AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000
TRANSGENOMIC, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 3826 91-1789357
(State of incorporation) (Primary standard (I.R.S. employer
industrial identification no.)
classification code number)
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5600 SOUTH 42ND STREET
OMAHA, NEBRASKA 68107
(402) 738-5480
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
COLLIN J. D'SILVA
Chairman and Chief Executive Officer
5600 South 42nd Street
Omaha, Nebraska 68107
(402) 738-5480
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Please address a copy of all communications to:
STEVEN P. AMEN, ESQ. ROBERT B. WILLIAMS, ESQ. Kutak Rock LLP Milbank, Tweed, Hadley & McCloy LLP 1650 Farnam Street One Chase Manhattan Plaza Omaha, Nebraska 68102 New York, New York 10005 (402) 346-6000 (212) 530-5000 |
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable on or after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
Common Stock, par value $0.01
share............................ 4,600,000 $14.00 $64,400,000 $17,002
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(1) Includes 600,000 shares of Common Stock that the Underwriters have the option to purchase solely to cover over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED MARCH 10, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
4,000,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by Transgenomic, Inc. We are selling 4,000,000 shares of common stock. The estimated initial public offering price is between $12.00 and $14.00 per share.
Prior to this offering, there has been no public market for our common stock. We have applied for listing of our common stock on the Nasdaq National Market under the symbol TBIO.
PER SHARE TOTAL
--------- -----------
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Transgenomic, before expenses................... $ $
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Transgenomic has granted the underwriters an option for a period of 30 days to purchase up to 600,000 additional shares of common stock.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CHASE H&Q
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
, 2000
The inside front cover of the prospectus contains a graphic depiction of DNA analysis using the WAVESystem. The various steps of a sample analysis described in the picture include the following:
SEPARATION
The DNA separation, analysis, and collection processes performed on our instrument are completely automated. The DNASep Column is key to our process. A sample is placed into our DNASep Column and DNA fragments are separated according to size, mutation, or other properties. The process can be analytical or if pure DNA material is desired the separation can be performed on a preparative basis.
3 MODES OF OPERATION
DNA can be separated according to three different modes. Changing the temperature at which DNA is separated on the DNASep Column controls these modes. Sizing of double strand DNA is performed at lower temperatures. Mutant DNA is separated at intermediate temperatures where DNA is partially denatured or melted. Single strand DNA and RNA are separated at higher temperatures.
DETECTION AND ANALYSIS
DNA fragments flow from the DNASep Column directly into a detection and measurement device. The type and amount of DNA material is identified using two different detection measurements. UV detection is used for most applications. Fluorescence detection is used when measurement of very small amounts of DNA is desired.
COLLECTION
If desired, highly purified DNA can be collected by our fragment collector. Purified DNA can be used for cloning, sequencing, PCR, or in any process where purified fragments of DNA are needed. Cloning, for example, is much more efficient if a highly purified fragment is used in the cloning process.
TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Forward-Looking Statements.................................. 13
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 24
Management.................................................. 35
Principal Stockholders...................................... 41
Related Party Transactions.................................. 43
Description of Capital Stock................................ 44
Shares Eligible for Future Sale............................. 48
U.S. Federal Tax Considerations for Non-U.S. Holders........ 50
Underwriting................................................ 54
Legal Matters............................................... 56
Experts..................................................... 56
Where You Can Find More Information......................... 56
Index to Financial Statements............................... F-1
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THIS PROSPECTUS CONTAINS REFERENCES TO OUR REGISTERED TRADEMARKS WAVE-REGISTERED TRADEMARK- AND DNASEP-REGISTERED TRADEMARK-. WAVEMAKER-TM-, WAVE OPTIMIZED-TM- AND THE TRANSGENOMIC NAME AND THE TRANSGENOMIC LOGO ARE OUR TRADEMARKS FOR WHICH REGISTRATION APPLICATIONS HAVE BEEN FILED WITH THE UNITED STATES PATENT AND TRADEMARK OFFICE. ALL OTHER TRADEMARKS OR TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.
PROSPECTUS SUMMARY
THE SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL STATEMENTS BEGINNING ON PAGE F-1, BEFORE MAKING AN INVESTMENT DECISION.
TRANSGENOMIC
OUR BUSINESS
We provide innovative research tools to the life sciences industry. These tools enable researchers to discover and understand variation in the human genetic code, or genome, in order to accelerate and improve drug development and diagnostics. We believe our WAVE System, which incorporates our proprietary DNASep separation column and associated software, consumables and reagents, will become a leading tool to analyze genetic mutations. The WAVE System allows researchers to analyze both known and unknown genetic mutations faster, with more accuracy and at a lower cost than other commercially available techniques. As of March 1, 2000, we have sold over 240 WAVE Systems in 20 countries to academic research centers and biopharmaceutical companies. In 1999, sales of our WAVE Systems and related consumables accounted for approximately $14 million in revenues.
As efforts to sequence the human genome near completion, understanding genetic variation, or mutation analysis, is becoming the vital link to the development of new drug products and diagnostics. These genetic mutations can include single nucleotide polymorphisms, or SNPs, among others. By comparing genetic mutations in the genome to the occurrence of diseases or particular traits, correlations can be made between genes and specific diseases or traits. Our WAVE System, unlike tools employing more conventional technologies, can detect these genetic mutations without previous knowledge of their existence or position. As a result, the WAVE System provides researchers a more accurate and efficient means of performing the experiments necessary to identify mutations and to correlate the relationships between mutations and diseases.
OUR TECHNOLOGY AND PRODUCTS
Our WAVE System is designed to perform high-speed, automated analyses of DNA molecules to identify the type, location and frequency of DNA mutations, with a high degree of accuracy and consistency. The WAVE System is based on our proprietary micro-bead technology. Our patented micro-beads are packed into our proprietary DNASep separation column, which is the key component of our WAVE System. Each micro-bead has specific surface chemistry that interacts with DNA molecules. The DNA molecules are then selectively separated from the micro-beads with a mixture of our liquid reagents. This process is automated by our proprietary WAVEMaker Software for analysis and interpretation.
CUSTOMERS
Our customers include numerous core laboratory facilities and a number of other leading academic and medical institutions in the U.S. and abroad, including Harvard University, Stanford University, Baylor University, University of Chicago, Fred Hutchison Cancer Research Facility, Mayo Clinic, National Cancer Institute, National Institutes of Health, Institut Curie, University of Cambridge, Wellcome Trust-Oxford University and Institut Gustave Roussy. Customers also include a number of large, established U.S. and foreign pharmaceutical and biotech companies including SmithKline Beecham, Bristol-Meyers Squibb, Millennium Pharmaceuticals, Merck & Company, Novartis and Eli Lilly and Company.
OUR STRATEGY
We intend to be the leading provider of technology platforms which enable life sciences researchers to discover and understand variations in the human genome, in order to accelerate and improve drug development and diagnostics. Key elements of this strategy include:
- FOCUS ON THE GENETIC VARIATION DISCOVERY MARKET;
- ESTABLISH THE WAVE SYSTEM AS THE INDUSTRY STANDARD;
- INCREASE CONSUMABLE SALES;
- PENETRATE NEW MARKETS BY PROVIDING A DIVERSIFIED PORTFOLIO OF PRODUCTS; AND
- BUILD A SUBSTANTIAL INTELLECTUAL PROPERTY ESTATE.
RECENT DEVELOPMENTS
We were incorporated in Delaware on March 6, 1997 for the purpose of conducting our DNA separation and analysis business, in addition to the non-life sciences businesses which were being conducted by CETAC Holding Company, Inc. and its subsidiaries, CETAC Technologies, Inc., Sarasep, Inc. and Interaction Chromatography, Inc. On July 1, 1997, we merged CETAC Holding Company, Inc. and its subsidiaries into Transgenomic.
We have since decided to focus our resources on our life sciences business. We have recently entered into a letter of intent to sell the assets related to our non-life sciences instrument product line and expect this sale to close prior to the closing of this offering.
Our principal office is located at 5600 South 42nd Street, Omaha, Nebraska 68107 (telephone: 402-738-5480). We maintain manufacturing facilities and our principal research and development office in San Jose, California (telephone: 408-432-3230). Our website is located at http://www.transgenomic.com. The information contained in our website is not part of this prospectus, and you should rely only on the information contained in this prospectus in deciding whether to invest in our common stock.
THE OFFERING
Common stock offered........................................ 4,000,000 shares
Common stock to be outstanding after this offering.......... 20,037,200 shares
Use of proceeds............................................. For expansion of manufacturing
capacity, sales and marketing costs,
research and development costs, debt
reduction and general working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol...................... TBIO
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The number of shares to be outstanding after this Offering includes all shares outstanding as of March 10, 2000 plus 2,712,200 shares that will be issued upon the assumed conversion of $12.0 million aggregate principal amount of our convertible notes plus accrued interest at $5.00 per share, and 300,000 shares that will be issued at $5.00 per share upon the exercise of warrants that will expire at the closing of this offering.
The number of shares to be outstanding after this offering does not include the following:
- 152,450 shares issuable upon exercise of outstanding warrants with an exercise price of $5.00 per share;
- 6,000,000 shares that we could issue under our employee stock option plan. As of the date of this prospectus, we have issued options to purchase 3,724,250 shares of common stock at an exercise price ranging from $5.00 to $10.00 per share, except that options to acquire 15,000 shares of common stock issued to one of our non-employee directors may be exercised at a price equal to the lower of $5.00 or 50% of the public offering price for this offering. We may issue options to acquire up to 2,275,750 additional shares of our common stock under this plan; and
- an undetermined number of additional shares we are obligated to issue to some of our existing stockholders if the public offering price for this offering is less than $10.00 per share. The number of additional shares we will have to issue will depend on the offering price. In addition, we will have to adjust the number of shares we will have to issue upon exercise of the warrants and conversion of the notes described above if the public offering price for this offering is less than $10.00 per share.
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS:
- ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OVERALLOTMENT OPTION; AND
- ASSUMES THE INITIAL PUBLIC OFFERING PRICE OF OUR COMMON STOCK WILL BE $13.00 PER SHARE.
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The summary consolidated historical financial data for our 1997, 1998 and 1999 fiscal years is derived from our consolidated financial statements for these years. You should read this summary data along with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements and the unaudited pro forma financial information, and the related notes thereto, included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
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(IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENTS OF OPERATIONS DATA:
Net sales................................................. $11,577 $18,935 $23,035
Gross profit.............................................. 5,241 9,345 10,945
Operating expenses........................................ 8,459 11,320 17,829
Loss from operations...................................... (3,218) (1,975) (6,884)
Net loss.................................................. $(2,410) $(1,576) $(9,827)
Basic and diluted loss per share.......................... $ (0.22) $ (0.13) $ (0.76)
Basic and diluted weighted average shares
outstanding(1).......................................... 11,145 12,279 13,000
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AS OF DECEMBER 31,
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1998 1999
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(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital........................................... $ 1,845 $ 3,494
Total assets.............................................. 14,736 19,964
Long-term debt, less current portion...................... 695 12,538
Stockholders' equity (deficit)............................ 6,649 (2,099)
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(1) See Note A of notes to our consolidated financial statements for an explanation of the determination of the number of shares used in computing per share data.
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma statement of operations data for the year ended December 31, 1999 reflects the sale of assets related to our non-life sciences instrument product line (Transgenomic as adjusted) and the issuance of 300,000 shares of common stock at $5.00 per share upon the exercise of warrants that will expire at the closing of this offering, as if each had occurred on January 1, 1999, and the assumed conversion at $5.00 per share of our outstanding convertible notes and accrued interest into 2,712,200 shares of common stock as of March 23, 1999, the date the convertible notes were issued. The summary unaudited pro forma balance sheet data reflects these transactions and the sale of 25,000 shares of common stock at $10.00 per share in March 2000 as if each had been completed on December 31, 1999.
The pro forma as adjusted balance sheet data additionally reflects the sale of 4,000,000 shares of common stock offered by us in this offering at an assumed initial public offering price of $13.00 per share, less underwriting discounts and commissions and estimated offering expenses. The unaudited pro forma financial data are intended for informational purposes only and are not intended to be indicative of our results of operations or financial position had these transactions occurred on the dates specified, nor are they indicative of our future results of operations or financial position.
You should read this summary along with our consolidated financial statements and notes thereto, our unaudited pro forma financial information and notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Use of Proceeds" included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31, 1999
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ADJUSTMENTS FOR
SALE OF
NON-LIFE ADJUSTMENTS
SCIENCES FOR
TRANSGENOMIC INSTRUMENT TRANSGENOMIC CONVERTIBLE
(HISTORICAL) PRODUCT LINE AS ADJUSTED NOTES PRO FORMA
------------ --------------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
Net sales................... $ 23,035 $ 8,794 $ 14,241 -- $ 14,241
Gross profit................ 10,945 3,869 7,076 -- 7,076
Operating expenses.......... 17,829 3,576 14,253 -- 14,253
Loss from operations........ (6,884) 293 (7,177) -- (7,177)
Other expense............... (1,198) -- (1,198) 859 (339)
Loss before income taxes.... (8,082) 293 (8,375) 859 (7,516)
Net loss.................... $ (9,827) $ 293 $(10,120) $ 859 $ (9,261)
Basic and diluted loss per
share..................... $ (0.76) $ (0.78) $ (0.60)
Basic and diluted weighted
average shares
outstanding............... 13,000 13,000 15,334
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AS OF DECEMBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................................. $ 3,494 $ 8,523 $55,883
Total assets................................................ 19,964 21,914 69,274
Long-term debt, less current portion........................ 12,538 117 117
Stockholders' equity (deficit).............................. (2,099) 12,385 59,745
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RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AND ALL OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ANY OF THE FOLLOWING RISKS COULD HARM OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND COULD RESULT IN A COMPLETE LOSS OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY AS A COMPANY FOCUSED ON LIFE SCIENCES TECHNOLOGIES AND APPLICATIONS SUBJECTS US TO RISKS INHERENT IN THE DEVELOPMENT OF A NEW BUSINESS ENTERPRISE.
We have a limited operating history as a company focused on life sciences technologies and applications and are at a relatively early stage of development in this business. Our future financial performance will depend on the growth in demand for automated DNA separation and analysis enabling technologies. The genomics market is new and emerging, is rapidly evolving, is characterized by an increasing number of market entrants, and will be subject to frequent and continuing changes in standards, customers' preferences and technology. As a result, our business is subject to all of the risks inherent in the development of a new business enterprise, such as the need:
- to develop a market for our products;
- to obtain enough capital to support the expenses of developing and commercializing our products; and
- to attract and retain qualified management, sales, technical and scientific staffs.
We expect that it will be a number of years, if ever, before we will achieve profitability from the sale of our products. Our future operating results will depend on a number of factors, including the market acceptance of our products, the introduction of new products by our competitors, our ability to adapt our technology to the commercial needs of our customers and to developments in the genomics industry, and the timing and extent of our research and development efforts. Our limited operating history in the life sciences industry makes accurate prediction of future operations difficult. If our operating results fail to meet the expectations of securities analysts or investors, our stock price could decline.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.
We experienced losses from operations of $6.9 million in 1999, $2.0 million in 1998 and $3.2 million in 1997. These losses were mostly due to research and development expenses and sales and marketing expenses related to the development and marketing of our WAVE System. As of December 31, 1999, we had an accumulated deficit of $12.3 million. In order to continue to enhance our WAVE System and related products, develop new products, increase the pace of installations and expand our marketing, sales and customer support service staffs, we expect to incur significant increases in our expenses over the next several years. As a result, we could continue to incur losses for the forseeable future and may never be profitable.
OUR TECHNOLOGY AND PRODUCTS ARE RELATIVELY NEW AND MAY NOT GAIN MARKET ACCEPTANCE AMONG GENOMICS RESEARCHERS.
Our WAVE System and other automated DNA separation and analysis products are relatively new products and have had limited use in commercial applications. As a result, it is possible that previously unrecognized defects could emerge. We have developed our WAVE System technology for a number of applications in the area of life sciences research. We may not be able to successfully adapt our products to the commercial requirements of these fields. A number of potential uses of our WAVE System
in these fields will require significant enhancements in its technology, including adaptation of our software. Increased market acceptance of our products is dependent upon factors, some of which are not in our control, such as continued growth in the genomics industry, the availability and price of competing products and technologies, the success of our sales efforts, and the acceptance of our product by the academic and research community, such as biologists, geneticists and biochemists, who are more familiar with the existing, traditional methods of DNA separation and analysis. Our products must compete against well-established techniques, such as gel and capillary electrophoresis and sequencing-based technologies. We cannot be certain that our products will replace or compete successfully against existing products or that our products will achieve market acceptance. If we are unable, for technological or other reasons, to complete the development, introduction or scale-up of our product manufacturing, or if our products do not achieve market acceptance, our business could be seriously harmed.
IF ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC INFORMATION BECOME WIDESPREAD, WE MAY HAVE LESS DEMAND FOR OUR PRODUCTS.
Genetic testing has raised ethical issues regarding confidentiality and the appropriate uses of the resulting information. For these reasons, governmental authorities may call for limits on or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Any of these scenarios could reduce the potential markets for our products, which could seriously harm our business.
WE HAVE A LIMITED SALES FORCE AND LIMITED EXPERIENCE WITH DIRECT MARKETING OF OUR PRODUCTS WHICH COULD LIMIT OUR ABILITY TO EFFECTIVELY PENETRATE NEW MARKETS.
Our direct sales force may not be sufficiently large or knowledgeable to successfully penetrate the market. We may not be able to expand our direct sales force to meet our commercial objectives. In addition, our sales force may not be able to address complex scientific and technical issues raised by our customers. Our customer support personnel may also lack the broad range of technical expertise required to adequately service and support our products in the field.
THE SALE OF OUR PRODUCTS INVOLVES A LENGTHY SALES CYCLE WHICH MAKES OUR REVENUES DIFFICULT TO FORECAST.
Our ability to obtain customers for our WAVE System and related accessories depends in large part on the perception that our products can help accelerate basic genomics research, diagnostic testing and related applications such as drug discovery and development efforts. The purchase of a WAVE System often represents a large capital outlay for potential customers, who are often constrained by limited research budgets. Additionally, the sales cycle is long due to the need to educate potential customers as to the benefits and use of our WAVE System. We also need to effectively communicate the benefits of our WAVE System to a variety of constituencies within potential customer groups, including research and development personnel and key management. We may expend substantial funds and sales effort with no assurance that a sale will result. Due to the lengthy sales cycle required, our revenues could be difficult to forecast.
OUR BUSINESS MAY EXPERIENCE LONG COLLECTION PERIODS WHICH COULD HAVE A NEGATIVE IMPACT ON OUR LIQUIDITY.
We have experienced in the past, and may experience in the future, collection periods of up to a year or more in connection with sales of our WAVE System. Some customers delay payment due to the large capital outlay associated with a purchase of the WAVE System. Other clients in the academic and research fields are accustomed to longer payment periods than commercial buyers. In general, our overseas customers pay less promptly than is customary in the United States. In addition, because we are in the early stages of commercialization of the WAVE System, we sometimes agree to provide extended
payment terms in order to make a sale. Longer collection periods may have a negative impact on our liquidity.
WE MAY NEED TO RAISE ADDITIONAL FUNDING WHICH MAY NOT BE AVAILABLE.
We have historically financed our operations primarily through debt and equity financings, including offerings of common stock, convertible notes and bank financings. We will continue to need substantial amounts of cash for research and development and to expand our sales and marketing infrastructure. We expect our capital and operating expenses to increase over the next several years as we expand this infrastructure and our research and development activities. The amount of additional capital which we will need to raise will depend on many factors, including:
- the level of our research and development activities;
- market acceptance of our products and technologies;
- the level of our sales and marketing expenses;
- expenditures in connection with alliances and license agreements and in acquiring new businesses and technologies;
- costs incurred in enforcing and defending our patent claims and other intellectual property rights; and
- the cost of financing the purchase of additional capital equipment and development tools.
We may need to raise the additional capital in the future through bank financings or strategic investments. Additional financing may not be available to us when we need it, or, if available, we cannot assure that we will be able to obtain such financing on terms favorable to us or our stockholders. If we raise additional capital by issuing equity securities, the issuance of such securities would result in ownership dilution to our stockholders.
OUR WAVE SYSTEM INCLUDES HARDWARE COMPONENTS AND INSTRUMENTS MANUFACTURED BY A SINGLE SUPPLIER AND IF WE WERE NO LONGER ABLE TO OBTAIN THESE COMPONENTS AND INSTRUMENTS OUR BUSINESS COULD BE HARMED.
We currently rely on a single supplier, Hitachi Instruments, Inc., to provide the basic instrument used in our WAVE System. While other suppliers of instrumentation and computer hardware are available, we believe that our arrangement with Hitachi offers strategic advantages. If we were required to seek alternative sources of supply, it could be time consuming or expensive or require significant and costly modification of our WAVE System. Also, if we were unable to obtain instruments from Hitachi in sufficient quantities or in a timely manner, our ability to supply our products could be impaired, which could harm our business.
OUR CHROMATOGRAPHIC COLUMNS, A CORE COMPONENT OF THE WAVE SYSTEM, ARE MANUFACTURED AT A SINGLE FACILITY WHICH IS LOCATED IN AN EARTHQUAKE-PRONE AREA.
All of our proprietary DNASep columns are manufactured at our manufacturing facility in San Jose, California, which is located in an earthquake-prone area. In the event our manufacturing facility or equipment was affected by man-made or natural disasters, we would be unable to manufacture our products for sale or meet customer demand or sales projections. If our manufacturing operations were curtailed or ceased, it would seriously harm our business.
WE FACE, AND WILL CONTINUE TO FACE, INTENSE COMPETITION, BOTH IN THE U.S. AND ABROAD, FROM COMPANIES THAT ARE ENGAGED IN THE DEVELOPMENT OF PRODUCTS THAT ANALYZE DNA AND PROVIDE GENETIC INFORMATION.
The market for our products is highly competitive. Our principal competitors include other biotechnology companies that provide alternative technologies and products for the separation and analysis of DNA. Many of our competitors have greater financial, operational, sales and marketing resources and more experience in research and development and commercialization than we have. Moreover, some of our competitors have greater name recognition than we do and provide more conventional technologies and products with which some of our customers and potential customers may have more familiarity or experience. In order to effectively compete against alternative technologies we will need to demonstrate the superior performance, speed, capabilities and cost effectiveness of our WAVE System.
The genomics industry is characterized by extensive research efforts and rapid technological progress. To remain competitive, we will be required to continue to expand and enhance the functionality of our DNA separation and analysis equipment and to offer comprehensive DNA analysis, and complimentary applications and solutions, with greater ease of use. This will include the need to increase the WAVE System's throughput capacity and to develop new instrumentation, software and application kits to allow the system to provide a broader range of DNA and RNA separation and analysis applications. New products may require additional development work, enhancement, testing, or further refinement before they can be made commercially available and, therefore, we could experience significant delays in the development and manufacture of our products. Even after new products are made commercially available, unforeseen technical difficulties could arise, requiring additional expenditures by us to correct such difficulties and possibly resulting in further delays. We cannot be certain that new products will be successfully developed at all. If our products have performance, reliability or quality shortcomings, then we may experience reduced orders, higher development costs, delays in collecting accounts receivable and additional warranty and service expenses, and our reputation as a reliable provider of quality products could be harmed. In addition, new developments are expected to continue in DNA analysis, and we cannot assure you that our WAVE System will not be made obsolete by more effective or less expensive technologies. Because of rapid technological change, we may be required to expend greater amounts in the development of new products, which in turn will require greater revenues to recoup such expenditures. We cannot assure you that we will be able to make the necessary enhancements to our technology or products to compete successfully with new technologies that may emerge.
WE ARE IN THE PROCESS OF SELLING THE ASSETS RELATED TO OUR NON-LIFE SCIENCES INSTRUMENT PRODUCT LINE WHICH HAVE HISTORICALLY CONTRIBUTED TO OUR REVENUES AND EARNINGS.
In addition to our DNA separation and analysis products, we have produced and sold various non-life sciences products. Until 1999, most of our revenues and profits came from these non-life sciences products. We have recently decided to focus our resources on our new automated DNA separation and analysis products and technologies and have decided to sell the assets related to our non-life sciences product line. As a result, we will no longer generate revenues from the sale of these products. The future growth of our company will be entirely dependent on the sale of our WAVE System and associated DNA separation products and technologies. You should keep this fact in mind when reviewing our financial statements. Because of the change in our product offerings, our historic financial statements will not necessarily indicate our future financial performance.
WE MAY EXPERIENCE DIFFICULTY IN COLLECTING ACCOUNTS RECEIVABLE FROM CUSTOMERS OF OUR NON-LIFE SCIENCES INSTRUMENT PRODUCT LINE AFTER ITS SALE.
We expect to sell assets related to our non-life sciences instrument product line prior to the completion of this offering. The agreement for the sale is expected to provide that we will retain all accounts receivable outstanding as of the date of the sale. Our accounts receivable associated with sales from this product line were approximately $1.5 million at December 31, 1999. After the sale, we may
experience difficulty in collecting the remaining accounts receivable due to the lack of a continuing relationship with some customers.
OUR PATENTS MAY NOT PROTECT US FROM OTHERS USING OUR TECHNOLOGY WHICH COULD HARM OUR BUSINESS AND COMPETITIVE POSITION.
Our business and competitive position are dependent upon our ability to protect our proprietary technology. While we currently hold a number of domestic and foreign patents and licenses, the issuance of a patent is not conclusive as to its validity or enforceability, nor does it provide the patent holder with freedom to operate without infringing the patent rights of others. Our patents or licenses could be challenged by litigation and, if the outcome of such litigation were adverse to us, our competitors could be free to use our technology. As a result, the invalidation of key patents owned by or licensed to us or non-approval of pending patent applications could increase competition and materially harm our business.
We may not be able to obtain additional patents for our technology, or if we are able to do so, patents may not provide us with substantial protection or be commercially beneficial. Our patent applications may not protect our products because of the following reasons:
- we cannot be certain that any of our pending patent applications will result in additional issued patents;
- we may develop additional proprietary technologies that are not patentable;
- we cannot be certain that any patents issued or licensed to us will provide a basis for commercially viable products;
- we cannot be certain that any patents issued or licensed to us will not be challenged or circumvented or invalidated by third parties; and
- we cannot be certain that any patents issued to others will not have an adverse effect on our ability to do business.
Patent law relating to the scope of claims in the technology fields in which we operate is still evolving. The degree of future protection for our proprietary rights is uncertain. Furthermore, we cannot be certain that others will not independently develop similar or alternative products or technology, duplicate any of our products, or, if patents are issued to us, design around the patented products developed by us. In addition, we could incur substantial costs in litigation if we are required to defend ourselves in patent suits brought by third parties or if we initiate such suits.
WE CANNOT BE CERTAIN THAT OTHER MEASURES TAKEN TO PROTECT OUR INTELLECTUAL
PROPERTY WILL BE EFFECTIVE.
We rely upon trade secret protection, copyright and trademark laws, non-disclosure agreements and other contractual provisions for some of our confidential and proprietary information that is not subject matter for which patent protection is being sought. Such measures, however, may not provide adequate protection for our trade secrets or other proprietary information. If they do not protect our rights, third parties could use our technology and our ability to compete in the market would be reduced. While we require employees, academic collaborators and consultants to enter into confidentiality and/or intellectual property assignments where appropriate, any of the following could still occur:
- proprietary information could be disclosed or others may gain access to such information;
- others may independently develop substantially equivalent proprietary information and techniques;
- we may not have adequate remedies for any breach; or
- we may not be able to meaningfully protect our trade secrets.
WE ARE DEPENDENT UPON OUR LICENSED TECHNOLOGIES AND MAY NEED TO OBTAIN ADDITIONAL LICENSES IN THE FUTURE TO OFFER OUR PRODUCTS AND REMAIN COMPETITIVE.
We have acquired or licensed key components of our technologies from third parties. If these agreements were to terminate prematurely or if we breach the terms of any licenses or otherwise fail to maintain our rights to such technology, it could harm our business. In addition, we may need to obtain licenses to additional technologies in the future in order to keep our products competitive. Failure to license or otherwise acquire necessary technologies could harm our business, financial condition and results of operations.
THE PROTECTION OF INTELLECTUAL PROPERTY IN FOREIGN COUNTRIES IS UNCERTAIN.
We have sold approximately 50% of our WAVE Systems to customers located outside the U.S. The patent and other intellectual property laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. We may need to bring proceedings to defend our patent rights or to determine the validity of our competitors' foreign patents. These proceedings could result in substantial cost and diversion of our efforts. Finally, some of our patent protection in the U.S. is not available to us in foreign countries due to the laws of those countries.
OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS WHICH COULD REQUIRE US TO PAY SUBSTANTIAL ROYALTIES.
There are a significant number of U.S. and foreign patents and patent applications submitted for technologies in, or related to, our area of business. As a result, any application or exploitation of our technology could infringe patents or proprietary rights of others and any licenses that we might need as a result of such infringement might not be available to us on commercially reasonable terms, if at all. This may lead others to assert patent infringement or other intellectual property claims against us. We may have to pay substantial damages, including treble damages, for past infringement if it is ultimately determined that our products infringe on another party's intellectual property rights. We could also be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties. Even if a claim is without merit, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns. Any public announcements related to litigation or interference proceedings initiated or threatened against us could harm our business and cause our stock price to decline.
WE DEPEND ON ATTRACTING AND RETAINING KEY EMPLOYEES.
We are highly dependent on the principal members of our management staff and research and development group, including Collin J. D'Silva, our Chief Executive Officer and a co-founder, and Douglas T. Gjerde, Ph.D., our Chief Scientific Officer and a co-founder. We have entered into employment agreements with Mr. D'Silva and Dr. Gjerde, but not with all of our other key employees. The loss of services of any of these individuals could seriously harm our product development and commercialization efforts and could harm our business.
Our future success will also depend on our ability to attract, hire and retain additional personnel, including sales and marketing personnel, technical support and customer service staff and application scientists. There is intense competition for qualified personnel in our industry, especially for experienced personnel in the areas of chemistry and molecular biology, software and electric engineering, manufacturing and marketing, and there can be no assurance that we will be able to continue to attract and retain such personnel. Failure to attract and retain key personnel could materially harm our business.
WE WILL NEED TO EFFECTIVELY MANAGE OUR GROWTH IF WE ARE TO SUCCESSFULLY IMPLEMENT OUR STRATEGY.
The number of employees and scope of our business operations are expected to grow as we continue the commercialization of our WAVE System. This growth may place a strain on our management and operations. Our ability to manage our growth will depend on the ability of our officers and key employees to continue to implement and improve our operational, management information and financial control systems and to expand, train and manage our work force both in the U.S. and abroad. We may be required to open non-U.S. offices in addition to our current U.K., Japan and satellite European offices, which could result in additional burdens on our systems and resources. Our inability to manage our growth effectively could harm our business.
OUR FAILURE TO COMPLY WITH ANY APPLICABLE GOVERNMENT REGULATIONS OR OTHERWISE RESPOND TO CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF HAZARDOUS CHEMICALS WHICH WE USE MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our research and development and manufacturing activities involve the controlled use of hazardous materials and chemicals. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of such materials and certain waste products. If we fail to comply with applicable laws or regulations we could be required to pay penalties or be held liable for any damages that result and this liability could exceed our financial resources. We cannot assure you that accidental contamination or injury will not occur. Any such accident could damage our research and manufacturing facilities and operations, resulting in delays and increased costs.
RISKS RELATED TO THIS OFFERING
WE ARE CONTROLLED BY A SMALL GROUP OF OUR EXISTING STOCKHOLDERS, WHOSE INTERESTS MAY DIFFER FROM OTHER STOCKHOLDERS.
Our directors, executive officers and principal stockholders and certain of their affiliates beneficially own approximately 79% of the outstanding equity securities, and after the offering will beneficially own approximately 64% of our outstanding equity securities. Accordingly, they collectively will have a significant influence in determining the outcome of any corporate transaction or other matter submitted to the stockholders for approval, including mergers, acquisitions, consolidations and the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. The interests of these stockholders may differ from the interests of the other stockholders.
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
The initial public offering price will be substantially higher than the book value per share of our common stock. Investors purchasing common stock in this offering will, therefore, incur immediate dilution of $10.12 in pro forma net tangible book value per share of common stock, based on an assumed public offering price of $13.00 per share. In addition, investors will incur additional dilution upon the exercise of outstanding stock options and warrants. See "Dilution" for a more detailed discussion of the dilution new investors will incur in this offering.
PROVISIONS IN OUR CHARTER MAY INHIBIT A TAKEOVER, WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change in control or changes in our management that stockholders consider favorable or beneficial. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.
OUR COMMON STOCK MAY HAVE A VOLATILE PUBLIC TRADING PRICE.
Prior to this offering, there will have been no public market for our common stock. An active public market for our common stock may not develop or be sustained after this offering. We and the underwriters, through negotiations, will determine the initial public offering price. The initial public offering price is not necessarily indicative of the market price at which the common stock will trade after this offering. The market prices for securities of companies comparable to us have been highly volatile, and the market has experienced significant price and volume fluctuations that are unrelated to the operating performance of the individual companies. Many factors have a significant adverse effect on the market price of the common stock.
WE HAVE NEVER PAID DIVIDENDS ON OUR CAPITAL STOCK AND DO NOT INTEND TO DO SO FOR THE FORSEEABLE FUTURE.
We have never paid dividends on our capital stock and do not intend to pay any dividends for the foreseeable future. We have agreed not to pay dividends without the consent of our lenders. See "Dividend Policy."
THE SALE OF A SUBSTANTIAL NUMBER OF OUR COMMON SHARES AFTER THIS OFFERING MAY AFFECT OUR SHARE PRICE.
The market price of our common shares could decline as a result of sales of substantial amounts of our common stock in the public market after the closing of this offering or the perception that substantial sales could occur. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
After this offering, we will have outstanding 20,037,200 shares of common stock, assuming conversion of our convertible notes and accrued interest on such notes and the exercise of warrants to acquire 300,000 shares of common stock that will expire at the closing of this offering. This includes the 4,000,000 shares of common stock that we are selling in this offering and which may be resold in the public market immediately. A substantial majority of the remaining outstanding shares will be subject to lock-up agreements and will become available for sale 180 days after this offering. The remaining shares will become available for sale at various times following the date of this offering. See "Shares Eligible for Future Sale" on page 48 for more information regarding common stock that may be sold in the market after the closing of this offering.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus that are subject to risks and uncertainties. Many of these forward-looking statements refer to our plans, objectives, expectations and intentions, as well as our future financial results. You can identify these forward-looking statements by forward-looking words such as "expects," "anticipates," "intends," "plans," "may," "will," "believes," "seeks," "estimates" and similar expressions. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed under "Risk Factors" and other factors identified by cautionary language used elsewhere in this prospectus. Before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this prospectus could materially and adversely affect our business, financial condition and results of operations.
USE OF PROCEEDS
We expect to receive net proceeds of $47.4 million from the sale of 4,000,000 shares of common stock, assuming a public offering price of $13.00 per share and after deducting underwriting discounts and commissions of $3.6 million and estimated expenses of $1.0 million. If the underwriters exercise their over-allotment option in full, we will receive net proceeds of this offering of approximately $54.6 million.
We intend to use the net proceeds of this offering for the expansion of the manufacturing capacity of our San Jose, California manufacturing facility, continuing product development and technology research, costs related to building our sales and marketing organization, reduction in our outstanding debt and other general working capital needs and for general corporate purposes.
We have not determined the specific amounts we plan to spend on any of the areas listed above or the timing of these expenditures. Our management will have broad discretion in allocating and utilizing the net proceeds from this offering. The amounts and timing of our actual expenditures will depend on many factors, including the status of our product development and commercialization efforts, the amount of proceeds actually raised in this offering, the amount of cash generated by our operations, the efforts of our competitors, and marketing and sales activities. We may also use a portion of the proceeds for the acquisition of, or investment in, companies, technologies or assets that complement our business. However, we have no present understandings, commitments or agreements to enter into any potential acquisitions and investments. Pending application of the net proceeds as described above, we intend to invest the net proceeds of the offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently expect to retain all earnings, if any, for investment in our business. In addition, the terms of our current credit facilities prohibit us from paying cash dividends without our lenders' consent.
Dividends on our common stock will be paid only if and when declared by our board of directors. The board's ability to declare a dividend is subject to limits imposed by Delaware corporate law. In determining whether to declare dividends, the board may consider our financial condition, results of operations, working capital requirements, future prospects and other relevant factors.
CAPITALIZATION
The following table describes our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis, giving effect to the sale of the assets related to our non-life sciences instrument product line, the assumed conversion at $5.00 per share of $12.0 million aggregate principal amount of our convertible notes plus accrued interest into 2,712,200 shares of common stock, the issuance of 300,000 shares of common stock at $5.00 per share upon the exercise of warrants that will expire at the closing of this offering and the sale of 25,000 shares of common stock at $10.00 per share in March 2000; and
- on a pro forma as adjusted basis reflecting the sale of the common stock offered by us at an assumed initial public offering price of $13.00 per share after deducting the underwriting discounts and commissions and estimated offering expenses.
You should read this table together with the consolidated financial statements and the related notes and our unaudited pro forma financial information and the related notes appearing at the end of this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Use of Proceeds."
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
Long-term obligations, less current portion................. $ 117 $ 117 $ 117
Convertible notes payable................................... 12,421 -- --
Stockholders' equity:
Preferred stock, $0.01 par value; 15,000,000 shares
authorized,
no shares issued and outstanding.......................... -- -- --
Common stock, $0.01 par value; 30,000,000 shares authorized,
13,000,000 shares issued and outstanding, actual;
16,037,200 shares issued and outstanding pro forma; and
20,037,200 shares issued
and outstanding pro forma as adjusted(1).................. 130 160 200
Additional paid-in capital.................................. 10,232 24,372 71,692
Other capital items......................................... (117) (117) (117)
Accumulated deficit......................................... (12,344) (12,030) (12,030)
-------- -------- --------
Total stockholders' equity (deficit)...................... (2,099) 12,385 59,745
-------- -------- --------
Total capitalization...................................... $ 10,439 $ 12,502 $ 59,862
======== ======== ========
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(1) The number of outstanding shares (actual, pro forma and pro forma, as adjusted) does not include the following:
- 152,450 shares that we could issue upon exercise of outstanding warrants with an exercise price of $5.00 per share;
- 6,000,000 shares that we could issue under our employee stock option plan. As of the date of this prospectus, we have issued options to purchase 3,724,250 shares of common stock at an exercise price ranging from $5.00 to $10.00 per share, except that options relating to 15,000 shares issued to one of our non-employee directors may be exercised at a price equal to the lower of $5.00 or 50% of the public offering price for this offering. We may issue options to acquire up to 2,275,750 additional shares of our common stock under this plan; and
- an underdetermined number of additional shares we are obligated to issue to existing stockholders if the public offering price for this offering is less than $10.00 per share. The number of additional shares we will have to issue will depend on the offering price. In addition, we will have to adjust the number of shares we will have to issue upon exercise of the warrants and conversion of the notes described above if the public offering price for this offering is less than $10.00 per share.
DILUTION
Our pro forma net tangible book value as of December 31, 1999, reflecting the sale of the assets related to our non-life sciences instrument product line, the assumed conversion at $5.00 per share of our convertible notes and accrued interest into 2,712,200 shares of common stock, the issuance of 300,000 shares of common stock at $5.00 per share upon the exercise of warrants that will expire prior to the closing of this offering and the sale of 25,000 shares of common stock at $10.00 per share in March 2000 was approximately $10.4 million, or approximately $0.65 per share. We have calculated this amount by:
- subtracting our pro forma total liabilities from our pro forma total tangible assets; and
- then dividing the difference by the total pro forma number of shares of common stock outstanding.
If we give effect to our receipt of the net proceeds from our sale of 4,000,000 shares of common stock at an assumed public offering price of $13.00 per share, after deducting estimated underwriting discounts and estimated offering expenses, our pro forma as adjusted net tangible book value at December 31, 1999 would have been approximately $57.8 million, or $2.88 per share. This represents an immediate increase in pro forma net tangible book value of $2.23 per share to existing stockholders and an immediate dilution of $10.12 per share to new investors. The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share............. $13.00
Actual net tangible book value per share as of December
31, 1999, before this offering and pro forma
adjustments............................................. $(0.47)
Increase per share attributable to sale of assets related
to our non-life sciences instrument product line........ 0.18
Increase per share attributable to the assumed conversion
of convertible notes and accrued interest, exercise of
warrants and issuance of 25,000 shares of common
stock................................................... 0.94
------
Pro forma net tangible book value per share as of December
31, 1999................................................ 0.65
Pro forma as adjusted increase in net tangible book value
attributable to this offering........................... 2.23
------
Pro forma as adjusted net tangible book value per share
after this offering....................................... 2.88
------
Dilution per share to new investors......................... $10.12
======
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The following table summarizes, on a pro forma as adjusted basis, as of December 31, 1999, the total number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and to be paid by the new investors in this offering at an assumed initial public offering price of $13.00 per share, before deducting estimated underwriting discounts and offering expenses.
SHARES PURCHASED TOTAL CONSIDERATION
--------------------------- ---------------------- AVERAGE PRICE
PRO FORMA NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------------- -------- ----------- -------- -------------
Existing stockholders............... $16,037,200 80.0% $24,532,605 32.1% $1.53
New investors....................... 4,000,000 20.0 52,000,000 67.9 13.00
----------- ----- ----------- -----
Total........................... $20,037,200 100.0% $76,532,605 100.0%
=========== ===== =========== =====
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If all outstanding options and warrants having an exercise price less than the offering price had been exercised as of December 31, 1999, the dilutive effect to new investors would decrease to $9.79 per share. See "Capitalization," "Management--Stock Option and Other Compensation Plans" and "Description of Capital Stock."
If the underwriters exercise their over-allotment option in full:
- the number of shares of common stock held by existing stockholders will decrease to approximately 77.7% of the total number of shares of our common stock outstanding; and
- the number of shares held by new investors will increase to 4,600,000 shares, or approximately 22.3% of the total number of our common stock outstanding.
SELECTED FINANCIAL DATA
The statement of operations data for the years ended December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 are derived from our historical consolidated financial statements and notes thereto included elsewhere in this prospectus, which have been audited by Deloitte & Touche LLP, independent auditors. The statement of operations data for the years ended December 31, 1995 and 1996 and the balance sheet data as of December 31, 1995, 1996 and 1997 are derived from our audited historical consolidated financial statements which are not included in this prospectus.
The following selected financial data should be read in conjunction with our consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995(1) 1996(1) 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $7,933 $12,535 $11,577 $18,935 $23,035
Cost of good sold................................ 3,516 6,760 6,336 9,590 12,090
------ ------- ------- ------- -------
Gross profit..................................... 4,417 5,775 5,241 9,345 10,945
Selling, general and administrative expenses..... 2,042 4,751 6,412 8,160 11,532
Research and development expenses................ 1,518 1,385 2,047 3,159 6,297
------ ------- ------- ------- -------
Operating expenses............................... 3,560 6,136 8,459 11,319 17,829
Income (loss) before income taxes................ 728 (644) (3,646) (2,506) (8,082)
Net income (loss)................................ $ 494 $ (415) $(2,410) $(1,576) $(9,827)
====== ======= ======= ======= =======
Basic and diluted net income (loss) per share.... $ 0.05 $ (0.04) $ (0.22) $ (0.13) $ (0.76)
====== ======= ======= ======= =======
Basic and diluted weighted average shares
outstanding(2)................................. 10,000 11,000 11,145 12,279 13,000
====== ======= ======= ======= =======
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AS OF DECEMBER 31,
----------------------------------------------------
1995(1) 1996(1) 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficit)........................ $1,272 $ 324 $(1,669) $ 1,845 $ 3,494
Total assets..................................... 5,774 9,527 10,010 14,736 19,964
Long-term debt, less current portion............. 626 1,597 1,128 695 12,538
Total stockholders' equity (deficit)............. 2,429 2,114 991 6,649 (2,099)
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(1) Financial information prior to July 1, 1997 is that of our predecessor corporation, CETAC Holding Company, Inc. and its subsidiaries.
(2) See Note A of notes to our consolidated financial statements for an explanation of the determination of the number of shares used in computing per share data.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide innovative research tools to the life sciences industry. These tools enable researchers to discover and understand variations in the human genetic code, or genome, in order to accelerate and improve drug development and diagnostics. We generate revenues from the sale of our WAVE System and associated consumable products and reagents. Through March 1, 2000, we have sold over 240 WAVE Systems to major academic research centers and commercial biopharmaceutical companies in 20 countries. During 1999, revenues from the sale of consumable products represented approximately 19% of our net sales derived from our life sciences business. We expect that over the next five years, sales from consumable products will increase as a percentage of our net sales.
The following graph displays sales of WAVE System units during each calendar quarter from July 1, 1997 through December 31, 1999:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
UNITS SOLD
Date
Q397 Q497 Q198 Q298 Q398 Q498 Q199 Q299 Q399 Q499
3 2 4 17 21 30 24 32 38 39
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Before July 1, 1997, we produced and sold a number of non-life sciences instruments and consumable products through CETAC Holding Company, Inc. and its subsidiaries. On July 1, 1997, we merged these companies into a new Delaware corporation known as Transgenomic, Inc. for the purpose of pursuing our new life sciences business, but continue to produce our non-life sciences product lines. Financial information for periods ending before July 1, 1997 is that of CETAC Holding Company, Inc. and its subsidiaries. Net sales from our non-life sciences instrument and consumables product lines were $9.4 million, $11.6 million, and $9.1 million, respectively, for the years ended 1997, 1998 and 1999, representing approximately 81%, 61% and 39% of our net sales, respectively, for these periods. We have decided to divest ourselves of our non-life sciences product lines. Accordingly, we recently signed a letter of intent to sell the assets related to our non-life sciences instrument product line.
