment of the Company’s Board of
Directors, (i) the offering could reasonably be expected to interfere in any
material respect with any acquisition, corporate reorganization or other
material transaction under consideration by the Company or (ii) there is some
other material development relating to the operations or condition (financial or
other) of the Company that has not been disclosed to the general public and as
to which it is in the Company’s best interests not to disclose; provided
further, however, that the Company may not so suspend sales more than once in
any calendar year without the written consent of the holders of at least
two-thirds of the Registrable Securities.

 

(h)               Comply with all applicable rules and regulations of the SEC
and NASDAQ in all material respects.

 

(4)               Registration Expenses. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the SEC, NASDAQ and in connection with applicable
state securities or “Blue Sky” laws, (b) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing copies of Prospectuses reasonably requested by the Purchasers), (c)
messenger, telephone and delivery expenses, (d) fees and disbursements of
counsel for the Company and fees and disbursements, up to an aggregate of
$15,000, of a single counsel for all of the Purchasers, and (e) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement. Notwithstanding
the foregoing, each Purchaser shall pay any and all costs, fees, discounts or
commissions attributable to the sale of its respective Registrable Securities.

 

18

 

 

 

(5)               Indemnification.

 

(a)                Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Purchaser, its officers and directors, partners, members, agents, brokers
and employees of each of them, each Person who controls any such Purchaser
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, partners, members, agents and
employees of each such controlling Person, and each underwriter of Registrable
Securities, to the fullest extent permitted by applicable law, from and against
any and all losses, claims, damages, liabilities, settlement costs and expenses,
including without limitation reasonable costs of preparation and reasonable
attorneys’ fees (collectively, “Losses”), as incurred, arising out of or are
based on any untrue or alleged untrue statement of a material fact contained in
the Registration Statement, any Prospectus or form of prospectus or in any
amendment or supplement thereto (it being understood that the Purchasers have
approved Exhibit D attached hereto for this purpose), or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (i) such untrue statements, alleged untrue
statements or omissions are based upon information regarding such Purchaser
furnished in writing to the Company by such Purchaser, or to the extent that
such information related to such Purchaser or such Purchaser’s proposed method
of distribution of Registrable Securities and was reviewed and approved in
writing by such Purchaser expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Purchasers have approved Exhibit D attached hereto
for this purpose), or (ii) in the case of an occurrence of an event of the type
specified in Paragraph (3)(b) above, the use by such Purchaser of an outdated or
defective Prospectus after the Company has notified such Purchaser in writing
that the Prospectus is outdated or defective and prior to the receipt by such
Purchaser of the Advice contemplated in Paragraph (6) below. The Company shall
notify such Purchaser promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.

 

(b)               Indemnification by Purchasers. Each Purchaser shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents, stockholders and employees, and each Person who controls the
Company (within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from and
against all Losses, as incurred, arising out of or based upon (i) such
Purchaser’s failure to comply with the prospectus delivery requirements of the
Securities Act, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, any Prospectus, or any
form of prospectus or in any amendment or supplement thereto, or arising out of
or relating to any omission or alleged omission of a material fact required to
be stated therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made) or
necessary to make the statements therein not misleading to the extent, but only
to the extent, that such untrue statement, alleged untrue statement or omission
is contained in any information furnished in writing by such Purchaser to the
Company specifically for inclusion in such Registration Statement or Prospectus
or to the extent that (i) such untrue statements, alleged untrue statements or
omissions are based upon information regarding such Purchaser furnished in
writing to the Company by such Purchaser for use therein, or to the extent that
such information related to such Purchaser or such Purchaser’s proposed method
of distribution of Registrable Securities and was reviewed and approved in
writing by such Purchaser expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Purchasers have approved Exhibit D attached hereto
for this purpose), or (ii) in the case of an occurrence of an event of the type
specified in Paragraph (3)(b) above, the use by such Purchaser of an outdated or
defective Prospectus after the Company has notified such Purchaser in writing
that the Prospectus is outdated or defective and prior to the receipt by such
Purchaser of the Advice contemplated in Paragraph (6) below. In no event shall
the liability of any selling Purchaser hereunder be greater in amount than the
dollar amount of the net proceeds received by such Purchaser upon the sale of
the Registrable Securities giving rise to such indemnification obligation.

