UNSECURED CONVERTIBLE PROMISSORYNOTE PURCHASE AGREEMENT

EX-10.1 2 v398258_ex10-1.htm EXHIBIT 10.1

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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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”).

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

(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.

 

 

 

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).

 

 

 

(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.

 

 

 

(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.

 

 

 

(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”.

 

 

 

* * * * * * *

 

 

 

 

 

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:_________________________