Since our decision to focus on our life sciences business, we have incurred significant losses, and as of December 31, 1999, we had an accumulated deficit of $12.3 million. Our losses have resulted principally from costs incurred in research and development, marketing and sales, and from general and administrative costs associated with our operations. We expect to continue to incur substantial research and development, marketing and sales, and general and administrative costs. As a result, we will need to generate significantly higher revenue to achieve profitability.
Our operating results may fluctuate significantly depending upon many factors. These include the market acceptance of our products, the success and timing of sales of our WAVE System, the introduction of new products by our competitors, the timing of commercial availability of new applications for our technology, and the timing and extent of our research and development efforts. Our limited operating history in the life sciences industry makes accurate prediction of future operations difficult. If our operating results fail to meet the expectations of securities analysts or investors, it could cause our stock price to decline. See "Risk Factors."
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES. Net sales increased 22%, from $18.9 million for the year ended 1998 to $23.0 million for the year ended 1999. Sales from our life sciences business increased 91%, from $7.3 million in 1998 to $13.9 in 1999. This increase was primarily related to an increase in WAVE Systems sold. Total revenues from sales of WAVE Systems increased 107%, from $5.4 million in 1998 to $11.2 million in 1999. Life science consumables sales increased 42%, from $1.9 million in 1998 to $2.7 million in 1999. This increase was due primarily to a larger installed base of WAVE Systems. In addition, we acquired another manufacturer of life science reagents during the year and began including sales of these products in our revenues. Sales of our non-life sciences instruments and related consumables decreased 22%, from $11.6 million in 1998 to $9.1 million in 1999. This decrease was primarily related to an industry wide consolidation and a reorganization of our dealer and distributor network.
COST OF GOODS SOLD. Cost of goods increased 26% from $9.6 million in 1998 to $12.1 million in 1999, representing 51% of net sales in 1998, as compared to 52% in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 41%, from $8.2 million in 1998 to $11.5 million in 1999. The increase was primarily the result of building an initial direct sales and marketing staff in the United States for our entry into the life sciences market. We also expanded our life sciences sales and support efforts in Europe, along with the opening of our marketing and technical support office in Japan. We paid a one-time advisory services fee of $550,000 in 1999 in connection with consulting and financial advisory services. We expect selling, general and administrative expenses to continue to increase over the next several years to support our growing business activities and to continue expansion of our sales and marketing efforts, and due to the costs associated with operating a public company.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased 97%, from $3.2 million in 1998 to $6.3 million in 1999. These expenses represented 17% of net sales in 1998 versus 27% of net sales in 1999. Research and development expenses consisted primarily of salaries and related personnel costs of researchers and software developers, material costs for prototypes and test units, legal expenses from intellectual property research activities, and testing and enhancement of our products, primarily the WAVE System. We expense our research and development costs in the year in which they are incurred. The increase from 1998 to 1999 in these expenses was primarily attributable to an increase in our life science research, which was approximately 70% of total research and development costs in 1999. We expect research and development spending to increase significantly over the next several years as we expand our research and product development efforts.
OTHER EXPENSES. Other expenses, which consisted mainly of net interest expense, increased 126%, from $532,000 in 1998 to $1.2 million in 1999. This increase was primarily related to our placement of $12.0 million of convertible notes in March 1999. We also made interest payments under our bank loan agreements.
INCOME TAXES. The income tax benefit in 1998 was $0.9 million, while in 1999 income tax expense was $1.7 million. A valuation reserve of $4.5 million was recorded in 1999 due to our cumulative losses in recent years and an inability to utilize any additional losses as carrybacks. As of December 31,
1999, we had federal net operating loss carryforwards of approximately $11.6 million. We also had federal research and development tax credit carryforwards of approximately $131,000. The net operating loss and credit carryforwards will expire at various dates from 2012 through 2019, if not utilized. We also had state income tax loss carryforwards of $2.9 million. These carryforwards will also expire at various dates if not utilized.
As of December 31, 1998 and 1999, we had deferred tax assets of approximately $2.0 million and $4.7 million, respectively. The net deferred tax asset at December 31, 1999 has been offset by a valuation allowance of $4.5 million due to our cumulative losses in recent years and an inability to utilize any additional losses as carrybacks. The net deferred tax assets were $2.0 million and $180,000 as of December 31, 1998 and 1999, respectively. Deferred tax assets relate primarily to net operating loss carryforwards.
YEARS ENDED DECEMBER 31, 1998 AND 1997
NET SALES. Net sales increased 64%, from $11.6 million in 1997 to $18.9 million in 1998. Of the $7.3 million increase, $5.1 million was due to increased sales of our WAVE System and related consumable products. Sales of life sciences consumable products were $1.9 million in each of 1997 and 1998. Sales of non-life sciences products increased 22%, from $9.4 million in 1997 to $11.5 million in 1998. This increase was primarily due to the release of an upgraded laser-based solid sampling product in the first quarter of 1998.
COST OF GOODS SOLD. Cost of goods sold increased 52%, from $6.3 million in 1997 to $9.6 million in 1998, but decreased from 55% of net sales in 1997 to 51% of net sales in 1998. This decrease was the result of higher material costs for the WAVE System being offset by minimal in-house production costs, and the relatively fixed nature of the expenses related to our non-life sciences instrument product line being allocated over a larger revenue base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 27%, from $6.4 million in 1997 to $8.2 million in 1998. The increase was primarily related to increases in sales and marketing expenses for the commercialization of our WAVE System. Administrative staff also grew to support our growing business activities resulting in higher salary and employee benefit costs.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased 54%, from $2.0 million in 1997 to $3.2 million in 1998. The increase was primarily related to compensation for additional personnel engaged in the development of the WAVE System.
OTHER EXPENSES. Other expenses, which consisted mainly of net interest expense, increased 25%, from $427,000 in 1997 to $532,000 in 1998. This increase was primarily due to the payment of interest on $1.5 million of mezzanine short-term financing obtained at the end of 1997. This short-term financing was repaid in 1998. We also made interest payments under our bank loan agreements.
INCOME TAXES. The income tax benefit for 1997 was $1.2 million, while the benefit for 1998 was $0.9 million. The effective tax rate for 1997 was 34%, and the effective tax rate for 1998 was 37%. As of December 31, 1998, we had federal net operating loss carryforwards of approximately $3.9 million. We also had federal research and development tax credit carryforwards of approximately $76,000. The net operating loss and credit carryforwards will expire at various dates from 2012 through 2018, if not utilized. We also had state income tax loss carryforwards of $1.4 million. These carryforwards will also expire at various dates if not utilized.
LIQUIDITY AND CAPITAL RESOURCES
We have experienced net losses and negative cash flows from operations during the past three years. As a result, we had an accumulated deficit of $12.3 million as of December 31, 1999. We have financed our operations primarily through the private placements of common stock, the issuance of
convertible notes and, to a lesser extent, through bank financings and a revolving credit facility. As of December 31, 1999, we had received net proceeds of $10.4 million from issuance of common stock, and $11.4 million from the issuance of convertible notes. We also sold 25,000 shares of common stock to one of our directors at $10.00 per share in March 2000 for proceeds of $250,000. In addition, we anticipate the exercise of warrants to purchase 300,000 shares of common stock at or before the closing of this offering which will provide an additional $1.5 million in cash. As of December 31, 1999, we had approximately $150,000 in cash and cash equivalents.
We have a long sales cycle due to the need to educate potential customers prior to the purchase of the WAVE System and to communicate the benefits of our products to a variety of constituencies within potential customer groups. We may need to expend substantial funds and sales effort with no assurance that a sale will result. The need to penetrate new markets often entails extension of our terms of sale. As a result, we may experience collection periods of up to a year or more in connection with sales of our WAVE System.
In March 2000, we signed a letter of intent to sell the assets related to our non-life sciences instrument product line for $6,000,000. Of the total purchase price, $5,000,000 will be paid in cash at the closing of the asset sale and $1,000,000 will be paid with a one-year promissory note bearing interest at a market rate. The sale is expected to provide that we will retain all accounts receivable outstanding as of the date of the sale. Our accounts receivable from the product line were approximately $1.5 million at December 31, 1999. After the sale, we may experience difficulty in collecting the remaining accounts receivable due to the lack of a continuing relationship with customers.
Our operating activities resulted in net outflows of $2.6 million in 1997, $3.4 million in 1998 and $8.7 million in 1999. The operating cash outflows for these periods resulted from significant investments in research and development, sales, marketing and services, which resulted in operating losses.
Net cash used in investing activities was $470,000 for the year ended December 31, 1997, compared to net cash used in investing activities of $1.5 million in 1998 and $3.5 million in 1999. The increase was primarily due to the increase in purchases of property and equipment and the purchase of technology rights related to our non-life sciences product lines.
Net cash provided by financing activities was $3.2 million for the year ended December 31, 1997, compared to net cash provided of $4.6 million and $12.2 million in 1998 and 1999, respectively. The increase was primarily due to the issuance of convertible notes which netted $11.4 million, compared to the net proceeds of $7.3 million received in 1998 on the sale of common stock. We reduced notes payable by $2.7 million in 1998. In 1997 we received $1.7 million net proceeds from the sale of stock. We also increased notes payable in 1997 by a net $1.9 million.
At December 31, 1998 and 1999, we had outstanding borrowings under our revolving credit facility with First National Bank of Omaha in the amounts of approximately $3.2 million and $4.3 million, respectively. Borrowings under our revolving credit facility are limited to the lesser of $5.0 million or a borrowing base calculated from our accounts receivable and inventories. The facility bears interest based on the prime lending rate and interest is payable monthly. The interest rate at December 31, 1998 and 1999 was 7.75% and 8.50%, respectively. This facility expires July 31, 2000, but we anticipate that it will be extended. Substantially all of our assets and life insurance policies for our executive officers are pledged as collateral to secure borrowings under this facility. The loan agreement relating to this facility contains a number of restrictive covenants, including a prohibition on the payment of dividends, the repurchase of our stock, and the redemption of stock options and warrants, among other things, without the written agreement of the lender. As of December 31, 1999, the Company was not in compliance with all of these covenants. However, a waiver was obtained from the bank as of December 31, 1999.
Our capital expenditures budget for 2000 is approximately $2.0 million. Capital expenditures for the current year are expected to relate to facility and equipment improvements related to our life sciences business.
Our capital requirements depend on a number of factors, including the level of our research and development activities, market acceptance of our products, the resources we devote to developing and supporting our products, and other factors. We expect to devote substantial capital resources to continue our research and development efforts, to expand our marketing and sales and customer support activities, and for other general corporate activities.
We believe that our current cash balances, together with the proceeds from this offering, from our existing credit lines and from the sale of stock upon the exercise of outstanding warrants and from cash provided from operations will be sufficient to fund our operations for the foreseeable future. During or after this period, if cash generated by operations is insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities, or obtain additional credit arrangements. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders. We cannot assure you that any financing arrangement will be available in amounts or on terms acceptable to us.
IMPACT OF INFLATION
We do not believe that price inflation had a material adverse effect on our financial condition or results of operations during the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND FOR HEDGING ACTIVITIES" (SFAS No. 133). This statement, which is effective for fiscal years beginning after June 15, 2000, requires the recognition of all derivative financial instruments as either assets or liabilities in the statement of financial position and measurement of those instruments at fair value. Management is in the process of determining the effect, if any, SFAS No. 133 will have on our financial statements.
In 1999, we adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1) which, on a prospective basis, revised the accounting for software development costs. SOP 98-1 requires capitalization of certain costs related to internal use software once certain criteria have been met. The adoption of this statement did not have a material impact on our financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities. The average duration of all of our investments in 1999 was less than one year. Due to the short term nature of these investments, we believe we have no material exposure to interest rate risk arising from our investments. Therefore, no quantitative tabular disclosure is presented.
FOREIGN CURRENCY RATE FLUCTUATIONS
Approximately 50% of our net sales have been to customers in the United States. While we do sell products in many foreign countries, most of these sales are made in U.S. dollars. Therefore, we do not have a material exposure to foreign currency rate fluctuations.
BUSINESS
OVERVIEW
We provide innovative research tools to the life sciences industry. These tools enable researchers to discover and understand variations in the human genetic code, or genome, in order to accelerate and improve drug development and diagnostics. We believe our WAVE System, which incorporates our proprietary DNASep separation column and associated software, consumables and reagents, will become a leading tool to analyze genetic mutations. The WAVE System allows researchers to analyze both known and unknown genetic mutations faster, with more accuracy and at a lower cost than other commercially available techniques. As of March 1, 2000, we had sold over 240 WAVE Systems in 20 countries to major academic research centers and biopharmaceutical companies. In 1999, sales of our WAVE Systems and related consumables accounted for approximately $14 million in revenues.
Our WAVE System is designed to perform high-speed, automated analyses of DNA molecules to identify the type, location and frequency of DNA mutations, with a high degree of accuracy and consistency. The WAVE System is based on our proprietary micro-bead technology. Our patented micro-beads are packed into our proprietary DNASep separation column, which is the key component of our WAVE System. Each micro-bead has specific surface chemistry that interacts with DNA molecules. The DNA molecules are then selectively separated from the micro-beads with a mixture of our liquid reagents. This process is automated by our proprietary WAVEMaker Software for analysis and interpretation.
INDUSTRY BACKGROUND
DNA AND GENOMICS-BASED RESEARCH
The human body is composed of billions of cells each containing deoxyribonucleic acid, or DNA, which encodes the basic instructions for cellular function. This complete set of an individual's DNA is called the genome, or genetic code, and is composed of 23 pairs of chromosomes, which are further divided into over 100,000 smaller regions called genes. Each gene is comprised of four nucleotide bases, known as G, C, A and T and the order of these bases is called the DNA sequence. Genes are used as the templates for the production of proteins and it is the proteins that direct cell function and ultimately the development of individual traits. Any variation in any part of a gene, called a mutation or polymorphism, may result in a change in cell function often leading to disease.
Genomics is the systematic and comprehensive analysis of the sequence, structure and function of the genes which comprise the genome with the objective of identifying and understanding the role of genes in human physiology and disease. Within a very short period, due to public efforts such as the Human Genome Project and the efforts of various private companies, the human genome will be completely sequenced. The efforts of the Human Genome Project have centered on determining the DNA sequence of a limited number of individuals. Genomics researchers are now attempting to understand variations in this DNA sequence information and how it correlates to disease in order to develop new drugs, treatments and diagnostic methods.
IMPORTANCE OF THE DISCOVERY OF GENETIC VARIATION
There are a variety of mutations known to occur in DNA sequences. The most common form of genetic mutation involves a change in a single nucleotide base and is called a single nucleotide polymorphism, or SNP. Other types of genetic mutation include the insertion or deletion of several nucleotide bases and translocation or repetition of nucleotide bases. The identification and understanding of these mutations, including SNPs, are important because they may indicate predisposition to a variety of diseases. Since even a single mutation of a nucleotide base can have a major role in human disease, efforts to understand and analyze genetic mutations have recently intensified.
After SNPs or other mutations are discovered, their potential relevance to disease must be validated by determining the frequency of mutation in different segments of the population. Some diseases, such as muscular dystrophy, are caused by DNA mutations in a single gene. Many common diseases, such as diabetes, cancer and obesity, are caused by mutations in more than one gene. Since a single mutation or
multiple mutations may be required for a particular disease or trait to manifest itself, it is necessary to measure a sizable population of these mutations in order to be able to predict with confidence the association of a mutation with a particular disease or trait.
As the Human Genome Project nears completion, the amount of sequenced DNA available for genetic variation discovery has increased dramatically. New genetic variations will be an ongoing need as different populations or groups of individuals are studied. Insertions and deletions are particularly difficult to efficiently detect with current technologies. In addition, diagnostic applications require the analysis of DNA samples for both known and unknown mutations. The increased need for the efficient discovery of genetic mutations, including SNPs, creates a market opportunity for our WAVE System, as the discovery of SNPs and other mutations, together with validated medical relevance may lead to the development of new drugs, treatments and diagnostic products. In order to do this, researchers will need technologies that provide higher sample throughput, greater accuracy and reliability, and lower costs than current methods.
CURRENT METHODS FOR MUTATION ANALYSIS
Current widely-used DNA mutation analysis technologies were originally developed primarily for collecting DNA sequencing information and not for the discovery of mutation and other genetic variations. As these methods have been modified for use in SNP and other mutation analysis, several limitations have become clear. Current methods of analysis include the following:
- GEL ELECTROPHORESIS. Gel electrophoresis is primarily a manual separation technique for DNA which uses an electrical current to cause DNA fragments to migrate over a gel. Because different lengths of DNA will migrate at different speeds, they will be separated by this process. The gel is transferred to a fluorescence-imaging camera and photographed or scanned into a computer so that the DNA can be visualized. If a particular fragment of DNA is required, then it must be cut from the gel with a scalpel, the section can be melted to a liquid or the DNA can be drawn out of the gel and into the surrounding electrolyte with a further application of an electric field. Gel electrophoresis provides good separation resolution and the cost of associated equipment is relatively inexpensive.
- CAPILLARY ELECTROPHORESIS. Capillary electrophoresis may be in the form of long thin capillaries or embodied in a chip. This technology separates DNA by passing an electric current through a capillary tube filled with a linear polymer and an electrolyte. DNA is introduced into the top of the capillary and the current is applied. This method is generally faster than conventional gel electrophoresis and allows for simultaneous detection of results.
- CHIP ARRAY. Chip Array technology uses short fragments of single-strand DNA that are attached to small squares on the surface of a "chip" so that strands within a square have the same DNA sequence, but this sequence is different in each separate square. The sample strand of DNA is introduced to this chip and binds, or hybridizes, specifically only where it matches the sequence attached to one of the squares. In this way a match can be found, if it exists, from a very large array of candidate DNA sequences. The chip primarily identifies sequences which are known prior to analysis.
- MASS SPECTROMETRY. Mass spectrometry is a technique that applies a charge to the sample and introduces the ionized sample into a chamber that measures the mass per charge of each type of molecule. The mass of the sample and various fragments produced indicate the identity of the molecule that was introduced into the instrument. Although the sequence of the DNA is not measured when using mass spectrometry, the nucleotides making up the molecule bases can be measured.
LIMITATIONS OF CURRENT METHODS
Although these techniques are well accepted and established, none of these methods is ideally suited to the analysis of sequence mutations. The limitations of current methods include the following:
- GEL ELECTROPHORESIS. Gel electrophoresis is a time-consuming, labor intensive process. Sample introduction, pouring of gels, separation, identification of bands, and recovery of DNA must all
be done manually. In addition, there is no real-time monitoring of the process. For example, if an insufficient sample were used for the analysis, a researcher would only become aware after several hours of experimentation.
- CAPILLARY ELECTROPHORESIS. Capillary electrophoresis can automate the gel electrophoresis process. However, control of the conditions needed to determine genetic variation is difficult and the quantities of DNA separated are small. It is difficult to collect DNA material for further analysis. Another limitation of this technique is the need for special columns and chemistries to run each different type of sample.
- MASS SPECTROMETRY. Mass spectrometry is only a detection method and does not incorporate any separation capability, which is essential for multiple analyses of DNA molecules, as well as for purification. In addition, this method cannot analyze large DNA fragments or double- stranded DNA due to its inflexibility and fundamental limitations.
Gel electrophoresis, capillary electrophoresis, chip-based technologies and mass spectrometry and certain other technologies only measure known SNPs or mutations. Sequencing can measure unknown SNPs, but it is expensive and labor intensive. Insertions, deletions, translocations, and repetitions and other mutations are very difficult to measure using any of these technologies. All of these basic technologies, when applied to scanning for unknown mutations have significant disadvantages related to accuracy of results and the cost and time needed to obtain the results. These disadvantages limit the usefulness of these techniques for the efficient discovery of genetic variation.
THE TRANSGENOMIC SOLUTION
We believe our WAVE System, which incorporates our proprietary DNASep technology and associated software, consumables and reagents, will become a leading tool to analyze genetic variation. The WAVE System allows researchers to analyze both known and unknown genetic mutations faster, with more accuracy and at a lower cost than other commercially available techniques. We believe key benefits of the WAVE System include the following:
- HIGH SPEED. DNA separation and analysis using our WAVE System can be performed up to 10 times faster than current methods, depending on the application. Separation times using our DNASep columns average approximately 5-7 minutes per sample and can be as short as 3 minutes, depending on the application. After the separation, results are immediately available for quantification, analysis, reporting and archiving.
- IMPROVED DATA ACCURACY. Our WAVE System produces more accurate and consistent data than other existing techniques for mutation analysis. Accuracy in discovery of known and unknown mutations is greater than 95% with the WAVE System. The higher level of data quality achievable with the WAVE System is extremely valuable to the life sciences researcher.
- REDUCED COST. Because our WAVE System is completely automated, the amount of time per sample spent by a researcher is greatly reduced. The WAVE System analyzes very small DNA samples and does not require additional sample purification. This allows samples to be analyzed with a smaller volume of chemical reagents than other methods. In addition, the WAVE System can detect DNA mutations directly without the use of expensive fluorescent tags or markers required by other techniques. Savings in labor, reagents and tags significantly reduce the costs per analysis over current methods.
- AUTOMATION AND EASE OF USE. The WAVE System is fully automated and easy to operate. A multiple number of amplified DNA samples can be loaded into the WAVE System's autosampler. Once loaded, the appropriate application is chosen by the researcher and the WAVE System can automatically introduce the sample, conduct the DNA separation and analyze the results. Unlike other techniques, no purification or other additional preparation of the DNA sample is necessary. With the addition of a fragment collector, the WAVE System will automatically collect DNA material for further analysis. The entire process is controlled by our
proprietary WAVEMaker software. This aspect of the WAVE System can significantly enhance the productivity of a genomics researcher.
- DISCOVER NEW MUTATIONS. WAVE System technology can efficiently discover new mutations in a sample without prior knowledge of the mutation or its location. The WAVE System is uniquely well-suited to the discovery of insertions and deletions. Other than sequencing, most genotyping methods require prior knowledge of the location of the mutation. Compared to sequencing, which requires the interpretation of complex reports to detect unknown mutations, the WAVE System displays mutations, whether previously known or unknown, as a vertical spike, or peak, on a simple graph. The ability to accurately detect the presence of mutations allows for the screening of large fragments of DNA without time-consuming and cumbersome sequencing of the entire fragment.
- SCALABILITY. Our bench top WAVE System is scalable depending on the research problem to be solved. The DNASep separation columns are available in different sizes depending on the application required.
STRATEGY
We intend to be the leading provider of technology platforms which enable life science researchers to discover and understand variations in the human genetic code, or genome, in order to accelerate and improve drug development and diagnostics. Key elements of our strategy are as follows:
- FOCUS ON THE GENETIC VARIATION DISCOVERY MARKET. Our current focus is to promote the use of our WAVE System by researchers involved in the discovery and analysis of genetic variation. The investment in genomics research is large and growing, and the corresponding need to analyze genetic variations has led to increased demand for new technologies such as the WAVE System. We believe the WAVE System significantly increases research productivity and may accelerate drug development and diagnostics.
- ESTABLISH THE WAVE SYSTEM AS THE INDUSTRY STANDARD. We are focusing our initial marketing efforts on large well-known academic and commercial research institutions to establish the WAVE System as the industry standard for mutation analysis. We believe we are the first to bring high performance DNASep micro-bead technology to the market and have sold instruments to key genomics researchers to gain validation of our technology, which has resulted in the publication of over 60 articles in numerous scientific journals discussing the WAVE System. A key component of our strategy is to maintain a worldwide sales organization that provides technical support on a local level. We plan to increase the number of our sales teams composed of sales personnel, application scientists and technical support persons. In addition, because we believe that a major factor in ensuring the success of our products is to provide qualified technical support on a local level, we expect to increase the number of technical support representatives and application scientists.
- INCREASE CONSUMABLE SALES. We expect that our expanding base of installed WAVE Systems will result in recurring sales of our associated consumable products which include our proprietary columns and reagents. Sales of our consumable products over the next five years should increase as a proportion of our net sales. In order to support the expected increase in consumable sales, we have dedicated manufacturing facilities in California, Nebraska and the U.K.
- PENETRATE NEW MARKETS BY PROVIDING A DIVERSIFIED PORTFOLIO OF PRODUCTS. We believe that our WAVE System has potential applications to multiple life sciences research markets. We intend to continually improve the throughput and otherwise expand the capability of our WAVE System to address the varied and changing needs of academic and commercial researchers performing specific DNA analysis. We also expect to develop separation columns to analyze RNA, amino acids, proteins, peptides and carbohydrates. We further intend to provide a range
of product offerings differentiated by price and throughput levels in order to attract the broadest range of customers.
- BUILD A SUBSTANTIAL INTELLECTUAL PROPERTY ESTATE. We pursue an intellectual property strategy of licensing patents and pursuing patent protection for our inventions. We own or hold licenses to 11 issued U.S. patents and 16 foreign patents. In addition we have pending applications for 27 U.S. patents and 10 foreign patents. These issued and pending patents are directed at our DNA and related research technologies, and cover separation chemistry, molecular biology, algorithms, instruments and software. We believe that our strong intellectual property estate will continue to be an important competitive advantage.
OUR TECHNOLOGY AND PRODUCTS
Our WAVE System is extremely versatile and can essentially eliminate the use of traditional gels in the molecular biology lab. Our WAVE System can be utilized in a wide range of applications, including mutation detection, sized-based double strand DNA analysis and single strand DNA analysis. Our WAVE System includes the following components:
- an autosampler (automatically introduces the DNA sample into our WAVE instrument)
- a pump (pumps sample and reagents through the DNASep column and instrument)
- a DNASep column (separates DNA fragments)
- a column oven (controls the temperature of the DNASep column)
- a detector (detects and measures DNA coming off the column)
- a fragment collector (collects high purity DNA fragments of interest)
- a personal computer and WAVEMaker Software (used for our WAVE instrument interface control, experiment design, data collection, data analysis, and reporting)
[DIAGRAM OF COMPONENTS OF WAVE SYSTEM]
DNA SAMPLE PREPARATION. A sample of DNA is first extracted from a biological sample such as tissue or blood. Extraneous proteins are removed from the DNA sample and the sample is placed into a
multi-well plate. PCR is a process where a target DNA sequence of approximately 500 base pairs is amplified from the biological sample. The DNA sample is amplified by repeated cycles of heating and cooling, according to a pre-determined protocol, which normally takes approximately 30 minutes.
WAVE SYSTEM SAMPLE INTRODUCTION AND SEPARATION PROCESS. After the amplification process is completed, the sample plate is inserted directly into the WAVE System's autosampler. The autosampler takes a small volume of the sample and injects it into the DNASep column containing the micro-beads. Due to the chemical affinity of the DNA to the surface chemistry on the micro-beads in the column, the DNA attaches itself to the micro-beads. After the sample is injected into the instrument, a mixture of reagent fluids is pumped into the column at specified reagent concentrations and temperature conditions.
As the reagents are pumped through the column, DNA fragments are released and separated from each other. The DNA fragments flow from the DNASep column and through an ultraviolet or a fluorescence detector, which then measures and reports the passage of the DNA fragments of interest. Depending on the application, DNA fragments can be identified and measured to determine whether they are mutant or normal, or a specific DNA size or type. The separation and detection process continues until the entire DNA sample mixture is separated into individual fragments. Any fragment of interest can be collected for further study.
MODES OF OPERATION. DNA can be separated using three different modes by controlling the oven temperature. These modes include the following:
- A NON-DENATURING MODE. This mode is for size-based separations and under nondenaturing temperatures, it performs sized-based, sequence independent fragment separation of double-stranded DNA. Small double-strand DNA fragments can be separated and purified from larger DNA fragments. In this case, the smaller DNA fragments are released from the column first. Larger fragments of DNA are released in ascending size order until the entire sample is separated. The high-resolution separation and purification of fragments can be used for high purity, cloning, sequencing or PCR amplification. Tests that are based on fragment length use this mode.
- A PARTIAL-DENATURING MODE. This mode is for mutation detection. This mode of operation involves the separation of fragments under partially denaturing, or partially melting, conditions. In this mode the system becomes a sensitive, accurate and cost-effective means for screening sequence variation. Sequence variation in PCR product creates mutant DNA. Mutant and normal DNA melt and separate at different temperatures. The DNASep column micro-beads separate lower melting mutant DNA from the column first and then separate the higher melting normal DNA. Samples that do not contain genetic variation show a single normal DNA peak. The presence of genetic variation is detected by identifying the presence of a second mutant DNA peak that is present directly in front of the normal DNA peak. This mode allows the screening of a large number of samples to identify variants; then only the variants need be sequenced instead of indiscriminate sequencing of all samples, resulting in significant savings of time and cost. Analysis cost for this technology is low, while the sensitivity has been reported to exceed 95%. This low cost and high sensitivity justifies using the WAVE System as a screening tool to replace indiscriminate sequencing of all samples.
- A FULL-DENATURING MODE. This mode is for single-strand DNA and RNA analysis. In the full denaturing mode, single-strand DNA or RNA molecules can be separated at even higher temperatures. Our oven temperatures allow the separation of single-strand DNA and RNA according to sequence and size.
DETECTION. The standard WAVE System uses ultraviolet, or UV, detection. UV detection is highly sensitive and can be used for all applications with standard PCR amplification. By adding fluorescence detection to our system, we can further decrease the amount of DNA needed for analysis. This makes it possible to detect fluorescently labeled DNA fragments from extremely low sample concentrations or from samples with low PCR amplification.
FRAGMENT COLLECTION. Purified DNA fragments can be collected for PCR amplification, sequencing or for cloning. Cloning is a process where bacteria is used to grow a large amount of certain specified DNA fragments. It is important that the DNA material used for cloning is very pure so that only the specified DNA material is found in the bacteria colonies. Amplification and sequencing also benefit from highly purified DNA fragments.
WAVEMAKER SOFTWARE. Our WAVEMaker Software integrates the instrumentation control and data acquisition functions of the WAVE System. The software performs several functions including the formatting and presentation of data. Our WAVEMaker Software provides logical input and output of instrument data that is easily understood by researchers familiar with conventional gel-based technology. We are working to further refine the software component of the WAVE System to make it easier to operate for a broader market of end users.
WAVEMaker Software enables the user to choose a specific application. The clear display allows the user to set up the procedure in a matter of minutes. Customized protocols can easily be created and saved to facilitate future analyses. Point mutation detection can be performed by importing the sequence or size of the DNA fragment of interest into WAVEMaker Software.
The following diagram presents a sample screen taken from our WAVEMaker Software.
[PICTURE OF COMPUTER SCREEN SHOWING WAVEMAKER SOFTWARE]
PRICING. This integrated WAVE System is priced from $60,000 to $100,000 depending on features and accessories. The price is dependent upon user selected options, which include fragment collection, various detector configurations and software versions.
WAVE OPTIMIZED MOLECULAR BIOLOGY CONSUMABLES
We manufacture several types of DNASep columns and WAVE Optimized reagents and other consumables used with our WAVE System. As more of the systems are sold, we expect that the DNASep
columns, chromatography fluids and other consumable items will become an increasingly significant source of revenue.
Some consumables are contained and packaged in convenient kits to increase ease of use and minimize possibility of user error. These kits may be used in sample preparation or automated instrument operations for particular applications. By adding different application kits, the WAVE System can perform various applications.
RESEARCH AND DEVELOPMENT
Research and development expenses are budgeted at approximately $6.5 million for the year 2000. Our research and development efforts fall into several classes: development of new separation media, advanced instrumentation, advanced software, chemistry of molecular biology testing and specific molecular biology tests.
We are developing a WAVE System specifically tailored for the analysis and purification of RNA. RNA molecules have a similar structure to DNA and are used to transmit genetic instructions from DNA for protein synthesis and other life processes occurring in a cell. In this manner, the functions encoded in DNA are expressed using RNA. The amounts and types of RNA found in a cell indicate whether genes are expressed or not. Measurement of types and quantities of RNA determines the function of genes and their relationship to disease. Also, drug treatments can be based on direct interaction of the drug on RNA or on the proteins produced by the RNA. For this reason, many genetic-based drugs being researched are based on interaction with RNA. Therefore, we believe that RNA research creates an important opportunity for us in future development of the WAVE System.
Determining the cause of disease by studying RNA will require better tools for RNA analysis than those currently available. Since the function of RNA is either directly or indirectly involved in drug treatment, genetic-based drug development will also require better tools for the separation and measurement of RNA. RNA presents special challenges to the researcher because these molecules are unstable and difficult to separate and collect. Once separated, RNA is difficult to keep intact. Therefore, the analysis of RNA can be difficult with current technologies. We believe the RNA fragment analysis and purification instrument we are developing has the potential to provide a significant improvement in the ability to measure and purify RNA. Researchers in the field of gene expression could use this instrument in their attempt to understand the correlation of disease and the types and number of genes involved.
SALES AND MARKETING
We currently sell our WAVE Systems and related consumables in major geographical markets. We target the U.S., the U.K. and most countries in Western Europe with a direct sales staff of 18 persons. For the rest of the world, we use a combination of dealers and distributors located in local markets. We also maintain regionally-based technical support staffs and applications scientists to support our sales and marketing activities throughout the U.S., Europe and Japan.
Our marketing efforts utilize a variety of promotional channels including print advertisements, scientific conferences, trade shows, and Internet browser ads. The primary targets of our marketing efforts are life sciences researchers and medical geneticists in academic and commercial research institutions.
CUSTOMERS
As of March 1, 2000, we have sold over 240 WAVE Systems to customers in 20 countries. Our customers include numerous core laboratory facilities and a number of other leading academic and medical institutions in the U.S. and abroad, including Harvard University, Stanford University, Baylor University, University of Chicago, Fred Hutchison Cancer Research Facility, Mayo Clinic, National Cancer Institute, National Institutes of Health, Institut Curie, University of Cambridge, Welcome Trust-Oxford University
and Institut Gustave Roussy. Customers also include a number of large, established U.S. and foreign pharmaceutical and biotech companies including SmithKline Beecham, Bristol-Meyers Squibb, Millennium Pharmaceuticals, Merck & Company, Novartis and Eli Lilly and Company. No single customer accounted for more than 3% of our sales in 1999.
MANUFACTURING
We manufacture all of our consumable products including our proprietary DNASep separation columns and liquid reagents. We also incorporate our own modifications into the basic liquid chromatography instrument that we use in our WAVE System. Our manufacturing facilities are located in San Jose, California, Omaha, Nebraska, and Crewe, England.
We obtain the basic liquid chromatography instrument for our WAVE System from Hitachi Instruments, Inc. This relationship allows us to use Hitachi's significant manufacturing capability to meet potential future increases in demand for the WAVE System without investing in expanding our own manufacturing capacity.
Although our relationship with Hitachi has existed since 1997, we have recently entered into a new supply agreement with Hitachi under which they will cooperate with us in the co-development of a modified instrument for use in our WAVE System. Under the agreement, we have the exclusive right to market any co-developed products for DNA analysis and purification using our DNASep technologies. In addition, the agreement will provide for fixed pricing of the liquid chromatography instruments for our WAVE System. Our agreement with Hitachi has no fixed term and we have retained the right to work with other vendors for liquid chromatography instruments. Under the agreement, there will be no transfer of intellectual property rights without a specific agreement to do so.
LEGAL PROCEEDINGS
We are not a party, nor are any of our assets or properties subject, to any material legal proceedings.
INTELLECTUAL PROPERTY
To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark and trade-secret laws, as well as confidentiality provisions in our contracts.
We have implemented an aggressive patent strategy designed to provide us with freedom to operate and facilitate commercialization of our current and future products. We currently own 10 issued patents in the United States and have 27 pending applications, of which we have received notices of allowances for four. We also own 16 foreign issued patents, with 10 pending foreign applications. We hold an exclusive license for components of the DNA separation technology used in our WAVE System under an agreement with the inventors. This license terminates in 2013. We have also entered into a non-exclusive license agreement with a U.S. university relating to DNA detection technology.
The DNASep column and the systems with which it is combined are DNA compatible. The micro-beads used within the DNASep column are covered by U.S. Patent No. 5,585,236 and corresponding European patents. DNA compatible systems are free from materials which would bind with DNA and interfere with the separations. Separating DNA with DNA compatible systems and related processes are covered by U.S. Patents 5,772,889, 5,997,742, 5,997,222, 6,017,457 and 6,024,878, along with a corresponding foreign patent application pending. Additional patent applications for the DNA compatible column and system are pending in the U.S., Europe and Japan. Future products including disposable nucleic acid separation systems are covered by U.S. Patent 5,986,085 and pending U.S. and foreign patent applications.
Generally, U.S. patents have a term of 17 years from the date of issue for patents issued from applications filed with the U.S. Patent Office prior to June 8, 1995, and 20 years from the application filing date or earlier claimed priority date in the case of patents issued from applications filed on or after June 8, 1995. Patents in most other countries have a term of 20 years from the date of filing the patent application. Our issued United States patents will expire between 2009 and 2017. Our success depends to a significant degree upon our ability to develop proprietary products and technologies. We intend to continue to file patent applications as we develop new products and technologies.
Patents provide some degree of protection for our intellectual property. However, the assertion of patent protection involves complex legal and factual determinations and is therefore uncertain. The scope of any of our issued patents may not be sufficiently broad to offer meaningful protection. In addition, our issued patents or patents licensed to us may be successfully challenged, invalidated, circumvented or unenforceable so that our patent rights would not create an effective competitive barrier. Moreover, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States and Canada. In addition, the laws governing patentability and the scope of patent coverage continue to evolve, particularly in areas of interest to us. As a result, there can be no assurance that patents will issue from any of our patent applications or from applications licensed to us. In view of these factors, our intellectual property positions bear some degree of uncertainty.
We also rely in part on trade-secret protection of our intellectual property. We attempt to protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants also sign agreements requiring that they assign to us their interests in patents and copyrights arising from their work for us. All employees sign an agreement not to compete unfairly with us during their employment and after termination of their employment, through the misuse of confidential information, soliciting employees, soliciting customers and the like. However, it is possible that these agreements may be breached or invalidated and if so, there may not be an adequate corrective remedy available. Despite the measures we have taken to protect our intellectual property, we cannot assure you that third parties will not independently discover or invent competing technologies, or reverse engineer our trade secrets or other technologies. Therefore, the measures we are taking to protect our proprietary rights may not be adequate.
We do not believe that our products infringe on the intellectual property rights of any third party. However, third parties may file claims asserting that our technologies or products infringe on their intellectual property. We cannot predict whether third parties will assert claims against us or against the licensors of technology licensed to us, or whether those claims will be found to have merit. If we are forced to defend against such claims, whether they are with or without any merit, whether they are resolved in favor of or against us or our licensors, we may face costly litigation and diversion of management's attention and resources. As a result of such disputes, we may have to develop costly non-infringing technology or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to us, or at all, which could seriously harm our business or financial condition.
COMPETITION
The market for our products is highly competitive. Our principal competitors include those entities that provide alternative technologies and products for the separation and analysis of DNA in the areas of sample amplification, analysis process, sample separation and mutation detection and correlation. They include Affymetrix, Inc., Agilent Technologies, Amersham Pharmacia Biotech AB, Bio-Rad Laboratories, Inc., BioWhittaker Molecular Applications, GeneTrace Systems, Inc., Invitrogen Corporation, PE Corporation, Sequenom, Inc. and Varian Associates Inc. Moreover, competitors have greater name recognition than we do and provide more conventional technologies and products with which some of our customers and potential customers may have more familiarity or experience. In many cases, in order to compete against existing and alternative technologies, we will need to demonstrate the superior
performance, speed and capabilities of our WAVE System, including our proprietary DNASep column and micro-bead technology. We cannot assure you that we will be able to make the necessary enhancements to our technology or products to compete successfully with newly emerging technologies.
EMPLOYEES
As of March 10, 2000, we had 215 full-time employees. Of these employees, 162 were in life sciences and the remaining 53 were employed in non-life sciences line product. Of these 215 employees, 41 held Ph.D.s. Upon closing of the sale of the assets of our non-life sciences instrument product lines, the non-life sciences instruments employees will become employees of the purchaser. The following sets forth the number of persons employed in the principal areas of our operation:
NON-LIFE
SCIENCES
CONSOLIDATED LIFE SCIENCES INSTRUMENT
------------ ------------- ----------
Manufacturing.............................................. 55 28 27
Sales and Marketing........................................ 71 62 9
Research and Development................................... 59 48 11
Administration............................................. 30 24 6
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Our future success depends on our continuing ability to attract, train and retain highly qualified technical, sales and managerial personnel. Competition for these personnel is intense. Due to the limited number of people available with the necessary technical skills, we can give no assurance that we can retain or attract key personnel in the future. None of our employees is represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.
PROPERTIES
We do not own any real property. We currently lease office and manufacturing space in the following locations:
LOCATION SQUARE FOOTAGE ANNUAL RENT LEASE TERM EXPIRES -------- -------------- ----------------- ------------------ Omaha, Nebraska(1)................................. 71,799 $308,000 2000 San Jose, California............................... 13,660 $213,000 2002 Crewe, England..................................... 7,400 L70,000 2006 Cramlington, England............................... 8,200 L26,000 2001 Tokyo, Japan....................................... 1,000 Y7,293,000 2001 Cambridge, Massachusetts........................... 2,500 $54,000 2002 Gaithersburg, Maryland............................. 2,294 $35,000 2004 Dallas, Texas...................................... 240 $11,000 2000 Houston, Texas..................................... 2,760 $24,000 2003 |
(1) In connection with the sale of the assets of our non-life sciences instrument product line, the lease for the Omaha, Nebraska facility will be assigned to, and assumed by, the purchaser. We intend to relocate our headquarters to new administrative offices in the Omaha area.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our executive officers and directors, positions held by them and their ages, as of March 10, 2000, are as follows:
NAME AGE POSITION
---- -------- --------
Collin J. D'Silva......................... 43 Chairman of the Board, Chief Executive
Officer and Director
John L. Allbery........................... 41 Chief Financial Officer, Treasurer and
Managing Director of European Operations
Douglas T. Gjerde, Ph.D................... 46 Chief Scientific Officer and Director
John E. Doyle............................. 56 Executive Vice President of Operations
Andrew T. Zander, Ph.D.................... 54 Vice President of Research and Development
Kraig McKee............................... 42 Vice President of United States Sales
William Walker............................ 64 Vice President of Intellectual Property
Mitchell L. Murphy........................ 44 Controller and Secretary
Stephen F. Dwyer.......................... 57 Director
Jeffrey Sklar, M.D., Ph.D................. 49 Director
Parag Saxena.............................. 44 Director
Gregory J. Duman.......................... 44 Director
Roland J. Santoni......................... 58 Director
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COLLIN J. D'SILVA. Mr. D'Silva has served as our Chairman of the Board and Chief Executive Officer since 1997 and is also a Director. Mr. D'Silva, a co-founder of Transgenomic, has worked for Transgenomic and its predecessors since 1988. Prior to that time, Mr. D'Silva was employed by AT&T from 1980. At AT&T, he held various positions in engineering, materials management, sales support and business development. His last position at AT&T was Business Unit Manager and Engineering Manager for a network distribution products division. Mr. D'Silva holds a B.S. degree and a M.Eng. degree in industrial engineering from Iowa State University and an M.B.A. from Creighton University.
JOHN L. ALLBERY. Mr. Allbery joined us in March, 2000 as Chief Financial Officer, Treasurer and Managing Director of European Operations. Prior to joining us, Mr. Allbery served as the Chief Financial Officer and Managing Director of the Virtus Group in Central and Eastern Europe since 1999. From 1985 until 1999, Mr. Allbery was with the accounting firm of Deloitte & Touche LLP and served in various positions including office Partner-In-Charge of Tax and Legal in Central Europe.
DOUGLAS T. GJERDE, PH.D. Dr. Gjerde joined us in 1996 as Chief Scientific Officer. Dr. Gjerde has held positions as senior scientist for Exxon Research and Engineering, Director of Research for Wescan Instruments, and President and Director of Research & Development for Sarasep, Inc. Sarasep, which Dr. Gjerde co-founded, was acquired by us in 1996. Dr. Gjerde has authored 12 patents and has more than 40 journal publications, primarily focused on separation technology. Dr. Gjerde received his B.S. in chemistry in 1976 from Minnesota State University, Mankato, Minnesota, and his Ph.D. in analytical chemistry in 1980 from Iowa State University, Ames, Iowa.
JOHN E. DOYLE. Mr. Doyle has been with our company since September 1997, initially focusing on operations and process improvement. In 1999, Mr. Doyle assumed responsibility for sales, again focusing on process as well as improvements in staffing. Prior to joining Transgenomic, he was with Supelco Inc. for 20 years, serving as Chief Executive Officer when it was a Sigma-Aldrich company; Business Unit Vice President when it was a subsidiary of Rohm and Haas Corporation; and International Vice President when it was privately held. Mr. Doyle received his engineering degree from Pennsylvania State University.
ANDREW T. ZANDER, PH.D. Dr. Zander has served as our Vice President of Research and Development since April 1999. Prior to joining Transgenomic, Dr. Zander held the position of Director of the Measurements Laboratory in the corporate research center of Varian Associates, Inc. from November 1987 to April 1999. Additionally, Dr. Zander just completed 30 years of commissioned service with the U.S. Naval Reserve, holding the rank of Captain, and including 21 years as Scientific Liaison Officer with the Office of Naval Research in the Chemistry and Chem/Bio Defense Programs. Dr. Zander holds a Ph.D. from the University of Maryland.