 

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(c)                Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an “Indemnified Party”), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and
the Indemnifying Party shall have the right to assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all reasonable fees and expenses incurred in connection
with the defense thereof, provided, that the failure of any Indemnified Party to
give such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure
shall have prejudiced the Indemnifying Party. An Indemnified Party shall have
the right to employ separate counsel in any such Proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party or Parties unless: (i) the Indemnifying
Party has agreed in writing to pay such fees and expenses; (ii) the Indemnifying
Party shall have failed promptly to assume the defense of such Proceeding and to
employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (iii) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party; provided,
however, that in the event that the Indemnifying Party shall be required to pay
the fees and expenses of separate counsel, the Indemnifying Party shall only be
required to pay the fees and expenses of one separate counsel for such
Indemnified Party or Parties). The Indemnifying Party shall not be liable for
any settlement of any such Proceeding affected without its prior written
consent, which consent shall not be unreasonably withheld, conditioned or
delayed. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding. All fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within 20 trading days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder). The failure to deliver written notice to the Indemnifying Party
within a reasonable time of the commencement of any such action shall not
relieve such Indemnifying Party of any liability to the Indemnified Party under
this Section (5), except to the extent that the Indemnifying Party is materially
and adversely prejudiced in its ability to defend such action.

 

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(d)               Contribution. If a claim for indemnification under Paragraph
(5)(a) or (b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or related to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Paragraph (5)(c), any reasonable attorneys’ or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section 5 was available to
such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Paragraph (5)(d) were determined by pro rata allocation or by
any other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Paragraph (5)(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

 

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The indemnity and contribution agreements contained in this Section 5 are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

(6)               Dispositions. Each Purchaser agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to the Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Paragraph
(3)(b), such Purchaser will discontinue disposition of such Registrable
Securities under the Registration Statement until such Purchaser’s receipt of
the copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Paragraph (3)(g), or until it is advised in writing (the
“Advice”) by the Company that the use of the applicable Prospectus (as it may
have been supplemented or amended) may be resumed, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus or Registration
Statement. The Company may provide appropriate stop orders to enforce the
provisions of this paragraph.

 

(7)               No Piggy-Back on Registrations. Neither the Company nor any of
its security holders (other than the Purchasers in such capacity) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right with respect to the Registration
Statement to any of its security holders.

 

(8)               Piggy-Back Registrations. If at any time during the
Effectiveness Period, other than any suspension period referred to in Paragraph
(3)(g), there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the SEC a registration statement relating to an offering for its own account or
the account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to each Purchaser written notice of such
determination, and if, within ten days after receipt of such notice, any such
Purchaser shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities not
already covered by an effective Registration Statement that such Purchaser
requests to be registered.

 

F.Conditions Precedent to the Obligations of the Company to Sell the Notes

 

The Company’s obligation to sell and issue the Notes at the Closing to the
Purchasers is subject to the fulfillment to the satisfaction of the Company, on
or prior to the Closing date, of the following conditions, any of which may be
waived by the Company:

 

(1)               The representations and warranties made by the Purchasers in
Section B of this Agreement were true and correct in all material respects
(other than representations and warranties which are already qualified as to
materiality, which shall be true and correct in all respects) when made and are
true and correct in all material respects (other than representations and
warranties which are already qualified as to materiality, which shall be true
and correct in all respects) on the date of Closing relating to the Securities
subscribed for pursuant to this Agreement as though made on and as of the
Closing date (provided, however, that representations and warranties that speak
as of a specific date shall continue to be true and correct as of the Closing
with respect to such date).

 

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(2)               No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by this Agreement.

 

(3)               The Company shall have obtained in a timely fashion any and
all consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Notes at the Closing, all of which
shall be and remain so long as necessary in full force and effect.

 

(4)               Each of the Purchasers shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Purchaser at or prior to the Closing date.

 

(5)               Each of the Purchasers shall have delivered or caused to be
delivered to the Company, with respect to such Purchaser, a Purchaser
Questionnaire and a Selling Stockholder Questionnaire.

 

G.Covenants of the Company

 

(1)               The Company hereby agrees that until thirty (30) days
following effectiveness of the Registration Statement, it shall not issue or
sell any Common Stock of the Company, any warrants or other rights to acquire
Common Stock or any other securities that are convertible into Common Stock,
with the exception of issuances or sales pursuant to the Company’s 2006 Equity
Incentive Plan.

 

(2)               As soon as practicable, and in accordance with applicable
rules and regulations, following the Closing, the Company shall, by filing a
Current Report on Form 8-K and/or by issuance of a press release, disclose the
Closing of the Offering and any material, non-public information disclosed to
the Purchasers in connection therewith.