KRAIG MCKEE. Mr. McKee has served as our Vice President of Sales for the United States since July 1999. Prior to joining us, he was the Sales Director from 1997 to 1999 for Bayer Diagnostics. From 1987 through 1997, he held a number of positions in the sales organization of Chiron Diagnostics. His last position at Chiron was National Sales Director, ACS Reagent Systems. He received a Bachelor's degree in marketing from Texas Tech University.
WILLIAM WALKER. Mr. Walker joined us in 1998 as Vice President of Intellectual Property. Mr. Walker is a corporate attorney with an emphasis in intellectual property law. Mr. Walker served as Director of Patents and Licensing for Syntex Corporation (1970-1981) and subsequently provided intellectual property counseling to new and emerging companies. Mr. Walker has a law degree from Georgetown University Law Center, a B.S. degree in chemical engineering from the University of Tennessee and a MFCC degree in psychology from Santa Clara University. He is a member of the California Bar and is active in numerous professional organizations.
MITCHELL L. MURPHY. Mr. Murphy joined us in 1992. His current duties include the overall administration of our finance and accounting functions. Prior to joining Transgenomic, he held accounting and financial management positions for companies involved in manufacturing, steel distribution and rebar fabrication for 15 years. He spent over two years as an auditor for the Omaha, Nebraska office of Deloitte, Haskins & Sells (now Deloitte & Touche LLP) working in a broad range of industries. Mr. Murphy graduated with honors from Creighton University in 1978 with a B.S. degree in business administration with an accounting major.
STEPHEN F. DWYER. Mr. Dwyer has recently signed a letter of intent to acquire the assets associated with our non-life sciences instrument product line, which will be operated as a separate business. Mr. Dwyer is a director and was a co-founder of Transgenomic. From 1996 until March 2000, Mr. Dwyer was employed by Transgenomic and its predecessor company, most recently as Vice Chairman. In 1966, Mr. Dwyer started Sasco Inc., which produced laboratory animals used in disease research. In 1986, Mr. Dwyer sold Sasco to Charles River Labs. He continued to run Sasco as a Charles River Labs subsidiary for the next eight years.
JEFFREY SKLAR, M.D., PH.D. Dr. Sklar is professor of Pathology at Harvard Medical School, where he has been on the faculty for more than five years. He also serves as Director of the Divisions of Diagnostic Molecular Biology and Molecular Oncology, department of Pathology Brigham and Women's Hospital. Dr. Sklar serves on the Editorial Boards of Numerous Journals in the area of Pathlogy and Cancer and on Scientific Advisory Committees to the Dana-Farber Cancer Center, Boston, MA; the Fred Hutchinson Cancer Center, Seattle, Washington; the New England Regional Primate Center; Harvard University; and the National Institutes of Health. He is a director of Dianon Systems, Inc., and has served on the scientific advisory boards of numerous companies in the biotechnology field. Dr. Sklar holds an M.D. and Ph.D. from Yale University and an M.A. (honorary) from Harvard University.
PARAG SAXENA. Mr. Saxena is the Chief Executive Officer of INVESCO Private Capital, Inc. ("IPC") and has held that position for more than five years. As a founding member of IPC, Parag has been involved in numerous private capital transactions and has served as a director on a number of venture-backed healthcare and telecommunications companies. Mr. Saxena began his career in 1978 as a product engineer at Becton Dickinson Corporation. He later joined Booz, Allen and Hamilton in the Technology Management Services Group where his responsibilities included market analysis, technology strategy, acquisition evaluation and business strategy formulation for several Fortune 100 corporations in
the healthcare field. Mr. Saxena joined Citicorp Investment Management, Inc. in 1983 as a founding member of the private capital group's predecessor and was responsible for healthcare private investments and small cap public stocks. Mr. Saxena received a B. Tech in 1977 from the Indian Institute of Technology and an M.S. in 1978 in Chemical Engineering from West Virginia College of Graduate Studies. He earned an M.B.A. in 1982 from the Wharton School of the University of Pennsylvania.
GREGORY J. DUMAN. Mr. Duman has been a director since March 2000.
Mr. Duman is the Executive Vice President of Transaction Systems
Architects, Inc. (TSAI) a computer software company. He joined TSAI in 1983 as
Director of Administration. He became Controller in 1985 and Vice President of
Finance and Chief Financial Officer in 1991 and served in that role through
February 2000. From 1979 to 1983, he worked for Arthur Andersen & Co. as a
certified public accountant Mr. Duman is a director of Nestor, Inc. (Nasdaq:
NEST) and Digital Courier Technologies, Inc. (Nasdaq: DCTI).
ROLAND J. SANTONI. Mr. Santoni has been a director since March 2000. He has been Professor of Law at Creighton University School of Law, Omaha, Nebraska since 1977. He also has been Of Counsel with Erickson & Sederstrom, P.C. since 1978. Mr. Santoni received a B.S. in Economics from The Wharton School, University of Pennsylvania, in 1963 and a J.D., CUM LAUDE, from the University of Pennsylvania School of Law in 1966.
SCIENTIFIC ADVISORS
We consult with several leading scientists from around the world, as part of our ongoing research and development efforts. These advisors assist us in formulating our research, development, and commercialization strategies. Some of these advisors include:
- Dennis R. Burton, Ph.D., Professor of Immunology, The Scripps Research Institute, La Jolla, California.
- R. Alan North, Ph.D., Professor and Director of the Institute of Molecular Physiology, the University of Sheffield, Sheffield, U.K.
- Eric Hoffman, Ph.D., Director, Research Center for Genetic Medicine, The Children's National Medical Center, Washington, D.C.
- Leon Yengoyan, Ph.D., Professor of Chemistry, San Jose State University, San Jose, California.
We do not pay cash remuneration to our scientific advisors, but may reimburse them for reasonable expenses they incur on our behalf. We may also award stock options to them under our stock option plan. See "Stock Option and Other Compensation Plans" below.
BOARD OF DIRECTORS
Our Board of Directors is comprised of seven directors and is divided into three classes. Directors of each class are elected for terms of three years. Class I directors are Parag Saxena and Collin J. D'Silva. Class II directors are Stephen F. Dwyer and Jeffrey Sklar. Class III directors are Douglas T. Gjerde, Gregory Duman and Roland J. Santoni. The current terms of the Class I, Class II and Class III directors will end at our annual stockholders meetings held in 2001, 2002 and 2003, respectively.
BOARD COMMITTEES
The audit committee consists of Messrs. Duman, Sklar and Saxena, each of whom is an independent director. The audit committee reviews the services provided by our independent auditors, consults with the auditors on audits and proposed audits, and reviews and evaluates our internal auditing procedures and control functions.
The compensation committee consists of Messrs. Sklar, Dwyer and Saxena. The compensation committee reviews the compensation arrangements for our executive officers, makes recommendations to the Board of Directors regarding compensation matters and administers our employee stock option plan. See "Stock Option and Other Compensation Plans" below.
DIRECTOR COMPENSATION
Directors who are also our officers are not separately compensated for serving on the Board of Directors other than reimbursement for out-of-pocket expenses related to attendance at board and committee meetings. Outside directors are paid an annual retainer of $12,000. In addition, they receive a fee of $1,200 for attending meetings in person, or $600 for participating in a meeting by teleconference, as well as reimbursement for out-of-pocket expenses related to attendance at board and committee meetings.
Outside directors are issued options to purchase 15,000 shares of common stock under our 1997 Stock Option Plan upon initial appointment to the board. The options have exercise prices ranging from the lesser of $5.00 per share or 50% of the price that we issue common stock in this offering to $10.00 per share. These options vest at the rate of 20% per year of service on the board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION
No member of our compensation committee serves as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our board of directors or compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation we paid during the year ended December 31, 1999 to our Chief Executive Officer and our next four most highly compensated executive officers whose salary and bonus for 1999 exceeded $100,000. Also included is the compensation of an executive officer who resigned prior to the end of the year. These executive officers are referred to as the named executive officers elsewhere in the prospectus.
SUMMARY COMPENSATION TABLE(1)
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION(2)
--------------------------- -------- -------- ------------ ---------------
Collin J. D'Silva................................... $132,440 $ 0 $6,129 $21,587
Chief Executive Officer
William Walker...................................... 201,466 0 1,889 5,631
Vice President of
Intellectual Property
John E. Doyle....................................... 150,645 4,000 3,615 17,893
Executive Vice President
of Operations
Andrew T. Zander, Ph.D.............................. 117,378 0 2,101 4,695
Vice President of Research and Development
Douglas T. Gjerde, Ph.D............................. 101,216 0 3,074 19,394
Chief Scientific Officer
P. Thomas Pogge..................................... 162,871 0 4,643 8,256
General Counsel(3)
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(1) No long term compensation was awarded or paid to any named executive officer during 1999.
(2) Consists of accrued vacation to be taken in the future or paid in cash upon termination of employment.
(3) Mr. Pogge resigned as an executive officer prior to the end of 1999.
All executive officers are eligible to participate in our stock option plan (described under "Stock Option and Other Compensation Plans") and may participate in other employee benefit plans and programs, such as health insurance plans, that we offer to our other employees.
OPTION GRANTS IN LAST FISCAL YEAR
None of the named executive officers were awarded any stock options during 1999.
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
None of the named executive officers exercised any stock options during 1999.
STOCK OPTION AND OTHER COMPENSATION PLANS
STOCK OPTION PLAN. Our stock option plan allows us to grant options to our employees, directors and advisors which give them the right to buy our common stock at a fixed price, even if the market value of our stock goes up. Our stock option plan is administered by the compensation committee of our Board of Directors and it has the sole authority to set the number, exercise price, term and vesting provisions of the options granted under the plan. Under the terms of the plan, the exercise price of an option cannot be less than the fair market value of our common stock on the date the option is granted. In general, options will expire if not exercised within ten years from the date they are granted. The committee may also require that an option holder remain employed by us for a specified period of time before an option may be exercised. These "vesting" provisions are established on an individual basis by the committee. The committee will also decide whether options will be nonqualified options or structured to be qualified options for U.S. income tax purposes. Either incentive or nonqualified stock options may be granted to employees, but only nonqualified stock options may be granted to our non-employee directors and advisors. Options for a maximum of 6,000,000 shares may be granted under the plan. To date, we have issued options for 3,724,250 shares of our common stock. All of these options have an exercise price ranging from $5.00 to $10.00 per share, except that options for 15,000 shares issued to one of our non-employee directors may be exercised at the lower of $5.00 per share or 50% of the price of our common stock in this offering. See "Director Compensation" above.
Under the terms of our stock option plan, if the option holder dies, becomes permanently disabled or retires any options not vested at such time will become immediately vested. If an option holder voluntarily resigns, any options not vested as of the date of resignation will terminate and all rights will cease, unless the compensation committee determines otherwise. In the event an option holder's employment, board membership or status as an advisor is terminated for cause, the option holder's right to exercise an option, whether or not vested, will immediately terminate and all rights will cease, unless the compensation committee determines otherwise.
EMPLOYEE SAVINGS PLAN. We have also established an employee savings plan that is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code. This plan allows for voluntary contributions up to statutory maximums by eligible employees. We match a specific proportion of these contributions, subject to limitations imposed by law. We may make additional contributions to the savings plan on behalf of our employees if our Board of Directors decides to do so. During the years ended December 31, 1997, 1998 and 1999, we contributed $92,733, $117,923 and $174,973 to the savings plan on behalf of our employees.
LIMITATION OF DIRECTORS AND OFFICERS LIABILITY
Our certificate of incorporation provides that no director will be liable for monetary damages for breach of the director's fiduciary duty to the company or its stockholders, except for liability arising from:
- breach of the director's duty of loyalty to the company or its stockholders;
- acts or omissions not in good faith or involving intentional misconduct or knowing violations of law;
- improper distributions to stockholders and improper redemptions of stock; and
- transactions from which the director derived an improper personal benefit.
This provision of our certificate of incorporation does not eliminate the directors' fiduciary duties, and in appropriate circumstances, equitable remedies including an injunction or other forms of non-monetary relief would remain available under Delaware law. This provision also does not affect a director's responsibilities under any other laws including federal securities laws or state or federal environmental laws.
In addition, our bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. We are also empowered under our bylaws to enter into indemnification contracts with our directors and officers and to purchase insurance on behalf of any person we are required or permitted to indemnify. We have obtained directors and officers liability insurance coverage which covers, among other things, liabilities arising under the Securities Act.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with our Chief Executive Officer, Collin J. D'Silva, our Chief Financial Officer, John L. Allbery, our Chief Scientific Officer, Dr. Douglas T. Gjerde and William Walker, our Vice President of Intellectual Property. Each employment agreement has an initial term of five years and will automatically renew for an additional three-year period unless we or the officer gives notice of an intention not to renew. The employment agreements require our executives to devote their full time to our business activities; subject to certain reasonable exceptions. Our executives are not allowed to compete with us while they are our employees and for a year after they are no longer our employee. If one of our officers dies or becomes permanently disabled, he will receive an amount equal to six months of salary, and if an officer's employment is terminated for reasons other than an act of serious misconduct, the officer will be entitled to severance pay in an amount equal to his then current base salary plus the amount of the previous year's bonus, provided that such severance payment does not exceed 299% of his current salary.
Each of our executive officers has also entered into a separate confidentiality agreement which prohibits them from disclosing confidential information about our business to people outside of the company except for proper business purposes.
PRINCIPAL STOCKHOLDERS
The following table provides information concerning beneficial ownership of our common stock as of March 10, 2000, by:
- each of our named executive officers;
- each of our directors;
- all of our directors and executive officers as a group; and
- each stockholder that we know owns more than 5% of our outstanding common stock.
The following table assumes conversion of $12.0 million of aggregate principal amount of our convertible notes plus accrued interest at $5.00 per share into 2,712,200 shares of common stock and 300,000 shares that will be issued at $5.00 per share upon the exercise of warrants immediately prior to completion of this offering.
Based on information furnished by such owners, we believe that the beneficial owners listed below have sole voting and investment power with respect to such shares.
PERCENT
BENEFICIALLY OWNED
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME BENEFICIALLY OWNED OFFERING OFFERING
---- ------------------ -------- --------
EXECUTIVE OFFICERS AND DIRECTORS
Collin J. D'Silva(1)................................. 4,470,000 33.5% 22.3%
John L. Allbery(2)................................... 20,000 * *
Douglas T. Gjerde, Ph.D.(3).......................... 2,500,000 16.9 11.6
John E. Doyle(4)..................................... 45,000 * *
Andrew T. Zander, Ph.D.(5)........................... -- * *
Kraig McKee(6)....................................... -- * *
William Walker(7).................................... 25,000 * *
Mitchell L. Murphy(8)................................ 14,000 * *
Stephen F. Dwyer(9).................................. 2,986,000 22.4 14.9
Jeffrey Sklar, M.D., Ph.D.(10)....................... 9,000 * *
Gregory Duman(11).................................... 25,000 * *
Roland J. Santoni(12)................................ -- * *
Parag Saxena......................................... -- * *
All executive officers and directors as a group
(13 persons)....................................... 10,094,000 57.2 46.6
OTHER STOCKHOLDERS
Arthur P. D'Silva(13)................................ 1,530,000 9.5 7.6
INVESCO Private Capital, Inc.(14).................... 2,260,167 14.1 11.3
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* Less than 1%.
(1) Includes 1,400,000 shares owned by the Arthur P. D'Silva Trust, of which Collin J. D'Silva is the sole trustee.
(2) Consists of vested options to purchase 20,000 shares at $10.00 per share. Mr. Allbery holds unvested options to purchase an additional 80,000 shares at $10.00 per share.
(3) Includes an option to purchase 1,500,000 shares at $5.00 per share.
(4) Consists of vested options to acquire 45,000 shares at $5.00 per share. Mr. Doyle holds unvested options to purchase an additional 30,000 shares at $5.00 per share.
(5) Mr. Zander holds unvested options to purchase 50,000 shares at $5.00 per share.
(6) Mr. McKee holds unvested options to purchase 20,000 shares at $5.00 per share.
(7) Consists of vested options to purchase 25,000 shares at $5.00 per share. Mr. Walker holds unvested options to purchase an additional 75,000 shares at $5.00 per share.
(8) Consists of 4,000 shares owned by Mr. Murphy and vested options to purchase 10,000 shares at $5.00 per share. Mr. Murphy holds unvested options to purchase an additional 40,000 shares at $5.00 per share.
(9) Includes 500,000 shares owned by Nancy A. Dwyer, Mr. Dwyer's wife.
(10) Consists of vested options to acquire 9,000 shares at the lesser of
(a) $5.00 per share or (b) 50% of the initial public offering price.
Dr. Sklar holds unvested options to buy 6,000 additional shares at such
price.
(11) Consists of 25,000 shares owned by Mr. Duman. Mr. Duman holds unvested options to purchase an additional 15,000 shares at $10.00 per share.
(12) Mr. Santoni holds unvested options to purchase 17,500 shares at $10.00 per share.
(13) Mr. D'Silva is the father of Collin J. D'Silva. Mr. D'Silva's address is Transgenomic, Inc., 5600 South 42nd Street, Omaha, Nebraska 68107.
(14) INVESCO's address is 1166 Avenue of the Americas, New York, New York 10036
RELATED PARTY TRANSACTIONS
In March 2000, we signed a letter of intent with Stephen F. Dwyer, a director and a principal stockholder of ours, under which Mr. Dwyer has agreed to acquire the assets related to our non-life sciences instrument product lines for a total purchase price of $6,000,000, of which $5,000,000 will be paid in cash and $1,000,000 will be paid with an interest-bearing promissory note due on March 31, 2001. The note bears interest at a market rate. The sale of these assets is expected to occur on March 31, 2000, subject to the approval of our stockholders. The purchase price and other terms of the transaction were determined through negotiation between us and Mr. Dwyer and was approved by our disinterested directors. An unaffiliated party recently made a written offer of $4,000,000 for these assets.
Collin J. D'Silva, Stephen F. Dwyer and Douglas T. Gjerde were partners of CT Partners, an Iowa general partnership, along with various other individuals, some of whom are relatives of Mr. D'Silva and Mr. Dwyer. Mr. D'Silva, Mr. Dwyer and Dr. Gjerde held partnership interests of 28.6%, 23.8% and 4.8%, respectively, in CT Partners. In 1997, our predecessor company agreed to provide CT Partners with research and development services to assist CT Partners in the development of certain miniature solid-state optical spectrometry technologies to which it held the rights. Our predecessor company was entitled to a fee for these services and for reimbursement of its expenses. In addition, our predecessor company entered into a royalty agreement with CT Partners under which it received an exclusive license to manufacture and market this technology and agreed to pay CT Partners a royalty of up to $6,500,000 based on the sales of products employing this technology. On June 3, 1999, we acquired the rights to this technology from CT Partners for a purchase price of $2,000,000. The purchase price was offset by the cancellation of principal and interest due on promissory notes given to us by CT Partners in payment of the fees and expense reimbursements owed to us by it. Principal and interest on these notes plus additional accrued expenses equaled $1,085,931. The sale price was based on the present value of anticipated future net income from the sale of products associated with the technology. The royalty agreement was cancelled as a result of the sale of the technology rights by CT Partners to us. We will sell the rights to this technology in connection with the sale of assets related to the non-life sciences instrument product line described above.
DESCRIPTION OF CAPITAL STOCK
GENERAL
We can issue up to 60,000,000 shares of our common stock and 15,000,000 shares of our preferred stock. There are currently 13,025,000 shares of our common stock outstanding. This number will increase to 16,037,200 assuming conversion of our convertible notes and accrued interest thereon and the exercise of 300,000 warrants to purchase our common stock that will expire at the closing of this offering. We have not issued any shares of preferred stock. You should read the following summary description of our capital stock in conjunction with our certificate of incorporation and our bylaws, each of which is available upon request.
COMMON STOCK
The holders of our common stock are entitled to
- one vote per share on all matters submitted to a vote of our stockholders;
- the payment of any dividends declared by the Board of Directors out of legally available funds, after the superior rights of any preferred stock holders have been satisfied; and
- share ratably in company assets available for distribution to them in the event of the liquidation, dissolution, distribution of assets or winding up of the company.
The holders of common stock do not have cumulative voting rights. As a result, the holders of a majority of the outstanding common stock can elect all the directors of the company. The remaining common stock holders will not be able to elect any directors. The holders of common stock have no preemptive or other subscription rights, and there are no conversion, redemption or sinking fund provisions with respect to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and non-assessable. The common stock has a par value of $0.01 per share.
PREFERRED STOCK
The Board of Directors is authorized to issue up to 15,000,000 shares of preferred stock in one or more series and to fix the rights, powers, preferences, qualifications, limitations and restrictions granted to or imposed on the preferred stock. The authority of the Board of Directors includes the right to fix dividend rights, conversion rights, terms of redemption, liquidation preference, sinking fund terms and the number of shares constituting any series or the designation of a series, without any further vote or action by the stockholders. The preferred stock may be issued with a preference over the common stock as to the payment of dividends. The Board of Directors, without stockholder approval, can issue preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of Transgenomic. For the foregoing reasons, any preferred stock we issue could adversely affect your rights as a holder of our common stock. We do not have any present plans to issue preferred stock.
WARRANTS
As of the date of this prospectus, we have issued 452,450 warrants to purchase common stock at an exercise price equal to the lower of $5.00 per share or 50% of the offering price of the common stock in this offering. Of this total, 300,000 warrants will expire upon the closing of this offering and the rest will expire in 2003. All of the warrants contain provisions for the adjustment of the exercise price and the aggregate number of shares that may be issued upon the exercise of the warrant if a stock dividend, stock split, reorganization, reclassification or consolidation occurs.
OPTIONS
As of the date of this prospectus, we have issued options to purchase 3,724,250 shares of our common stock at an exercise price ranging from $5.00 to $10.00 per share, except that options for 15,000 shares issued to one of our non-employee directors may be exercised at the lower of $5.00 per share or 50% of the price of our common stock in this offering. Additional options to acquire 2,275,750 shares of common stock may be issued in the future under our Stock Option Plan.
CONVERTIBLE NOTES
In March 1999, we issued $12,000,000 of our convertible notes to a group of investors. The convertible notes will be due and payable in March 2002. Interest on the notes compounds at 6% per annum until maturity or until we complete an underwritten public offering of our common stock which provides us with net proceeds of not less than $15 million. Interest will be payable either in cash upon repayment of the notes at or after the maturity date, or if elected, upon the completion of this offering all accrued and unpaid interest shall be converted into shares of common stock. The interest rate after this offering for notes that are not converted shall be reduced to 3.6%, and interest shall become due for the remainder of the term through the maturity date at the closing of this offering.
The convertible notes may be converted into shares of our common stock at or after the time we make an underwritten public offering of our common stock which provides us with net proceeds of not less than $15 million. Accordingly, these conversion rights may be exercised by the holders of the convertible notes when we close this offering. If this offering is completed before September 25, 2000, the conversion price per share will be the lower of (i) $5.00 or (ii) 50% of the public offering price of shares in this offering. If this offering is completed after that date, the conversion price may be reduced depending on the length of the delay. In addition, if certain events were to occur prior to the completion of this offering, the note holders will have the right to convert their notes into stock. These events include a merger, a sale of all assets, certain change of control events and a liquidation of the company. The number of shares to be issued upon a conversion in one of these cases will be the greater of (i) the number determined by dividing principal and accrued interest on the notes by $5.00 or (ii) the number determined having an aggregate value equal to 200% of principal and accrued interest on the notes. The value of our common stock used in this calculation will be determined by the amount realized by our stockholders from the merger, sale of assets, change of control or liquidation transaction. Finally, if Collin D'Silva were to sell any of his shares before this offering, the note holders have the right to convert notes into common stock at $5.00 per share. We do not anticipate that any merger, sale of assets, change of control or liquidation transaction will occur prior to the closing of this offering or that Mr. D'Silva will sell any shares of his stock prior to that time.
If the note holders do not convert their convertible notes after the completion of this offering, we may elect to convert their notes if at any time the total of (i) the average closing bid price for our common stock over 20 consecutive trading days and (ii) accrued interest on the notes (when converted into an amount per share using the conversion price then in effect) equals or exceeds $13.72 per share.
In connection with the issuance of the convertible notes, Collin D'Silva has agreed to vote his shares at any meeting of the stockholders to cause a person designated by the holders of the convertible notes to be elected to our Board of Directors. We have also agreed that the director designated by the convertible note holders will be a member of our compensation and audit committees.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
DELAWARE LAW.
In general, Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless:
- prior to that date, the Board of Directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or
- on or subsequent to that date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested stockholder;
- any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
- in general, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.
CHARTER PROVISIONS.
Our Certificate of Incorporation and Bylaws include a number of provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of Transgenomic. First, our certificate of incorporation provides that all stockholder actions must be effected at a duly called meeting of holders and not by a consent in writing. Second, our bylaws provide that special meetings of the holders may be called only by the chairman of the Board of Directors, the Chief Executive Officer or our Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors. Third, our certificate of incorporation provides that our Board of Directors can issue up to 15,000,000 shares of preferred stock, as described under "Preferred Stock" above. Fourth, our certificate of incorporation and the Bylaws provide for a classified Board of Directors in which approximately one-third of the directors would be elected each year. Consequently, any potential acquirer would need to successfully complete two proxy contests in order to take control of the Board of Directors. As a result of the provisions of the certificate of incorporation and Delaware law, stockholders will not be able to cumulate votes for directors. Finally, our bylaws establish procedures, including advance notice procedures with regard to the nomination of candidates for election as directors and stockholder proposals.
These provisions of our certificate of incorporation and bylaws could discourage potential acquisition proposals and could delay or prevent a change in control or management of our company.
TRANSFER AGENT AND REGISTRAR
Norwest Bank, Omaha, Nebraska, has been appointed as the transfer agent and registrar for our common stock.
NATIONAL MARKET LISTING
We have applied for listing of our common stock on the Nasdaq Stock Market's National Market under the symbol TBIO.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after the offering could adversely affect the market price of our common stock and our ability to raise equity capital in the future on terms favorable to us.
After this offering, 20,037,200 shares of our common stock will be outstanding, assuming conversion of our convertible notes and accrued interest thereon and the exercise of warrants to acquire 300,000 shares of common stock that will expire at the closing of this offering and also assuming that the underwriters do not exercise the over-allotment option. Of these shares, all of the 4,000,000 shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. The remaining 16,037,200 shares of common stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which rules are summarized below.
The following table indicates approximately when the 16,037,200 shares of our common stock that are not being sold in this offering but which will be outstanding when this offering is complete will be eligible for sale in the public market:
ELIGIBILITY OF RESTRICTED SHARES
FOR SALE IN THE PUBLIC MARKET
At effective date........................................... At or before 90 days after the effective date............... At or before 180 days after the effective date.............. |
Most of the restricted shares that will become available for sale in the public market starting 180 days after the effective date will be subject to volume and other resale restrictions under Rule 144 because the holders are our affiliates.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year, including any affiliate of ours, is entitled to sell, within any three-month period, a number of shares that is not more than the greater of:
- 1% of the number of shares of common stock then outstanding, which will equal approximately 200,372 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks before a notice of the sale on Form 144 is filed.
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days before a sale, and who has beneficially owned the restricted shares for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchase shares from us under a stock option plan or other written agreement can resell those shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with certain restrictions, including the holding period, contained in Rule 144.
LOCK-UP AGREEMENTS
Our directors, officers and some of our existing stockholders, including persons entitled to obtain stock upon the exercise of warrants or conversion of our convertible notes, are subject to lock-up agreements under which they have agreed not to transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, for a period of 180 days after the date of this prospectus, subject to some exceptions. Transfers or dispositions can be made sooner with the prior written consent of Chase Securities Inc. or its successors.
REGISTRATION RIGHTS AND STOCK PLANS
Some of our existing stockholders have the right to require us to register under the Securities Act up to 2,300,000 shares of their common stock at any time. Any stockholder who requests registration will be subject to the lock-up agreements described above. Once we register these shares, they can be freely sold in the public market, subject to these lock-up agreements.
Immediately after this offering, we intend to file a registration statement under the Securities Act covering 6,000,000 shares of our common stock issuable upon the exercise of stock options under our 1997 Employee Stock Option Plan. This registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. As of the date of this prospectus, options to purchase 3,724,250 shares of common stock were issued and outstanding, 2,089,150 of which are currently vested and exercisable. As a result, shares registered under those registration statements will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market after the expiration of any applicable lock-up agreement.
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of the principal U.S. federal income and estate tax consequences of the ownership and disposition of common shares by a beneficial owner that is a non-U.S. holder. As used in this prospectus, a non-U.S. holder is defined as a holder that for U.S. federal income tax purposes is an individual or entity other than:
- a citizen or individual resident of the United States;
- a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, other than a partnership treated as foreign under U.S. Treasury regulations;
- an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
- a trust if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
This discussion does not address all aspects of U.S. federal income and estate taxes that:
- may be relevant to non-U.S. holders in light of their personal circumstances, including the fact that in the case of a non-U.S. holder that is a partnership, the U.S. tax consequences of holding and disposing of common shares may be affected by determinations made at the partner level, or
- may be relevant to non-U.S. holders which may be subject to special treatment under U.S. federal income tax laws such as insurance companies, tax-exempt organizations, financial institutions, dealers in securities and holders of securities held as part of a "straddle," "hedge" or "conversion transaction."
This discussion also does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. Furthermore, this discussion is based on provisions of the Internal Revenue Code of 1986, as amended, existing and proposed regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof, and all of which are subject to change, possibly with retroactive effect. The following summary is included herein for general information. ACCORDINGLY, INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON SHARES.
For purposes of this discussion, dividends and gain on the sale, exchange or other disposition of common stock will be considered to be "U.S. trade or business income" if the income or gain is:
(1) effectively connected with a United States trade or business, or
(2) if a treaty applies, attributable to a permanent establishment (or, in the case of an individual, a fixed base) in the United States.
DIVIDENDS
We do not anticipate paying cash dividends on our common shares in the foreseeable future. In the event, however, that dividends are paid on our common shares, dividends paid to a non-U.S. holder of common shares generally will be subject to withholding of U.S. federal income tax at a 30% rate, or such lower rate as may be provided by an applicable income tax treaty. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.
Dividends that are U.S. trade or business income are generally subject to U.S. federal income tax on a net income basis at regular graduated rates, but are not generally subject to the 30% withholding tax
if the non-U.S. holder provides a Form 4224 (or successor Form W-8ECI) to the payor. These forms under U.S. Treasury regulations generally require the non-U.S. holder to provide a U.S. taxpayer identification number. Any such U.S. trade or business income received by a non-U.S. holder that is a corporation may also be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
Under currently applicable U.S. Treasury regulations, dividends paid to an address in a foreign country are presumed, absent actual knowledge to the contrary, to be paid to a resident of such country for purposes of the withholding discussed above and for purposes of determining the applicability of a tax treaty rate. Under U.S. Treasury regulations generally effective for payments made after December 31, 2000; however, a non-U.S. holder of our common shares who wishes to claim the benefit of an applicable treaty rate generally will need to satisfy applicable certification requirements, including filing a Form W-8BEN or Form W-8IMY and providing a document issued by foreign governmental authorities as proof of residence in a foreign country. In addition, under these regulations, in the case of our common shares held by a foreign partnership or other pass-through entity, the certification requirement will generally be applied to the partners of the partnership and the partnership will be required to provide specified information, including filing a Form W-8IMY. The regulations generally effective for payments made after December 31, 2000 also provide look-through rules for tiered partnerships. Further, the Internal Revenue Service intends to issue regulations under which a foreign trustee or foreign executor of a U.S. or foreign trust or estate, depending on the circumstances, will be required to furnish the appropriate withholding certificate on behalf of the beneficiaries, trust or estate, as the case may be.
A non-U.S. holder of our common shares that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for a refund with the Internal Revenue Service.
The U.S. Treasury regulations generally effective for payments made after December 31, 2000 also provide special rules for dividend payments made to foreign intermediaries, U.S. or foreign wholly owned entities that are disregarded for U.S. federal income tax purposes and entities that are treated as fiscally transparent in the United States, the applicable income tax treaty jurisdiction, or both. In addition, income tax treaty benefits are denied to foreigners receiving income derived through a partnership, or otherwise fiscally transparent entity, in certain circumstances. Prospective investors should consult with their own tax advisors concerning the effect, if any, of these new Treasury regulations and this recent legislation on an investment in our common shares.
GAIN ON DISPOSITION OF COMMON SHARES
A non-U.S. holder generally will not be subject to U.S. federal income tax in respect of gain realized on a disposition of our common shares unless:
- the gain is U.S. trade or business income, in which case, the branch profits tax described above may also apply to a corporate non-U.S. holder;
- the non-U.S. holder is an individual who holds our common shares as a capital asset within the meaning of Section 1221 of the Internal Revenue Code, is present in the United States for 183 or more days in the taxable year of the disposition and meets other requirements;
- the non-U.S. holder is subject to tax under the provisions of the U.S. tax law applicable to certain United States expatriates; or
- we are or have been a "U.S. real property holding corporation" for federal income tax purposes at any time during the shorter of the five-year period preceding such disposition or the period that the non-U.S. holder held our common shares.
We believe that we have not been, are not currently, and do not anticipate becoming, a "U.S. real property holding corporation" for U.S. federal income tax purposes.
If a non-U.S. holder who is an individual is subject to tax on gain which is U.S. trade or business income, such individual generally will be taxed on the net gain derived from a sale of common shares under regular graduated U.S. federal income tax rates. If an individual non-U.S. holder is subject to tax because such individual holds our common shares as a capital asset, is present in the United States for 183 or more days in the taxable year of the disposition and meets other requirements, such individual generally will be subject to a flat 30% tax on the gain derived from a sale. This gain may be offset by U.S. capital losses, notwithstanding the fact that the individual is not considered a resident alien of the United States. Thus, individual non-U.S. holders who have spent, or expect to spend, more than a DE MINIMIS period of time in the United States in the taxable year in which they contemplate a sale of common shares are urged to consult their tax advisors prior to the sale concerning the U.S. tax consequences of such sale.
If a non-U.S. holder that is a foreign corporation is subject to tax on gain which is U.S. trade or business income, it generally will be taxed on its net gain under regular graduated U.S. federal income tax rates and, in addition, will be subject to the branch profits tax equal to 30% of its "effectively connected earnings and profits," within the meaning of the Internal Revenue Code for the taxable year, as adjusted for specific items, unless it qualifies for a lower rate under an applicable tax treaty.
FEDERAL ESTATE TAX
Common shares owned or treated as owned by an individual who is neither a U.S. citizen nor a U.S. resident, as defined for U.S. federal estate tax purposes, at the time of death will be included in the individual's gross estate for U.S. federal estate tax purposes and may be subject to U.S. federal estate tax, unless an applicable estate tax or other treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under U.S. Treasury regulations, we must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to these holders, the name and address of the recipient and the tax withheld with respect to such dividends. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. holder is a resident under the provisions of an applicable income tax treaty or agreement.
Currently, U.S. backup withholding, which generally is a withholding tax imposed at the rate of 31% on payments to persons that fail to furnish specified information under the U.S. information reporting requirements, generally will not apply:
- to dividends paid to non-U.S. holders that are subject to the 30% withholding discussed above, or that are not so subject because a tax treaty applies that reduces or eliminates such 30% withholding; or
- before January 1, 2001, to dividends paid to a non-U.S. holder at an address outside of the United States unless the payor has actual knowledge that the payee is a U.S. person.
Backup withholding and information reporting generally will apply to dividends paid to addresses inside the United States on our common shares to beneficial owners that are not "exempt recipients" and that fail to provide identifying information in the manner required.
The payment of the proceeds of the disposition of our common shares by a holder to or through the U.S. office of a broker or through a non-U.S. branch of a U.S. broker generally will be subject to information reporting and backup withholding at a rate of 31% unless the holder either certifies its status as a non-U.S. holder under penalties of perjury or otherwise establishes an exemption. The payment of the proceeds of the disposition by a non-U.S. holder of common shares to or through a non-U.S. office of a
non-U.S. broker will not be subject to backup withholding or information reporting unless the non-U.S. broker has particular types of U.S. relationships. In the case of the payment of proceeds from the disposition of our common shares effected by a foreign office of a broker that is a U.S. person or a U.S. related person, existing regulations require information reporting on the payment unless the broker maintains documentary evidence that the holder is a non-U.S. holder and that certain conditions are met. For this purpose, a U.S. related person is defined as:
- a "controlled foreign corporation" for U.S. federal income tax purposes; or
- a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment, or for such part of the period that the broker has been in existence, is derived from activities that are effectively connected with the conduct of a U.S. trade or business.
The U.S. Treasury regulations generally effective for payments made after December 31, 2000 alter the foregoing rules. Among other things, such regulations provide presumptions under which a non-U.S. holder is subject to backup withholding at the rate of 31% and information reporting unless we receive certification in the form of either Form W-8BEN or Form W-8IMY from the holder of non-U.S. status. Depending on the circumstances, this certification will need to be provided:
- directly by the non-U.S. holder;
- in the case of a non-U.S. holder that is treated as a partnership, trust or estate, or by the partners or beneficiaries of such entity; or
- by qualified financial institutions or other qualified entities on behalf of the non-U.S. holder.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder will be refunded, or credited against the holder's U.S. federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service.
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement dated , 2000, the underwriters named below, through their representatives, Chase Securities Inc., Bear, Stearns & Co. Inc. and Dain Rauscher Incorporated have severally agreed to purchase from us the respective number of shares of common stock set forth opposite their names below.
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
Chase Securities Inc.
Bear, Stearns & Co. Inc.
Dain Rauscher Incorporated
---------
Total................................................ 4,000,000
=========
|
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions, including the absence of any
material adverse change in our business and the receipt of certain certificates,
opinions and letters from us, our counsel and the independent auditors. The
underwriters are obligated to purchase all shares of common stock offered by us
(other than those shares covered by the over-allotment option described below)
if they purchase any shares.
The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option to purchase additional shares.
NO EXERCISE FULL EXERCISE
----------- -------------
Per Share........................................ $ $
Total............................................ $ $
|
We estimate that the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $1,000,000.
The underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. The underwriters may allow and the dealers may reallow a concession not in excess of $ per share to certain other dealers. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. The representatives have informed us that the underwriters do not intend to confirm discretionary sales of more than 5% of the shares of common stock offered in this offering.
We have granted to the underwriter an option, exercisable no later than 30 days after the date of this prospectus, to purchase up to 600,000 additional shares of common stock at the initial public offering price, less the underwriting discount set forth on the cover page of this prospectus. To the extent that the underwriters exercise this option, each of the underwriters will have a firm commitment to purchase approximately the same percentage thereof which the number of shares of common stock to be purchased by it shown in the above table bears to the total number of shares of common stock offered hereby. We will be obligated, pursuant to the option, to sell shares to the underwriters to the extent the option is exercised. The underwriters may exercise this option solely to cover over-allotments, if any, made in connection with the sale of shares of common stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by the underwriters and subject to prior sale and withdrawal, cancellation or modification of the offering without notice. The underwriters reserve the right to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and to contribute to payments the underwriters may be required to make in respect of these liabilities.
Our executive officers and directors and a majority of our stockholders who will own in the aggregate shares of common stock after the offering, have agreed not to, without the prior written consent of Chase Securities Inc. or its successors, sell, offer, contract to sell, transfer the economic risk of ownership in, make any short sale, pledge or otherwise dispose of any shares of common stock or any securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days from the date of this prospectus, subject to some exceptions. We have agreed that we will not, without the prior written consent of Chase Securities Inc. or its successors, sell, offer, contract to sell, transfer the economic risk of ownership in, make any short sale, pledge or otherwise dispose of any shares of common stock or any securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days following the date of this prospectus, except that we may issue shares upon the exercise of warrants or options granted prior to the date hereof or pursuant to outstanding convertible notes and may grant additional options under our stock option plan. Shares issued upon exercise of the options that are subject to lock up agreements may not be sold for 180 days after the closing of this offering without the prior written consent of Chase Securities Inc. or its successors.
At our request, the underwriters have reserved up to 5% of the total shares of common stock offered hereby for sale in the United States at the initial public offering price to our directors, officers, employees, business associates and related persons. The number of shares of common stock available for sale to the general public will be reduced by the number of reserved shares such persons purchase. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. Persons who purchase reserved shares may be required to agree that they will not, without the prior written consent of Chase Securities Inc. or its successors, sell, offer, contract to sell, transfer the economic risk of ownership in, make any short sale, pledge or otherwise dispose of any shares of common stock or any securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days from the date of this prospectus.
Prior to this offering, there has been no public market for the common stock. The initial public offering price for the common stock will be determined by negotiation among us and the representatives of the underwriters. Among the factors considered in determining the initial public offering price will be prevailing market and economic conditions, our revenues and operating results, market valuations of other companies engaged in activities similar to ours, estimates of our business potential and our prospects, the present state of our business operations, our management and other factors deemed relevant.
We have applied for quotation of the common stock on the Nasdaq National Market under the symbol TBIO.
In March 1999, we privately placed $12,000,000 aggregate principal amount of our convertible subordinated notes due March, 2000. Hambrecht & Quist LLC acted as a placement agent in connection with the transaction and was paid a fee for its services of $530,000. Hambrecht & Quist California and some of its employees purchased convertible subordinated notes in the aggregate principal amount of $180,000. Hambrecht & Quist Employee Venture Fund, L.P. II purchased convertible subordinated notes in the amount of $120,000. Hambrecht & Quist California was the parent company of Hambrecht & Quist LLC prior to February 1, 2000. Hambrecht & Quist California is a subsidiary of The Chase Manhattan Corporation. On February 1, 2000, Hambrecht & Quist LLC merged into Chase Securities Inc., a wholly owned subsidiary of The Chase Manhattan Corporation. The limited partnership interests of Hambrecht & Quist Employee Venture Fund, L.P. II are held by employees of Hambrecht & Quist California or Chase Securities Inc. (formerly, Hambrecht & Quist LLC), and the general partner of this fund is H&Q Venture Management LLC, a subsidiary of Hambrecht & Quist California. The purchases described above were made on the same terms as those made by other investors in the private placement. At any time at or after the consummation of this offering, each convertible note may be converted into shares of common stock.
Chase Securities Inc. has from time to time provided financial advisory and consulting services to us, for which we paid a one-time fee of $550,000 in March, 1999.
Persons participating in this offering may over-allot or effect transactions which stabilize, maintain or otherwise affect the market price of the common stock at levels above those which might otherwise prevail in the open market, including by entering stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of any bid or effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of the common stock. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. A penalty bid means an arrangement that permits the underwriters to reclaim a selling concession from a syndicate member in connection with the offering when shares of common stock sold by the syndicate member are purchased in syndicate covering transactions. Such transactions may be effected on the Nasdaq National Market, in the over-the-counter market, or otherwise. This stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed upon for us by Kutak Rock LLP, Omaha, Nebraska. Certain legal matters in connection with this offering will be passed upon for the underwriters by Milbank, Tweed, Hadley & McCloy LLP, New York, New York.
EXPERTS
The financial statements included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus is only a part of the registration statement and does not contain all of the information included in the registration statement. Further information with respect to Transgenomic, Inc. and the common stock offered hereby can be found in the registration statement and the exhibits and schedules thereto. Statements made in this prospectus as to the contents of any contract, agreement or other documents are not necessarily complete, and in each instance reference is made to the copy of such contract or other documents filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference. The registration statement and the exhibits and schedules thereto may be
inspected without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Seven World Trade Center, Room 1400, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, at prescribed rates. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, we are required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The Commission maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Information concerning Transgenomic, Inc. is also available for inspection at the offices of the Nasdaq Stock Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish to our stockholders annual reports containing consolidated financial statements audited by an independent public accounting firm and quarterly reports for the first three quarters of each fiscal year containing unaudited consolidated financial data.
TRANSGENOMIC, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
Consolidated Financial Statements:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit)............................................... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Pro Forma Financial Information:
Unaudited Pro Forma Balance Sheet......................... F-22
Unaudited Pro Forma Statement of Operations............... F-23
Notes to Unaudited Pro Forma Financial Information........ F-24
|
INDEPENDENT AUDITORS' REPORT
Board of Directors
Transgenomic, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Transgenomic, Inc. and subsidiaries (the Company) as of December 31, 1998 and 1999 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Transgenomic, Inc. and subsidiaries as of December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP Omaha, Nebraska March 7, 2000 |
TRANSGENOMIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
1998 1999
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 187,455 $ 153,336
Accounts receivable, net.................................. 4,425,419 6,199,059
Inventories............................................... 4,183,509 6,043,025
Prepaid expenses and other current assets................. 292,926 527,461
Deferred income taxes..................................... 114,000 --
Refundable income taxes................................... 34,000 96,000
----------- ------------
Total current assets.................................... 9,237,309 13,018,881
PROPERTY AND EQUIPMENT:
Equipment................................................. 3,272,132 4,695,785
Furniture and fixtures.................................... 1,070,569 1,567,370
----------- ------------
4,342,701 6,263,155
Less--accumulated depreciation............................ 2,931,886 3,682,016
----------- ------------
1,410,815 2,581,139
OTHER ASSETS................................................ 4,087,940 4,363,490
----------- ------------
$14,736,064 $ 19,963,510
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Note payable--bank........................................ $ 3,150,000 $ 4,340,000
Current portion of notes payable--other................... 432,338 579,724
Accounts payable.......................................... 2,287,451 2,827,186
Accrued compensation...................................... 533,680 666,219
Other accrued expenses.................................... 988,950 1,111,871
----------- ------------
Total current liabilities............................... 7,392,419 9,525,000
NOTES PAYABLE--OTHER, LESS CURRENT MATURITIES............... 694,536 116,958
CONVERTIBLE NOTES PAYABLE................................... -- 12,421,010
COMMITMENTS AND CONTINGENCIES (NOTES H, J, L, M AND N)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 15,000,000 shares
authorized, none outstanding............................ -- --
Common stock, $.01 par value, 30,000,000 shares
authorized, 13,000,000 shares issued and outstanding in
1998 and 1999........................................... 130,000 130,000
Additional paid-in capital................................ 10,119,095 10,231,595
Note receivable related party............................. (1,085,931) --
Unearned compensation..................................... -- (112,500)
Accumulated deficit....................................... (2,517,189) (12,344,075)
Accumulated other comprehensive income (loss)............. 3,134 (4,478)
----------- ------------
Total stockholders' equity (deficit).................... 6,649,109 (2,099,458)
----------- ------------
$14,736,064 $ 19,963,510
=========== ============
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TRANSGENOMIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1997 1998 1999
----------- ----------- -----------
NET SALES................................................... $11,576,677 $18,935,440 $23,034,954
COST OF GOODS SOLD.......................................... 6,335,986 9,590,663 12,090,036
----------- ----------- -----------
Gross profit............................................ 5,240,691 9,344,777 10,944,918
OPERATING EXPENSES:
General and administrative................................ 2,444,398 2,795,199 3,771,663
Marketing and sales....................................... 3,967,574 5,364,953 7,759,997
Research and development.................................. 2,047,057 3,159,377 6,296,859
----------- ----------- -----------
8,459,029 11,319,529 17,828,519
----------- ----------- -----------
LOSS FROM OPERATIONS........................................ (3,218,338) (1,974,752) (6,883,601)
OTHER INCOME (EXPENSE):
Interest expense, net of interest income of $53,527,
$59,147 and $126,215 in 1997, 1998 and 1999,
respectively............................................ (412,755) (516,366) (1,198,378)
Other--net................................................ (14,634) (15,282) 366
----------- ----------- -----------
(427,389) (531,648) (1,198,012)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES.................................... (3,645,727) (2,506,400) (8,081,613)
INCOME TAX EXPENSE (BENEFIT):
Current................................................... (348,702) 19,993 (27,727)
Deferred.................................................. (887,486) (950,000) 1,773,000
----------- ----------- -----------
(1,236,188) (930,007) 1,745,273
----------- ----------- -----------
NET LOSS.................................................... $(2,409,539) $(1,576,393) $(9,826,886)
=========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE............................ $ (0.22) $ (0.13) $ (0.76)
=========== =========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING....... 11,144,583 12,279,042 13,000,000
=========== =========== ===========
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TRANSGENOMIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
RETAINED
ADDITIONAL EARNINGS
COMMON PREFERRED PAID-IN NOTE UNEARNED (ACCUMULATED
STOCK STOCK CAPITAL RECEIVABLE COMPENSATION DEFICIT)
-------- --------- -------------- ----------- ------------ ------------
BALANCE, JANUARY 1, 1997........... $ 110 $ 41,000 $ 1,242,940 $ (650,782) $ -- $ 1,479,904
Net loss......................... -- -- -- -- -- (2,409,539)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... -- -- -- -- -- --
Comprehensive income
(loss)..................... -- -- -- -- -- --
Note receivable from related
party.......................... -- -- -- (369,062) -- --
Preferred stock dividends........ -- -- -- -- -- (11,161)
Redeem 410 shares of preferred
stock.......................... -- (41,000) -- -- -- --
1,000 to 1 stock exchange........ 109,890 -- (109,890) -- -- --
Sale of 351,500 common shares.... 3,515 -- 1,620,354 -- -- --
Issuance of warrants to purchase
300,000 common shares.......... -- -- 82,117 -- -- --
-------- -------- -------------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1997......... 113,515 -- 2,835,521 (1,019,844) -- (940,796)
Net loss......................... -- -- -- -- -- (1,576,393)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... -- -- -- -- -- --
Comprehensive income
(loss)..................... -- -- -- -- -- --
Note receivable from related
party.......................... -- -- -- (66,087) -- --
Sale of 1,648,500 common
shares......................... 16,485 -- 7,283,574 -- -- --
-------- -------- -------------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1998......... 130,000 -- 10,119,095 (1,085,931) -- (2,517,189)
Net loss......................... -- -- -- -- -- (9,826,886)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... -- -- -- -- -- --
Comprehensive income
(loss)..................... -- -- -- -- -- --
Issuance of 22,500 stock
options........................ -- -- 112,500 -- (112,500) --
Note receivable from related
party.......................... -- -- -- 1,085,931 -- --
-------- -------- -------------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1999......... $130,000 $ -- $ 10,231,595 $ -- $(112,500) $(12,344,075)
======== ======== ============== =========== ========= ============
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
(LOSS) TOTAL
------------- -----------
BALANCE, JANUARY 1, 1997........... $ 768 $ 2,113,940
Net loss......................... (2,409,539) (2,409,539)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... 1,348 1,348
-----------
Comprehensive income
(loss)..................... (2,408,191)
-----------
Note receivable from related
party.......................... -- (369,062)
Preferred stock dividends........ -- (11,161)
Redeem 410 shares of preferred
stock.......................... -- (41,000)
1,000 to 1 stock exchange........ -- --
Sale of 351,500 common shares.... -- 1,623,869
Issuance of warrants to purchase
300,000 common shares.......... -- 82,117
----------- -----------
BALANCE, DECEMBER 31, 1997......... 2,116 990,512
Net loss......................... (1,576,393) (1,576,393)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... 1,018 1,018
-----------
Comprehensive income
(loss)..................... (1,575,375) --
-----------
Note receivable from related
party.......................... -- (66,087)
Sale of 1,648,500 common
shares......................... -- 7,300,059
----------- -----------
BALANCE, DECEMBER 31, 1998......... 3,134 6,649,109
Net loss......................... (9,826,886) (9,826,886)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... (7,612) (7,612)
-----------
Comprehensive income
(loss)..................... (9,834,498) --
-----------
Issuance of 22,500 stock
options........................ -- --
Note receivable from related
party.......................... -- 1,085,931
----------- -----------
BALANCE, DECEMBER 31, 1999......... $ (4,478) $(2,099,458)
=========== ===========
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TRANSGENOMIC INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1997 1998 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(2,409,539) $(1,576,393) $(9,826,886)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization........................... 918,214 798,708 1,364,246
Deferred income taxes................................... (887,486) (950,000) 1,773,000
Gain on sale of assets.................................. (72,250) (8,411) (16,105)
Accrued interest and redemption premium................. -- -- 858,665
Amortization of deferred financing costs................ -- -- 149,960
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................... 318,646 (2,029,247) (1,635,316)
Inventories........................................... (174,192) (1,717,595) (1,775,273)
Prepaid expenses and other current liabilities........ 52,704 (81,250) (233,686)
Refundable income taxes............................... (54,000) 388,000 (62,000)
Accounts payable...................................... (342,096) 1,392,087 481,068
Accrued expenses...................................... 39,600 340,178 178,793
----------- ----------- -----------
Net cash flows from operating activities............ (2,610,399) (3,443,923) (8,743,534)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (486,190) (682,674) (1,828,047)
Proceeds from asset sales................................. 153,305 10,000 21,425
Increase in other assets.................................. (152,373) (813,405) (1,461,250)
Purchase of business, net of cash acquired................ -- -- (187,294)
Note receivable........................................... 15,560 22,946 --
----------- ----------- -----------
Net cash flows from investing activities............ (469,698) (1,463,133) (3,455,166)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and common stock warrants........ 1,705,986 7,300,059 --
Net change in note payable--bank.......................... 750,000 (800,000) 1,190,000
Proceeds from notes payable--other........................ 1,467,918 100,000 --
Payments on notes payable--other.......................... (361,343) (1,964,555) (430,192)
Proceeds from convertible notes payable................... -- -- 12,000,000
Deferred financing costs.................................. -- -- (587,615)
Increase in related party receivables..................... (369,062) (66,087) --
----------- ----------- -----------
Net cash flows from financing activities............ 3,193,499 4,569,417 12,172,193
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH.... 1,348 1,018 (7,612)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 114,750 (336,621) (34,119)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 409,326 524,076 187,455
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 524,076 $ 187,455 $ 153,336
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 424,501 $ 472,579 $ 318,856
=========== =========== ===========
Cash paid for taxes....................................... $ 17,026 $ 30,120 $ 37,630
=========== =========== ===========
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION.
Transgenomic, Inc., a Delaware corporation, and its subsidiaries (the "Company") provide innovative research tools to the life sciences industry. These tools enable researchers to discover and understand variation in the human genetic code, or genome, in order to accelerate and improve drug development and diagnostics. The Company also manufactures and designs sample preparation and monitoring instruments, which are primarily used with various types of optical and mass spectrometers to analyze the chemical makeup of samples. The Company markets and sells these platforms primarily throughout North America, Europe and the Pacific Rim.
PRINCIPLES OF CONSOLIDATION.
The consolidated financial statements include the accounts of Transgenomic, Inc. and its wholly-owned subsidiaries Transgenomic, Ltd. (fka CETAC Technologies, Ltd.), which provides sales and customer support outside the United States and Transgenomic St. Thomas, Inc., which is organized as a foreign sales corporation. All material intercompany balances and transactions have been eliminated. On July 1, 1997 the Company merged with CETAC Holding Company, Inc. in a 1000 to 1 stock exchange. Before and after the merger, the companies had identical ownership structures. Accordingly, this transaction was between companies under common control and was accounted for similar to a pooling of interests. The Company had no assets, liabilities or operations prior to its merger with CETAC Holding Company, Inc.
SALES AND DISTRIBUTION STRATEGY.
The Company sells and distributes its product lines in three major ways:
1) DIRECT--The Company serves the United States market through direct sales efforts from the Company headquarters in Omaha. The Company has direct salespeople strategically located to cover all sections of the United States and Europe.
2) DISTRIBUTORS--The Company has contracted with distributors in its major European and Pacific Rim markets for all products.
3) ORIGINAL EQUIPMENT MANUFACTURERS (OEM)--The Company distributes its sample preparation and monitoring instruments through major ICP (intra-coupled plasma) spectrometer manufacturers and their authorized representatives.
The Company has sales offices in the United States, United Kingdom and Japan. These offices function mainly as service and support centers and also as sales resources for OEM and distributor customers in Europe.
CASH AND CASH EQUIVALENTS.
For purposes of reporting cash flows, cash and cash equivalents include cash and temporary investments with maturities at acquisition of three months or less.
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCOUNTS RECEIVABLE.
Accounts receivable are shown net of allowance for doubtful accounts of approximately $561,645 and $160,593 in 1998 and 1999, respectively.
INVENTORIES.
Inventories are stated at the lower of cost (first-in, first-out method) or market. The Company has certain finished goods inventory it provides as demonstration units to potential customers for evaluation, as well as to certain universities and original equipment manufacturers for testing and demonstration. These demonstration units are included in inventory at cost. If the instrument is not purchased by the customer or institution, it is retrieved, and, if necessary, reconditioned for sale. If these instruments remain in demonstration mode and/or exhibit wear, they are removed from inventory, capitalized into property and depreciated.
PROPERTY AND EQUIPMENT.
Property and equipment are carried at cost. Depreciation and amortization are computed by the straight-line and accelerated methods over the estimated useful lives of the related assets as follows:
Furniture and fixtures...................................... 5 to 7 years Production equipment........................................ 5 to 7 years Computer equipment.......................................... 5 years Research and development equipment.......................... 3 to 5 years |
GOODWILL.
Goodwill arising from the excess of cost over the fair value of net assets at dates of acquisition is being amortized using the straight-line method over 15 years.
IMPAIRMENT OF LONG-LIVED ASSETS.
The Company assesses the recoverability of long-lived assets held for use, including certain intangible assets and goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In such cases, if the sum of the expected cash flows (undiscounted and without interest) resulting from the use of the asset are less than the carrying amount, an impairment loss is recognized based on the difference between the carrying amount and the fair value of the assets. No impairment loss has been recognized to date.
OTHER ASSETS.
Other assets include patents, capitalized software and intellectual property. The Company capitalizes the external and in-house legal costs and filing fees associated with obtaining patents on its new discoveries and amortizes these costs using the straight-line method over the shorter of the legal life of the patent or its economic life, generally 17 years, beginning in the first full year of production utilizing the new discovery after the patent is awarded.
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company develops software as an integral component of their
instruments. After functional design is completed and economic viability is
determined, the Company capitalizes the development cost. The software is
amortized over the estimated life of the product, generally three years.
Intellectual property is amortized over its estimated useful life of between 5
and 10 years.
DEFERRED FINANCING COSTS.
Deferred financing costs are amortized over the term of the related financing using the effective interest method.
STOCK BASED COMPENSATION.
The Company accounts for its stock-based compensation under the provisions of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which utilizes the intrinsic value method.
UNEARNED COMPENSATION.
Unearned compensation represents the unamortized difference between the option exercise price and the deemed fair market value of the Company's common stock at the option grant date, for options issued under the Company's Stock Option Plan (Note L). The unearned compensation is charged to operations over the vesting period of the respective options.
INCOME TAXES.
The liability method is used to measure deferred tax assets and liabilities based on temporary differences between financial and taxable income existing at each balance sheet date using enacted tax rates.
REVENUE RECOGNITION.
Sales of products and services are recorded based on shipment of product or performance of services.
RESEARCH AND DEVELOPMENT.
Research and development costs are charged to expense when incurred.
TRANSLATION OF FOREIGN CURRENCY.
Financial statements of subsidiaries outside the U.S. are measured using the local currency as the functional currency. The adjustments to translate those amounts into U.S. dollars are accumulated in a separate account in stockholders' equity and are included in other comprehensive income. Foreign currency transaction gains or losses resulting from changes in currency exchange rates are included in the determination of net income. For the periods presented, foreign currency transaction adjustments were not significant.
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMPREHENSIVE INCOME.
Comprehensive income for all periods presented consists of net income and foreign currency translation adjustments. The Company deems its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from converting its investments in a foreign currency to U.S. dollars. There were no reclassification adjustments to be reported in the periods presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS.
Unless otherwise specified, the Company believes the book value of financial instruments approximates fair value.
EARNINGS PER SHARE.
Basic earnings per share are calculated based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share include shares issuable upon exercise of outstanding stock options and warrants, where dilutive. Potentially dilutive securities have been excluded from the computation of diluted earnings per share as they have an antidilutive effect due to the Company's net loss. Weighted-average shares outstanding reflects the 1,000 to 1 stock exchange which occurred on July 1, 1997, in connection with the merger of Transgenomic, Inc. and CETAC Holding Company, as if such exchange occurred at the beginning of the earliest period presented.
ACCOUNTING PRONOUNCEMENTS.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, (SFAS No. 133). This statement, which is effective for fiscal years beginning after June 15, 2000, requires the recognition of all derivative financial instruments as either assets or liabilities in the statement of financial position and measurement of those instruments at fair value. Management is in the process of determining the effect, if any, SFAS No. 133 will have on the Company's financial statements.
In 1999, the Company adopted Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, (SOP 98-1) which, on a prospective basis, revised the accounting for software development costs. SOP 98-1 requires the capitalization of certain costs related to internal use software once certain criteria have been met. The adoption of this statement did not have a material impact on the Company's financial statements.
USE OF ESTIMATES.
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECLASSIFICATIONS.
Certain reclassifications have been made to the 1997 and 1998 financial statements to conform with the 1999 presentation.
B. ACQUISITION
On January 26, 1999, the Company, through its UK subsidiary, acquired substantially all of the assets of Kramel Biotech International, Limited (Kramel) for approximately $187,000 in cash and the assumption of certain liabilities of Kramel, and entered into employment agreements with the two principals. Kramel manufactures laboratory consumables used in the field of molecular biology. The acquisition was accounted for as a purchase and resulted in goodwill of approximately $66,000. All identifiable assets acquired and liabilities assumed were allocated a portion of the cost, equal to their fair values.
C. INVENTORIES
At December 31, 1998 and 1999 inventories consist of the following:
1998 1999
---------- ----------
Finished goods....................................... $1,888,173 $3,256,067
Raw materials and work in process.................... 2,295,336 2,786,958
---------- ----------
$4,183,509 $6,043,025
========== ==========
|
Within the total inventory above, the Company has demonstration inventory of approximately $1,631,000 and $3,098,851 for 1998 and 1999, respectively.
D. OTHER ASSETS
At December 31, 1998 and 1999, other assets consist of the following:
1998 1999
------------------------------------- -------------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST RESERVE VALUE COST RESERVE VALUE
---------- ----------- ---------- ---------- ----------- ----------
Deferred income taxes.......... $1,839,000 $ -- $1,839,000 $ 180,000 $ -- $ 180,000
Goodwill....................... 843,446 235,435 608,011 909,492 306,463 603,029
Intellectual property.......... 534,852 160,455 374,397 2,534,852 447,273 2,087,579
Patents........................ 815,934 8,010 807,924 1,076,384 21,107 1,055,277
Software....................... 369,678 118,558 251,120 503,730 227,079 276,651
Other.......................... 309,103 101,615 207,488 160,954 -- 160,954
---------- -------- ---------- ---------- ---------- ----------
Total...................... $4,712,013 $624,073 $4,087,940 $5,365,412 $1,001,922 $4,363,490
========== ======== ========== ========== ========== ==========
|
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
E. NOTE PAYABLE--BANK
At December 31, 1998 and 1999, note payable--bank consisted of borrowings in the amounts of $3,150,000 and $4,340,000, respectively, against a revolving line of credit of $5,000,000. The note carries an interest rate equal to the national prime. The interest is payable monthly. The interest rate at December 31, 1998 and 1999 was 7.75% and 8.50%, respectively. The line matures July 31, 2000. Substantially all of the Company's assets and certain life insurance policies are pledged as collateral on this note payable. The loan contains certain restrictive covenants, including a prohibition on the payment of dividends, the purchase of its stock, and the redemption of stock options and warrants, among other things, without the written agreement of the lender. As of December 31, 1999, the Company was not in compliance with these covenants. However, a waiver was obtained from the bank as of December 31, 1999.
F. NOTES PAYABLE--OTHER
Notes payable--other at December 31, 1998 and 1999 consists of the following:
1998 1999
---------- --------
Installment note payable to a bank maturing on December
1, 2000; payable in monthly installments of $15,618,
which includes interest of 9.0%; collateralized by
all equipment and furnishings........................ $ 342,194 $179,711
Installment note payable to a bank maturing on August
13, 2001; payable in monthly installments of $15,123
which includes interest of 9.0%; collateralized by
all equipment and furnishings........................ 429,516 280,436
Note payable to a living trust, payable in monthly
installments of $11,000 including interest at 5.33%
per year, due March 1, 2000 secured by certain assets
of the Company's California division................. 355,164 236,535
---------- --------
Total notes payable--other............................. 1,126,874 696,682
Less current portion................................... 432,338 579,724
---------- --------
Notes payable--other excluding current portion......... $ 694,536 $116,958
========== ========
|
Aggregate maturities of notes payable--other at December 31, 1999 consist of the following:
YEAR ENDING DECEMBER 31,
2000........................................................ $579,724
2001........................................................ 116,958
--------
$696,682
========
|
In connection with certain installment notes payable to a bank, the Company must comply with certain restrictive covenants. As of December 31, 1999, the Company was not in compliance with these covenants. However, a waiver was obtained from the bank as of December 31, 1999.
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
G. CONVERTIBLE NOTES PAYABLE
On March 23, 1999, the Company received approximately $11.4 million of net proceeds from the placement of $12 million aggregate principal amount 6% convertible notes due March 25, 2002. Interest on the notes compounds at 6% per annum until maturity or a Designated Offering (as defined) ("Offering") and either will be payable in cash upon repayment of the note at or after the maturity date, or if elected upon the completion of an Offering all accrued and unpaid interest shall be converted into shares of common stock. The interest after an Offering shall be reduced to 3.6%, and shall become due for the remainder of the term through the maturity date at the time of an Offering.
The holder shall have the right to convert the principal amounts due under these notes into shares of the Company's common stock. If the Company completes an Offering prior to September 25, 2000, the conversion price shall be either the lesser of $5.00 per share or 50% of the per share offering price. If the Offering is completed between September 25, 2000 and the maturity date, the conversion price shall be the lesser of $5.00 per share, or between 35% and 50% of the per share offering price to the public, calculated on a declining straight-line basis, through the day on which an offering is completed. If an Offering is not completed before the maturity date, the holder may elect to convert at $5.00 per share but the price will be adjusted to 35% of the Offering price if less than $5.00 per share, and additional shares, if any, will be issued to reduce the conversion price to such lesser amount.
If prior to consummation of an Offering, the Company enters into a merger, consolidation, the sale of substantially all of its assets, change of control, or the dissolution of the Company or other event causing final liquidation, the holders of the notes shall have the right to elect to either receive payment in full of all principal of the notes and accrued interest earned through date of payment, or convert all outstanding principal and unpaid interest on the notes into common stock. The holders will be entitled to receive the greater of the number of shares derived by dividing the balance due by $5.00 per share, or the number of shares having an aggregate value equal to 200% of the outstanding unpaid principal, plus all accrued interest.
If the note holders elect not to convert the notes to stock at maturity, the Company will be required to repay all principal amounts, all accrued and unpaid interest, if any, and a redemption premium equal to 10% of the face value of the notes. The Company can require conversion after an Offering provided specific closing prices are achieved for twenty consecutive trading days.
The notes contain numerous covenants with which the Company is in compliance.
At December 1999, the convertible notes payable balance is comprised of the following:
Principal................................................... $12,000,000
Accrued interest and redemption premium..................... 858,665
-----------
12,858,665
Deferred financing costs (net of accumulated amortization of
$149,960)................................................. (437,655)
-----------
$12,421,010
===========
|
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
H. LEASE COMMITMENTS
The Company leases certain equipment, vehicles and operating facilities. The Company's leases related to its operating facilities currently expire on various dates ranging from 1999 through 2006. However, one lease allows for cancellation at either 36 or 48 months upon 60 days advanced written notice. At December 31, 1999, the future minimum lease payments required under noncancellable lease provisions are approximately $830,000 in 2000; $591,000 in 2001; $304,000 in 2002; $148,000 in 2003; $128,000 in 2004; and a total of approximately $188,000 in rental payments for the years 2005 through 2006.
Net rental expense related to all operating leases for the years ended December 31, 1997, 1998 and 1999 was approximately $441,000, $655,000 and $984,000, respectively.
I. INCOME TAXES
The Company's provision for income taxes for the years ended December 31 differs from the amounts determined by applying the statutory Federal income tax rate to income before income taxes for the following reasons:
1997 1998 1999
----------- --------- -----------
Benefit at Federal Rate................................... $(1,239,547) $(852,176) $(2,747,748)
Increase (decrease) resulting from:
State income taxes--net of federal benefit.............. (45,004) (85,805) (62,520)
Intangible amortization................................. 46,804 39,020 42,925
Research and development tax credit..................... (15,319) (23,534) (54,231)
Meals and entertainment................................. 16,999 27,037 38,687
Other--net.............................................. (121) (34,549) 37,160
Valuation allowance..................................... -- -- 4,491,000
----------- --------- -----------
Total income tax expense (benefit)........................ $(1,236,188) $(930,007) $ 1,745,273
=========== ========= ===========
|
The Company's deferred income tax asset at December 31, 1998 and 1999 is comprised of the following temporary differences:
1998 1999
---------- ----------
Net operating loss carryforward...................... $1,497,000 $4,289,000
Allowance for doubtful accounts...................... 221,000 60,000
Fixed asset depreciation............................. 121,000 124,000
Accrued vacation..................................... 114,000 137,000
Intellectual property amortization................... -- 61,000
---------- ----------
1,953,000 4,671,000
Less valuation allowance............................. -- (4,491,000)
---------- ----------
$1,953,000 $ 180,000
========== ==========
|
At December 31, 1999, the Company has unused tax net operating loss carryforwards of approximately $2,106,000 which expire in 2012, $1,828,000 which expire in 2018 and $7,638,000 which will
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
I. INCOME TAXES (CONTINUED)
expire in 2019. Additionally, at December 31, 1999, the Company has unused
general business credits earned primarily through increased research
expenditures of approximately $131,000. These credits expire at various times
between 2010 and 2019. The Company's management believes that it is more likely
than not that the deferred tax asset of $180,000 will be realized through the
sale of the business discussed in Note R. A valuation allowance has been
provided in 1999 for the remaining deferred tax assets, due to the Company's
cumulative losses in recent years and an inability to utilize any additional
losses as carrybacks.
J. EMPLOYEE BENEFIT PLAN
The Company maintains an employee savings plan which allows for voluntary contributions into designated investment funds by eligible employees. The Company matches the employees' contributions at the rate of 50% on the first 6% of contributions. The Company may at the discretion of its Board of Directors, make additional contributions on behalf of the Plan's participants. Company contributions were $92,733, $117,923 and $174,973 for the years ended December 31, 1997, 1998 and 1999, respectively.
K. STOCKHOLDERS' EQUITY
PRIVATE PLACEMENT
The Company issued 2,000,000 shares of the Company's common stock, par value $.01 per share (the "Stock"), at a price of $5.00 per share in a private placement during 1997 and 1998 for net proceeds of $1,623,869 and $7,300,059, respectively. A total of 1,524,500 shares of the 2,000,000 shares of common stock were placed by Placement Agents pursuant to selling agent agreements. A 9% commission was paid to each Placement Agent on all sales of the common stock made by it and broker-dealers.
The Company also issued warrants to the Placement Agents with an exercise price of $5.00 per share (subject to certain cashless exercise rights) which will have terms of five years expiring in 2003. Total shares eligible to be purchased through these warrants were 152,450 at December 31, 1999 (see Note L).
In 1999, the Company issued convertible notes which can be converted into a minimum of 2,400,000 common shares (see Note G).
PREFERRED STOCK.
The Company's Board of Directors is authorized to issue up to 15,000,000 shares of preferred stock in one or more series, from time to time, with such designations, powers, preferences and rights and such qualifications, limitations and restrictions as may be provided in a resolution or resolutions adopted by the Board of Directors. The authority of the Board of Directors includes, but is not limited to, the determination or fixing of the following with respect to shares of such class or any series thereof: (i) the number of shares; (ii) the dividend rate, whether dividends shall be cumulative and, if so, from which date; (iii) whether shares are to be redeemable and, if so, the terms and amount of any sinking fund providing for the purchase or redemption of such shares; (iv) whether shares shall be convertible and, if so, the terms and provisions thereof; (v) what restrictions are to apply, if any, on the issue or reissue of any additional preferred stock; and (vi) whether shares have voting rights. The preferred stock may be issued with a preference over the common stock as to the payment of dividends.
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
K. STOCKHOLDERS' EQUITY (CONTINUED)
The Company has no current plans to issue any series of preferred stock.
Classes of stock such as the preferred stock may be used, in certain
circumstances, to create voting impediments on extraordinary corporate
transactions or to frustrate persons seeking to effect a merger or otherwise to
gain control of the Company. For the foregoing reasons, any preferred stock
issued by the Company could have an adverse effect on the rights of the holders
of the common stock.
COMMON STOCK.
In March 2000, the Company's Board of Directors approved an increase in the number of authorized common shares to 60,000,000, subject to the approval of the Company's stockholders.
L. STOCK OPTIONS AND WARRANTS
The Company adopted the 1997 Stock Option Plan in June of 1997 which was last amended and restated on October 14, 1998. The Company's 1997 Stock Option Plan (the "Stock Option Plan") allows the Company to grant both incentive stock options and nonqualified stock options to acquire shares of the Company's common stock to employees and directors of the Company and to nonemployee advisors. Either incentive or non-qualified stock options may be granted to employees of the Company, but only nonqualified stock options may be granted to nonemployee directors and advisors. The maximum number of shares for which options may be granted under the Stock Option Plan is 4,000,000. The Stock Option Plan is administered by the Compensation Committee of the Board of Directors (the "Committee") which has the authority to set the number, exercise price, term and vesting provisions of the options granted under the Stock Option Plan, subject to the terms thereof. The options must be granted at exercise prices not less than the fair market value of the common stock on the date of the grant. Generally, the stock options vest at a rate of 20% per year over a five year period and expire 10 years after the date the option was granted. If the option holder ceases to be employed by the Company, the Company will have the right to terminate any outstanding but unexercised options. In March 2000, the Company's Board of Directors approved an amendment to the Stock Option Plan to increase the number of shares for which options can be granted to 6,000,000, subject to the approval of the Company's stockholders.
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
L. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table summarizes activity under the Stock Option Plan
during the three years ended December 31, 1999:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
Balance at Inception (June 1997):....................... -- $ --
Granted............................................... 1,515,000 5.00
Exercised............................................. -- --
Canceled.............................................. -- --
---------
Balance at December 31, 1997:........................... 1,515,000 5.00
Granted............................................... 1,690,250 5.00
Exercised............................................. -- --
Canceled.............................................. -- --
---------
Balance at December 31, 1998:........................... 3,205,250 5.00
Granted............................................... 590,250 5.00
Exercised............................................. -- --
Canceled.............................................. (257,750) 5.00
---------
Balance at December 31, 1999............................ 3,537,750
=========
Exercisable at December 31, 1999........................ 2,028,650
=========
|
The weighted average fair value of options granted in 1997, 1998 and 1999 was $1.34, $1.02 and $1.00, respectively. At December 31, 1999, the weighted average remaining contractual life of options outstanding was 8.4 years.
In 1997, the Company granted options to purchase 1.5 million shares at $5.00 per share to an officer of the Company which are fully vested and exercisable at December 31, 1997 and expire in 2007. The Company has also granted options to purchase 15,000 shares to a member of the Company's Board of Directors at an exercise price which is the lower of (a) $5.00 per share or (b) 50% of the price per share at which the Company offers common stock in an initial public offering, of which 9,000 shares are vested and exercisable at December 31, 1999. The remaining options issued in 1997 vest over two years and expire in 2002.
The Company has elected to follow the measurement provisions of Accounting Principles Board Opinion No. 25, under which no recognition of expense is required in accounting for stock options granted to employees for which the exercise price equals or exceeds the deemed fair market value of the stock at the grant date. In those cases where options have been granted with an exercise price below the deemed fair market value, the Company recognizes compensation expense over the vesting period using the aggregated percentage of compensation accrued method as prescribed by Financial Accounting Standards Board Interpretation No. 28. During December 1999, the Company recorded unearned compensation of $112,500 for options granted with exercise prices less than the deemed fair market value at the date of grant.
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
L. STOCK OPTIONS AND WARRANTS (CONTINUED)
Pro forma information regarding net income and income per share is
required by Statement of Financial Accounting Standard No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, (SFAS No. 123) assuming the Company accounted for its
employee stock options using the fair value method. The fair value of each stock
option granted is estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for options
granted in 1997, 1998 and 1999, respectively: no common stock dividends,
risk-free interest rates ranging from 5.44% and 5.74% to 6.33% and 5.51% to
6.13%; no volatility (prior to becoming a public company); and an expected
option life of five years. Pro forma net income and income per share assuming
compensation expense for the Stock Option Plan had been determined under SFAS
No. 123, are as follows:
1997 1998 1999
----------- ----------- -----------
Net Loss:
As reported........................... $(2,409,539) $(1,576,393) $(9,826,886)
Pro forma............................. (4,421,148) (1,662,641) (9,974,172)
Basic and diluted loss per share:
As reported........................... (0.22) (0.13) (0.76)
Pro forma............................. (0.40) (0.14) (0.77)
|
In the first quarter of fiscal 2000, the Company granted 212,500 options, including 72,000 options with exercise prices at $5.00 per share and will record unearned compensation in connection with these grants.
During 1998, the Company issued warrants to purchase 152,450 shares of common stock pursuant to placement agent agreements (see Note K). On December 16, 1997, the Company issued a warrant to purchase 300,000 shares of common stock pursuant to a Securities Purchase Agreement (see Note M).
M. RELATED PARTY TRANSACTIONS
CT PARTNERS.
The Company and CT Partners were related parties through common ownership. The Company provided research and development services for CT Partners at cost. The cost of these services amounted to $650,782 and $318,800 for the years ended December 31, 1996 and 1997, respectively. There were no research and development services provided subsequent to 1997 as the technology involved was fully developed. These amounts are included in note receivable--related party, along with accrued interest and administration fees of $116,349 at December 31, 1998. The Company also performs contract research and development services for unaffiliated entities.
On June 27, 1997 the Company entered into a royalty agreement with CT Partners in which the Company received an exclusive license to manufacture and market a miniature solid-state optical spectrometer developed by CT Partners. This agreement was amended on December 1, 1997. Under the terms of the amended royalty agreement, the Company would pay a royalty to CT Partners equal to a maximum of $6.5 million. The first $1.5 million would be paid upon achieving $3 million in sales of products employing the licensed technology or from a sale of the technology. Subsequent royalty payments
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
M. RELATED PARTY TRANSACTIONS (CONTINUED)
would equal 10% of gross revenues received by the Company from the licensed
technology, payable quarterly. At December 31, 1998, CT Partners owed the
Company $1,085,931 for contract research and development expenses incurred in
connection with this agreement.
In June 1999, the Company and CT Partners entered into an Asset Purchase Agreement whereby the parties terminated the royalty agreement and the Company purchased all intellectual property previously developed for CT Partners for $2 million in cash, less the outstanding note receivable of $1,085,931 and certain related expenses. The Company is amortizing the intellectual property over 5 years.
SECURITIES PURCHASE AGREEMENT.
On December 16, 1997, the Company entered into a Securities Purchase Agreement with a private investor who subsequently was elected as a director of the Company, pursuant to which the private investor purchased from the Company a secured promissory note in the principal amount of $1,500,000 (the "$1,500,000 Note") and a warrant to purchase 300,000 shares of common stock (the "300,000 Share Warrant"), subject to adjustment. The agreement allowed the purchase of additional debt securities from the Company. In February 1998, the Company was informed, as allowed by the agreement, that no additional debt securities would be purchased. Therefore, in accordance with the terms of the agreement, in 1998 the Company paid the $1,500,000 Note plus interest and other agreed-to expenses. The private investor is no longer a director of the Company.
The 300,000 Share Warrant entitles the holder to acquire 300,000 shares of common stock at the lower of (a) $5.00 per share or (b) 50% of the price per share at which the Company offers common stock in an initial public offering. The 300,000 Share Warrant will expire if it has not been exercised on or before the Company's initial public offering. The warrants were valued at $82,117 at December 31, 1997 using the Black-Scholes pricing model with the following assumptions: no common stock dividends, risk free interest rate of 5.71%; expected life of 12 months; and no volatility. These warrants were completely amortized as of December 31, 1998.
N. COMMITMENTS AND CONTINGENCIES
The Company is not a party to any material legal proceedings.
In May 1998, the Company elected to self-insure the majority of its employees' health care coverage with lifetime coverage up to $2,000,000 and $5,000,000 per person at December 31, 1998 and 1999, respectively. In place are reinsurance policies limiting losses for any individual within the plan of $10,000 per year, and a total company aggregate stop-loss limit at December 31, 1999 of approximately $282,000, with coverage up to $2,282,000 of aggregated total claims. Based on estimated claims and the reinsurance in place, management believes the costs are reasonably estimated in the financial statements.
O. SALES AND PRODUCT INFORMATION
The Company believes it is advantageous to operate on a fully integrated basis in one operating segment. Accordingly, management of the Company evaluates performance and determines the allocation
TRANSGENOMIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
O. SALES AND PRODUCT INFORMATION (CONTINUED)
of resources on an entity-wide basis. There are no material long-lived assets
held outside the United States. The following is supplemental information for
net sales by geographic area and product group:
1997 1998 1999
----------- ----------- -----------
Sales by Geographic Area:
North America........................ $ 6,714,473 $10,414,492 $10,402,434
Europe............................... 3,009,936 6,248,695 9,286,394
Pacific Rim.......................... 1,620,735 1,704,190 2,992,099
Other................................ 231,533 568,063 354,027
----------- ----------- -----------
Total.................................. $11,576,677 $18,935,440 $23,034,954
=========== =========== ===========
Sales by Product Group:
Bio-Systems.......................... $ 295,000 $ 5,460,684 $11,218,887
Bio-Consumables...................... 2,275 209,814 1,435,702
Scientific Instruments............... 9,410,072 11,496,105 8,794,165
Other Consumables.................... 1,869,330 1,768,837 1,586,200
----------- ----------- -----------
Total.................................. $11,576,677 $18,935,440 $23,034,954
=========== =========== ===========
|
P. SUPPLEMENTAL CASH FLOW INFORMATION
1997 1998 1999
-------- -------- ----------
Noncash investing and financing activities:
Exchange of note receivable for intellectual
property........................................ $ -- $ -- $1,085,931
Liabilities assumed in connection with business
acquisitions.................................... $ -- $ -- $ 135,333
|
Q. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a summary of activity for the allowance for doubtful acounts during each of the three years ended December 31, 1999:
ADDITIONAL
BEGINNING CHARGES DEDUCTIONS ENDING
BALANCE TO INCOME FROM RESERVE BALANCE
--------- ---------- ------------ --------
Year Ended December 31, 1997....................... $ -- $102,495 $ (2,495) $100,000
Year Ended December 31, 1998....................... 100,000 462,698 (1,053) 561,645
Year Ended December 31, 1999....................... 561,645 121,609 (522,661) 160,593
|
R. SUBSEQUENT EVENTS
On March 7, 2000, the Company signed a letter of intent for the sale of the assets of its non-life sciences instrument product line to a director of the Company for $6,000,000, of which $5,000,000 will be paid in cash and $1,000,000 will be paid with an interest-bearing promissory note due on March 31, 2001. The non-life science instrument product line contributed revenues of $8,794,165 in 1999. The Company expects this transaction to close on March 31, 2000, subject to the approval of the Company's stockholders.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statement of operations for the year ended December 31, 1999 reflects the sale of assets related to our non-life sciences instrument product line (The Company as adjusted) and the issuance of 300,000 shares of common stock at $5.00 per share upon the exercise of warrants that will expire at the close of this offering, as if each had occurred on January 1, 1999 and the assumed conversion at $5.00 per share of the $12.0 million aggregate principal amount of our convertible notes and accrued interest into 2,712,200 shares of common stock as of March 23, 1999, the date of issuance of our convertible notes. The following unaudited pro forma balance sheet reflects these transactions and the sale of 25,000 shares of common stock at $5.00 per share in March 2000 as if each had been completed on December 31, 1999.
The unaudited pro forma statement of operations and balance sheet data reflect all adjustments necessary in the opinion of the Company's management (consisting only of normal recurring adjustments) for a fair presentation of such data. The unaudited pro forma financial data reflects the preliminary identification of the non-life science instruments assets to be sold by the Company. We expect to finalize the identification of the assets to be sold at the time of closing.
The unaudited financial data are intended for informational purposes only and are not intended to be indicative of our results of operations or financial position had these transactions occurred on the dates specified, nor are they indicative of our future results of operations or financial position.
The unaudited pro forma financial data, including notes thereto, should be read in conjunction with our historical consolidated financial statements, including notes thereto, appearing elsewhere in this Prospectus.
TRANSGENOMIC, INC.
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1999
ADJUSTMENTS
FOR SALE OF
NON-LIFE ADJUSTMENTS FOR
SCIENCES CONVERTIBLE
INSTRUMENT NOTES,
THE PRODUCT THE WARRANTS
COMPANY LINE COMPANY & STOCK PRO
(1) (2A) AS ADJUSTED (2B,C,D) FORMA
------------ ----------- ------------ --------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..... $ 153,336 $5,000,000 $ 5,153,336 $ 1,750,000 $ 6,903,336
Accounts receivable, net...... 6,199,059 -- 6,199,059 -- 6,199,059
Note receivable............... 1,000,000 1,000,000 -- 1,000,000
Inventories................... 6,043,025 (2,833,354) 3,209,671 -- 3,209,671
Prepaid expenses and other
current assets.............. 527,461 -- 527,461 -- 527,461
Refundable income taxes....... 96,000 -- 96,000 -- 96,000
------------ ----------- ------------ ------------ ------------
Total current assets........ 13,018,881 3,166,646 16,185,527 1,750,000 17,935,527
PROPERTY AND EQUIPMENT, Net..... 2,581,139 (704,478) 1,876,661 -- 1,876,661
OTHER ASSETS.................... 4,363,490 (2,261,389) 2,102,101 -- 2,102,101
------------ ----------- ------------ ------------ ------------
$ 19,963,510 $ 200,779 $20,164,289 $ 1,750,000 $ 21,914,289
============ =========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable--bank........... $ 4,340,000 $ -- $ 4,340,000 -- $ 4,340,000
Current portion of notes
payable--other.............. 579,724 -- 579,724 -- 579,724
Accounts payable.............. 2,827,186 -- 2,827,186 -- 2,827,186
Accrued compensation.......... 666,219 -- 666,219 -- 666,219
Other accrued expenses........ 1,111,871 (112,285) 999,586 -- 999,586
------------ ----------- ------------ ------------ ------------
Total current liabilities... 9,525,000 (112,285) 9,412,715 -- 9,412,715
NOTES PAYABLE--other, less
current maturities............ 116,958 -- 116,958 -- 116,958
CONVERTIBLE NOTES PAYABLE....... 12,421,010 -- 12,421,010 (12,421,010) --
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock............... -- -- -- --
Common stock.................. 130,000 -- 130,000 30,372 160,372
Additional paid-in capital.... 10,231,595 -- 10,231,595 14,140,638 24,372,233
Unearned compensation......... (112,500) -- (112,500) -- (112,500)
Accumulated deficit........... (12,344,075) 313,064 (12,031,011) -- (12,031,011)
Accumulated other
comprehensive loss.......... (4,478) -- (4,478) -- (4,478)
------------ ----------- ------------ ------------ ------------
Total stockholders' equity
(deficit)................. (2,099,458) 313,064 (1,786,394) 14,171,010 12,384,616
------------ ----------- ------------ ------------ ------------
$ 19,963,510 $ 200,779 $20,164,289 $ 1,750,000 $ 21,914,289
============ =========== ============ ============ ============
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SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.
TRANSGENOMIC, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ADJUSTMENTS
FOR SALE OF
NON-LIFE ADJUSTMENTS
SCIENCES FOR
THE INSTRUMENT THE CONVERTIBLE
COMPANY PRODUCT COMPANY NOTES PRO
(1) LINE AS ADJUSTED (4) FORMA
----------- ----------- ------------ ----------- -----------
NET SALES....................... $23,034,954 $8,794,165 (3a) $ 14,240,789 -- $14,240,789
COST OF GOODS SOLD.............. 12,090,036 4,924,757 (3a,b) 7,165,279 -- 7,165,279
----------- ---------- ------------ -------- -----------
Gross profit................ 10,944,918 3,869,408 7,075,510 -- 7,075,510
OPERATING EXPENSES
General and administrative.... 3,771,663 236,808 (3b,c) 3,534,855 -- 3,534,855
Marketing and sales........... 7,759,997 1,610,369 (3b) 6,149,628 -- 6,149,628
Research and development...... 6,296,859 1,728,827 (3b) 4,568,032 -- 4,568,032
----------- ---------- ------------ -------- -----------
17,828,519 3,576,004 14,252,515 -- 14,252,515
----------- ---------- ------------ -------- -----------
LOSS FROM OPERATIONS............ (6,883,601) 293,404 (7,177,005) -- (7,177,005)
OTHER INCOME (EXPENSE)
Interest expense, net......... (1,198,378) -- (1,198,378) 858,665 (339,713)
Other, net.................... 366 -- 366 -- 366
----------- ---------- ------------ -------- -----------
(1,198,012) -- (1,198,012) 858,665 (339,347)
----------- ---------- ------------ -------- -----------
LOSS BEFORE INCOME TAXES........ (8,081,613) 293,404 (8,375,017) 858,665 (7,516,352)
INCOME TAX EXPENSE.............. 1,745,273 -- 1,745,273 -- 1,745,273
----------- ---------- ------------ -------- -----------
NET LOSS........................ $(9,826,886) $ 293,404 $(10,120,290) $858,665 $(9,261,625)
=========== ========== ============ ======== ===========
BASIC AND DILUTED LOSS PER
SHARE......................... $ (0.76) $ (0.78) $ (0.60)
=========== ============ ===========
BASIC AND DILUTED WEIGHTED
AVERAGE SHARES OUTSTANDING
(5)........................... 13,000,000 13,000,000 15,334,150
=========== ============ ===========
|
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
On March 7, 2000, we signed into a letter of intent for the sale of assets related to our non-life sciences instrument product line for a total purchase price of $6 million, of which $5 million will be paid in cash and $1 million will be paid with an interest-bearing promissory note due on March 31, 2000. The note will bear interest at a market rate. The unaudited pro forma statement of operations for the year ended December 31, 1999 reflects this sale and the issuance of 300,000 shares of common stock at $5.00 per share upon the exercise of warrants that will expire at the close of this offering, as if each had occurred on January 1, 1999 and the assumed conversion at $5.00 per share of our $12.0 million aggregate principal amount of our convertible notes and accrued interest into 2,712,200 shares of common stock as of March 23, 1999 (date of issuance). The unaudited pro forma balance sheet reflects these transactions and the sale of 25,000 shares of common stock at $5.00 per share in March 2000, as if each had been completed on December 31, 1999. The unaudited pro forma financial data are based on the following:
1. The December 31, 1999 historical consolidated financial statements of the Company.
2. The pro forma balance sheet adjustments are as follows:
a. The adjustments to reflect the sale of the Company's non-life sciences instrument product line as follows:
Inventories........................................... $2,833,354
Property, net......................................... 704,478
Other assets.......................................... 2,081,389
Accrued liabilities................................... (112,285)
----------
Net assets sold....................................... 5,506,936
Purchase Price:
Cash................................................ 5,000,000
Note Receivable..................................... 1,000,000 6,000,000
---------- ---------
Preliminary gain on sale............................ 493,064
Utilization of deferred tax benefit................. (180,000)
---------
Net adjustment to equity.............................. $ 313,064
=========
|
b. The assumed conversion at $5.00 per share of our convertible notes and accrued interest into 2,712,200 shares of common stock and elimination of related interest and redemption premium.
c. The receipt of $1.5 million in cash upon issuance of 300,000 shares of common stock at $5.00 per share upon exercise of warrants.
d. The receipt of $250,000 in cash upon sale of 25,000 shares of common stock at $10.00.