 

H.Miscellaneous

 

(1)               All pronouns and any variations thereof used herein shall be
deemed to refer to the masculine, feminine, singular or plural, as identity of
the person or persons may require. The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. Any references to paragraphs,
subparagraphs, sections or subsections are to those parts of this Agreement,
unless the context clearly indicates to the contrary. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party. This Agreement shall be construed as if drafted jointly by the
parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.

 

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(2)               Any notice or other document required or permitted to be given
or delivered to the Purchasers shall be in writing and sent (a) by fax if the
sender on the same day sends a confirming copy of such notice by an
internationally recognized overnight delivery service (charges prepaid) or (b)
by an internationally recognized overnight delivery service (with charges
prepaid):

 

(i)                 if to the Company, at

 

Transgenomic, Inc.

12325 Emmet Street
Omaha, NE 68164

Fax No.: (402) 452-5401

Attention: Chief Executive Officer

 

or such other address as it shall have specified to the Purchaser in writing,
with a copy (which shall not constitute notice) to:

Paul Hastings LLP

1117 S. California Avenue

Palo Alto, CA 94304
Fax: (650) 320-1904

Attention: Jeffrey T. Hartlin, Esq.

 

(ii)               if to the Purchaser, at its address set forth on the
signature page to this Agreement, or such other address as it shall have
specified to the Company in writing.

 

(3)               Failure of the Company to exercise any right or remedy under
this Agreement or any other agreement between the Company and the Purchaser, or
otherwise, or delay by the Company in exercising such right or remedy, will not
operate as a waiver thereof. No waiver by the Company will be effective unless
and until it is in writing and signed by the Company.

 

(4)               This Agreement shall be enforced, governed and construed in
all respects in accordance with the laws of the State of New York, as such laws
are applied by the New York courts to agreements entered into and to be
performed in New York by and between residents of New York, and shall be binding
upon the Purchaser, the Purchaser’s heirs, estate, legal representatives,
successors and assigns and shall inure to the benefit of the Company, its
successors and assigns.

 

(5)               If any provision of this Agreement is held to be invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provisions hereof.

 

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(6)               The parties understand and agree that, unless provided
otherwise herein, money damages would not be a sufficient remedy for any breach
of the Agreement by the Company or the Purchaser and that the party against
which such breach is committed shall be entitled to equitable relief, including
injunction and specific performance, as a remedy for any such breach. Such
remedies shall not, unless provided otherwise herein, be deemed to be the
exclusive remedies for a breach by either party of the Agreement but shall be in
addition to all other remedies available at law or equity to the party against
which such breach is committed.

 

(7)               The obligations of each Purchaser under this Agreement are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser hereunder, except as may result from the actions of any
such Purchaser other than through the execution hereof. Nothing contained herein
solely by virtue of being contained herein shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any similar
entity, or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated hereby.

 

(8)               This Agreement, together with the agreements and documents
executed and delivered in connection with this Agreement, including without
limitation the Subordination Agreement, constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof.

 

I.Signature

 

The signature page of this Agreement is contained as part of the applicable
subscription package, entitled “Signature Page”.

 

 

 

* * * * * * *

 

25

 

 

 

 

 

SIGNATURE PAGE

 

IN WITNESS WHEREOF, the parties hereto have caused this Unsecured Convertible
Promissory Note Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.

 

THE COMPANY:

 

TRANSGENOMIC, INC.

 

 

By:  ______________________________

Name: Paul Kinnon
Title: President and CEO

 

 

[SIGNATURE PAGES OF PURCHASERS FOLLOW]

 

 

 

 

 

SIGNATURE PAGE

 

The Purchaser hereby subscribes for a Note in a principal amount equal to the
Subscription Amount as set forth below, and agrees to be bound by the terms and
conditions of this Agreement.

 

PURCHASER

 

1. Dated: _________, 201__

 

2. Total Subscription Amount: $_________________________

 

IN WITNESS WHEREOF, the parties hereto have caused this Unsecured Convertible
Promissory Note Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.

 

            Signature of Purchaser   Signature of Joint Purchaser           (if
any)               Name of Signatory (for Entities)   Name of Signatory (for
Entities)                           Title of Signatory (for Entities)   Title of
Signatory (for Entities)                           Taxpayer Identification or
Social   Taxpayer Identification or Social       Security Number   Security
Number of Joint Purchaser (if any)  

 

_______________________________________________________

 

Number and Street: ________________________________________

 

City, State and Zip Code: ____________________________________

Delivery Instructions for Stock Certificates (if different than address above):

 

c/o: _______________________________

 

Number and Street: ____________________________

 

City, State and Zip Code : _____________________

 

Attention:_________________________