3. The pro forma statement of operations adjustments for the sale of the Company's non-life sciences instrument product line are as follows:
a. Elimination of the actual historical revenues and direct cost of goods sold.
b. Elimination of indirect manufacturing and operating expenses. The elimination of these expenses is based on an allocation of all department expenses based on the ratio of actual individual employees' wages for such department in proportion to total Company wages. The Company's management believes such method is reasonable.
c. An increase in general and administrative expenses to reflect $200,000 of anticipated increased rental costs, which will be incurred by the Company as a result of the sale of the non-life
sciences instrument product line. The Company will be required to relocate to a separate facility subsequent to the sale. This adjustment is reflected as follows:
Elimination of the non-life sciences instrument product
line's proportionate share of general and administrative
expenses.................................................. $ 436,808
Anticipated increased rental costs.......................... (200,000)
----------
Net reduction in general and administrative expenses........ $ 236,808
==========
|
d. No tax adjustment has been made due to the Company's current net operating loss position.
4. The elimination of historical interest and redemption premium associated with the convertible notes. (See Note G to the historical consolidated financial statements.)
5. The weighted average shares outstanding are computed as follows:
Historical weighted average shares.......................... 13,000,000
Shares issued upon conversion of notes and accrued interest
(2,712,200 x 9/12)........................................ 2,034,150
Shares issued upon exercise of warrants..................... 300,000
----------
15,334,150
==========
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A picture depicting the WAVE System components
4,000,000 SHARES
[LOGO]
COMMON STOCK
CHASE H&Q
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
, 2000
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT A PUBLIC OFFERING OF THE COMMON SHARES OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATIONS TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than the underwriting discount and commissions) expected to be incurred by us while issuing and distributing the securities registered pursuant to this Registration Statement. All amounts other than the SEC registration fee, NASD filing fee and Nasdaq National Market listing fee are estimates.
SEC registration fee........................................ $ 17,002
NASD filing fee............................................. 6,940
Nasdaq National Market listing fee.......................... *[ ]
Legal fees and expenses..................................... *[ ]
Accounting fees and expenses................................ *[ ]
Printing and engraving...................................... *[ ]
Blue sky fees and expenses (including legal fees)........... *[ ]
Transfer agent fees......................................... *[ ]
Miscellaneous...............................................
--------------------------
Total..................................................... $
==========================
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* To be provided by amendment.
ITEM 14: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933.
As permitted by the Delaware General Corporation Law, our Restated Certificate of Incorporation eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to us or its stockholders, (2) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases) or (4) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize further elimination or limiting of directors' personal liability, then the Restated Certificate provides that the personal liability of directors will be eliminated or limited to the fullest extent provided under the Delaware General Corporation Law.
As permitted by the Delaware General Corporation Law, our Restated
Certificate of Incorporation and our Bylaws provide that (1) we are required to
indemnify our directors and officers to the fullest extent permitted by the
Delaware General Corporation Law, subject to certain very limited exceptions,
(2) we may indemnify our other employees and agents as set forth in the Delaware
General Corporation Law, (3) we are required to advance expenses, as incurred,
to its directors and executive officers in connection with a legal proceeding to
the fullest extent permitted by the Delaware General Corporation Law, subject to
certain conditions and (4) the rights conferred by the Restated Certificate of
Incorporation and Bylaws are not exclusive.
II-1
The Delaware General Corporation Law authorizes a corporation to indemnify its directors and officers provided that the corporation shall not eliminate or limit the liability of a director as follows:
(a) for any action brought by or in the right of a corporation where the director or officer is adjudged to be liable to the corporation, except where a court determines the director or officer is entitled to indemnity;
(b) for acts or omissions not in good faith or which involve conduct that the director or officer believes is not in the best interests of the corporation;
(c) for knowing violations of the law;
(d) for any transaction from which the directors derived an improper personal benefit; and
(e) for payment of dividends or approval of stock repurchases or redemptions leading to liability under Section174 of the Delaware General Corporation Law.
The Delaware General Corporation Law requires a corporation to indemnify a director or officer to the extent that the director or officer has been successful, on the merits or otherwise, in defense of any action, suit or proceeding for which indemnification is lawful.
We maintain a director and officer insurance policy which insures our directors and officers against damages, judgments, settlements and costs incurred by reason of certain wrongful acts committed by such persons in their capacities as directors and officers.
Reference is also made to the form of Underwriting Agreement filed as Exhibit 1 to this Registration Statement for our and the Underwriters' respective agreements to indemnify each other, and to provide contribution in circumstances where indemnification is unavailable.
ITEM 15: RECENT SALES OF UNREGISTERED SECURITIES
We have sold and issued the following securities since January 1, 1997:
A. On July 1, 1997, we issued a total of 11,000,000 shares of our Common Stock to the shareholders of CETAC Holding Company, Inc. in connection with a merger of that corporation with and into the Registrant.
B. On December 16, 1997, we issued a $1,500,000 promissory note and a warrant to purchase 300,000 shares of our Common Stock to a venture capital investor. Principal and interest on the promissory note was paid in full in June 1998. The warrant remains outstanding and has an exercise price of equal to the lower of (i) $5.00 per share or (ii) 50% of the offering price of our Common Stock in our initial public offering, subject to certain adjustments.
C. At various times between July 3, 1997 and December 31, 1998, we issued a total of 2,000,000 shares of our Common Stock for an aggregate consideration of $10,000,000 to various institutional and individual investors. We paid aggregate cash commissions of $781,600 to various placement agents in connection with this private offering.
D. In connection with the private offering of Common Stock described in Item C above, we issued warrants for the purchase of a total of 152,450 shares of our Common Stock to various placement agents that participated in such offering. All warrants have an exercise price of equal to the lower of (i) $5.00 per share or (ii) 50% of the offering price of our Common Stock in our initial public offering, subject to certain adjustments.
E. On March 23, 1999, we issued Convertible Notes in an aggregate principal amount of $12,000,000 to various institutional and individual investors. The Convertible Notes and interest accrued thereon are convertible into shares of our Common Stock at a price equal to the lower of (i) $5.00 per
II-2
share or (ii) 50% of the offering price of our Common Stock in our initial public offering, subject to certain adjustments.
F. On March 4, 2000, we issued 25,000 shares of Common Stock to a newly elected director for a total purchase price of $250,000.
G. We have granted stock options to employees, directors and advisors under our Employee Stock Option Plan as follows:
NUMBER OF SHARES(1) EXERCISE PRICE
------------------- --------------
January 1, 1997 to December 31, 1997...................... 1,515,000 $5.00(2)
January 1, 1998 to December 31, 1998...................... 1,690,250 $5.00
January 1, 1999 to December 31, 1999...................... 590,250 $5.00
January 1, 2000 to present................................ 212,500 $5.00 to $10.00
---------
Total..................................................... 4,008,000
|
(1) Prior to cancellations of options to acquire 283,750 shares.
(2) Except that options for 15,000 shares issued to one of our non-employee directors may be exercised at the lower of $5.00 per share or 50% of the price of our common stock in this offering.
The above securities were offered and sold by us in reliance upon the
exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering or
(2) Rule 701 promulgated under the Securities Act of 1933. No underwriters were
involved in connection with the sales of securities referred to in this Item 15.
ITEM 16: EXHIBITS AND FINANCIAL STATEMENTS; SCHEDULES
(a) Exhibits.
1 Form of Underwriting Agreement*
2 Asset Purchase Agreement between the Registrant and Stephen
F. Dwyer*
3.1 First Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Bylaws of the Company
4 Form of Certificate of the Company's Common Stock
5 Opinion of Kutak Rock LLP*
10.1 Warrant for Purchase of Common Stock, dated December 16,
1997, between the Registrant and G.S. Beckwith Gilbert
10.2 Registration Rights Agreement, dated December 16, 1997,
between the Registrant and G.S. Beckwith Gilbert
10.3 Form of Warrant for Purchase of Common Stock between the
Registrant and various Placement Agents and Schedule of
Warrants Issued
10.4 First Amended and Restated Shareholder Agreement, dated
July 1, 1997, between the Registrant and each holder of its
Common Stock
10.5 Subscription Agreement, dated March 23, 1999, between the
Registrant and each purchaser of Registrant's Convertible
Notes due March 25, 2002, including form of Convertible Note
10.6 Second Amended and Restated 1997 Stock Option Plan of the
Registrant
10.7 1999 UK Approved Stock Option Sub Plan of the Registrant
10.8 Employment Agreement, dated March 4, 2000, between the
Registrant and Colin J. D'Silva
10.9 Employment Agreement, dated March 4, 2000, between the
Registrant and John L. Allbery
10.10 Employment Agreement, dated March 4, 2000, between the
Registrant and Douglas T. Gjerde
10.11 Employment Agreement, dated November 16, 1998, between the
Registrant and William B. Walker
10.12 Letter Agreement, dated February 18, 2000, between the
Registrant and Gregory J. Duman
10.13 Amended and Restated Revolving Loan Agreement, dated
March 8, 2000, between the Registrant and First National
Bank of Omaha
|
II-3
10.14 License Agreement, dated September 1, 1994, between
Registrant and Professor Dr. Gunther Bonn, et. al. and
Amendment thereto, dated March 14, 1997+
10.15 License Agreement, dated August 20, 1997, between the
Registrant and Leland Stanford Junior University+
10.16 Supply Agreement, dated January 1, 2000, between the
Registrant and Hitachi Instruments*+
10.17 Lease Agreement, dated November 2, 1998, between the
Registrant and Westlake Development Company, Inc.
10.18 Lease Agreement, dated May 15, 1996, between Interaction
Chromatography Inc. and Westlake Development Co., Inc.
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Kutak Rock LLP (included in Exhibit 5)*
24 Powers of Attorney
27 Financial Data Schedule
|
* To be filed by amendment.
+ Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text. This Exhibit has been filed separately with the Secretary of the Commission with the redacted text pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act.
(b) Financial Statement Schedules:
All financial statement schedules have been omitted because the required information is included in the consolidated financial statements of the Registrant or related notes thereto.
ITEM 17: UNDERTAKINGS The following undertakings correspond to the
specified paragraph designation from Item 512 of Regulation S-K.
(f) EQUITY OFFERING OF NONREPORTING REGISTRANT. We hereby undertake to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
(h) ACCELERATION OF EFFECTIVENESS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(i) RULE 430A. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha and State of Nebraska, on the 10th day of March 2000.
TRANSGENOMIC, INC.
By: /s/ COLLIN J. D'SILVA
-----------------------------------------
Collin J. D'Silva
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated as of the 10th day of March 2000.
SIGNATURE TITLE
--------- -----
/s/ COLLIN J. D'SILVA Chairman of the Board, Director and Chief
------------------------------------------- Executive Officer (Principal Executive
Collin J. D'Silva Officer)
/s/ JOHN L. ALLBERY
------------------------------------------- Chief Financial Officer (Principal Financial
John L. Allbery Officer)
/s/ MITCHELL L. MURPHY
------------------------------------------- Controller (Chief Accounting Officer)
Mitchell L. Murphy
/s/ STEPHEN F. DWYER*
------------------------------------------- Director
Stephen F. Dwyer
/s/ DOUGLAS T. GJERDE*
------------------------------------------- Director
Douglas T. Gjerde, Ph.D.
/s/ JEFFREY SKLAR*
------------------------------------------- Director
Jeffrey Sklar, M.D., Ph.D.
/s/ ROLAND J. SANTONI*
------------------------------------------- Director
Roland J. Santoni
/s/ GREGORY J. DUMAN*
------------------------------------------- Director
Gregory J. Duman*
------------------------------------------- Director
Parag Saxena
|
*By Collin J. D'Silva, as attorney-in-fact
/s/ COLLIN J. D'SILVA
--------------------------------------
Collin J. D'Silva
ATTORNEY-IN-FACT
FOR THE INDIVIDUALS AS INDICATED.
|
II-5
SIGNATURE TITLE
--------- -----
1 Form of Underwriting Agreement*
Asset Purchase Agreement between the
2 Registrant and Stephen F. Dwyer*
First Amended and Restated Certificate of
3.1 Incorporation of the Registrant
3.2 Bylaws of the Company
Form of Certificate of the Company's Common
4 Stock
5 Opinion of Kutak Rock LLP*
Warrant for Purchase of Common Stock, dated
10.1 December 16, 1997, between the Registrant and
G.S. Beckwith Gilbert
Registration Rights Agreement, dated
10.2 December 16, 1997, between the Registrant and
G.S. Beckwith Gilbert
Form of Warrant for Purchase of Common Stock
10.3 between the Registrant and various Placement
Agents and Schedule of Warrants Issued
First Amended and Restated Shareholder
10.4 Agreement, dated July 1, 1997, between the
Registrant and each holder of its Common Stock
Subscription Agreement, dated March 23, 1999,
between the Registrant and each purchaser of
10.5 Registrant's Convertible Notes due March 25,
2002, including form of Convertible Note
Second Amended and Restated 1997 Stock Option
10.6 Plan of the Registrant
1999 UK Approved Stock Option Sub Plan of the
10.7 Registrant
Employment Agreement, dated March 4, 2000,
10.8 between the Registrant and Colin J. D'Silva
Employment Agreement, dated March 4, 2000,
10.9 between the Registrant and John L. Allbery
Employment Agreement, dated March 4, 2000,
10.10 between the Registrant and Douglas T. Gjerde
Employment Agreement, dated November 16, 1998,
10.11 between the Registrant and William B. Walker
Letter Agreement, dated February 18, 2000,
10.12 between the Registrant and Gregory J. Duman
Amended and Restated Revolving Loan Agreement,
10.13 dated March 8, 2000, between the Registrant
and First National Bank of Omaha
License Agreement, dated September 1, 1994,
between Registrant and Professor Dr. Gunther
10.14 Bonn, et. al. and Amendment thereto, dated
March 14, 1997+
License Agreement, dated August 20, 1997,
10.15 between the Registrant and Leland Stanford
Junior University+
Supply Agreement, dated January 1, 2000,
10.16 between the Registrant and Hitachi
Instruments*+
Lease Agreement, dated November 2, 1998,
10.17 between the Registrant and Westlake
Development Company, Inc.
Lease Agreement, dated May 15, 1996, between
10.18 Interaction Chromatography Inc. and Westlake
Development Co., Inc.
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
Consent of Kutak Rock LLP (included in Exhibit
23.2 5)*
24 Powers of Attorney
27 Financial Data Schedule
|
* To be filed by amendment.
+ Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text. This Exhibit has been filed separately with the Secretary of the Commission with the redacted text pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act.
II-6
EXHIBIT 3.1
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TRANSGENOMIC, INC.
Transgenomic, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation") hereby certifies that:
(i) The Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on March 6, 1997.
(ii) On June 27, 1997, the incorporator of the Corporation adopted an amendment and restatement of the Corporation's Certificate of Incorporation in accordance with the provisions of Sections 241 and 245 of the Delaware General Corporation Law.
Accordingly, the text of the Certificate of Incorporation of the Corporation is amended and restated in its entirety to read as follows:
ARTICLE I
The name of the Corporation is Transgenomic, Inc.
ARTICLE II
The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19805, and the name of its registered agent at the address of the Corporation's registered office is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
SECTION 4.1. The total number of shares of capital stock which the Corporation shall have the authority to issue is 45,000,000 consisting of (a) 30,000,000 shares of Common Stock, par value $0.01 per share, and (b) 15,000,000 shares of Preferred Stock, par value $0.01 per share.
SECTION 4.2. Each holder of a share of Common Stock shall be entitled to one vote for each share of Common stock held of record by such holder and to such other powers, rights and preferences as are normally available to holders of Common Stock pursuant to the General Corporation Law of the State of Delaware. Except as may be otherwise provided in this Restated
Certificate of Incorporation or in a Preferred Stock Designation (defined in
Section 4.3), the holders of the Common Stock shall have the exclusive right to
vote for the election of directors and for all other purposes, and the holders
of Preferred Stock shall not be entitled to receive notice of any meeting of
stockholders at which they are not entitled to vote. The Common Stock shall be
subject to the express terms of the Preferred Stock and any series thereof.
SECTION 4.3. The Preferred Stock may be issued at any time and from time to time in one or more series. The Board of Directors is hereby authorized to provide for the issuance of shares of Preferred Stock in series and, by filing a certificate of designation pursuant to the applicable provisions of the General Corporation Law of the State of Delaware (hereinafter referred to as a "Preferred Stock Certificate of Designation"), to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of shares of each such series and the qualifications, limitations and restrictions thereof. The authority of the Board of Directors with respect to each such series shall include, but not be limited to, determination of the following:
(a) The designation of the series, which may be by distinguishing number, letter or title;
(b) The number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the applicable Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding);
(c) Whether dividends, if any, shall be cumulative or noncumulative and the dividend rate of the series;
(d) The date on which dividends, if any, shall be payable;
(e) The redemption rights and price or prices, if any, for shares of the series;
(f) The terms and amount of any sinking fund provided for the purchases or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation;
(h) Whether the shares of the series shall be convertible or exchangeable into shares of any other class or series, or any other security, of the Corporation or any other corporation, and, if so, the specification of such other class or series or such other security, the conversion or exchange price or prices or rate or rates, any adjustments thereof, the date or dates as of which such shares shall be convertible or exchangeable and all other terms and conditions upon which such conversion or exchange may be made;
(i) Restrictions on the issuance of shares of the same series or of any other class or series; and
(j) The voting rights, if any, of the holders of shares of the series.
SECTION 4.4. The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law.
ARTICLE V
The Board of Directors is hereby authorized to create and issue, whether or not in connection with the issuance and sale of any of its stock or other securities or property, rights entitling the holders thereof to purchase from the Corporation shares of stock or other securities of the Corporation or any other corporation. The times at which and the terms upon which such rights are to be issued will be determined by the Board of Directors and set forth in the contracts or instruments that evidence such rights. The authority of the Board of Directors with respect to such rights shall include, but not be limited to, determination of the following:
(a) the initial purchase price per share or other unit of the stock or other securities or property to be purchased upon exercise of such rights;
(b) Provisions relating to the times at which and the circumstances under which such rights may be exercised or sold or otherwise transferred, either together with or separately from any other stock or other securities of the Corporation;
(c) Provisions which adjust the number or exercise price of such rights, or amount or nature of the stock or other securities or property receivable upon exercise of such rights, in the event of a combination, split or recapitalization of any stock of the Corporation, a change in ownership of the Corporation's stock or other securities or a reorganization, merger, consolidation, sale of assets or other occurrence relating to the Corporation or any stock of the Corporation and provisions restricting the ability of the Corporation to enter into any such transaction absent an assumption by the other party or parties thereto of the obligations of the Corporation under such rights;
(d) Provisions which deny the holder of a specified percentage of the outstanding stock or other securities of the Corporation the right to exercise such rights and/or cause the rights held by such holder to become void;
(e) Provisions which permit the Corporation to redeem such rights; and
(f) The appointment of a rights agent with respect to such rights.
ARTICLE VI
In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors is expressly authorized to adopt, repeal, alter or amend the By-laws of the Corporation by the vote of a majority of the entire Board of Directors. In addition to any requirements of law and any other provision of this Restated Certificate of Incorporation, the stockholders of the Corporation may adopt, repeal, alter or amend any provision of the By-laws upon the affirmative
vote of the holders of a majority or more of the combined voting power of the then outstanding stock of the Corporation entitled to vote generally in the election of directors.
ARTICLE VII
SECTION 7.1. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by this Restated Certificate of Incorporation directed or required to be exercised or done by the stockholders.
SECTION 7.2. The number of directors constituting the initial Board of Directors shall be five and, thereafter, the number of directors shall be fixed from time to time by resolution of the Board of Directors pursuant to the By-laws of the Corporation, provided that the number shall at no time be less than three or more than fifteen. The Board of Directors shall be divided into three classes, designated Classes I, II and III, which shall be as nearly equal in number as possible. Directors of Class I shall be elected to hold office for a term expiring at the annual meeting of stockholders to be held in 1998; directors of Class II shall be elected to hold office for a term expiring at the annual meeting of stockholders to be held in 1999; and directors of Class III shall be elected to hold office for a term expiring at the annual meeting of stockholders to be held in 2000. At each succeeding annual meeting of stockholders following such initial classification and election, the respective successors of each class shall be elected for three-year terms.
SECTION 7.3. Advance notice of nominations for elections for the election of directors shall be given in the manner and to the extent provided in the By-laws of the Corporation.
SECTION 7.4. The holders of a majority of the shares then entitled to vote at an election of directors may remove any director or the entire Board of Directors, but only for cause.
ARTICLE VIII
SECTION 8.1. A director shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not eliminate or limit the liability of a director (1) for any breach of his duty of loyalty to the Corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (3) under Section 174 of the General Corporation Law of the State of Delaware or (4) for any transaction from which the director derives an improper personal benefit. If the General Corporation Law of the State of Delaware is amended after the filing of this Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended.
SECTION 8.2. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or the Corporation existing at the time of such repeal or modification.
ARTICLE IX
SECTION 9.1. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action or omission in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue with respect to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that, except as provided in Section 9.2 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding initiated by such indemnitee only if such proceeding was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article IX shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, further, that, if required by the General Corporation Law of the State of Delaware, an advancement of expenses incurred by an indemnitee shall be made only upon delivery to the Corporation of an undertaking (hereinafter, an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter, a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Article IX or otherwise.
SECTION 9.2. If a claim under Section 9.1 is not paid in full by the
Corporation within 60 days after a written claim has been received by the
Corporation (except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days), the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, the indemnitee
shall also be entitled to be paid the expense of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses), it shall be a defense that, and
(ii) in any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met the applicable standard of conduct set forth in the General
Corporation Law of the State of Delaware. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the General Corporation Law of the State of Delaware nor an actual determination
by
the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met the applicable standard of conduct shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled under this Article IX or otherwise to be indemnified, or to such advancement of expenses, shall be on the Corporation.
SECTION 9.3. The rights to indemnification and to the advancement of expenses conferred in this Article IX shall not be exclusive of any other right which any person may have or hereafter acquire under this Restated Certificate of Incorporation or any bylaw, contract, agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 9.4. The Corporation may maintain insurance, at its expense, to protect itself and any indemnitee against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware.
SECTION 9.5. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article IX or as otherwise permitted under the General Corporation Law of the State of Delaware with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.
ARTICLE X
A director of the Corporation, in determining what he reasonably believes to be in the best interests of the Corporation, shall consider the interests of the Corporation's stockholders and, in his discretion, may consider any of the following:
(a) The interests of the Corporation's employees, independent contractors, agents, suppliers, creditors and customers;
(b) The economy of the nation;
(c) Community and societal interests; and
(d) The long-term as well as short-term interests of the Corporation and its stockholders, including the possibility that these interests may be best served by the continued independence of the Corporation.
ARTICLE XI
Election of directors at an annual or special meeting of stockholders need not be by written ballot unless the By-laws of the Corporation shall so provide.
ARTICLE XII
Cumulative voting for the election of directors shall not be permitted.
ARTICLE XIII
Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation, and the ability of the stockholders to consent in writing to the taking of any action is hereby specifically denied. The foregoing sentence shall take effect on the day following the date on which the Corporation first has more than 35 stockholders of record. Except as otherwise required by law, special meetings of stockholders of the Corporation may be called only by the Chairman of the Board, the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors, by the Chief Executive Officer if one is appointed, otherwise by the President or as otherwise provided in the By-laws of the Corporation.
ARTICLE XIV
The vote of stockholders of the Corporation required to approve Business Combinations (as hereinafter defined) shall be as set forth in this Article XIV.
SECTION 14.1. In addition to any affirmative vote required by law or by this Restated Certificate of Incorporation, and except as otherwise expressly provided in Section 14.3 of this Article XIV:
(a) any merger or consolidation of the Corporation with (1) any Interested Stockholder or (2) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Stockholder;
(b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder of (1) all or substantially all the assets of the Corporation or (2) assets of the Corporation or any of its Subsidiaries representing in the aggregate more than 75% of the total value of the assets of the Corporation and its consolidated Subsidiaries as reflected on the most recent consolidated balance sheet of the Corporation and its consolidated Subsidiaries prepared in accordance with generally accepted accounting principles then in effect;
(c) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder of any assets of the Corporation or of any
Subsidiary having an aggregate Fair Market Value of $10,000,000 or
more, but less than the amount referred to in clause (ii) of paragraph
(b) of this Section 14.1 or (ii) any merger or consolidation of any
Subsidiary of the Corporation having assets with an aggregate Fair
Market Value of $10,000,000 or more in a transaction not covered by
paragraph (b) of this Section 14.1 with (x) any Interested Stockholder
or (y) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be,
an Affiliate or Associate of an Interested Stockholder;
(d) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) to any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder of any securities of the Corporation or any Subsidiary in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $10,000,000 or more, other than the issuance of securities upon the conversion of convertible securities of the Corporation or any Subsidiary which were not acquired by such Interested Stockholder (or such Affiliate or Associate) from the Corporation or a Subsidiary;
(e) The adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or
(f) any reclassification of securities (including any reverse stock split) or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving any Interested Stockholder), which in any such case has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of stock or securities convertible into stock of the Corporation or any Subsidiary which is directly or indirectly beneficially owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder
shall not be consummated without (5) the affirmative vote of the holders of at least 75% of the combined voting power of the then outstanding shares of stock of all classes and series of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") and (6) the affirmative vote of a majority of the combined voting power of the then outstanding shares of Voting Stock held by Disinterested Stockholders, in each case voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by this Restated Certificate of Incorporation or by a registered securities association or in any agreement with any national securities exchange or otherwise.
SECTION 14.2. The term "Business Combination" as used in this Article XIV shall mean any transaction which is referred to in any one or more of paragraphs (a) through (f) of Section 14.1 of this Article XIV.
SECTION 14.3. The provisions of Section 14.1 shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this Restated Certificate of Incorporation, if all the conditions specified in any of the following paragraphs (a), (b) or (c) are met:
(a) such Business Combination shall have been approved by a majority of the Disinterested Directors and (ii) the Interested Stockholder involved in such Business Combination (x) acquired such status as an Interested Stockholder in a manner substantially consistent with an agreement or memorandum of understanding approved by the Board of Directors (including a majority of the Disinterested Directors) prior to the time such Interested Stockholder became an Interested
Stockholder and (y) has complied with all requirements imposed by such agreement or memorandum of understanding; or
(b) in the case of any Business Combination described in
paragraph (a) or (f) of Section 14.1, (i) such Business Combination
shall have been approved by a majority of the Disinterested Directors,
(ii) such Business Combination shall not have resulted, directly or
indirectly, in an increase of more than 10% in the total amount of
shares of any class or series of stock or securities convertible into
stock of the Corporation or any Subsidiary which was directly or
indirectly beneficially owned by an Interested Stockholder and all
Affiliates and Associates of such Interested Stockholder at the time of
the approval of such Business Combination by a majority of the
Disinterested Directors and (iii) such Business Combination shall not
have been consummated within a period of two years after the
consummation of any other Business Combination described in paragraph
(a), (b), (c), (d), (e) or (f) of Section 14.1 (whether or not such
other Business Combination shall have been approved by a majority of
the Disinterested Directors) which had the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class or series of stock or securities convertible into
stock of the Corporation or any Subsidiary which was directly or
indirectly beneficially owned by such Interested Stockholder or any
Affiliate or Associate of such Interested Stockholder; or
(c) in the case of any Business Combination described in paragraph (c) or (d) of Section 14.1, such Business Combination shall have been approved by a majority of the Disinterested Directors.
SECTION 14.4. For the purposes of this Article XIV:
(a) A "PERSON" shall mean any individual, group, firm, corporation, partnership, trust or other entity.
(b) "INTERESTED STOCKHOLDER" shall mean any person (other than the Corporation, any Subsidiary and other than any group consisting of the directors and officers of the Corporation which may be deemed to be a group solely by reason of each of them being directors or officers of the Corporation or members of a slate proposed by the Corporation as directors) who or which:
(1) is the beneficial owner, directly or indirectly, of 10% or more of the combined voting power of the then outstanding shares of Voting Stock; or
(2) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the combined voting power of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.
(c) "DISINTERESTED STOCKHOLDER" shall mean a stockholder of the Corporation who is not an Interested Stockholder or an Affiliate or an Associate of an Interested Stockholder.
(d) a person shall be a "BENEFICIAL OWNER" of any Voting Stock:
(1) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or
(2) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise or (b) the right to vote or to direct the vote pursuant to any agreement, arrangement or understanding; or
(3) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.
(e) For the purposes of determining whether a person is an Interested Stockholder pursuant to paragraph (b) of this Section 14.4, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by such person through application of paragraph (d) of this Section 14.4 but shall not include any other shares of Voting Stock which may be issuable to other persons pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, exchange rights, warrants or options or otherwise.
(f) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on February 1, 1993.
(g) "SUBSIDIARY" shall mean any Corporation more than 50% of whose outstanding stock having ordinary voting power in the election of directors is owned by the Corporation, by a Subsidiary or by the Corporation and one or more Subsidiaries; provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph (b) of this Section 14.4, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned by the Corporation, by a Subsidiary or by the Corporation and one or more Subsidiaries.
(h) "DISINTERESTED DIRECTOR" means any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee of, the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Disinterested Director who is
unaffiliated with, and not a nominee of, the Interested Stockholder and who is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors.
(i) "FAIR MARKET VALUE" means: (1) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the New York Stock Exchange Composite Tape or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed or, if such stock is not listed on any such exchange, the highest closing sales price or bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the Nasdaq Stock Market or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (2) in the case of stock of any class or series which is not traded on any securities exchange or in the over-the-counter market or in the case of property other than cash or stock, the fair market value of such stock or property, as the case may be, on the date in question as determined by a majority of the Disinterested Directors in good faith.
SECTION 14.5. A majority of the Disinterested Directors of the
Corporation shall have the power and duty to determine, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article XIV, including, without limitation, (a)
whether a person is an Interested Stockholder, (b) the number of shares of
Voting Stock beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another person, (d) whether the requirements of
Section 14.3 have been met with respect to any Business Combination and (e)
whether the assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary in any Business Combination has, (i) an
aggregate Fair Market Value of $10,000,000 or more or (ii) represent in the
aggregate more than 75% of the total value of the assets of the Corporation and
its consolidated Subsidiaries prepared in accordance with generally accepted
accounting principles then in effect; and the good faith determination of a
majority of the Disinterested Directors on such matters shall be conclusive and
binding for all purposes of this Article XIV.
SECTION 14.6. Nothing contained in this Article XIV shall be construed to relieve an Interested Stockholder from any fiduciary obligation imposed by law.
ARTICLE XV
The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, and any other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed herein or by applicable law, and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article XV;
provided, however, that any amendment or repeal of Article VIII or Article IX of this Restated Certificate of Incorporation shall not adversely affect any right or protection existing hereunder immediately prior to such amendment or repeal; and provided, further, that Articles V, VI, VII, VIII, IX, X, XII, XIII, XIV and XV of this Restated Certificate of Incorporation shall not be amended, altered, changed or repealed without the affirmative vote of the holders of at least a majority of the then outstanding stock of the Corporation entitled to vote generally in the election of directors."
TRANSGENOMIC, INC.
/s/ P. Thomas Pogge ------------------------------------------- P. Thomas Pogge, Incorporator |
STATE OF NEBRASKA )
) ss.
COUNTY OF DOUGLAS )
Before me, a notary public, on this day personally appeared P. Thomas Pogge, known to me to be the person whose name is subscribed in the foregoing document, and, being by me first duly sworn, declared that the statements therein contained are true and correct.
[SEAL] /s/ Steven P. Amen
-------------------------------------------
Notary Public
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EXHIBIT 3.2
BYLAWS OF
TRANSGENOMIC, INC.
TABLE OF CONTENTS
PAGE
ARTICLE I
STOCKHOLDERS
Section 1. Time and Place of Meetings..................................................................1
Section 2. Annual Meetings.............................................................................1
Section 3. Special Meetings............................................................................1
Section 4. Notice of Meetings..........................................................................1
Section 5. Quorum and Adjournment......................................................................2
Section 6. Voting......................................................................................2
Section 7. Stockholder Proposals and Nominations of Directors..........................................2
Section 8. Inspectors of Elections.....................................................................3
Section 9. Opening and Closing of Polls................................................................4
Section 10. Participation in Meetings by Conference Telephone...........................................4
ARTICLE II
DIRECTORS
Section 1. General Powers..............................................................................4
Section 2. Number of Directors; Removal; Qualifications................................................4
Section 3. Vacancies...................................................................................5
Section 4. Regular Meetings............................................................................5
Section 5. Special Meetings............................................................................5
Section 6. Quorum......................................................................................5
Section 7. Written Action..............................................................................6
Section 8. Participation in Meetings by Conference Telephone...........................................6
Section 9. Committees..................................................................................6
Section 10. Compensation................................................................................7
Section 11. Regulations; Manner of Acting...............................................................7
ARTICLE III
NOTICES
Section 1. Generally...................................................................................7
Section 2. Waivers.....................................................................................7
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ARTICLE IV
OFFICERS
Section 1. Generally...................................................................................8
Section 2. Compensation................................................................................8
Section 3. Election....................................................................................8
Section 4. Authority and Duties........................................................................8
Section 5. Removal and Resignation; Vacancies..........................................................8
Section 6. Chairman....................................................................................8
Section 7. President/Chief Executive Officer...........................................................9
Section 7A. Chief Operating Officer.....................................................................9
Section 8. Execution of Documents and Action With Respect to Securities of Other Corporations..........9
Section 9. Vice President..............................................................................9
Section 10. Secretary and Assistant Secretaries.........................................................9
Section 11. Treasurer and Assistant Treasurers.........................................................10
ARTICLE V
INDEMNIFICATION
Section 1. Right to Indemnification...................................................................10
Section 2. Right of Indemnitee To Bring Suit..........................................................11
Section 3. Nonexclusivity of Rights...................................................................12
Section 4. Insurance..................................................................................12
Section 5. Indemnification of Agents of the Corporation...............................................12
Section 6. Indemnification Contracts..................................................................12
Section 7. Effect of Amendment........................................................................12
ARTICLE VI
STOCK
Section 1. Certificates...............................................................................12
Section 2. Transfer...................................................................................13
Section 3. Lost, Stolen or Destroyed Certificates.....................................................13
Section 4. Record Date................................................................................13
2
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ARTICLE VII
GENERAL PROVISIONS
Section 1. Fiscal Year................................................................................14
Section 2. Corporate Seal.............................................................................14
Section 3. Reliance Upon Books, Reports and Records...................................................14
Section 4. Time Periods...............................................................................14
Section 5. Dividends..................................................................................14
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ARTICLE VIII
AMENDMENT OF BYLAWS 14
BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1. TIME AND PLACE OF MEETINGS. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, within or without the State of Delaware, as may be designated by the Board of Directors, or by the Chairman of the Board, the Chief Executive Officer, the President or the Secretary in the absence of a designation by the Board of Directors, and stated in the notice of the meeting or in a duly executed waiver of notice thereof. [Sections 211(a), (b).](1)
Section 2. ANNUAL MEETINGS. An annual meeting of the stockholders shall be held on such date and at such time as shall be designated by the Board of Directors, at which meeting the stockholders shall elect by a plurality vote the directors to succeed those whose terms expire at that meeting and shall transact such other business as may properly be brought before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may only be called (i) by the Chairman of the Board, (ii) by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors or (iii) by the Chief Executive Officer, if one is appointed, otherwise the President. [Section 211(d).]
Section 4. NOTICE OF MEETINGS. Written notice of every meeting of the stockholders, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting, except as otherwise provided herein or by law. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. [Section 222.]
Section 5. QUORUM AND ADJOURNMENT. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented; provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting, conforming to the requirements of Section 4 of Article I hereof, shall be given to each stockholder of record entitled to vote at such meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted on the original date of the meeting. [Sections 216, 222(c).]
Section 6. VOTING. Except as otherwise provided by law or by the Certificate of Incorporation, each stockholder shall be entitled at every meeting of the stockholders to one vote for each share of stock having voting power standing in the name of such stockholder on the books of the Corporation on the record date for the meeting, and such votes may be cast either in person or by written proxy. Every proxy must be duly executed and filed with the Secretary of the Corporation. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. No vote of the stockholders need be taken by written ballot unless otherwise required by law. Any vote which need not be taken by ballot may be conducted in any manner approved by the meeting. Every vote taken by written ballot shall be counted by one or more inspectors of election appointed by the Board of Directors. When a quorum is present at any meeting, the vote of the holders of a majority of the stock which has voting power present in person or represented by proxy shall decide any question properly brought before such meeting, unless the question is one upon which by express provision of law, the Certificate of Incorporation or these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. [Sections 212, 216.]
Section 7. STOCKHOLDER PROPOSALS AND NOMINATIONS OF DIRECTORS. Nominations for election to the Board of Directors of the Corporation at a meeting of the stockholders may be made by the Board of Directors, or on behalf of the Board of Directors by a Nominating Committee appointed by the Board of Directors, or by any stockholder of the Corporation entitled to vote for the election of directors at such meeting. Any nominations, other than those made by or on behalf of the Board of Directors, and any proposal by any stockholder to transact any corporate business at an annual or special stockholders meeting, shall be made by notice in writing and mailed by certified mail to the Secretary of the Corporation and (i) in the case of an annual meeting, received no later than 35 days prior to the date of the annual meeting; provided, however, that if less than 35 days' notice of a meeting of stockholders is given to the stockholders, such notice of proposed business or nomination by such stockholder shall have been made or delivered to the Secretary of the Corporation not later than the close of business on the seventh day following the day on which the notice of a meeting was mailed, and (ii) in the case of a special meeting of stockholders, received not later than the close of business on the tenth day following the day on which notice of the date of the meeting was mailed. A notice of nominations by stockholders shall set forth as to each proposed nominee who is not an incumbent director (i) the name, age, address and principal occupation of each nominee proposed in such notice, (ii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee and the nominating stockholder and (iii) any other information concerning the nominee that must be disclosed regarding nominees in proxy solicitations
pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, and the rules under such section.
The Chairman of the Board, or in his absence the Chief Executive Officer, if one is appointed, otherwise the President or the Secretary, may, if the facts warrant, determine and declare to the meeting of stockholders that a nomination was not made in accordance with the foregoing procedure and that the defective nomination shall be disregarded.
Section 8. INSPECTORS OF ELECTIONS. Preceding any meeting of the stockholders, the Board of Directors may appoint one or more persons to act as Inspectors of Elections and may designate one or more alternate inspectors. In the event either no inspector or alternate is appointed or no inspector or alternate is able to act, the Secretary shall serve as the inspector or the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of the duties of an inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector shall:
(a) ascertain the number of shares outstanding and the voting power of each;
(b) determine the shares represented at a meeting and the validity of proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; and
(e) certify his or her determination of the number of shares represented at the meeting and his or her count of all votes and ballots.
The inspector may appoint or retain other persons or entities to assist in the performance of the duties of inspector.
When determining the shares represented and the validity of proxies and ballots, the inspector shall be limited to an examination of the proxies, any envelopes submitted with those proxies, ballots and the regular books and records of the Corporation. The inspector may consider reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers or their nominees or a similar person which represent more votes than the holders of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspector considers other reliable information as outlined in this Section, the inspector, at the time of his or her certification pursuant to (e) of this Section, shall specify the precise information considered, the person or persons from whom the information was obtained, when this information was obtained, the means by which the information was obtained, and the basis for the inspector's belief that such information is accurate and reliable. [Sections 231(a), (b), (d).]
Section 9. OPENING AND CLOSING OF POLLS. The date and time for the opening and the closing of the polls for each matter to be voted upon at a meeting of stockholders shall be
announced at the meeting. The inspector of the election shall be prohibited from accepting any ballots, proxies or votes nor any revocations thereof or changes thereto after the closing of the polls, unless the Court of Chancery upon application by a stockholder shall determine otherwise. [Section 231(c).]
Section 10. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. So long as the Corporation has 35 or fewer stockholders, any stockholder may participate in any meeting of stockholders by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting.
ARTICLE II
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation directed or required to be exercised or done by the stockholders. [Section 141(a).]
Section 2. NUMBER OF DIRECTORS; REMOVAL; QUALIFICATIONS. (a) The number of directors constituting the initial Board of Directors shall be five and, thereafter, the number of directors shall be fixed from time to time by resolution of the Board of Directors; provided that the number shall at no time be less than three or more than fifteen. In case of any increase in the number of directors in advance of an annual meeting of stockholders, each additional director shall be elected by the directors then in office, although less than a quorum, to hold office until the next annual meeting of shareholders or until his successor is elected. No decrease in the number of directors shall shorten the term of any incumbent director.
(b) The Board of Directors shall be divided into three classes, designated Classes I, II and III, which shall be as nearly equal in number as possible. Directors of Class I shall be elected to hold office for a term expiring at the annual meeting of stockholders to be held in 1998; directors of Class II shall be elected to hold office for a term expiring at the annual meeting of stockholders to be held in 1999; and directors of Class III shall be elected to hold office for a term expiring at the annual meeting of stockholders to be held in 2000. At each succeeding annual meeting of stockholders following such initial classification and election, the respective successors of each class shall be elected for three-year terms.
(c) After the election or appointment of a director, the holders of a majority of the shares then entitled to vote generally for the election of directors may remove such director or the entire Board of Directors, but only for cause.
(d) At any time securities of the Corporation are registered under
Section 12 of the Securities Exchange Act of 1934, as amended, no less than two
directors shall be persons other than (i) officers or employees of the
Corporation or it subsidiaries or (ii) individuals having a relationship which,
in the opinion of the Board of Directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. Directors need not be shareholders of the Corporation. [Sections 141(b), (k).]
Section 3. VACANCIES. Vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and directors so chosen shall hold office until the next annual meeting of shareholders or until their successors shall have been duly elected and qualified. [Section 223.]
Section 4. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice immediately after the annual meeting of the stockholders and at such other times and places as shall from time to time be determined by the Board of Directors. [Section 141(g).]
Section 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board or the Chief Executive Officer, if one is appointed, otherwise the President or the Secretary on five days' written notice to each director by whom such notice is not waived, given either personally or by courier, mail, facsimile transmission or telegram, and shall be called by the Chief Executive Officer, President or the Secretary in like manner and on like notice on the written request of any two directors. [Section 141(g).]
Section 6. QUORUM. At all meetings of the Board of Directors, a majority of the total number of directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time to another place, time or date, without notice other than announcement at the meeting, until a quorum shall be present. [Section 141(b).]
Section 7. WRITTEN ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes or proceedings of the Board or such committee. [Section 141(f).]
Section 8. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. [Section 141(i).]
Section 9. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the entire Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation and each to have such lawfully delegable powers and duties as the Board may confer. Each such committee shall serve at the pleasure of the Board of
Directors. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Except as otherwise provided by law, any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any committee or committees so designated by the Board shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Unless otherwise prescribed by the Board of Directors, a majority of the members of the committee shall constitute a quorum for the transaction of business, and the act of a majority of the members present at a meeting at which there is a quorum shall be the act of such committee. Each Committee shall act at meetings held pursuant to duly issued notice as set out in Section 5 of this Article, waivers of notice or unanimous written consent. Each committee shall prescribe its own rules for calling and holding meetings and its method of procedure, subject to any rules prescribed by the Board of Directors, and shall keep a written record of all actions taken by it. No such committee shall have the power or authority:
(a) to amend the Certificate of Incorporation or provide for the issuance of shares of stock or fix the designations and any of the preferences or rights of shares or the conversion into, or the exchange of shares for, shares of any class or classes or any other series of the same of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series;
(b) to adopt an agreement of merger or consolidation under
Section 251 or Section 252 of the General Corporation Law of the State
of Delaware;
(c) to recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets;
(d) to recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution;
(e) to amend the Bylaws of the Corporation; or
(f) to declare a dividend.
Section 10. COMPENSATION. The Board of Directors may establish such compensation for, and reimbursement of the expenses of, directors for attendance at meetings of the Board of Directors or committees, or for other services by directors to the Corporation, as the Board of Directors may reasonably determine. [Section 141(h).]
Section 11. REGULATIONS; MANNER OF ACTING. To the extent consistent with applicable law, the Certificate of Incorporation and these Bylaws, the Board of Directors may adopt such special rules and regulations for the conduct of their meetings and for the management of the property, affairs and business of the Corporation as the Board of Directors may deem appropriate. The directors shall act only as a Board, and the individual directors shall have no power as such.
ARTICLE III
NOTICES
Section 1. GENERALLY. Whenever by law or under the provisions of the Certificate of Incorporation or these Bylaws notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail or national courier service, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail or with such courier service. Notice to directors may also be given by facsimile transmission, telegram or telephone. [Section 222(b).]
Section 2. WAIVERS. Whenever any notice is required to be given by law or under the provisions of the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. [Section 229.]
ARTICLE IV
OFFICERS
Section 1. GENERALLY. The officers of the Corporation shall be elected by the Board of Directors and shall consist of a Chief Executive Officer, a President, a Chief Operating Officer, a Secretary and a Treasurer. The Board of Directors may also choose any or all of the following: a Chairman of the Board of Directors, one or more Vice Presidents, and one or more Assistant Secretaries and Assistant Treasurers or any other officers deemed necessary by the Board of Directors. Any number of offices may be held by the same person. [Section 142(a).]
Section 2. COMPENSATION. The compensation of the Chief Executive Officer, the President and all officers and agents of the Corporation who are also directors of the Corporation shall be fixed by the Board of Directors. The Board of Directors may delegate the power to fix the compensation of other officers and agents of the Corporation to an officer of the Corporation and, in the absence of any express designation, the Chief Executive Officer, if one is appointed, otherwise the President, shall have the power to fix such amounts.
Section 3. ELECTION. The officers of the Corporation shall hold office until their successors are elected and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the directors. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors. [Section 142(b).]
Section 4. AUTHORITY AND DUTIES. Each of the officers of the Corporation shall have such authority and shall perform such duties as are customarily incident to their respective offices or
as may be specified from time to time by the Board of Directors in a resolution which is not inconsistent with these Bylaws. [Section 142(a).]
Section 5. REMOVAL AND RESIGNATION; VACANCIES. Any officer may be removed for or without cause at any time by the Board of Directors. Any officer may resign at any time by delivering a written notice of resignation, signed by such officer, to the Board of Directors or the President. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall be filled by the Board of Directors. [Sections 142(b), (e).]
Section 6. CHAIRMAN. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and of the Board of Directors and shall have such other duties and responsibilities as may be assigned to him or her by the Board of Directors. The Chairman may delegate to any qualified person authority to chair any meeting of the stockholders, either on a temporary or a permanent basis. [Section 142(a).]
Section 7. PRESIDENT/CHIEF EXECUTIVE OFFICER. The President shall be the principal executive officer of the Company unless a separate Chief Executive Officer is appointed by the Board of Directors. The Chief Executive Officer, if one is appointed, otherwise the President, shall carry out and direct the operations of the Company under the direction of the Board of Directors, subject to the specific delegation of any duties to a separate Chief Executive Officer. The President or the Chief Executive Officer, if one is appointed, shall preside at all meetings of the shareholders. The President and the Chief Executive Officer, if one is appointed, shall have general power to execute contracts, notes, bonds and other instruments on behalf of the Company and shall have such other duties and responsibilities as may be prescribed by the Board of Directors from time to time. In the absence of a Secretary, the President shall perform the duties thereof. [Section 142(a).]
Section 7A. CHIEF OPERATING OFFICER. The Chief Operating Officer shall carry out and direct the operations of the Company under the direction of the Chief Executive Officer.
Section 8. EXECUTION OF DOCUMENTS AND ACTION WITH RESPECT TO SECURITIES
OF OTHER CORPORATIONS. The Chief Executive Officer, the President, the Chief
Operating Officer and the Executive Vice President shall have and are hereby
given full power and authority, except as otherwise required by law or directed
by the Board of Directors, (a) to execute, on behalf of the Corporation, all
duly authorized contracts, agreements, deeds, conveyances or other obligations
of the Corporation, applications, consents, proxies and other powers of attorney
and other documents and instruments and (b) to vote and otherwise act on behalf
of the Corporation, in person or by proxy, at any meeting of stockholders (or
with respect to any action of such stockholders) of any other corporation in
which the Corporation may hold securities and otherwise to exercise any and all
rights and powers which the Corporation may possess by reason of its ownership
of securities of such other corporation. In addition, the Chief Executive
Officer, if one is appointed, otherwise the President, may delegate to the
Secretary or to other officers, employees and agents of the Corporation the
power and authority to take any action which the Chief Executive Officer, if one
is appointed, otherwise the President, is authorized to take under this Section
8 of this Article IV, with such limitations as the Chief Executive Officer, if
one is appointed, otherwise the President, may specify; such authority so
delegated by the
Chief Executive Officer, if one is appointed, otherwise the President, shall not be redelegated by the person to whom such execution authority has been delegated. [Section 142(a).]
Section 9. VICE PRESIDENT. Each Vice President, however titled, shall perform such duties and services and shall have such authority and responsibilities as shall be assigned to or required from time to time by the Board of Directors or the President. [Section 142(a).]
Section 10. SECRETARY AND ASSISTANT SECRETARIES. (a) The Secretary shall attend all meetings of the stockholders and all meetings of the Board of Directors and record all proceedings of the meetings of the stockholders and of the Board of Directors and shall perform like duties for the standing committees when requested by the Board of Directors, the President or the Chairman. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and meetings of the Board of Directors. The Secretary shall perform such duties as may be prescribed by the Board of Directors or its Chairman or the Chief Executive Officer, if one is appointed, otherwise the President. The Secretary shall have charge of the seal of the Corporation and authority to affix the seal to any instrument. The Secretary or any Assistant Secretary may attest to the corporate seal by handwritten or facsimile signature. The Secretary shall keep and account for all books, documents, papers and records of the Corporation except those for which some other officer or agent has been designated or is otherwise properly accountable. The Secretary shall have authority to sign stock certificates.
(b) Assistant Secretaries, in the order of their seniority, shall
assist the Secretary and, if the Secretary is unavailable or fails to act,
perform the duties and exercise the authorities of the Secretary.
[Section 142(a).]
Section 11. TREASURER AND ASSISTANT TREASURERS. (a) The Treasurer, if so designated, shall be the Chief Financial Officer of the Corporation and may be known as such. The Treasurer shall have the custody of the funds and securities belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Treasurer or the President. The Treasurer shall disburse the funds and pledge the credit of the Corporation and shall render to the Board of Directors and the President, as and when required by them, or any of them, an account of all transactions by the Treasurer.
(b) Assistant Treasurers, in the order of their seniority, shall assist the Treasurer and, if the Treasurer is unable or fails to act, perform the duties and exercise the powers of the Treasurer. [Section 142(a).]
ARTICLE V
INDEMNIFICATION
Section 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer or employee or in any other capacity while serving as a
director, officer or employee, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that, except as provided in
Section 2 of this Article V with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section 1 of
this Article V shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses"); and
provided, further, that, if the General Corporation Law of the State of Delaware
requires it, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such indemnitee is
not entitled to be indemnified for such expenses under this Article V or
otherwise (hereinafter an "undertaking").
Section 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1 of this Article V is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or part in any such suit or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses), it shall be a defense that the indemnitee has not met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware. Likewise, in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met such standards. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the General Corporation Law of the State of
Delaware, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified or to such advancement of expenses under this Article V or otherwise shall be on the Corporation.
Section 3. NONEXCLUSIVITY OF RIGHTS. The rights of indemnification and to the advancement of expenses conferred in this Article V shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, contract, agreement, vote of stockholders or disinterested directors or otherwise.
Section 4. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any indemnitee against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware.
Section 5. INDEMNIFICATION OF AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article V or as otherwise permitted under the General Corporation Law of the State of Delaware with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.
Section 6. INDEMNIFICATION CONTRACTS. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article V.
Section 7. EFFECT OF AMENDMENT. Any amendment, repeal or modification of any provision of this Article V by the stockholders or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. [Section 145.]
ARTICLE VI
STOCK
Section 1. CERTIFICATES. Certificates representing shares of stock of the Corporation shall be in such form as shall be determined by the Board of Directors, subject to applicable legal requirements. Such certificates shall be numbered and their issuance recorded in the books of the Corporation, and such certificates shall exhibit the holder's name and the number of shares
and shall be signed by, or in the name of the Corporation by, the Chief Executive Officer, if one is appointed, otherwise the President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation. Any or all of the signatures and the seal of the Corporation, if any, upon such certificates may be facsimiles, engraved or printed. [Section 158.]
Section 2. TRANSFER. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
[Section 151.]
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Secretary may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact, satisfactory to the Secretary, by the person claiming the certificate of stock to be lost, stolen or destroyed. As a condition precedent to the issuance of a new certificate or certificates, the Secretary may require the owner of such lost, stolen or destroyed certificate or certificates to give the Corporation a bond in such sum and with such surety or sureties as the Secretary may direct as indemnity against any claims that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of the new certificate. [Section 167.]
Section 4. RECORD DATE. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. [Section 213.]
ARTICLE VII
GENERAL PROVISIONS
Section 1. FISCAL YEAR. The fiscal year of the Corporation shall be the calendar year or such other annual period as shall be fixed from time to time by the Board of Directors.
Section 2. CORPORATE SEAL. The Board of Directors may adopt a corporate seal and use the same by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member of a committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees of the Board of Directors, or by any other person as to matters the director, committee member or officer believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. [Section 141(e)]
Section 4. TIME PERIODS. In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included.
Section 5. DIVIDENDS. The Board of Directors may from time to time declare and the Corporation may pay dividends upon its outstanding shares of capital stock, in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation. [Section 173.]
ARTICLE VIII
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors is expressly authorized to adopt, repeal, alter or amend the Bylaws of the Corporation by the affirmative vote of a majority or more of the entire Board of Directors. In addition to any requirements of law and any provision of the Certificate of Incorporation, the stockholders of the Corporation may adopt, repeal, alter or amend any provision of the Bylaws upon the affirmative vote of the holders of a majority or more of the combined voting power of the then outstanding stock of the Corporation entitled to vote generally in the election of directors. [Section 109(a).]
CERTIFICATE OF SECRETARY
OF
TRANSGENOMIC, INC.
(A DELAWARE CORPORATION)
I hereby certify that I am the duly elected and acting Secretary of said Corporation and that the foregoing Bylaws of said Corporation, comprising 15 pages, constitute the Bylaws of said Corporation as duly adopted by the Board of Directors thereof by action taken at a special meeting thereof.
Date: June 27, 1997 /s/ P. Thomas Pogge
------------------------------------
Secretary
|
EXHIBIT 4
INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE
NUMBER _____________ __________ SHARES
CUSIP [NUMBER]
|
[LOGO OF REGISTRANT]
Transgenomic, Inc.
Common Stock
THIS CERTIFIES THAT ____________________________________________ is the owner of
_____________________________________________ Shares of the Capital Stock of
Transgenomic, Inc.
Transferrable only on the Books of the
Corporation by the holder hereof in person
or by duly authorized Attorney, on
surrender of this Certificate properly
endorsed.
[SEAL] IN WITNESS WHEREOF the duly authorized
officers of this Corporation have hereunto
subscribed their names and caused the
corporate Seal to be hereto affixed at
Omaha, Nebraska this
----------------- ------------------
day of A.D.
--------------- ---------------
_______________________________ _____________________
|
Chief Executive Officer Secretary
Par Value per Shares $0.01
CERTIFICATE
SHARES
OF THE
CAPITAL STOCK
Transgenomic, Inc.
ISSUED TO
DATED
For value received _____ hereby sell assign and transfer unto _________________
_________________________________________________________________________ Shares
of the Capital Stock represented by the within certificate and do hereby
irrevocably constitute and appoint_____________________________________________
_______________________________to transfer the said Stock on the books of the
within named Corporation with full power of substitution in the premises.
Dated: ______________________________
In the presence of
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION, ENLARGEMENT OR ANY CHANGE WHATEVER.
EXHIBIT 10.1
WARRANT FOR PURCHASE OF
COMMON STOCK
OF
TRANSGENOMIC, INC.
1. WARRANT. The undersigned ("Holder") is entitled to purchase from Transgenomic, Inc., a Delaware corporation (the "Company"), on the terms herein stated, 300,000 shares of Common Stock of the Company, par value $.01 per share (the "Common Stock"), and upon such purchase to receive a certificate or certificates representing such shares. The price payable to the Company on the exercise of the purchase right evidenced by this Warrant (hereinafter referred to as the "Exercise Price") shall be the lesser of (i) Five Dollars ($5.00) per share of Common Stock or (ii) 50% of the price per share at which the Company first offers Common Stock to the public pursuant to a registration statement which has become effective under the Securities Act of 1933, as amended; provided that, in either case, the number of shares of Common Stock purchasable upon the exercise of this Warrant and the Exercise Price may be adjusted from time to time and other property may become deliverable hereunder pursuant to the provisions set forth herein. In addition, if the Exercise Price is less than $5.00 per share of Common Stock, Holder may elect to acquire a number of shares of Common Stock upon the exercise of this Warrant of up to the number determined by dividing $1,500,000 by such Exercise Price. Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the holder of this Warrant are limited to those expressed herein. This Warrant is one of a series of similar warrants to be issued by the Company to the Holder pursuant to the terms of a Securities Purchase Agreement by and among the Holder and the Company, dated December 16, 1997 (the "Purchase Agreement").
2. METHOD OF EXERCISE.
(a) Holder may exercise the Warrant at any time on or after the date hereof, and from time to time thereafter until the date of expiration set forth in paragraph (b) of this Section 2, by delivery to the Company of a written notice of Holder's intent to exercise the Warrant. Holder shall purchase such number of shares indicated in such notice no later than seven days after the delivery of such notice to the Company at a closing to take place at the executive offices of the Company, unless an earlier closing is required hereunder (the "Closing"). At the Closing, Holder shall deliver the Exercise Price for such shares in good funds to the Company (which may consist of an offset against all or part of any amount owed by the Company to the Holder pursuant to a Promissory Note, dated as of the date hereof, in the principal amount of $1,500,000) and the Company shall deliver to Holder fully executed certificates evidencing such shares. In the event that Holder exercises the Warrant for a number of shares less than the total number of shares which Holder has a right to purchase under the Warrant, then the Company shall issue Holder a Warrant identical in form with this Warrant but for a number of shares equal to the amount Holder had the right to purchase immediately prior to such exercise less the amount so purchased. The effective date of exercise shall be the date at which the Company received notice of the intent to exercise the Warrant.
(b) If this Warrant is not effectively exercised on or before the closing date of the initial offering of Common Stock by the Company to the public pursuant to a registration statement which has become effective under the Securities Act of 1933, as amended (the "Securities Act"), then all rights of Holder under this Warrant shall expire.
3. HOLDER REPRESENTATIONS AND RESTRICTIONS ON TRANSFER. Holder hereby represents as follows:
(a) Holder is acquiring this Warrant and any Common Stock acquired upon exercise of this Warrant for his own account, for investment purposes only and not with a view to, or for resale in connection with, any distribution thereof except pursuant to an effective registration statement under the Securities Act, or pursuant to an exemption from such registration afforded by the Securities Act.
(b) Holder is an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act and expects to be an "accredited investor" at the time, if any, of the exercise of this Warrant.
(c) Holder understands that, because the Common Stock issuable under this Warrant has not been registered under the Securities Act, Holder cannot dispose of any or all of the Common Stock acquired upon the exercise of this Warrant unless such shares are subsequently registered under the Securities Act or exemptions from registration are available. Holder acknowledges and agrees that the Company is under no obligation to register any shares of Common Stock which may be issued to Holder upon exercise of the Warrants under federal or state securities laws, except as provided in the Registration Rights Agreement by and between the Company and the Holder, dated as of the date hereof. By reason of these restrictions, Holder understands that it may be required to hold the Common Stock for an indefinite period of time. Holder understands that each certificate representing the Common Stock will bear a legend substantially similar to the legend on the Warrant.
4. ANTIDILUTION. If any of the following events shall occur at any time or from time to time prior to the expiration of this Warrant, the following adjustments shall be made in the Exercise Price and/or the number of shares of Common Stock then purchasable upon the exercise of this Warrant, as appropriate, with the exceptions hereinafter provided.
(a) In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of shares purchasable under this Warrant shall be proportionately increased; and conversely, in case the Common Stock of the Company shall be combined into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of shares purchasable hereunder shall be proportionately reduced.
(b) If the Company shall declare a dividend on its Common Stock payable in stock or other securities of the Company or of any other corporation, or in property or otherwise than in cash, to holders of record of Common Stock as of a date prior to the date of exercise of this Warrant, Holder shall, without additional cost, be entitled to receive upon the exercise hereof, in addition to the Common Stock to which Holder is otherwise entitled upon such exercise, the number of shares of stock or other securities or property which Holder would have been entitled to receive if Holder had been a holder of such Common Stock on such record date.
(c) If the Company shall issue any shares of its Common Stock at an offering price of less than $5.00 per share, the Exercise Price shall be reduced to the price at which such shares were issued and the number of shares purchasable under this Warrant shall be proportionately increased; provided, however, that the foregoing shall not affect the determination of the Exercise Price pursuant to clause (ii) of the second sentence of Section 1 hereof.
(d) No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fraction of a share which would otherwise be issuable in an amount equal to the same fraction of the fair market value per share of Common Stock on the day of exercise, as reasonably determined by the board of
directors; however, such determination shall not take into any account any restraints on the transferability of the Common Stock.
5. DIVIDENDS. If the Company shall after the date hereof decide to declare a dividend or dividends on its Common Stock payable in cash or other property to the holders of record of Common Stock as of a date prior to the date of Holder becoming a holder of record of Common Stock through the exercise of this Warrant, the Company shall give Holder at least ten (10) days' notice of the record date for determining the stockholders of record who are entitled to such dividend, so that Holder may, at its discretion, exercise its rights under this Warrant and participate in such dividend. If the Company fails to provide such notice, the amount of cash dividends or other property per share declared by the Company, times the total shares of Common Stock into which the Warrant is exercisable, shall be placed in a separate account of the Company and reserved for payment to Holder upon exercise of this Warrant and shall be paid on a per-share basis upon exercise of this Warrant.
6. TRANSFERABILITY. Other than as contemplated in the Purchase Agreement, Holder may not sell, assign, pledge or otherwise transfer all or part of its rights under this Warrant without the prior written consent of the Company. Upon the occurrence of an Event of Default under the Promissory Note, dated as of the date hereof, from the Company to the Holder, this Warrant may be transferred by the Holder without the consent of the Company. A transfer of this Warrant may be made only in compliance with applicable securities laws. Permitted transferees hereof shall have the rights of Holder hereunder and the Company agrees to reissue to such permitted transferee a Warrant substantially identical in form with this Warrant for such number of shares so transferred and to issue to Holder a Warrant identical in form with this Warrant covering the number of shares not transferred.
7. RESERVATION OF SECURITIES. The Company shall at all times reserve and keep available out of its authorized capital stock, solely for the purpose of issuance upon the exercise of the Warrant, such number of shares of Common Stock as shall be issuable upon exercise thereof. The Company covenants and agrees that, upon exercise of the Warrant and payment of the Exercise Price therefor, all shares of Common Stock issuable upon such exercise shall be duly and validly issued, fully paid, nonassessable and not subject to the preemptive rights of any shareholder.
8. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered by overnight express delivery:
(a) If to Holder, to the address of Holder as shown on the books of the Company; or
(b) If to the Company, at Transgenomic, Inc., 5600 South 42nd Street, Omaha, Nebraska 68107, Attention: P. Thomas Pogge or to such other address as the Company may designate by notice to Holder.
9. SUPPLEMENTS AND AMENDMENTS.
(a) The Company and Holder may from time to time supplement or amend this Warrant in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provision herein, or to make other provisions in regard to matters of questions arising hereunder which the Company and Holder may deem necessary or desirable.
(b) The exercise of this Warrant and the issuance of Common Stock upon said exercise is subject to the terms and conditions of a Shareholders Agreement, dated July 1, 1997, by and among the Company and its shareholders, to which the Holder agrees to become a party upon exercise of this Warrant and as a condition to the issuance of shares of Common Stock to the Holder. The Shareholder Agreement shall not be amended without the consent of the Holder.
10. SUCCESSORS. All the covenants, agreements, representations and warranties contained in this Warrant shall bind the parties hereto and their respective heirs, executors, administrators, distributees, successors and assigns.
11. GOVERNING LAW. This Warrant shall be deemed to be a contract made under the laws of the State of Nebraska and for all purposes shall be construed in accordance with its laws without giving effect to the rules governing the conflict of laws.
THE WARRANT EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES ACT AND MAY ONLY BE SOLD OR TRANSFERRED IN COMPLIANCE WITH THAT ACT AND APPLICABLE STATE SECURITIES LAWS.
DATED: December 16, 1997.
THE COMPANY
Transgenomic, Inc.
By /s/ Collin J. D'Silva ------------------------------------------- Collin J. D'Silva, Chief Executive Officer |
THE HOLDER
/s/ G.S. Beckwith Gilbert ------------------------------------------- G.S. Beckwith Gilbert |
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Rights Agreement") is entered into as of December 16, 1997 by and among G.S. Beckwith Gilbert (the "Shareholder") and Transgenomic, Inc. (the "Company").
Section 1. DEFINITIONS. Certain other terms utilized in this Agreement shall have the meanings indicated herein:
"COMMISSION" means the U.S. Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"REGISTRABLE SECURITIES" shall consist of the shares of Common Stock acquired by the Shareholder pursuant to the warrants issued by the Company to the Shareholder pursuant to the terms of a Securities Purchase Agreement by and between the Shareholder and the Company and dated as of the date hereof. Registrable Securities shall not include: (i) any of such shares sold pursuant to an effective registration statement under the Securities Act; (ii) any of such shares sold under circumstances in which all of the applicable conditions to Rule 144 (or successor provision) under the Securities Act are met; and (iii) any of such shares that are no longer subject to any restrictions on transfer pursuant to Rule 144(k) (or successor provision) under the Securities Act.
"REGISTRATION EXPENSES" means all expenses incurred by the Company in connection with the registration of Registrable Securities pursuant to this Agreement, including (a) all registration and filing fees paid to the Commission; (b) fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities); (c) printing expenses; (d) internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties); (e) the fees and expenses incurred in connection with any listing of the Registrable Securities on a national or regional exchange, the NASDAQ Stock Market or similar facility; (f) fees and expenses of counsel for the Company and fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by any independent certified public accountants of any comfort letters); and (g) the reasonable fees and expenses of any special experts retained by the Company in connection with such registration.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting fees, discounts, commissions or expenses attributable to any sale of all or part of the Registrable Securities.
Section 2. REGISTRATION RIGHTS. (a) If the Company proposes to file a registration statement under the Securities Act with respect to either a primary or secondary offering by the Company of equity securities for its own account (other than a registration statement relating solely to (i) securities to be offered to employees pursuant to a stock option, stock savings, or
other employee benefit plan of the Company or its affiliates; (ii) securities proposed to be issued in exchange for securities or assets of, or in connection with a merger or consolidation with, another corporation; (iii) securities to be offered by the Company generally to any class or series of its then-existing security holders; or (iv) securities to be offered or issued pursuant to a combination of the foregoing transactions), then the Company shall give written notice of such proposed filing to the Shareholder as soon as practicable (but in no event less than 30 days before the anticipated filing date of such registration statement), and such notice shall offer the opportunity to include all or any part of the Registerable Shares owned by the Shareholder with the securities of the Company being so registered. The Shareholder shall have 15 days following receipt of such notice to request in writing inclusion of all or any portion of his Registerable Shares in such registration, which request shall specify the number of Registerable Shares the Shareholder proposes to sell pursuant thereto.
(b) Whenever the Shareholder requests that all or part of his Registerable Shares be included in a proposed registration, the Company shall use its reasonable best efforts to effect the registration of such Registerable Shares and to cause the managing underwriter of any proposed underwritten offering to permit the requested Registerable Shares to be included in such registration on the same terms and conditions as any similar securities included therein. The Shareholder may only participate in an underwritten registration hereunder if he (i) agrees to sell his Registerable Shares on the basis provided in any underwriting arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and these registration rights. Among other things, the Shareholder agrees, whether or not his Registerable Shares are included in an underwritten offering, that he will join in any general agreement with the managing underwriter not to effect any public sale or distribution of his Registerable Shares, including a sale pursuant to Rule 144 under the Securities Act, for a period of time not to exceed 360 days.
(c) Notwithstanding anything else set forth in this Section 2, the Company may, at the discretion of a majority of its Board of Directors and without the consent of the Shareholder, withdraw any registration and abandon the proposed offering. Furthermore, if the managing underwriter of an underwritten offering advises the Company that in its opinion either because of (A) the size of the offering that the Company, the Shareholder or any other shareholder desires to make or (B) the kind of securities that the Company and the Shareholder intend to include in such offering, the success of the offering could be materially and adversely affected by inclusion of the Registerable Shares requested to be included, then
(i) in the event that the size of the offering is the basis of such managing underwriter's opinion, (x) the amount of equity securities being offered by any other shareholders of the Company pursuant to other registration rights agreements which the Company may be party to will be reduced to the extent necessary to reduce the total amount of shares included in such offering to the amount recommended by the managing underwriter and (y) if an additional reduction in the number of shares is required, then the amount of equity securities to be offered by the Company and the amount of Registerable Shares to be offered for the account of the Shareholder shall be proportionately reduced (on the basis of the number of shares each intended to include in such offering) to the extent
necessary to reduce the total amount of shares included in such offering to the amount recommended by such managing underwriter; and
(ii) in the event that the kind or combination of securities to be offered is the basis of such managing underwriter's opinion, the amount of Registerable Shares to be included in such offering shall be reduced as described in clause (i) above or, if any such reduction would, in the judgment of the managing underwriter, be insufficient to substantially eliminate the adverse effect that inclusion of the Registerable Shares requested to be included could have on such offering, such Registerable Shares shall be excluded from such offering.
The Company agrees that it will not enter into any other registration rights
agreements which contradict or otherwise interfere with the operation of this
Section 2(c).
(d) The registration rights under this Section 2 shall apply to the any registration statement filed by the Company and declared effective under the Securities Act, other than registration statements relating to those offerings described in items (i) through (iv) of paragraph (a) of this Section 2.
(e) The Company shall pay all Registration Expenses in connection with the registration of Registerable Shares pursuant to this Section 2, whether or not the registration statement becomes effective. The Shareholder shall pay all Selling Expenses attributable to any sale of all or part of his Registerable Shares in connection with any registration, whether or not the registration statement becomes effective.
(f) In connection with any registration required under this Agreement, the Company shall take the actions set forth below.
(i) The Company shall notify the Shareholder of any stop order issued or threatened by the Commission and will take all reasonable actions required to prevent the entry of such stop order or to remove it if entered.
(ii) The Company shall comply with the provisions of the Securities Act with respect to the disposition of all securities covered by a registration statement filed pursuant to this Agreement with respect to the disposition of all Registrable Securities covered by such registration statement in accordance with the intended methods of disposition by the Shareholder as set forth in such registration statement.
(iii) The Company shall furnish to the Shareholder and each underwriter, if any, of Registrable Securities covered by a registration statement filed pursuant to this Agreement, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the prospectus included in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents as a Shareholder may reasonably request in order to facilitate the disposition of the Registrable Securities.
(iv) The Company shall use its commercially reasonable best efforts to register or qualify the Registrable Securities under the securities or "blue sky" laws of each state of
the United States of America as the Shareholder or any of the underwriters, if any, of the Registrable Securities covered by a registration statement filed hereunder requests to the extent such request is deemed reasonable by the Board of Directors of the Company in its sole discretion, and shall do any and all other acts and things which may be reasonably necessary or advisable to enable the Shareholder and each underwriter, if any, to consummate the disposition in such states of the Registrable Securities; provided that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection (iv), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction.
(v) The Company shall immediately notify the Shareholder of the happening of any event which comes to the Company's attention if, as a result of such event, the prospectus included in the registration statement filed under this Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company shall promptly prepare and furnish to the Shareholder and file with the Commission a supplement or amendment to such prospectus so that such prospectus will no longer contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(vi) The Company shall make available for inspection by the Shareholder, any underwriter participating in any disposition pursuant to a registration statement filed under this Agreement, and any attorney, accountant or other agent retained by the Shareholder or such underwriters, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, as such person may reasonably request for the purpose of confirming that such registration statement does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that the Company obtains reasonably satisfactory assurances that such information will be used solely for such purpose and will be held in confidence (except to the extent that it is included in the registration statement). The Company shall cause the officers, directors and employees of the Company and each of its subsidiaries to supply such information and respond to such inquiries as the Shareholder or such underwriter may reasonably request or make for the purpose of confirming that such registration statement does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that the Company obtains reasonably satisfactory assurances that such information will be used solely for such purpose and will be held in confidence (except to the extent that it is included in the registration statement).
(vii) The Company shall use its commercially reasonable best efforts to obtain a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the Shareholder or the underwriters reasonably request.
(viii) The Company shall otherwise use its best commercially reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as reasonably practicable, an earnings statement covering a period (which may begin with the first fiscal quarter ending after the effective date of the registration statement) of at least 12 months after the effective date of the registration statement (as the term "effective date" is defined in Rule 158(c) under the Securities Act), which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
Section 3. OTHER REGISTRATION RIGHTS. The Shareholder acknowledges that certain other stockholders of the Company may now or hereafter have registration rights, and that such other stockholders may be entitled to sell their securities at the same time, or pursuant to the same registration and underwriting, as the Holders hereunder.
Section 4. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and hold harmless the Shareholder and each person, if any, who controls the Shareholder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of, or are based upon, any such untrue statement or omission or allegation thereof contained in information furnished in writing to the Company by such Shareholder or on such Shareholder's behalf; and provided, further, that with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, the indemnity contained in this paragraph shall not apply to the extent that any such loss, claim, damage, liability or expense results from the fact that a current copy of the prospectus was not sent or given to the persons or entities asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such persons or entities with a current copy of the prospectus and such current copy of the prospectus would have cured the defect giving rise to such loss, claim, damage, liability or expense.
(b) INDEMNIFICATION BY SHAREHOLDER. The Shareholder agrees to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to the Shareholder, but only with respect to information furnished in writing by the Shareholder or on his behalf. The Shareholder agrees to indemnify and hold harmless the underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters on terms consistent with industry standards in effect at such time.
Section 5. MISCELLANEOUS.
(a) NOTICES. All notices that are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and delivered personally or by a recognized courier service or by registered or certified mail, postage prepaid, to any party at its address set forth below, with a copy of same by any of the authorized means to the indicated person or persons:
If to the Company: Transgenomic, Inc. 5600 South 42nd Street Omaha, Nebraska 68107 Attention: P. Thomas Pogge, General Counsel
If to Shareholder: G.S. Beckwith Gilbert Field Point Capital Management Company 104 Field Point Road Greenwich, Connecticut 06830
Any notice or other communication shall be deemed to have been given on the day it is personally delivered or delivered by a recognized courier service as aforesaid or, if mailed, on the third day after it is mailed. Any party may change its address for notices or the person or persons authorized to receive notices for it by providing notice to the other parties in accordance with this Section.
(b) INVALIDITY OF PROVISIONS. If any provision of this Agreement is determined to be invalid, illegal or unenforceable, in whole or in part, then the parties shall be relieved of all obligations arising under such provision to the extent it is invalid, illegal or unenforceable, and such provision shall be reformed to the extent necessary to make it legal and enforceable while preserving its intent or, if that is not possible, by substituting therefor another provision that is legal and enforceable and achieves the same objectives.
(c) SECTION TITLES. All section titles and captions in this Agreement are for convenience only, shall not be deemed part of this Agreement and in no way shall define, limit, extend or describe the scope or intent of any provisions of this Agreement.
(d) FURTHER ACTS. The parties shall execute all documents, provide all information and take all such actions as may be reasonably necessary or appropriate to achieve the purposes of this Agreement and to accomplish the transactions contemplated hereby.
(e) ENTIRE AGREEMENT; WAIVER. This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof. This Agreement cannot be modified or amended except in writing signed by the party against whom enforcement is sought. No waiver by a party of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision of this Agreement, nor shall any such waiver constitute a continuing waiver.
Although the Shareholder will become a party to the Shareholders Agreement, dated July 1, 1997, by and among the Company and its shareholders (the "Shareholders Agreement") upon the exercise of his warrants, the registration rights granted pursuant to this Agreement shall supersede any such rights stated in Section 8 of the Shareholders Agreement with respect to the Registerable Shares (but not with respect to any other shares of the Company's equity securities acquired or held by the Shareholder).
(f) COUNTERPARTS. This Agreement may be executed in multiple counterparts, all of which together shall constitute one agreement binding on the parties hereto, notwithstanding that the parties are not signatories to the same counterpart.
(g) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Nebraska and the United States, as applicable, without giving effect to any conflict of laws provisions that might result in the application of the laws of another jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of date first above written.
TRANSGENOMIC, INC.
By /s/ Collin D'Silva -------------------------------- Its Chief Executive Officer -------------------------------- |
/s/ G.S. Beckwith Gilbert -------------------------------- G.S. Beckwith Gilbert |
EXHIBIT 10.3
VOID AFTER 3:30 P.M., CENTRAL TIME, ON [______], [______]
WARRANT TO PURCHASE COMMON SHARES
TRANSGENOMIC, INC.
This is to certify that, for value received, [HOLDER], [ADDRESS] (the "Holder"), is entitled to purchase, subject to the provisions of this Warrant, from TRANSGENOMIC, INC. (the "Company"), a Delaware corporation, at any time until 3:30 p.m., Central time, on [ ], [ ] ("Expiration Date"), [ ] Common Shares of the Company at a purchase price per share of $5.00 during the period this Warrant is exercisable. The number of Common Shares to be received upon the exercise of this Warrant and the price to be paid for a Common Share may be adjusted from time to time as hereinafter set forth. The purchase price of a Common Share in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." This Warrant is or may be one of a series of warrants identical in form issued by the Company to purchase an aggregate [ ] of Common Shares of the Company and the term "Warrants" as used herein means all such Warrants (including this Warrant). The Common Shares, as adjusted from time to time, underlying the Warrants are hereinafter sometimes referred to as "Warrant Shares" and include all Common Shares that have been issued upon the exercise of the Warrants and all unissued Common Shares underlying the Warrants.
SECTION 1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part at any time or from time to time until the Expiration Date or if the Expiration Date is a day on which banking institutions are authorized by law to close, then on the next succeeding day which shall not be such a day, by presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares specified in such Form, together with all federal and state taxes applicable upon such exercise. The Company agrees not to merge, reorganize or take any action that would terminate this Warrant unless provisions are made as part of such merger, reorganization or other action which would provide the holders of this Warrant with an equivalent of this Warrant as specified in this Section. The Company agrees to provide notice to the Holder that any tender offer is being made for the Company's Common Shares no later than three business days after the day the Company becomes aware that any tender offer is being made for outstanding Common Shares of the Company. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Common Shares purchasable hereunder. Upon receipt by the Company of this Warrant at the office of the Company or at the office of the Company's stock transfer agent, in proper form for exercise and accompanied by the Purchase Form and the Exercise Price, the Holder shall be deemed to be the holder of record of the Common Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or
that certificates representing such Common Shares shall not then be actually delivered to the Holder.
SECTION 2. RESERVATION OF SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of Common Shares as shall be required for issuance or delivery upon exercise of this Warrant.
SECTION 3. FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a Common Share called for upon any exercise hereof, the Company shall, upon receipt by the Company or the Company's stock transfer agent of the Exercise Price on such fractional share, pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined as follows:
(a) If the Common Shares are listed on a national securities exchange or a foreign exchange, are admitted to unlisted trading privileges on such an exchange or are listed for trading on a trading system of the National Association of Securities Dealers, Inc. ("NASD") such as The Nasdaq SmallCap Market ("SCM") or the Nasdaq National Market ("NNM") or the OTC Bulletin Board, then the current value shall be the last reported sale price of the Common Shares on such an exchange or system on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing bid prices for the Common Shares for such day on such exchange or such system shall be used;
(b) If the Common Shares are not so listed on such exchange or system or admitted to unlisted trading privileges, the current value shall be the average of the last reported bid prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or
(c) If the Common Shares are not so listed or admitted to unlisted trading privileges and if bid prices are not so reported, the current value shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the board of directors of the Company.
SECTION 4. EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase (under the same terms and conditions as provided by this Warrant) in the aggregate the same number of Common Shares purchasable hereunder. This Warrant may not be sold, transferred, assigned or hypothecated except in compliance with federal and state securities laws. Any transfer or assignment shall be made by surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and with funds sufficient to pay any transfer tax; whereupon the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same
rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any warrants issued in substitution for or replacement of this Warrant or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Subject to such right of indemnification, any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone.
SECTION 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein.
SECTION 6. ADJUSTMENT PROVISIONS.
(a) ADJUSTMENTS OF THE EXERCISE PRICE.
(i) If the Company subdivides its outstanding Common Shares into a greater number of Common Shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced. Conversely, if the Company combines its outstanding Common Shares into a lesser number of Common Shares, the Exercise Price in effect immediately prior to such combination -- shall be proportionally increased. In case of a subdivision or combination, the adjustment of the Exercise Price shall be made as of the effective date of the applicable event. A distribution on Common Shares, including a distribution of Convertible Securities, to shareholders of the Company on a pro rata basis shall be considered a subdivision of Common Shares for the purposes of this subsection (a)(i) of this Section, except that the adjustment will be made as of the record date for such distribution and any such distribution of Convertible Securities shall be deemed to be a distribution of the Common Shares underlying such Convertible Securities.
(ii) If the Company shall at any time distribute or cause to be distributed to its shareholders, on a pro rata basis, cash, assets or securities of any entity other than the Company, then the Exercise Price in effect immediately prior to such distribution shall automatically be reduced by an amount determined by dividing (x) the amount (if cash) or the value (if assets or securities) of the holders of Warrants (as such term is defined in the first paragraph hereof) pro rata share of such distribution determined assuming that all holders of Warrants had exercised their Warrants on the day prior to such distribution, by (y) the number of
Common Shares issuable upon the exercise of Warrants (as such term is defined in the first paragraph hereof) by the holders thereof on the day prior to such distribution.
(b) NO ADJUSTMENT FOR SMALL AMOUNTS. Anything in this Section to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in the Exercise Price unless and until the net effect of one or more adjustments, determined as above provided, shall have required a change of the Exercise Price by at least one cent, but when the cumulative net effect of more than one adjustment so determined shall be to change the actual Exercise Price by at least one cent, such change in the Exercise Price shall thereupon be given effect.
(c) NUMBER OF SHARES ADJUSTED. Upon any adjustment of the Exercise Price, the Holder of this Warrant shall thereafter (until another such adjustment) be entitled to purchase, at the new Exercise Price, the number of Common Shares, calculated to the nearest full share, obtained by multiplying the number of Common Shares initially issuable upon exercise of this Warrant by the Exercise Price specified in the first paragraph hereof and dividing the product so obtained by the new Exercise Price.
(d) DEFINITIONS.
(i) Whenever reference is made in this Section to the
distribution of Common Shares, the term "Common Shares" shall
mean the Common Shares of the Company authorized as of the
date hereof and any other class of stock ranking on a parity
with such Common Shares. However, subject to the provisions of
Section (ii) hereof, Common Shares issuable upon exercise
hereof shall include only Common Shares of the class
designated as Common Shares of the Company as of the date
hereof.
(ii) Whenever reference is made in this Section to the distribution of Convertible Securities, the term "Convertible Securities" shall mean options or Warrants or rights for the purchase of Common Shares of the Company or for the purchase of any stock or other securities convertible into or exchangeable for Common Shares of the Company.
(e) ANTIDILUTION PROVISIONS.
(i) ADJUSTMENTS OF EXERCISE PRICE. If the Company should at any time or from time to time hereafter issue or sell any of its Common Shares (other than Common Shares outstanding on completion of the Company's private offering of a maximum of 2,000,000 Common Shares pursuant to the Company's Private Placement Memorandum dated July 3, 1997, as amended February 1998 and Supplemented June 1998 ("Memorandum") and other than Common Shares issued upon the conversion or exercise of Convertible Securities or warrants and options described in the Memorandum as outstanding or issuable) without consideration or for a consideration per share less than the Exercise Price in effect
immediately prior to the time of such issue or sale, then forthwith upon such issue or sale, the Exercise Price shall be automatically adjusted to a price (computed to the nearest cent) determined by dividing (A) the sum of (x) the number of Common Shares outstanding immediately prior to such issue or sale multiplied by the Exercise Price in effect immediately prior to such issue or sale and (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of Common Shares outstanding immediately after such issue or sale. For purposes of this subsection (e)(i), the following provisions (1) and (2) shall also be applicable:
(1) RIGHTS, OPTIONS OR WARRANTS. In case at any time hereafter the Company shall in any manner grant any right to subscribe for or to purchase, or any option or warrant for the purchase of Common Shares or for the purchase of any stock or securities convertible into or exchangeable for Common Shares (such convertible or exchangeable stock or securities being hereinafter referred to as the "Underlying Convertible Securities") and if the minimum price per share for which Common Shares are issuable, pursuant to such rights, options, warrants or upon conversion or exchange of such Underlying Convertible Securities (determined by dividing (a) the total amount, if any, received or receivable by the Company as consideration for the granting of such rights, options or warrants plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of such rights, options or warrants under the terms of such rights, options or warrants at the time of making such computation, plus, in minimum aggregate amount of additional consideration, if any, payable upon the conversion or exchange thereof under the terms of such Underlying Convertible Securities at the time of making such computation, by (b) the total maximum number of Common Shares issuable pursuant to such rights, options or warrants or upon the conversion or exchange of the total maximum amount of such Underlying Convertible Securities issuable upon the exercise of such rights, options or warrants under the terms of such rights, options, warrants or Underlying Convertible Securities at the time of making such computation) shall be less than the Exercise Price in effect immediately prior to the time of the granting of such rights or options, then the total maximum number of Common Shares issuable pursuant to such rights, options, warrants or upon conversion or exchange of the total maximum amount of such Underlying Convertible Securities issuable upon the exercise of such rights, options or warrants under the terms of such rights, options warrants or Underlying Convertible Securities at the time of making such computation shall (as of the date of granting of such rights, options or warrants) be deemed to be outstanding and to have been issued for said price per share as so determined, provided that no further adjustment of the Exercise Price shall be made upon the actual issue of Common Shares so deemed to have been issued unless the price per share
received by the Company upon the actual issuance of
Common Shares so deemed to be issued differs from the
price per share which was last used to adjust the
Exercise Price or unless by the terms of such rights,
options or warrants or Underlying Convertible
Securities the price per share which the Company will
receive upon any such issuance of Common Shares
differs from the price per share which was last used
to adjust the Exercise Price, in either of which
events the Exercise Price shall be adjusted upon the
occurrence of either such event to reflect the new
price per share of Common Stock, and further provided
that, upon the expiration of such rights (including
rights to convert or exchange), options or warrants
(i) the number of shares of Common Stock deemed to
have been issued and outstanding by reason of the
fact that they were issuable pursuant to such rights,
options or warrants (including rights to convert or
exchange) that were not exercised shall no longer be
deemed to be issued and outstanding and (ii) the
Exercise Price shall forthwith be adjusted to the
price which would have prevailed had all adjustments
been made on the basis of the issue only of the
Common Shares actually issued upon the exercise of
such rights, options or warrants or upon conversion
or exchange of such Underlying Convertible
Securities. Such adjustments upon expiration shall
have no effect on Warrants exercised prior to such
expiration.
(2) CONVERTIBLE SECURITIES. If the Company
shall in any manner issue or sell any Convertible
Securities other than the rights, options or warrants
described in subsection or (e)(i)(1) hereof and if
the minimum price per share for which Common Shares
are issuable upon conversion or exchange of such
Convertible Securities (determined by dividing (a)
the total amount received or receivable by the
Company as consideration for the issue or sale of
such Convertible Securities, plus the aggregate
amount of additional consideration, if any, payable
to the Company upon the conversion or exchange
thereof under the terms of such Convertible
Securities at the time of making such computation, by
(b) the total maximum number of Common Shares
issuable upon the conversion or exchange of all such
Convertible Securities under the terms of such
Convertible Securities at the time of making such
computation) shall be less than the Exercise Price in
effect immediately prior to the time of such issue or
sale, then the total maximum number of Common Shares
issuable upon conversion or exchange of all such
Convertible Securities at the time of making such
computation shall (as of the date of the issue or
sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for said price
per share as so determined, provided that no further
adjustment of the Exercise Price shall be made upon
the actual issue of Common Shares so deemed to have
been issued unless the price per share received by
the Company upon the actual issuance of Common Shares
so deemed to be issued differs from the price per
share which was last used to adjust the Exercise
Price or unless by the terms of such
Convertible Securities the price per share which the
Company will receive upon any such issuance of Common
Shares differs from the price per share which was
last used to adjust the Exercise Price, in either of
which events the Exercise Price shall be adjusted
upon the occurrence of either such event to reflect
the new price per share of Common Shares, and further
provided that, if any such issue or sale of such
Convertible Securities is made upon exercise of any
right to subscribe for or to purchase or any option
to purchase any such Convertible Securities for which
an adjustment of the Exercise Price has been or is to
be made pursuant to the provisions of subsection
(e)(i)(1) then no further adjustment of the Exercise
Price shall be made by reason of such issue or sale
unless the price per share received by the Company
upon the conversion or exchange of such Convertible
Securities when actually issued differs from the
price which was last used to adjust the Exercise
Price or unless by the terms of such Convertible
Securities the price per share which the Company will
receive upon any such issuance of Common Shares upon
conversion or exchange of such Convertible Securities
differs from the price per share which was last used
to adjust the Exercise Price, in either of which
events the Exercise Price shall be adjusted upon the
occurrence of either of such events to reflect the
new price per share of Common Shares, and further
provided that, upon the termination of the right to
convert or to exchange such (i) the number of Common
Shares deemed to have been issued and outstanding by
reason of the fact that they were issuable upon
conversion or exchange of any such Convertible
Securities, which were not so converted or exchanged,
shall no longer be deemed to be issued and
outstanding, and (ii) the Exercise Price shall
forthwith be adjusted to the price which would have
prevailed had all adjustments been made on the basis
of the issue only of the number of Common Shares
actually issued upon conversion or exchange of such
Convertible Securities. Such adjustments upon
expiration shall have no effect on Warrants exercised
prior to such expiration.
(ii) DETERMINATION OF ISSUE PRICE. In case any Common Shares or Convertible Securities shall be issued for cash, the consideration received therefor, which shall be the gross sales price for such security without deducting therefrom any commission or other expenses paid or incurred by the Company for any underwriting of, or otherwise in connection with, the issuance thereof, shall be deemed to be the amount received by the Company therefor. In case any Common Shares or Convertible Securities shall be issued for a consideration part or all of which shall be other than cash, then, for the purpose of this subsection (e), the Board of Directors of the Company shall determine the fair value of such consideration, irrespective of accounting treatment, and such Common Shares or Convertible Securities shall be deemed to have been issued for an amount of cash equal to the value so determined by the Board of Directors. The reclassification of securities other than Common Shares into securities,
including Common Shares, shall be deemed to involve the issuance for a consideration other than cash of such Common Shares immediately prior to the close of business on the date fixed for the determination of security holders entitled to receive such Common Shares. In case any Common Shares or Convertible Securities shall be issued together with other stock or securities or other assets of the Company for consideration, the Board of Directors of the Company shall determine what part of the consideration so received is to be deemed to be consideration for the issue of such Common Shares or Convertible Securities.
(iii) DETERMINATION OF DATE OF ISSUE. In case the Company shall take a record of the holders of Common Shares for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Shares or in Convertible Securities or (B) to subscribe for or purchase Common Shares or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the Common Shares deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
(iv) TREASURY SHARES. For the purpose of this Section
(f), Common Shares at any relevant time owned or held by, or
for the account of, the Company shall not be deemed
outstanding.
SECTION 7. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Section 6 hereof, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer and warrant agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided and setting forth in reasonable detail the facts requiring such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder and the Company shall, forthwith after each such adjustment, deliver a copy of such certificate to the Holder.
SECTION 8. NOTICES TO HOLDERS. So long as this Warrant shall be outstanding and unexercised (a) if the Company shall pay any dividend or make any distribution upon the Common Shares, (b) if the Company shall offer to the holders of Common Shares for subscription or purchase by them any shares of stock of any class or any other rights or (c) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then, in any such case, the Company shall cause to be delivered to the Holder, at least 10 days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place
and the date, if any is to be fixed, as of which the holders of Common Shares of record shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.
SECTION 9. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding Common Shares of the Company (other than a change in par value, from par value to no par value, from no par value to par value or as a result of an issuance of Common Shares by way of dividend or other distribution or of a subdivision or combination) or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding Common Shares of the class issuable upon exercise of this Warrant) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company shall cause effective provision to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property which the Holder would have received upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance had this Warrant been exercised prior to the consummation of such transaction. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section shall similarly apply to successive reclassifications, capital reorganizations and changes of Common Shares and to successive consolidations, mergers, sales or conveyances. In the event the Company spins off a subsidiary by distributing to the shareholders of the Company as a dividend or otherwise the stock of the subsidiary, the Company shall reserve for the life of this Warrant shares of the subsidiary to be delivered to the Holders of the Warrants upon exercise to the same extent as if they were owners of record of the Warrant Shares on the record date for distribution of the shares of the subsidiary.
SECTION 10. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(a) Within 45 days after receipt of a written request by the then Holder(s) of Warrants or Warrant Shares representing at least 51% of the total Warrant Shares made at any time within the period commencing June 30, 1999 and ending June 30, 2003, the Company will file, no more than once, a registration statement under the Securities Act of 1933, as amended (the "Act"), registering the Warrants and the Warrant Shares. The Company will use its best efforts to cause such registration statement to become effective.
(b) In addition, if at any time during the period commencing June 30, 1999 and ending December 31, 2005, the Company should file a registration statement (which term shall not include any registration statement filed on Form S-8 or S-4) under the Act, which relates to a current offering of securities of the Company (except in connection with an offering (i) to employees or (ii) of the Company's securities solely in exchange for properties, assets or stock of other individuals or corporations), such registration
statement and the prospectus included therein shall also, at the written request to the Company by any of the Holder(s) of the Warrants and Warrant Shares, relate to and meet the requirements of the Act with respect to any public offering of the Warrants and Warrant Shares so as to permit the public sale thereof in compliance with the Act. The Company shall give written notice to the Holder(s) of its intention to file a registration statement under the Act relating to a current offering of the aforesaid securities of the Company 30 or more days prior to the filing of such registration statement, and the written request provided for in the first sentence of this subsection shall be made by the Holder(s) 10 or more days prior to the date specified in the notice as the date on which it is intended to file such registration statement. Neither the delivery of such notice by the Company nor of such request by the Holder(s) shall in any way obligate the Company to file such registration statement, and, notwithstanding the filing of such registration statement, the Company may, at any time prior to the effective date thereof, determine not to proceed to effectiveness with such registration statement, without liability to the Holder(s).
(c) In addition, the Company will cooperate with the then Holder(s) of the Warrants and Warrant Shares in preparing and signing any registration statement, in addition to the registration statements discussed above, required in order to sell or transfer the Warrants and Warrant Shares and will sign and supply all information required therefor, but such additional registration shall be at cost and expense of the then Holder(s).
(d) When, pursuant to subsections (a), (b) or (c) of this Section, the Company shall take any action to permit a public offering or sale or other distribution of the Warrants and Warrant Shares, the Company shall:
(i) supply to each selling Holder a copy of the registration statement and a reasonable number of copies of the preliminary, final and other prospectus in conformity with requirements of the Act and the Rules and Regulations promulgated thereunder and such other documents as the Holders shall reasonably request;
(ii) bear the complete cost and expense (other than any selling commissions relating to the sale of the Warrants and Warrant Shares, which shall be paid by the sellers thereof) of such registrations or qualifications except those filed under subsection (10)(c) which shall be cost and expense of the Holder(s);
(iii) keep effective such registration statement until the first of the following events occur (A) 12 months have elapsed after the effective date of such registration statement or (B) all of the registered Warrant Shares issued by the Company either before or after the effective date of such registration statement have been publicly sold under such registration statement;
(iv) whenever the Company files a registration statement pursuant to this Section that is declared effective and that registers any Warrants or Warrant
Shares for resale, the Company agrees to use its best efforts to register or qualify the Warrants and Warrant Shares for sale in those states requested by the person selling the Warrants or Warrant Shares, provided that the Company shall not be required to register or qualify the Warrants and Warrant Shares for sale in any state in which the sale of the Warrants or Warrants Shares by the person selling the Warrants or Warrant Shares would be exempt from having to be registered or qualified in such state. The determination of whether or not such an exemption exists shall be made by counsel for the Company and such determination shall be provided in writing to the person desiring to sell Warrants or Warrant Shares in a state; and
(v) indemnify and hold harmless each such Holder and each underwriter, within the meaning of the Act, who may purchase from or sell for any such Holder, any Warrants or Warrant Shares, from and against any and all losses, claims, damages and liabilities (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing, defending or settling any claim) arising from (A) any untrue or alleged untrue statement of a material fact contained in any registration statement furnished pursuant to subsection (i) or any prospectus included therein or (B) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (unless such untrue statement or omission or such alleged untrue statement or omission was based upon information furnished or required to be furnished in writing to the Company by such Holder or underwriter expressly for use therein), which indemnification shall include each person, if any, who controls any such Holder or underwriter within the meaning of the Act; provided, however, that the Company shall not be so obligated to indemnify any such Holder or underwriter or controlling person unless such Holder and underwriter shall at the same time indemnify the Company, its directors, each officer signing any registration statement or any amendment to any registration statement and each person, if any, who controls the Company within the meaning of the Act, from and against any and all losses, claims, damages and liabilities (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing, defending or settling any claim) arising from (1) any untrue or alleged untrue statement of a material fact contained in any registration statement or prospectus furnished pursuant to subsection (i) or (2) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but the indemnity of such Holder, underwriter or controlling person shall be limited to liability based upon information furnished, or required to be furnished, in writing to the Company by such Holder or underwriter or controlling person expressly for use therein. The Company shall not be liable for amounts paid in settlement of any such litigation if such settlement was effected without the consent of the Company. The indemnity agreement of the Company herein shall not inure to the benefit of any such underwriter (or to the benefit of any person who controls such underwriter) on account of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof)
arising from the sale of any of such Warrants or Warrant
Shares by such underwriter to a person if such underwriter
failed to send or give a copy of the prospectus furnished
pursuant to subsection (i), as the same may then be
supplemented or amended (if such supplement or amendment shall
have been furnished to the Holders pursuant to said subsection
(i)), to such person with or prior to the written confirmation
of the sale involved.
(e) Each Holder shall supply such information as the Company may reasonably require from such Holder, or any underwriter for such Holders, for inclusion in such registration statement or posteffective amendment.
(f) The Company's agreements with respect to the Warrants and Warrant Shares in this Section will continue in effect regardless of the exercise or surrender of this Warrant.
(g) Any notices or certificates by the Company to the Holder and by the Holder to the Company shall be deemed delivered if in writing and delivered personally or sent by certified mail, return receipt requested, to the Holder, addressed to the Holder at the Holder's address as set forth on the Warrant or stockholder register of the Company, or, if the Holder has designated, by notice in writing to the Company, any other address, to such other address, and, if to the Company, addressed to it at 5600 South 42nd Street, Omaha, Nebraska 67107. The Company may change its address by written notice to the Holder.
SECTION 11. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. The Company may cause the following legend, or one similar thereto, to be set forth on the Warrants and on each certificate representing Warrant Shares or any other security issued or issuable upon exercise of this Warrant not theretofore distributed to the public or sold to underwriters for distribution to the public pursuant to Section 10 hereof, unless legal counsel for the Company is of the opinion as to any such certificate that such legend, or one similar thereto, is unnecessary:
The securities represented by this certificate may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement made under the Securities Act of 1933 (the "Act") and under any applicable state securities law, or pursuant to an exemption from registration under the Act and under any applicable state securities law, the availability of which is to be established to the satisfaction of the Company.
SECTION 12. EXCHANGE PROVISIONS.
(a) For purposes of this Section, this Warrant shall be deemed to represent the same number of Warrants as there are Warrant Shares underlying this Warrant. For example, if there are 10,000 Warrant Shares underlying this Warrant, then for purposes of this Section, the Holder shall be deemed to hold 10,000 Warrants.
(b) For purposes of this Section, the following terms shall have the following meanings:
(i) "Current Market Value of a Warrant Share" shall
be the value of a Warrant Share as determined under subsection
(3)(a) or (b) hereof except that the time of the determination
thereunder shall be the last business day prior to the day the
Company receives a notice from the Holder under this Section.
(ii) "Warrant Value" shall mean the Current Market Value of a Warrant Share minus or less the Exercise Price payable under this Warrant as of the close of business on the last business day prior to the day the Company receives a notice from the Holder under this Section.
(c) The Holder shall have the right to exchange, in a cashless transaction, all or part of the Holder's Warrants for Common Shares issued by the Company at any time prior to the Expiration Date of such Warrants by providing written notice ("Notice") to the Company. Such Notice may only be provided after the earlier of the date the Company has received proceeds from the initial public offering by the Company pursuant to a registration statement declared effective under the Act or December 31, 1999, and only at a time when the Company's Common Shares are listed or approved for trading or quotation on a domestic or foreign exchange, interdealer trading system or national quotation bureau. Such Notice shall set forth the number of Warrants which the Holder elects to exchange for Common Shares.
(d) Within 10 days after receipt of such Notice by the Company, the Company shall issue the number of Common Shares of the Company to the Holder which is determined by dividing the Warrant Value of the Warrants being exchanged by the Current Market Value of a Warrant Share as of the date the Notice is received by the Company.
(e) The Holder shall surrender the Warrant which the Holder is exchanging for Common Shares upon receipt thereof. If the entire Warrant is being exchanged by the Holder for Common Shares, the Company shall cancel the entire Warrant. If less than the entire Warrant is being exchanged for Common Shares, the Company shall issue a new Warrant to the Holder representing the portion of this Warrant which was not exchanged for Common Shares.
SECTION 13. APPLICABLE LAW. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Nebraska.
Dated: [ ].
TRANSGENOMIC, INC.
PURCHASE FORM
Dated: [__________], 19[___]
The undersigned hereby irrevocably elects to exercise the Warrant to the extent of purchasing [ ] shares of Common Shares and hereby makes payment of $[ ] in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
ASSIGNMENT FORM
Dated: [_________], 19[___]
the right to purchase Common Shares represented by this Warrant to the extent of Common Shares as to which such right is exercisable and does hereby irrevocably constitute and appoint attorney to transfer the same on the books of the Company with full power of substitution in the premises.
Signature:
EXHIBIT 10.3
SCHEDULE
OF
WARRANT HOLDERS
--------------------------------------------- --------------------------------------------
NAME/ADDRESS NO. OF COMMON SHARES
--------------------------------------------- --------------------------------------------
SMITH HAYES FINANCIAL SVCS. 108,250
Consolidated Investment Corp.
200 Centre Terrace
1225 L Street
Lincoln, NE 68501
--------------------------------------------- --------------------------------------------
Leroy J. Schroeder 2,500
800 US Bank Building
Lincoln, NE 68508
--------------------------------------------- --------------------------------------------
Section 1. MILLENNIUM FINANCIAL GROUP 500
Anthony H. Mannara
Via G. Cattori 3
6902 Lugano-Paradiso
Switzerland
--------------------------------------------- --------------------------------------------
Namaste Ltd. 2,225
P.O. Box 3338, 1225 Geneva 3
Switzerland
--------------------------------------------- --------------------------------------------
Deltron Ltd. 2,225
Island Resources Ltd.
National House, Santon
Isle of Man IM4 1HA
--------------------------------------------- --------------------------------------------
Michael R. Fugler 800
235 West 56th, Suite 37E
New York, NY 10019
--------------------------------------------- --------------------------------------------
Shelley K. Gluck 250
3340 Indian Creek
Ft. Worth, TX 76180
--------------------------------------------- --------------------------------------------
David M. Dobson 500
Via Santa Radegonda 16
20121 Milano, Italy
--------------------------------------------- --------------------------------------------
Paolo E. Floriani 500
Via Cattori 3
6902 Paradiso, Switzerland
--------------------------------------------- --------------------------------------------
James M. McCrory 500
Viale Geno 16
22100 Como, Italy
--------------------------------------------- --------------------------------------------
Frank T. Marino 500
32 Quai G. Ador
Geneva, Switzerland
--------------------------------------------- --------------------------------------------
Section 2. RAF/AMERICAN FRONTEER 16,850
John P. Kanouff
2525 East Cedar Avenue
Denver, CO 80209
--------------------------------------------- --------------------------------------------
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--------------------------------------------- --------------------------------------------
Robert H. Taggart 3,370
7163 S. Chapparal Circle East
Aurora, CO 80016
--------------------------------------------- --------------------------------------------
Section 3. American Fronteer 6,740
Financial Corporation
One Norwest Center
1700 Lincoln Street, 32nd Floor
Denver, CO 80203
--------------------------------------------- --------------------------------------------
Section 4. American Fronteer 6,740
Financial Corporation
One Norwest Center
1700 Lincoln Street, 32nd Floor
Denver, CO 80203
--------------------------------------------- --------------------------------------------
Section 5. G.S. BECKWITH GILBERT 300,000
G. S. Beckwith Gilbert
Field Point Capital Management
47 Arch Street
Greenwich, CT 06830
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EXHIBIT 10.4
TRANSGENOMIC, INC.
FIRST AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
THIS AGREEMENT, originally entered into as of the 1st day of July, 1997, by and among TRANSGENOMIC, INC., a Delaware corporation (the "Corporation"), and each of the holders of the Corporation's Common Stock as of such date and such additional persons set forth in Schedule A hereto which become a party hereto from time to time thereafter (collectively, the "Shareholders") is hereby amended and restated as provided herein as of the 24th day of February, 1998.
W I T N E S S E T H:
WHEREAS, the Shareholders own all of the issued and outstanding shares of Common Stock, par value $.01 per share, of the Corporation (the "Shares"); and
WHEREAS, the Shareholders and the Corporation believe that it is in their mutual best interest to impose certain restrictions and obligations upon themselves and upon the transfer of the Shares;
NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, it is mutually agreed by and among the parties as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, unless the context otherwise requires:
"AGREEMENT" means this Shareholders' Agreement and any amendments and supplements hereto.
"BONA FIDE OFFER" means a written offer from a financially responsible party or parties identified therein by name and address, reasonably appearing able to comply with the terms of such offer, and accompanied by a deposit in an amount equal to or in excess of 10% of the purchase price. In the event that the person making such offer is a partnership or corporation, all general partners and all limited partners or shareholders owning more than 10% of its partnership interests or stock shall be identified.
"CONTROL SHAREHOLDER" means any Shareholder who, at the time in question, is a director or executive officer of the Corporation or who beneficially owns (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934) more than 10% of the issued and outstanding Shares.
"CORPORATION" means Transgenomic, Inc., a Delaware corporation.
"EFFECTIVE DATE" means the date upon which a Notice of Offer is deemed to have been first delivered to the Corporation.
"NOTICE OF EXERCISE" means the written notice required to be given by the Corporation or a Shareholder to exercise the option to purchase the Shares offered for Transfer.
"NOTICE OF OFFER" means the written notice of a Shareholder's intention to Transfer any of his Shares and which sets forth the name of the proposed Transferee, the number of Shares to be Transferred and the terms and conditions of the proposed Transfer. Such notice shall be accompanied by a copy of a Bona Fide Offer received in connection with such proposed Transfer.
"PERMITTED TRANSFER" means a Transfer of Shares described in
Section 5 hereof.
"PLACEMENT AGENTS" means RAF Financial Corporation and Millennium Financial Group, Inc.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
"SELLING SHAREHOLDER" means any Shareholder who has delivered a Notice of Offer.
"SHAREHOLDERS" means the persons or entities which hold of record the issued and outstanding Shares of the Corporation.
"SHARES" means the issued and outstanding shares of the Common Stock, par value $.01 per share, of the Corporation.
"TRANSFER" means to directly or indirectly sell, assign, hypothecate, transfer, pledge, mortgage or in any other way encumber or dispose of Shares and shall be defined to include the process whereby Shares are transferred.
"TRANSFEREE" means the person or other entity to which a Selling Shareholder desires to Transfer Shares.
SECTION 2. LEGEND. Each certificate representing Shares shall have the following legend printed or typed thereon:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
THE STOCK EVIDENCED BY THIS CERTIFICATE IS SUBJECT TO THE TRANSFER RESTRICTIONS CONTAINED IN A FIRST AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT, DATED FEBRUARY[ ], 1998, BY AND AMONG THE CORPORATION AND ITS SHAREHOLDERS, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE CORPORATION. TRANSFERS IN VIOLATION OF THE SHAREHOLDERS' AGREEMENT ARE VOID. BY ACCEPTANCE OF THIS CERTIFICATE THE HOLDER HEREOF AGREES TO BE BOUND BY THE TERMS OF THE SHAREHOLDERS AGREEMENT.
All Shares hereafter issued shall bear the same legend.
SECTION 3. RESTRICTIONS ON TRANSFER OF SHARES. No Shareholder shall Transfer any Shares that he may now or hereafter hold, nor shall any such Shares be transferable except in compliance with the terms of this Agreement. No Transfer of Shares will be recognized by the Corporation unless a registration statement relating thereto has been declared effective under the Securities Act or the Selling Shareholder establishes to the satisfaction of the Company that such Transfer of Shares is exempt from registration under the Securities Act and applicable state securities laws.
SECTION 4. RIGHTS OF FIRST REFUSAL.
(a) No less than 20 days prior to any Transfer, other than a Permitted Transfer or a Transfer by a Shareholder under Section 6 hereof, a Shareholder desiring to Transfer Shares shall furnish a Notice of Offer to the Corporation and to each other Shareholder. For a period of 10 days after the Effective Date thereof, the Corporation shall have an option to purchase all or any portion of the Shares offered for Transfer by the Selling Shareholder on the same terms and conditions as set forth in the Notice of Offer. If the Corporation elects to exercise such option, it must deliver to the Selling Shareholder a Notice of Exercise within 10 days of the Effective Date.
(b) If the Corporation elects not to exercise said option for all of the Shares to be Transferred by the Selling Shareholder, then it shall give prompt notice thereof to the other Shareholders, after which the other Shareholders will have an option for an additional 10 days to purchase all or any portion of the remaining Shares offered for Transfer by the Selling Shareholder on the same terms and conditions as set forth in the Notice of Offer. If a Shareholder elects to exercise its option to acquire Shares to be Transferred, it must deliver to the Selling Shareholder a Notice of Exercise within 20 days of the Effective Date. If more than one Shareholder exercises said option, then each such Shareholders shall have the right to purchase Shares of the Selling Shareholder on a pro rata basis based on the current number of Shares owned by each purchasing Shareholder.
(c) The Notice of Exercise delivered by the Corporation or any Shareholder shall specify a closing date within 35 days after the Effective Date of the Notice of Offer. The Selling Shareholder and the Corporation or other Shareholders, as the case may be, may extend the closing date by mutual written consent.
(d) If either the Corporation or any Shareholder elects to exercise its option to purchase all or any portion of the Shares, then the Selling Shareholder may not Transfer such Shares to any other party. If the periods during which the Corporation and the other Shareholders are entitled to exercise their options to purchase such Shares expire without the exercise of said options with respect to any of the Shares so offered, then the Selling Shareholder shall, for a period ending 30 days after the termination of the last applicable option period, be free to Transfer the Shares to the Transferee making the Bona Fide Offer contained in the Notice of Offer or to another party or parties, but in either case only so long as such Transfer is effected on terms and conditions no less favorable to the Selling Shareholder as those set forth in the Bona Fide Offer contained in the Notice of Offer. Any Transferee shall, as a condition to the recognition by the Corporation of such Transfer, execute an instrument acceptable to the Corporation acknowledging the terms and restrictions of this Agreement and the Transferee's obligation to be bound hereby.
(e) If the Selling Shareholder does not Transfer the Shares within the period specified in paragraph (d) hereof, then such Shares shall again become subject to the restrictions of this Agreement.
(f) Any Shares purchased by the Corporation shall be restored to the status of authorized but unissued Shares.
(g) The Selling Shareholder will be responsible for the payment of any and all expenses incurred by the Selling Shareholder in the exercise of the rights specified in this Section 4 and the sale of his Shares.
SECTION 5. PERMITTED TRANSFERS.
(a) The following types of Transfers ("Permitted Transfers") may be consummated notwithstanding the provisions of Section 4 of this Agreement:
(i) a Transfer by any Shareholder of all or any portion of his Shares, whether or not for adequate consideration, either directly to, or indirectly in trust for, his spouse, children, parents, siblings or a corporation or other entity of which he (and/or his spouse, children, parents or siblings) beneficially own 100% of the equity interests;
(ii) a Transfer by any Shareholder of all or any portion of his Shares to another Shareholder; or
(iii) a Transfer by any Control Shareholder of 50% or more of his Shares.
(b) In the event a Shareholder makes a Permitted Transfer, he shall notify the Corporation thereof, which notice shall specify (i) the name of the Transferee, (ii) the relationship of the Transferee to the Shareholder, (iii) the number of Shares transferred and (iv) the date of the Transfer. Any such Transferee shall, as a condition of the recognition by the Corporation of such Transfer, execute a counterpart copy of this Agreement or other instrument acceptable to the Corporation acknowledging the terms and restrictions of this Agreement and the Transferee's obligation to be bound hereby.
(c) Notwithstanding any other provision of this Agreement, a Shareholder may pledge, hypothecate or otherwise encumber up to 50% of his Shares to, or in favor of, any national or state bank or other financial institution; provided, however, that a Shareholder may pledge, hypothecate or encumber all of his Shares in order to secure a loan made to the Company. In the event a Shareholder pledges, hypothecates or encumbers Shares, he shall notify the Corporation thereof, which notice shall specify (i) the name of the party to which the Shares have been pledged, (ii) the number of Shares pledged (iii) the amount of the obligation for which such Shares have been given as security and (iv) the date of the pledge.
SECTION 6. SALES BY CONTROL SHAREHOLDERS.
(a) Other than as provided in paragraph (b) of this Section 6, any Control Shareholder who agrees to sell more than 50% of his Shares shall, on behalf of each other Shareholder which desires to sell his Shares, cause the purchaser of the Control Shareholder's Shares to agree to also acquire the Shares of each such other Shareholder on the same terms as such purchaser has agreed to acquire the Shares from the Control Shareholder; provided, however, that if such purchaser is unwilling to buy all Shares tendered to it by such Control Shareholder and any such other Shareholders, then each of the selling Shareholders will be entitled to sell a pro rata portion of his Shares based on the current number of Shares owned by such Shareholder.
(b) The provisions of Section 6(a) shall not apply to any sale of Control Shares from one Control Shareholder to another Control Shareholder.
(c) Any sale of Shares pursuant to this Section 6 by Shareholders will not be subject to the provisions of Section 4 of this Agreement.
SECTION 7. SECURITY FOR PURCHASE PRICE OF SHARES. Whenever any Shares are purchased pursuant to the option created under Section 4 of this Agreement and the parties agree that the entire purchase price for the Shares will not be paid at closing, then the purchaser(s) may endorse the certificates for the purchased Shares and deliver the same to the Selling Shareholder as collateral security for the payment of the unpaid purchase price, and such shares may be so held until the entire purchase price shall have been paid. While such shares shall be so held as collateral security and so long as the purchasing Shareholder is not in default, the purchasing Shareholder shall be entitled to all rights as a Shareholder, including voting rights and rights to all dividends, with respect to such Shares.
SECTION 8. REGISTRATION RIGHTS.
(a) If the Company proposes to file a registration statement under the Securities Act with respect to either a primary or secondary offering by the Company of equity securities for its own account (other than a registration statement relating solely to (i) securities to be offered to employees pursuant to a stock option, stock savings, or other employee benefit plan of the Company or its affiliates; (ii) securities proposed to be issued in exchange for securities or assets of, or in connection with a merger or consolidation with, another corporation; (iii) securities to be offered by the Company generally to any class or series of its then-existing security holders; (iv) ecurities issuable upon conversion of securities which are the subject of an underwritten redemption; or (v) securities to be offered or issued pursuant to a combination of the foregoing transactions), then the Company shall give written notice of such proposed filing to each Shareholder as soon as practicable (but in no event less than 30 days before the anticipated filing date of such registration statement), and such notice shall offer the opportunity to register all or any part of the Shares owned by the Shareholders. Shareholders shall have 15 days following receipt of such notice to request in writing inclusion of their Shares in such registration, which request shall specify the number of Shares a Shareholder proposes to sell.
(b) Whenever a Shareholder requests that all or part of his
Shares be included in a proposed registration, the Company shall use
its reasonable best efforts to effect the registration and sale of
such Shares and to cause the managing underwriter of any proposed
underwritten offering to permit the requested Shares to be included in
such registration. Shareholders may only participate in the
underwritten portion of such registration hereunder if each of them
(i) agrees to sell their Shares on the basis provided in any
underwriting arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of
such underwriting arrangements and these registration rights. Among
other things, each Shareholder agrees, if his Shares are included in
an underwritten offering, that he will join in any general agreement
with the managing underwriter not to effect any public sale or
distribution of his Shares pursuant to such registration for a period
of time not to exceed 180 days after the date any such registration
statement is declared effective under the Securities Act.
(c) Notwithstanding anything else set forth in paragraph (a) of this Section 8, the Company may, at the discretion of a majority of its Board of Directors and without the consent of any requesting Shareholder, withdraw any registration and abandon the proposed offering. Furthermore, if the managing underwriter of an underwritten offering advises the Company that in its opinion either because of (i) the size of the offering that the Company and any Shareholders desire to make or (ii) the kind of securities that the Company and any Shareholders intend to include in such offering, the success of the offering could be materially and adversely affected by inclusion of the Shares requested to be included, then (A) in the event that the size of the offering is the basis of such managing underwriter's opinion, the amount of Shares to be offered for the account of Shareholders shall be reduced on a pro rata basis among such Shareholders (on the basis of the amount of Shares intended to be included in such registration by each such
Shareholder as compared to the aggregate amount of Shares intended to be included by all such Shareholders) to the extent necessary to reduce the total amount of Shares to be included in such offering to the amount recommended by such managing underwriter; and (B) in the event that the kind or combination of securities to be offered is the basis of such managing underwriter's opinion, the amount of Shares to be included in such offering shall be reduced as described in clause (A) above or, if any such reduction would, in the judgment of the managing underwriter, be insufficient to substantially eliminate the adverse effect that inclusion of the Shares requested to be included could have on such offering, such Shares shall be excluded from such underwritten offering. Notwithstanding the exclusion of such Shares from such underwritten offering, the Company will cause such Shares to be registered for resale in the same registration statement, provided that the requesting Shareholders agree not to consummate any such resale of their Shares pursuant to such registration statement for a period of 180 days after such registration statement is declared effective under the Securities Act. The Company agrees to maintain the effectiveness of such registration statement under the Securities Act for up to 12 months after such 180-day period has expired or until all such registered Shares are sold.
(d) The registration rights under this Section shall only apply
to the first two registration statements filed by the Company and
declared effective under the Securities Act, other than registration
statements relating to those offerings described in items (i) through
(v) of paragraph (a) of this Section 8.
(e) The Company shall pay all expenses in connection with the registration of Shares pursuant to this Section 8, including expenses incurred in connection with any registration statements that do not become effective. Shareholders participating in such registration shall pay their pro rata share of all underwriting fees, discounts or commissions attributable to any sale of all or part of their Shares in connection with any registration, whether or not the registration statement becomes effective. A Shareholder's pro rata share of such underwriting fees, discounts or commissions will be determined by reference to the number of shares to be sold by such Shareholder compared with the number of shares to be sold by all Shareholders and the Company pursuant to the registration.
(f) The Company agrees that, if a registration statement which would give rise to the registration rights set forth in paragraph (a) of this Section 8 has not been declared effective under the Securities Act on or before June 30, 1999, then it will use its best efforts to cause a registration statement to be filed on the appropriate form under the Securities Act which relates to the resale of the Shares and to have such registration statement declared effective under the Securities Act by no later than December 31, 1999; provided that such dates may be extended by mutual agreement between the Company and RAF Financial Corporation, in their sole discretion. The Company will keep the registration statement effective for 12 months after the 180-day period described in Section 8(c) hereof expires or until all registered shares have been sold, whichever occurs earlier. The Company further agrees that on the date such registration statement is declared effective, the Company will have caused the Shares to be listed on the New York Stock Exchange, if the Company qualifies for such listing or, if not, on the
American Stock Exchange, if the Company qualifies for such listing or, if not, on the Nasdaq Stock Market, if the Company qualifies for such listing or, if not, on the SmallCap Market of The Nasdaq Stock Market.
(g) Whenever the Company files a registration statement pursuant to this Section 8 that is declared effective and that registers any Shares for resale, the Company agrees to use its best efforts to register or qualify the Shares for sale in those states requested by the person selling the Shares; provided that, the Company shall not be required to register or qualify the Shares for sale in any state in which the sale of the Shares by the person selling the Shares would be exempt from having to be registered or qualified in such state. The determination of whether or not such an exemption exists shall be made by counsel for the Company and such determination shall be provided in writing to the person desiring the sell Shares in a state.
(h) With respect to the Shareholders who purchased Shares in the private offering of up to 2,000,000 Shares (the "Private Offering") made by the Company pursuant to the Private Placement Memorandum, dated July 3, 1997, and any amendments or supplements thereto (the "PPM"), the Company agrees that it will issue additional Shares ("Additional Shares") to such Shareholders if (i) Shares are sold by the Company pursuant to the first registration statement of the Company which is declared effective under the Securities Act (other than those excluded registration statements described in Section 8(a) hereof) (the "Registered Offering") at a price of less than $10.00 per Share or (ii) Shares are sold by the Company between the date of the first sale of Shares in the Private Offering and the date of the closing of the Registered Offering at a price of less than $5.00 per Share; provided, however, that the Company will not be required to issue Additional Shares if the amount of consideration received by the Company from the issuance of shares (x) to the Placement Agents upon the exercise of the Placement Agent Warrants described in the PPM, (y) to G.S. Beckwith Gilbert upon the exercise of certain warrants issued by the Company to him or (z) to Jeffrey Sklar upon the exercise of certain options issued by the Company to him (all as described in the PPM) is less than $5.00 per share. If the sale price in the Registered Offering is less than $10.00 per Share, the number of Additional Shares to be issued to each such Shareholder will be determined by subtracting such sale price from $10.00, multiplying the result by the number of Shares acquired in the Private Offering by such Shareholder and then dividing the product by such sale price. If the sale price for any other sale of Shares described in clause (ii) above is less than $5.00 per Share, the number of Additional Shares to be issued to each such Shareholder will be determined by subtracting such sale price from $5.00, multiplying the result by the number of Shares acquired in the Private Offering by such Shareholder and dividing the product by such sale price. The Company will issue Additional Shares to each such Shareholder within 10 days after the date of the occurrence of the event that causes the Company to have to issue the Additional Shares. Further, such Additional Shares shall be subject to, and have the benefits of, this Agreement.
SECTION 9. NOTICES. All notices, requests and other communications hereunder, including a Notice of Offer, shall be in writing and shall be delivered by courier or other means of personal service, national overnight delivery service, telecopy, first class U.S. mail, postage prepaid, or
certified U.S. mail, return receipt requested, addressed (i) to the Corporation at 5600 South 42nd Street, Omaha, Nebraska 68107, facsimile (402) 733-1264, attention: Mr. Collin J. D'Silva or (ii) to a Shareholder at the address set forth in Schedule A hereto or at such other address of which a Shareholder has given the Corporation notice. All such notices shall be deemed to have been delivered on the date personally delivered or telecopied, one business day after being delivered to a national overnight delivery service or three business days after being deposited in the U.S. Mail.
SECTION 10. WAIVER. No waiver of any provision of this Agreement in any instance shall be or for any purpose be deemed to be a waiver of the right of any party hereto to enforce strict compliance with the provisions hereof in any subsequent instance.
SECTION 11. GOVERNING LAW. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without giving effect to its conflict of laws principals.
SECTION 12. BINDING EFFECT AND BENEFITS. Except as otherwise provided herein, the terms of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and assigns, and shall be binding upon any person to whom any of the Shares of the parties are transferred and upon the heirs, executors, administrators, personal representative, successors and assigns of each such person.
SECTION 13. TERM OF AGREEMENT. This Agreement shall become effective as
of the date first written above and shall remain in full force and effect until
the Corporation and all of the Shareholders then holding Shares subject to this
Agreement shall agree in writing to its termination or until the first to occur
of (i) offering of Shares by the Corporation pursuant to a registration
statement effective under the Securities Act; provided that the provisions of
Section 8 shall remain in effect until satisfied, (ii) the purchase by one
Shareholder of all the issued and outstanding Shares of the Corporation or (iii)
the dissolution, bankruptcy or receivership of the Corporation. Upon termination
of this Agreement, the Secretary of the Corporation shall, upon tender of the
certificates for Shares, delete the legend endorsed thereon pursuant to Section
2 of this Agreement.
SECTION 14. REMEDIES FOR VIOLATIONS. The Shares cannot be readily purchased or sold on the open market and for this reason, among others, the parties hereto will be irreparably damaged in the event that this Agreement is not complied with by all parties hereto. In the event of any controversy concerning the rights or obligations under this Agreement, such right or obligation shall be enforceable in a court of equity by a decree of specific performance.
SECTION 15. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire understanding and agreement between the parties hereto and supersedes any prior agreements among the parties pertaining to the Shares. There are no representations, warranties, promises, covenants or understandings other than those herein expressly set forth. No change, modification or amendment of this Agreement shall be valid unless the same be in writing and signed by all the parties hereto.
SECTION 16. SEVERABILITY. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions of this Agreement, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.
SECTION 17. SECTION AND OTHER HEADINGS. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the interpretation of this Agreement.
SECTION 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
SECTION 19. CONSTRUCTION. Whenever required by the context, references herein to the singular shall include the plural and the masculine gender shall include the feminine gender.
SECTION 20. ADDITIONAL PARTIES. With the approval of the Corporation, anyone in whose name Shares are registered may become a party to this Agreement by executing a duplicate copy hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
TRANSGENOMIC, INC.
By /s/ Collin J. D'Silva
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Collin J. D'Silva, President
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SHAREHOLDERS
/s/ Collin J. D'Silva ----------------------------------------------- Collin J. D'Silva, Shareholder /s/ Collin J. D'Silva ----------------------------------------------- Collin J. D'Silva, as trustee for the Arther P. D'Silva Family Irrevocable Trust, Shareholder /s/ Arther P. D'Silva ----------------------------------------------- Arther P. D'Silva, Shareholder |
/s/ Thomas E. Bowman ----------------------------------------------- /s/ Una N. Bowman ----------------------------------------------- Thomas E. Bowman and Una N. Bowman, Shareholder /s/ Stephen F. Dwyer ----------------------------------------------- Stephen F. Dwyer, Shareholder /s/ Nancy Dwyer ----------------------------------------------- Nancy Dwyer, Shareholder /s/ Robert V. Dwyer ----------------------------------------------- Robert V. Dwyer, Jr., Shareholder /s/ Robert Sanger ----------------------------------------------- Robert Sanger, as trustee for the Robert & Ellen Sanger Trust Agreement of 1992, Shareholder /s/ Douglas Gjerde ----------------------------------------------- Douglas Gjerde, Shareholder |
COROB Investments, Ltd., Shareholder by:
Name /s/ Robert V. Dwyer, Jr.
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Title General Partner
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Each of the additional Shareholders listed in Schedule A hereto by Collin J. D'Silva, Attorney-in-fact
By /s/ Collin J. D'Silva
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Collin J. D'Silva, Attorney-in-fact
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EXHIBIT 10.5
EXECUTION (I)
TRANSGENOMIC, INC.
SUBSCRIPTION AGREEMENT
THE SECURITIES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE LAWS OF ANY STATE OR OTHER JURISDICTION. THEY MAY NOT BE OFFERED OR SOLD UNLESS THEY ARE REGISTERED UNDER THE ACT AND UNDER THE LAWS OF THE STATES WHERE EACH SALE IS MADE, OR AN EXEMPTION FROM REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY.
Investors Listed on Exhibit A Hereto
At The Addresses Listed Thereon
Each of you (each a "Subscriber" and, collectively, the "Subscribers") hereby agrees to purchase, and Transgenomic, Inc., a Delaware corporation (the "Company") hereby agrees to issue and to sell to each Subscriber, a convertible subordinated note of the Company in the principal amount set forth beside such Subscriber's name on EXHIBIT A and in the form annexed as EXHIBIT B (the "Note"), convertible in accordance with the terms thereof into shares (the "Company Shares"; the Company Shares are sometimes referred to herein as the "Shares") of the Company's Common Stock, $0.01 par value per share (the "Common Stock"). Each Note, when issued to the Subscriber, will be one of a series of Notes (the "Notes") issued to all Subscribers. The Notes and the Company Shares are collectively referred to herein as, the "Securities." Upon acceptance of this Agreement by the Subscriber, the Company shall issue and deliver to the Subscriber a Note against payment, by wire transfer or bank cashier's check, of the principal amount of the Note.
The following terms and conditions shall apply to this subscription.
SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. Each Subscriber, as and for itself, hereby represents and warrants to and agrees with the Company that:
1.1 INFORMATION ON SUBSCRIBER. The Subscriber is experienced in investments and business matters, has made investments of a speculative nature and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable the Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase. The Subscriber has the authority and is duly and legally qualified to purchase and own the Securities.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
1.2 INVESTMENT INTENT. The Subscriber is subscribing for the Securities for its own account and benefit and not as a nominee or for the account of any other person or entity. The Subscriber has no present intention of selling or distributing the Securities or any part thereof except for a sale in accordance with applicable law. The Subscriber has sufficient financial resources to hold the Securities for an indefinite period of time.
1.3 DILIGENCE. Such Subscriber has conducted its own due diligence investigation of the Company, its business operations, prospects, technologies, financial position and results of operations and all other aspects thereof which are material to the undersigned's decision to purchase Notes. In that regard, such Subscriber acknowledges that it and its representatives have been given full and complete access to all material information regarding the Company and has utilized such access to such Subscriber's satisfaction for the purpose of obtaining information necessary to allow it to evaluate the merits and risk of purchasing Notes. [Such Subscriber has either attended or been given reasonable opportunity to attend a meeting with representatives of the Company for the purpose of asking questions of, and receiving answers from, such representatives concerning the Company and to the full satisfaction of such Subscriber.
1.4 ACCREDITATION. Such Subscriber is an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act") and has such knowledge and experience in financial and business matters necessary to be capable of evaluating the merits and risks of an investment in the Notes.
1.5 SIGNIFICANT RISK. Such Subscriber acknowledges that an investment in the Company involves significant risks.
1.6 ABILITY TO BEAR ECONOMIC RISKS. Such Subscriber is able to bear the economic risks of an investment in the Notes for an indefinite period of time and is able to afford a complete loss of such investment.
1.7 NO PRIOR REGISTRATION. Such Subscriber acknowledges and understands that the Notes have not been registered under the Securities Act in reliance upon an exemption therefrom for nonpublic offerings and, accordingly, the Notes will be restricted securities. Such Subscriber acknowledges and agrees that (i) it will not sell, transfer or otherwise dispose of any Notes without registration thereof under the Securities Act and applicable state securities laws, or pursuant to an exemption therefrom and (ii) the Company is under no obligation to register the Notes under such securities laws subject to the registration rights set forth elsewhere in this Agreement.
COMPANY REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to each Subscriber that:
2.1 DUE INCORPORATION; SUBSIDIARIES. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Delaware and is duly qualified and in good standing in each other jurisdiction in which its properties or the nature of its business makes such qualification necessary. The Company has no equity
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
investments in any other corporation or in any limited liability company, partnership, joint venture or other entity, except for its subsidiary in the United Kingdom, a foreign sales corporation, and a subsidiary in the Netherlands which has ceased operations and is in the process of being dissolved.
2.2 OUTSTANDING STOCK. All issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable. The authorized capital stock of the Company immediately upon consummation at the Closing of the transactions contemplated by this Agreement shall consist of 30,000,000 shares of Common Stock, par value $0.01 per share, of which 13,000,000 shares shall have been validly issued and be outstanding, fully paid and nonassessable, with no personal liability attaching to the ownership thereof, and 15,000,000 shares of preferred stock, par value $0.01 per share, of which no shares are issued and outstanding.
2.3 AUTHORITY; ENFORCEABILITY. Each of this Agreement and each Note have been duly authorized, executed and delivered by the Company and each is a valid and binding agreement enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity; and the Company has full corporate power and authority necessary to carry on its business as now conducted and proposed to be conducted and to enter into and deliver this Agreement and the Investors Rights Agreement with the Subscribers and certain shareholders of the Company (the "Investors Rights Agreement") (collectively, the "Documents") and to issue and deliver the Notes and to perform its obligations hereunder and thereunder.
2.4 ADDITIONAL ISSUANCES. Except as provided in SCHEDULE 2.4, there are no outstanding agreements or preemptive or similar rights affecting the Company's capital stock and no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of, any shares of Common Stock or equity of the Company, except that the Company may issue up to 4,000,000 shares of Common Stock (subject to adjustment in certain cases) under its 1997 Amended and Restated Stock Option Plan and its United Kingdom Stock Plan (the "Stock Option Plan"). The authorized and non-issued options under the Stock Option Plan shall be sufficient for the Company for the two years following the date hereof.
2.5 CONSENTS. No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company, or any of its affiliates is required for execution of the Documents or the Notes, including, without limitation, issuance and sale of the Notes and the issuance of the Shares upon any conversion of the Notes or the performance of obligations hereunder or thereunder.
2.6 NO VIOLATION OR CONFLICT. Assuming the representations and warranties of the Subscriber in Section 1 hereof are true and correct and the Subscriber complies with its obligations under the Documents, and upon receipt of the waiver of any preemptive rights of Mr. G. S. Beckwith Gilbert with respect to the Notes and the Conversion Shares (the "Conversion Shares"), neither the sale of any Note, nor any conversion of any Note, nor the
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
issuance of the Company Shares upon any conversion of any Note, nor the execution, delivery or performance of its obligations thereunder or under this Agreement by the Company will:
(a) violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under() the certificate of incorporation of the Company, charter or bylaws of the Company, or any of its affiliates,() any decree, judgment, order, law, treaty, rule, regulation or determination applicable to the Company, or any of its affiliates of any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its affiliates or over the properties or assets of the Company, or any of its affiliates,() the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company, or any of its affiliates is a party or by which the Company, or any of its affiliates is bound, or to which any of the properties of the Company, or any of its affiliates is subject, or () the terms of any "lock-up" or similar provision of any underwriting or similar agreement to which the Company, or any of its affiliates is a party; or
(b) result in the creation or imposition of any mortgages, judgments, claims, liens, security interests, pledges, escrows, charges or other encumbrance of any kind or character whatsoever ("Encumbrances") upon the Securities or any of the assets of the Company, or any of its affiliates.
2.7 THE SECURITIES. The Company has reserved and unissued shares of Common Stock (including the Shares) sufficient to permit the conversion in full of the Notes. The Securities upon issuance:
(a) are, or will be, free and clear of any Encumbrances;
(b) have been, or will be, duly and validly authorized and on the date of issuance (hereinafter the "Closing Date") or the Conversion Date as such term is defined in the Note (hereinafter the "Conversion Date"), as the case may be, each Note and the Shares issuable upon conversion of each Note will be duly and validly issued, fully paid and nonassessable;
(c) will not, upon receipt of the waiver of any preemptive rights of Mr. G. S. Beckwith Gilbert with respect to the Notes and the Conversion Shares, have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of the Company; and
(d) will not subject the holders thereof to personal liability by reason of being such holders.
2.8 LITIGATION. Except as provided in SCHEDULE 2.8, there is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its affiliates, that questions the validity of this Agreement or, if adversely determined, would adversely affect the execution by the Company or the performance by the Company of its obligations under this Agreement, the business or business prospects of the Company, or the assets of the Company.
2.9 FINANCIAL INFORMATION. (a) Attached hereto as SCHEDULE 2.9 are the audited balance sheet and statement of operations of the Company as of December 31, 1998, for the twelve-month period then ended and the unaudited balance sheet, statement of operations and statement of cash flows of the Company as of January 31, 1999, for the 1-month period then ended, and February 28, 1999, for the 2-month period then ended (collectively, the "Financial Statements"), accompanied by a certificate of the Chief Financial Officer of the Company. The Financial Statements (i) are in accordance with the books and records of the Company, (ii) present fairly the financial condition and the results of operations of the Company as of the date and for the period indicated and (iii) have been prepared in accordance with generally accepted accounting principles consistently applied.
(b) The books of account, records and work papers of the Company up to the date hereof are in all material respects complete and correct, have been maintained in accordance with good business and accounting practices and accurately reflect in all material respects the basis for the financial position and results of operation of the Company as set forth in the Financial Statements. All financial projections of the Company delivered to the Subscriber contain management's best estimates of the future business and potential future business of the Company; PROVIDED, HOWEVER, that no assurances are made that such projected results can be achieved.
2.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE 2.10 hereto, at December 31, 1998, (a) the Company had no material liability of any nature (matured or unmatured, fixed or contingent) which was not provided for or disclosed on the Balance Sheet and (b) all liability reserves established by the Company and set forth on the Balance Sheet were adequate for all such liabilities at that date. Except as set forth on SCHEDULE 2.10 hereto, there were no loss contingencies (as such term is used in Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975) which were not adequately provided for on the Balance Sheet.
2.11 ABSENCE OF CHANGES. Except as set forth on
SCHEDULE 2.11 hereto, since March 1, 1999, there has not been (a) any material
adverse change in the financial condition, results of operations, assets or
liabilities of the Company, (b) any borrowing or agreement to borrow funds or
any liability or obligation of any nature whatsoever (contingent or otherwise)
incurred by the Company, other than current liabilities or obligations incurred
in the ordinary course of business, (c) any asset or property of the Company
made subject to a lien of any kind, (d) any waiver of any valuable right of the
Company, or the cancellation of any material debt or claim held by the Company,
(e) any payment of dividends on, or other distributions with respect to, or any
direct or indirect redemption or acquisition of, any shares of the capital stock
of the Company, or any agreement or commitment therefor, (f) any issuance of any
stock, bond or other security of the Company, or any agreement or commitment
therefor
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
(including, without limitation, options, warrants or rights or agreements or
commitments to purchase such securities or grant such options, warrants or
rights), (g) any mortgage, pledge, sale, assignment or transfer of any tangible
or intangible assets of the Company, except, with respect to tangible assets, in
the ordinary course of business, (h) any loan by the Company to any officer,
director, employee, consultant or shareholder of the Company, or any agreement
or commitment therefor (other than advances to such persons in the ordinary
course of business in connection with travel and travel related expenses),
(i) any damage, destruction or loss (whether or not covered by insurance)
affecting the assets, property, financial condition or results of operations
of the Company, (j) any extraordinary increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee, consultant
or agent of the Company or (k) any change in the accounting methods,
practices or policies followed by the Company or any change in depreciation
or amortization policies or rates theretofore adopted.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
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2.12
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TITLE TO ASSETS, PROPERTIES AND RIGHTS. Except as set forth in SCHEDULE 2.12, the Company has good and marketable title to all of its properties, interests in properties and assets, real, personal, intangible or mixed, reflected on the Balance Sheet (or not so reflected because not required to be reflected but which are used or useful in the business of the Company) or acquired after March 1, 1999 (except inventory or other property sold or otherwise disposed of since March 1, 1999, in the ordinary course of business and accounts receivable and notes receivable paid in full subsequent to March 1, 1999), free and clear of all Encumbrances except liens for current taxes not yet due and payable (or similar liens).
2.13 INTELLECTUAL PROPERTY RIGHTS. The Company has prepared and the Subscriber has received the material listed on SCHEDULE 2.13 with respect to the Company's intellectual property, and except as set forth on SCHEDULE 2.13 hereto:
(a) the Company, to the best of its knowledge, owns, possesses, has the exclusive right to use, has the right to bring actions for the infringement of, and, where necessary, has made timely and proper application for, all its Intellectual Property Rights (as hereinafter defined) used in or necessary for the conduct of its business or as presently conducted or as proposed to be conducted, all of which Intellectual Property Rights are identified on SCHEDULE 2.13 (collectively, the "Requisite Rights");
(b) no royalties, honoraria or fees are payable by the Company to other persons by reason of the ownership or use of the Requisite Rights; and
(c) no product, service or process manufactured, marketed, sold or used, or proposed to be manufactured, marketed, sold or used, by the Company violates, or will violate, any license or infringes, or will infringe, any Intellectual Property Rights or assumed name of another; and there is no pending or threatened claim or litigation against the Company (nor does there exist any basis therefor) contesting the validity of or right to use any of the foregoing, nor has the Company received any notice that any of the Requisite Rights or the operation or proposed operation of the Company's business conflicts, or will conflict, with the asserted rights of others, nor does there exist any basis for any such conflict.
As used herein, the term "Intellectual Property Rights" means all industrial and intellectual property rights, including, without limitation, patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, know-how, certificates of public convenience and necessity, franchises, licenses, trade secrets, proprietary processes and technology and formulae.
2.14 TAX MATTERS. Except as provided on SCHEDULE 2.14, the Company has filed or will have filed all Federal, state, local and foreign tax returns which are required to be filed by it, and all such returns are true, correct and complete. The Company had paid all taxes pursuant to such returns or pursuant to any assessments received by it or which it is obligated to withhold from amounts owing to any employee, creditor or third party. The income tax returns of the Company have never been audited by any Federal, state, local or foreign authorities. The
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
provisions for taxes on the Balance Sheet are sufficient for the payment of all accrued and unpaid Federal, state, local and foreign taxes as of such date. The Company has not waived any statute of limitations with respect to taxes or agreed to any extension of time with respect to any tax assessment or deficiency. The Company has never filed a consent pursuant to Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"), relating to collapsible corporations.
2.15 ERISA PLANS AND CONTRACTS. (a) Except as set forth in the Company's 401(K) plan attached on SCHEDULE 2.15 hereto, the Company does not maintain nor is it a party to (or ever has maintained or was a party to) any "employee welfare benefit plan", as defined in Section 3(l) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any other written, unwritten, formal or informal plan or agreement involving direct or indirect compensation other than workers' compensation, unemployment compensation and other government programs, under which the Company, or any affiliate of the Company have any present or future obligation or liability. The Company does not maintain nor is it a party to (or ever has maintained or was a party to) any "employee pension benefit plan," as defined in Section 3(2) of ERISA, and the Company does not contribute (or has ever contributed) to any "multiemployer plan" as defined in Section 3(37) of ERISA.
(b) There is no contract, agreement, plan or arrangement covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible by reason of Section 280G of the Code.
(c) Except as provided on SCHEDULE 2.15, there is no employment, severance or other similar contract, arrangement or policy (written or oral) providing for insurance coverage (including any self-insured arrangements), non-statutory workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, deferred compensation, profit-sharing, bonuses, stock options, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits entered into, maintained or contributed to by the Company.
2.16 AGREEMENTS. Except as set forth on SCHEDULE 2.16 hereto, the Company to the best of its knowledge is not a party to any written or oral contract not made in the ordinary course of business and, whether or not made in the ordinary course of business, the Company is not a party to any written or oral (a) contract with any labor union; (b) contract for the employment of any officer, individual employee or other person on a full-time basis or any contract with any person on a consulting basis; (c) bonus, pension, profit-sharing, retirement, stock purchase, stock option, hospitalization, medical insurance or similar plan, contract or understanding in effect with respect to employees or any of them or the employees of others; (d) agreement or indenture relating to the borrowing of money or to the mortgaging, pledging or placement of a lien on any assets of the Company; (e) guaranty of any obligation for borrowed money or otherwise; (f) lease or agreement under which the Company is lessee of or holds or operates any property, real or personal, owned by any other party; (g) lease or agreement under which the Company is lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by the Company; (h) agreement or other commitment for capital expenditures in excess of $100,000, not reflected on the financial statements as of February 28,
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
1999; (i) contract, agreement or commitment under which the Company is obligated to pay any broker's fees, finder's fees or any such similar fees, to any third party; (j) (except as disclosed in Section 2.2 hereof) contract, agreement or commitment under which the Company has issued or may become obligated to issue, any shares of capital stock of the Company, or any warrants, options, convertible securities or other commitments pursuant to which the Company is or may become obligated to issue any shares of its capital stock; or (k) any other contract, agreement, arrangement or understanding which is material to the business of the Company. The Company has furnished to the Subscribers true and correct copies of all such agreements and other documents requested by the Subscribers or the authorized representatives of the Subscribers.
2.17 LABOR RELATIONS; EMPLOYEES. The number of
employees of the Company is as set forth on SCHEDULE 2.17 hereto, and except as
provided in SCHEDULE 2.17 (a) The Company to the best of its knowledge is not
delinquent in payments to any of its employees, for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to the date hereof or amounts required to be reimbursed to such employees,
(b) the Company is in compliance in all material respects with all applicable
laws and regulations respecting labor, employment and employment practices,
terms and conditions of employment and wages and hours, (c) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the best knowledge
of the Company, threatened against or involving the Company and (d) neither any
grievance which might have a material adverse effect on the Company or the
conduct of its business nor any arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claim therefor has been
asserted.
2.18 EMPLOYMENT OF OFFICERS, EMPLOYEES AND CONSULTANTS. Except set forth on SCHEDULE 2.18, to the best knowledge of the Company, no third party may assert any valid claim against the Company, any Subscriber or any of the Designated Persons (as hereinafter defined) with respect to (a) the continued employment by, or association with, the Company, of any of the present officers or employees of or consultants to the Company (collectively, the "Designated Persons") or (b) the use, in connection with any business presently conducted or proposed to be conducted by the Company and/or any of the Designated Persons of any information which the Company, or any of the Designated Persons would be prohibited from using under any prior agreements or arrangements or any legal considerations applicable to unfair competition, trade secrets or proprietary information.
2.19 NO DEFAULTS. Except as provided in SCHEDULE 2.19
hereto, the Company is not in default (i) under its certificate of incorporation
or by-laws, or any indenture, mortgage, lease, purchase or sales order, or any
other contract, agreement or instrument to which the Company is a party or by
which the Company or any of their respective properties is bound or affected or
(ii) with respect to any order, writ, injunction or decree of any court or any
Federal, state, municipal or other domestic or foreign governmental department,
commission, board, bureau, agency or instrumentality. There exists no condition,
event or act which constitutes, or which after notice, lapse of time or both,
would constitute, a default under any of the foregoing.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
PAGE 10
2.20 COMPLIANCE. Except as provided in SCHEDULE 2.20,
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the Company (a) in carrying out its contemplated business has been and will be in compliance in all material respects with all Federal, state, local and foreign laws, ordinances, regulations and orders of a material nature applicable to it, its business and the ownership of its assets and (b) has all Federal, state, local and foreign governmental licenses and permits material to and necessary in the conduct of its business and such licenses and permits are in full force and effect, and, to the best knowledge of the Company, no violations have been recorded in respect of any such licenses or permits and no proceeding is pending or threatened to revoke or limit any thereof.
2.21 INSURANCE. Certain insurance policies information is attached as SCHEDULE 2.21. All the insurable properties of the Company are insured for the benefit of the Company, in amounts deemed adequate by the Company, against all risks usually insured against by persons operating similar properties in the localities in which such properties are located under policies in effect and issued by insurers of recognized responsibility.
2.22 RELATED TRANSACTIONS. Except as set forth on SCHEDULE 2.22 hereto, no current or former stockholder, director, officer or employee of the Company, nor any "associate" (as defined in the rules and regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the Company, is presently, or since the inception of the Company has been, directly or indirectly through his or its affiliation with any other person or entity, a party to any transaction with the Company providing for the furnishing of services by or to, or rental of real or personal property from or to, or otherwise requiring cash payments to or by any such person. For the purposes of this Agreement, a transaction of the type described in this Section 2.22 is sometimes herein referred to as a "Related Transaction".
2.23 OFFEREES. Except as provided in SCHEDULE 2.23 hereto, the Company has not during the past 12 months offered any of its capital stock, or any other securities, for sale to, or solicited any offers to buy any of the foregoing from, or otherwise approached or negotiated in respect thereof, in such a manner as to require any capital stock or other securities to be registered under the Securities Act.
2.24 USE OF PROCEEDS. The net proceeds of the Note received by the Company shall be used by the Company for general working capital purposes as shall be determined by the Board of Directors after the date hereof.
2.25 OFFERING EXEMPTION. Assuming the accuracy of the representations of the Subscribers, the offering and sale of the Note and the Common Stock upon conversion of the Note, are each exempt from registration under the Securities Act; and the aforesaid offering and sale is also exempt from registration under applicable state securities and "blue sky" laws.
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MARCH 23, 1999
PAGE 11
2.26 BROKERS. Except as set forth on SCHEDULE 2.26
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hereto, neither the Company, nor any of the officers, directors, employees or stockholders of the Company have employed any broker or finder in connection with the transactions contemplated by this Agreement.
2.27 DISCLOSURE. Neither this Agreement nor any other document, certificate, instrument or written statement furnished or made to the Subscriber by or on behalf of the Company in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact which materially adversely affects, or in the future may, insofar as the Company may reasonably foresee, materially adversely affect, the business, operations, affairs, prospects, condition, properties or assets of the Company which has not been set forth in this Agreement or in the other documents, certificates, instruments or statements furnished to the Subscriber by or on behalf of the Company.
2.28 KNOWLEDGE DEFINITION. As used in this Section 2, the term "to the knowledge of" the Company shall mean and include the actual knowledge of the Company and of any director or officer of the Company.
2.29 QUESTIONABLE PAYMENTS. Neither the Company, director, officer, agent, employee, or other person associated with or acting on behalf of the Company, nor any Stockholder has, directly or indirectly: used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; violated any provision of the Foreign Corrupt Practices Act of 1977; established or maintained any unlawful or unrecorded fund of corporate monies or other assets; made any false or fictitious entry on the books or records of the Company; made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment; or made any bribe, kickback, or other payment of a similar or comparable nature, whether lawful or not, to any person or entity, private or public, regardless of form, whether in money, property, or services, to obtain favorable treatment in securing business or to obtain special concessions, or to pay for favorable treatment for business secured or for special concessions already obtained.
2.30. Y2K READINESS. The Company has attached its Y2K readiness statement hereto as SCHEDULE 2.30.
2.31. CORRECTNESS OF REPRESENTATIONS. The Company represents that the foregoing representations and warranties are true and correct as of the date hereof and, unless the Company otherwise notifies the undersigned prior to the Closing Date on which the undersigned purchases the Note, shall be true and correct as of the Closing Date. The foregoing representations and warranties shall survive the Closing Date.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
PAGE 12
AFFIRMATIVE COVENANTS OF THE COMPANY. The Company
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covenants and agrees with the Subscriber as follows:
3.1. ACCESS TO RECORDS. The Company shall afford to each Subscriber and its employees, counsel and other authorized representatives free and full access, upon reasonable advance notice, to all of the books, records and properties of the Company and to all officers and employees of the Company, for any reasonable purpose whatsoever. The Subscribers shall maintain the confidentiality of any confidential and proprietary information so obtained by it; PROVIDED, HOWEVER, that the foregoing shall in no way limit or otherwise restrict the ability of the Subscriber or such authorized representatives to disclose any such information concerning the Company which it may be required to disclose (a) to its partners or limited partners to the extent required to satisfy its fiduciary obligations to such persons (PROVIDED, that such partners or limited partners shall agree to maintain the confidentiality of such information) or (b) otherwise pursuant to or as required by law.
3.2 NON-COMPETE AND NON-DISCLOSURE CONFIDENTIALITY AGREEMENTS. Each person who would be considered a key employee after the Closing Date, as a condition of becoming an employee of the Company, will sign, deliver and become bound by an agreement with the Company relating to non-competition with the Company substantially in the form of EXHIBIT C hereto.
Each person employed or to be employed by the Company who has, is proposed to have or may obtain access to confidential and proprietary information of the Company after the Closing Date, as a condition of gaining such access, will sign, deliver and become bound by an agreement with the Company relating to non-disclosure of proprietary information substantially in the form of EXHIBIT D hereto.
3.3. FINANCIAL REPORTS. The Company agrees to furnish to each Subscriber the following:
(a) MONTHLY STATEMENTS. As soon available but not later than 30 days after the end of each month, an unaudited financial report of the Company, which report shall be prepared in accordance with United States generally accepted accounting principles consistently applied, and which shall include the following:
(i) a balance sheet of the Company as of the last day of such monthly accounting period;
(ii) a statement of operations for such monthly accounting period, itemizing all revenues and expenses, and a statement of cash flows for such monthly accounting period together with (A) a cumulative statement of operations and a statement of cash flows from the first day of the current year to the last day of such monthly accounting period; and (B) a comparison between the actual figures for such monthly accounting period and the comparable figures for the prior year.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
PAGE 13
(b) ANNUAL AUDIT. As soon as available but
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not later than 90 days after the end of each fiscal year of the Company, financial statements of the Company, which shall include a statement of operations, a statement of shareholders equity and a statement of cash flows for such fiscal year and a balance sheet as of the last day thereof, each prepared in accordance with United States generally accepted accounting principles consistently applied, and accompanied by the report of nationally-recognized independent certified public accountants.
(c) MISCELLANEOUS. Promptly upon becoming available (i) copies of all financial statements, reports, press releases, notices, proxy statements and other documents sent by the Company to its stockholders or released to the public and copies of all regular and periodic reports, if any, filed by the Company with the Securities and Exchange Commission ("SEC") or any securities exchange, (ii) any other material financial or other material information available to management of the Company on a timely basis and (iii) upon request, at any time prior to the completion of a firm commitment underwritten public offering of the Common Stock of the Company under the Securities Act, which results in aggregate net cash proceeds to the Company of not less than $15,000,000 (a "Designated Offering") copies of minutes of meetings of the Board of Directors of the Company.
(d) SUBSIDIARIES. If for any period the Company shall have any subsidiary or subsidiaries whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing Sections 3.3(a), 3.3(b) and 3.3(c) shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
3.4. BUDGET AND OPERATING FORECAST. With respect to each fiscal year of the Company beginning after December 31, 1999, the Company shall prepare and submit to the Board of Directors no later than sixty (60) days before the commencement of such fiscal year a budget (the "Budget") for such fiscal year. The Budget shall be accepted as the Budget for such fiscal year when it has been approved by a majority of the Board of Directors of the Company. The Budget shall be reviewed Fby the Company periodically and all changes therein and all material deviations therefrom shall be resubmitted to the Board of Directors of the Company in advance and shall be accepted when approved by, and the Company shall not make any such changes or material deviations to or from the Budget without such prior approval of, a majority of the Board of Directors of the Company.
3.5. SYSTEM OF ACCOUNTING. The Company shall maintain a system of accounting established and administered in accordance with United States generally accepted accounting principles, and will set aside on its books all such proper reserves as shall be required by generally accepted accounting principles.
3.6. BOARD OF DIRECTORS; MEETINGS; EXPENSES. In accordance with the terms of the Investors Rights Agreement, the Board of Directors shall consist of seven Directors and there shall be on the Board of Directors a Director selected by the Subscribers and a right for
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
a certain Subscriber to attend Board meetings and receive materials distributed to members of the Board of Directors in advance of any meeting of the Board of Directors. The Company shall pay all reasonable travel expenses and other out-of-pocket disbursements incurred by the Director selected by the Subscribers and by any Subscriber observing any meeting in connection with attending meetings of the Board of Directors of the Company.
3.7. RIGHT OF FIRST REFUSAL. (a) Subject to the rights granted to G.S. Beckwith Gilbert, and except in the case of Excluded Securities, the Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange (i) any shares of Common Stock, (ii) any other equity security of the Company, (iii) any debt security of the Company which by its terms is convertible into or exchangeable for any equity security of the Company or has any other equity feature, (iv) any security of the Company that is a combination of debt and equity, or (v) any option, warrant or other right to subscribe for, purchase or otherwise acquire any equity security or any such debt security of the Company, unless in each case the Company shall have first offered (an "Offer") to sell to each Subscriber its pro rata share (based upon the Voting Power of the holders of the Notes) of such securities, upon terms and conditions in all respects, including without limitation unit price and interest rates, which are no less favorable than to any other person or persons or more favorable to the Company, which Offer by its terms shall remain open and irrevocable for a period of 30 days from the date it is delivered by the Company to the Subscribers.
(b) Notice of a Subscriber's intention to accept an offer, in whole or in part, shall be evidenced by a writing signed by the Subscriber and delivered to the Company prior to the end of the 30-day period of such Offer (the "Notice of Acceptance"), setting forth such portion of the Offered Securities as the Subscriber elects to purchase.
(c) In the event that a Notice of Acceptance is not given by the Subscriber in respect of all the Offered Securities, the Company shall have 90 days from the expiration of the foregoing 30-day period to sell all or any part of such remaining Offered Securities not covered by such Notice of Acceptance, if any, to any other person or persons, but only upon terms and conditions in all respects, including, without limitation, unit price and interest rates, which are no more favorable, in the aggregate, to such other person or persons or less favorable to the Company than those set forth in the Offer. Upon the closing, which shall include full payment to the Company, of the sale to such other person or persons of all the remaining Offered Securities, each Subscriber exercising its preemptive right hereunder shall purchase from the Company, and the Company shall sell to each such Subscriber, the Offered Securities covered by the Notice of Acceptance, if any, delivered to the Company by the Subscribers, at the terms specified in the Offer.
(d) In each case, any Offered Securities not
purchased by the Subscriber or other person or persons in accordance with this
Section 3.7 may not be sold or otherwise disposed of until they are again
offered to the Subscriber under the procedures specified in this Section 3.7.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
PAGE 15
(e) As used herein, "Excluded Securities" shall mean:
(i) the Notes;
(ii) the shares of Common Stock to be issued
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upon conversion of the Notes;
(iii) Common Stock issued (A) pursuant to the Stock Option Plan; or (B) to one or more options, grants or issuances that are approved by a Special Majority of the Board of Directors; all of such plans, options and grants shall be collectively referred to as the "Plans";
(iv) Common Stock issued pursuant to any warrant or option that was outstanding on the Original Issue Date of the first Note issued by the Company or pursuant to the Company's Shareholder Agreement as in effect on and as of the Original Issue Date of the first Note issued by the Company;
(v) Common Stock issued to (A) financial institutions, or other sellers or lessors of property in connection with borrowing or lease financing arrangements of the Company, provided that such issuances or grants are approved by a Special Majority of the Board of Directors or (B) 50,000 shares of Common Stock in connection with the real estate transaction disclosed in SCHEDULE 2.22 hereto;
(vi) an aggregate of up to $8,000,000 of additional notes, on substantially similar terms and conditions as contained in the Notes, to Galen & Associates and/or others, the proceeds of which will be used by the Company substantially to repurchase Common Stock of the Company; and
(vii) Common Stock issued in a Designated Offering.
3.8. EMPLOYEE STOCK AND OPTION PLANS. The Company shall not sell stock or issue stock options to employees, other than pursuant to the Company's Stock Option Plan in effect as of the date hereof and the Company's United Kingdom Stock Option Sub Plan currently being approved by the Company and the Revenue Service of the United Kingdom or pursuant to a plan approved by a Special Majority of the Board of Directors.
3.9. TERMINATION OF AFFIRMATIVE COVENANTS. The provisions of this Section 3, and the obligations of the Company to the Subscribers, shall terminate and be of no further force and effect as to any Subscriber upon the earlier to occur of (a) the consummation of the Designated Offering, or (b) the payment in full of such Subscriber's Note, with the exception of Sections 3.1 and 3.3 which shall terminate and be of no further force and effect as to any Subscriber upon the later to occur of (a) the Designated Offering or (b) the payment or conversion, in full, of such Subscriber's Note.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
4. NEGATIVE COVENANTS. Except as set forth on SCHEDULE 4, during such time as any Note remains outstanding, the Company will not take any of the following actions without the prior written consent of the greater of (a) 75% of the Voting Power of the Notes ("Voting Power" of the holders of the Notes shall mean the relative voting power of the Notes on an as-converted basis) or (b) 1% more than the Voting Power held by all of the following combined: Chancellor Private Capital Partners III, L.P., Citiventure 96 Partnership, L.P., Chancellor Private Capital Offshore Partners II, L.P., Chancellor Private Capital Offshore Partners I, C.V., and Drake & Co. for the account of Citiventure III:
(a) Pay, set aside for payment or declare any dividend or other distribution on any share of Common Stock or any shares of any other class or series of stock;
(b) Authorize or issue, directly or indirectly, any securities of the Company with a liquidation preference having a priority to that of the Notes;
(c) Engage in any business other than the business of the Company as described to the Subscribers the private placement memorandum delivered to the Subscribers by the Company in the course of Subscribers' due diligence prior to the Closing, which new business any member of the Board of Directors of the Company expects may result in direct annual operating expenditures of more than forty percent (40%) of the Company's audited operating expenses for the immediately preceding fiscal year (operating expenses shall consist of manufacturing operations, research and development, marketing and sales, and administrative expenses);
(d) Apply any of its assets to the redemption, retirement, purchase or other acquisition directly or indirectly, through subsidiaries or otherwise, of any of its securities including, without limitation, any shares of Common Stock, (i) except from employees of the Company upon termination of employment or pursuant to the Company's rights of first refusal or rights of repurchase, if any, (ii) except for the repurchase of Common Stock of the Company with the proceeds of additional notes an aggregate of up to $8,000,000, on substantially similar terms and conditions as contained in the Notes, to Galen & Associates and/or others, (iii) or except for a Note which is one of the Notes;
(e) Engage in any transaction with any affiliate of the Company (as such term is defined in Rule 405 promulgated under the Securities Act) other than the transactions disclosed in SCHEDULE 2.22 hereto;
(f) Amend or repeal any provision of, add any provision to, or take any corporation action otherwise altering the Company's Certificate of Incorporation or By-laws; or
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
PAGE 17
(g) Liquidate or dissolve the Company.
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5. REGISTRATION RIGHTS.
If the Company proposes to file a registration statement under the Securities Act with respect to any offering by the Company of equity securities either for its own account or for the account of any holder of securities of the Company, then the Company shall register all of the Conversion Shares.
(a) The Company shall effect the registration of the Conversion Shares and cause the managing underwriter of any proposed underwritten offering to permit the Conversion Shares to be included in such registration. Subscribers may only participate in the underwritten portion of such registration hereunder if each of them (i) agrees to sell their Conversion Shares on the basis provided in any underwriting arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and these registration rights. Among other things, each Subscriber agrees, if its Conversion Shares are included in an underwritten offering, that it will join in any general agreement with the managing underwriter not to effect any public sale or distribution of its Conversion Shares pursuant to such registration for a period of time not to exceed 180 days after the date any such registration statement is declared effective under the Securities Act. The Company agrees to maintain the effectiveness of such registration statement under the Securities Act for up to 36 months after such 180-day period has expired or until all such registered Conversion Shares are sold. The Company shall provide each Subscriber with a copy of any registration statement, each amendment or supplement thereto, and any prospectus contained therein (as amended or supplemented).
(b) Notwithstanding anything else set forth in paragraph (a) of this Section 5, the Company may, at the discretion of a majority of its Board of Directors and without the consent of any requesting Subscriber, withdraw any registration and abandon the proposed offering. In the event that Conversion Shares are excluded from an underwritten offering, the Company will cause such Conversion Shares to be registered for resale in the same registration statement, provided that the requesting Subscriber agree not to consummate any such resale of their Conversion Shares pursuant to such registration statement for a period of 180 days after such registration statement is declared effective under the Securities Act. The Company agrees to maintain the effectiveness of such registration statement under the Securities Act for up to 36 months after such 180-day period has expired or until all such registered Conversion Shares are sold. The Company shall provide each Subscriber with a copy of any registration statement, each amendment or supplement thereto, and any prospectus contained therein (as amended or supplemented).
(c) The Company shall pay all Registration Expenses (as hereinafter defined) in connection with the registration of Conversion Shares pursuant to this Section 5, including Registration Expenses incurred in connection with any registration statements that do not become effective. All Selling Expenses (as hereinafter defined) relating to the sale of the
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
Conversion Shares shall be borne by the Subscribers, PRO RATA, based upon the number of shares so registered. "Registration Expenses" shall mean all expenses, except Selling Expenses, incurred by the Company in complying with this Section 5 including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration, and the reasonable fees and expenses of one counsel for all of the Subscribers. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Subscribers and all fees and disbursements of any counsel for the Subscribers, except for the reasonable fees and expenses of one counsel for all of the Subscribers.
Whenever the Company files a registration statement pursuant to this Section 5 that is declared effective and that registers any Conversion Shares for resale, the Company agrees to use its best efforts to register or qualify the Conversion Shares for sale in those states requested by each Subscriber selling the Conversion Shares; provided that, the Company shall not be required to register or qualify the Conversion Shares for sale in any state in which the sale of the Conversion Shares by the person selling the Conversion Shares would be exempt from having to be registered or qualified in such state. The determination of whether or not such an exemption exists shall be made by counsel for the Company and such determination shall be provided in writing to the Subscriber desiring the sell Conversion Shares in a state.
6. INDEMNIFICATION; CONTRIBUTION.
6.1 INDEMNIFICATION OF SUBSCRIBERS. The Company agrees to indemnify, hold harmless, reimburse and defend Subscriber against any claim, costs, expense, liability, obligation, loss or damage (including legal fees) of any nature, incurred by or imposed upon Subscriber which results, arises out of or is based upon (a) any misrepresentation by Company or breach of any warranty by Company in this Agreement or in any Exhibits or Schedules attached hereto; or (b) any breach or default in performance by Company of any covenant or undertaking to be performed by Company hereunder.
6.2 INDEMNIFICATION OF THE COMPANY. Each Subscriber, as and for itself, agrees to indemnify, hold harmless, reimburse and defend the Company against any claim, costs, expense, liability, obligation, loss or damage (including legal fees) of any nature, incurred by or imposed upon the Company which results, arises out of or is based upon any breach by Subscriber of any representation set forth in this Agreement or in any Exhibits or Schedules attached hereto. The amount for which any Subscriber shall be liable to the Company pursuant to the indemnification provided for in this Section 6.2 shall be limited to its investment in the Company.
6.3. CONTRIBUTION. If the indemnification provided for in Section 6.1 or Section 6.2 hereof is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss,
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. Notwithstanding the foregoing, the liability of each Subscriber hereunder shall be limited to its investment in the Company.
6.4 INDEMNIFICATION PROCEDURE. In the event that any
legal proceedings shall be instituted or that any claim or demand shall be
asserted by any third party in respect of which payment may be sought by a party
under the provisions of this Section 6 (referred to in this Section 6 as the
"Indemnitee"), the Indemnitee shall promptly cause written notice of the
assertion of any claim of which it has knowledge which is covered by this
indemnity to be forwarded to the party from which indemnification under this
Section 6 will be sought (referred to in this Section 6 as the "Indemnitor").
Indemnitor shall have the right, at its option and at its own expense, to be
represented by counsel of its choice who must be reasonably satisfactory to
Indemnitee, and to defend against, negotiate, settle or otherwise deal with any
proceeding, claim or demand which relates to any loss, liability, damage or
deficiency resulting from a third-party claim or demand indemnified against
hereunder; provided, however, that no settlement shall be made without the prior
written consent of Indemnitee, which consent shall not be unreasonably withheld
or delayed; and, provided further, that Indemnitee may participate in any such
proceeding with counsel of its choice and at its own expense. To the extent
Indemnitor elects not to defend such proceeding, claim or demand and Indemnitee
defends against, settles or otherwise deals with any such proceeding, claim or
demand, which settlement may be made without the consent of Indemnitor,
Indemnitee will act reasonably and in accordance with its good faith business
judgment and such settlement shall be covered by the indemnification provisions
of this Section 6. The parties hereto agree to cooperate fully with each other
in connection with the defense, negotiation or settlement of any such legal
proceeding, claim or demand.
7. CONDITIONS PRECEDENT TO CLOSING. The obligation of the Subscriber to purchase and pay for the Note at the Closing is subject to the following conditions precedent:
7.1 INVESTORS RIGHTS AGREEMENT. An Investors Rights Agreement (the "Investors Rights Agreement") among the Company, the Subscribers and certain of the shareholders of the Company, in the form of EXHIBIT E hereto, shall have been duly executed and delivered by the Company, the Subscribers and such shareholders. In addition, the Company and such parties shall have complied with all of the terms and conditions of the Intercreditor Agreement, including, among other things, the placement of the legends required to be placed on securities owned by such parties.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
PAGE 20
7.2 WAIVER OF G.S. BECKWITH GILBERT. A written waiver
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by Mr. G.S. Beckwith Gilbert of any preemptive rights he may have with respect to the transactions contemplated hereunder in form and substance satisfactory to the Subscribers shall have been received by the Company.
7.3 OPINION OF COUNSEL. The Subscriber shall have received from Kutak Rock, special counsel for the Company, its opinion addressed to the Subscriber dated as of the Closing Date substantially in the form of EXHIBIT F hereto.
7.4 CORPORATE ACTION. All corporate and other proceedings to be taken and all waivers and consents approvals, qualifications and/or registrations required to be obtained or effected in connection with the issuance, sale, execution, delivery and performance of the Documents and the transactions contemplated thereby, including, but not limited to, the issuance, sale and delivery of the Note, shall have been taken, obtained or effected (except for the filing of any notice subsequent to such Closing which may be required under applicable state securities laws which, if required, shall be filed on a timely basis as may be so required), and all documents incident thereto shall be satisfactory in form and substance to the Subscriber. The Subscriber shall have received all such originals or certified or other copies of such documents as have been reasonably requested.
7.5 NON-COMPETE AND NON-DISCLOSURE CONFIDENTIALITY AGREEMENTS. Each employee of the Company designated in SCHEDULE 7.6 (a "Key Employee") shall have signed and delivered to the Company, and be bound by, an agreement with the Company relating to non- competition with the Company substantially in the form of EXHIBIT C hereto. Each employee of the Company who has or is proposed to have access to confidential and proprietary information of the Company shall have signed and delivered and be bound by, an agreement with the Company relating to non-disclosure of proprietary information substantially in the form of EXHIBIT D hereto.
7.6 INSURANCE. The Company shall have in effect insurance as set forth on SCHEDULE 2.21 hereto, as well as key man insurance for Collin D'Silva.
8. MISCELLANEOUS.
8.1 NOTICES. All notices or other communications given or made hereunder shall be in writing and shall be deemed delivered the day telecopied (with copy mailed by certified or registered mail, or overnight courier) to the party to receive the same at its address set forth below or to such other address as either party shall hereafter give to the other by notice duly made under this Section 9.1: (i) if to the Company, to it at its address and telecopy number for notices on the signature page hereof; and (ii) if to the Subscriber, to the name, address and telecopy number for notices on EXHIBIT A hereto. All such notices, requests, consents and other communications shall be deemed to have been delivered (a) in the case of personal delivery or delivery by telecopy, on the date of such delivery, provided such date is a business day; otherwise on the next business day following such delivery, (b) in the case of dispatch by nationally-recognized overnight courier, on the next business day following such dispatch and (c) in the case of mailing, on the third business day after the posting thereof.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
PAGE 21
8.2 FEES AND EXPENSES. The Company shall pay to Pavia
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& Harcourt, special counsel to the Subscribers, its fees and disbursements for services rendered to the Subscribers in preparing this Agreement and the other documents required for the closing of the purchase of the Notes solely from the proceeds of the Notes.
8.3 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (together with all Exhibits and Schedules hereto) and the Note represent the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties. No right or obligation of either party shall be assigned by that party without prior notice to and the written consent of the other party.
8.4 EXECUTION. This Agreement may be executed in counterparts by facsimile transmission, followed by delivery of an executed original copy.
8.5. CHOICE OF LAW. It is the intention of the parties that the laws of New York shall govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties.
8.6. SUBMISSION TO JURISDICTION; CONSENT TO SERVICE OF PROCESS. The Company hereby submits to the non-exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in The City of New York for purposes of all legal proceedings which may arise hereunder. The Company irrevocably waives to the fullest extent permitted by law, any objection which it may have or hereafter have to the laying of the venue of any such proceeding brought in such a court, any claim that any such proceeding brought in such a court has been brought in an inconvenient forum and trial by jury. The Company hereby consents to process being served in any such proceeding by the mailing of a copy thereof by registered or certified mail, postage prepaid, to its address specified in the signature page hereof or in any other manner permitted by law.
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us.
Very truly yours,
TRANSGENOMIC, INC.
By: /s/ Collin J. D'Silva
----------------------------
Dated: March 25, 1999
--
ADDRESS FOR NOTICES:
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5600 South 42nd Street Omaha, Nebraska 68107 Telecopy: (402) 733-1264
SUBSCRIBERS:
CHANCELLOR PRIVATE CAPITAL PARTNERS III, L.P.
By: CPCP Associates, L.P., its General Partner
By: INVESCO Private Capital Inc., its General Partner
CITIVENTURE 96 PARTNERSHIP, L.P.
By: INVESCO Private Capital Inc., as Investment Adviser
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
CHANCELLOR PRIVATE CAPITAL OFFSHORE PARTNERS II, L.P.
By: CPCP Associates, L.P., its General Partner
By: INVESCO Private Capital Inc., its General Partner
CHANCELLOR PRIVATE CAPITAL OFFSHORE PARTNERS I, C.V.
By: Chancellor KME IV Partner, L.P., its General Partner
By: INVESCO Private Capital Inc., its General Partner
DRAKE & CO. FOR THE ACCOUNT OF CITIVENTURE III
Its: /s/ John A. Gianni
------------------------------------------
Title: Partner, Drake & Co
------------------------------------------
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BERKELEY INVESTMENTS LIMITED
DAYSTAR REALTY LIMITED
By: /s/ Ishwar C. Sani
------------------------------------------
Its: Ishwar C. Sani
------------------------------------------
Title: Director
------------------------------------------
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SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC.
MARCH 23, 1999
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Robert N. Savoie
------------------------------------------
Its: Tax Director, Attorney-in-Fact
------------------------------------------
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HAMBRECHT & QUIST EMPLOYEE VENTURE
FUND, L.P. II
By: H&Q Venture Management, L.L.C., its General Partner
By: /s/ Robert N. Savoie
------------------------------------------
Its: Tax Director, Attorney-in-Fact
------------------------------------------
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CASDIN LIFE SCIENCES PARTNERS, L.P.
By: Casdin Capital Partners, LLC, its General Partner
By: /s/ Jeffrey W. Casdin
------------------------------------------
Its: CEO
------------------------------------------
CLSP/SBS I, L.P.
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By: Casdin Capital Partners, LLC, its General Partner
By: /s/ Jeffrey W. Casdin
------------------------------------------
Its: CEO
------------------------------------------
CLSP/SBS II, L.P.
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By: Casdin Capital Partners LLC, its General Partner
By: /s/ Jeffrey W. Casdin
------------------------------------------
Its: CEO
------------------------------------------
/s/ Rob Olan
------------------------------------------
ROB OLAN
/s/ Steve Elms
------------------------------------------
STEVE ELMS
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SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC. MARCH 23, 1999 PAGE 25 /s/ Vivek Jain ------------------------------------------ VIVEK JAIN /s/ Dennis Purcell ------------------------------------------ DENNIS PURCELL /s/ John Rumsey ------------------------------------------ JOHN RUMSEY /s/ George Montgomery ------------------------------------------ GEORGE MONTGOMERY |
SUBSCRIPTION AGREEMENT TRANSGENOMIC, INC. |
MARCH 23, 1999
EXHIBITS
Exhibit A.................................Subscribers
Exhibit B.................................Form of Note
Exhibit C.................................Non-Compete Agreement
Exhibit D.................................Non-Disclosure Agreement
Exhibit E.................................Investors Rights Agreement
Exhibit F.................................Form of Opinion
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EXHIBIT A
Chancellor Private Capital Partners III, L.P. $ 1,137,000.00 c/o INVESCO Private Capital, Inc. 1166 Avenue of the Americas New York, New York 10036 Attention: Mark Radovanovich Facsimile No.: (212) 278-9868 Citiventure 96 Partnership, L.P. $ 4,881,000.00 c/o INVESCO Private Capital, Inc. 1166 Avenue of the Americas New York, New York 10036 Attention: Mark Radovanovich Facsimile No.: (212) 278-9868 Chancellor Private Capital Offshore $ 1,872,000.00 Partners II, L.P. c/o INVESCO Private Capital, Inc. 1166 Avenue of the Americas New York, New York 10036 Attention: Mark Radovanovich Facsimile No.: (212) 278-9868 Chancellor Private Capital Offshore $ 175,000.00 Partners I, C.V c/o INVESCO Private Capital, Inc. 1166 Avenue of the Americas New York, New York 10036 Attention: Mark Radovanovich Facsimile No.: (212) 278-9868 Drake & Co. for the account $ 1,935,000.00 of Citiventure III c/o INVESCO Private Capital, Inc. 1166 Avenue of the Americas New York, New York 10036 Attention: Mark Radovanovich Facsimile No.: (212) 278-9868 |
Berkeley Investments Limited $ 550,000.00
1180 Avenue of the Americas
Suite 1920
New York, New York 10036
Mr. Kishore Mirchandani
Facsimile No.: (212) 768-9414
Daystar Realty Limited $ 250,000.00
34-09 Queens Boulevard
Third Floor
Long Island City, New York 11101
Attention: Mr. Suresh Sani
Facsimile No.: (718) 482-1380
Hambrecht & Quist California $ 120,000.00
1 Bush Street
San Francisco, California 94104
Attention: Lisa Chen
Facsimile No.: (415) 439-3807
Hambrecht & Quist Employee $ 120,000.00
Venture Fund, L.P. II
c/o Hambrecht & Quist California
1 Bush Street
San Francisco, California 94104
Attention: Lisa Chen
Facsimile No.: (415) 439-3807
Casdin Life Sciences Partners. L.P. $ 590,000.00
c/o Casdin Capital Partners, LLC
230 Park Avenue
20th Floor
New York, New York 10169
Attention: Jeffrey W. Casdin
Facsimile No: (212) 207-1542
CLSP/SBS I, L.P. $ 220,000.00
c/o Casdin Capital Partners, LLC
230 Park Avenue
20th Floor
New York, New York 10169
Attention: Jeffrey W. Casdin
Facsimile No: (212) 207-1542
|
CLSP/SBS II, L.P. $ 90,000.00 c/o Casdin Capital Partners, LLC 230 Park Avenue 20th Floor New York, New York 10169 Attention: Jeffrey W. Casdin Facsimile No: (212) 207-1542 Steve Elms $ 10,000.00 c/o Hambrecht & Quist 230 Park Avenue New York, New York 10169 Facsimile No.: (212) 207-1519 John Rumsey $ 10,000.00 c/o Hambrecht & Quist California 1 Bush Street San Francisco, California 94104 Facsimile No.: (415) 439-3807 Rob Olan $ 10,000.00 c/o Hambrecht & Quist 230 Park Avenue New York, New York 10169 Facsimile No.: (212) 207-1519 Vivek Jain $ 10,000.00 c/o Hambrecht & Quist 230 Park Avenue New York, New York 10169 Facsimile No.: (212) 207-1519 Dennis Purcell $ 10,000.00 c/o Hambrecht & Quist 230 Park Avenue New York, New York 10169 Facsimile No.: (212) 207-1519 George Montgomery $ 10,000.00 c/o Hambrecht & Quist California 1 Bush Street San Francisco, California 94104 Facsimile No.: (415) 439-3807 |
EXECUTION (i)
CN - 000___ EXHIBIT B
TRANSGENOMIC, INC.
THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE OFFERED OR SOLD UNLESS THEY ARE REGISTERED UNDER THE SECURITIES ACT AND UNDER THE LAWS OF THE STATES WHERE EACH SALE IS MADE, OR AN EXEMPTION FROM REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY.
FOR VALUE RECEIVED, TRANSGENOMIC, INC., a Delaware corporation (hereinafter called "Borrower"), hereby promises to pay to [INVESTOR, NAME AND ADDRESS], Fax: (___) ___-____ (the "Holder") or order, without demand, the sum of ______________ Dollars ($___________), with interest accruing at the compounded annual rate of 6.0%, on March 25, 2002 (the "Maturity Date"). This Note is one of a series of Notes issued pursuant to a subscription agreement by and between the Borrower and the Holder dated the date hereof (the "Subscription Agreement") the terms and conditions of which are hereby incorporated herein by this reference. Any capitalized term used herein and not otherwise defined herein shall have the meaning assigned to such term in the Subscription Agreement.
The following terms shall apply to this Note:
ARTICLE I
INTEREST AND DEFAULT RELATED PROVISIONS
1.1. DEFAULT INTEREST. From and after an Event of Default occurring prior to the date of the completion of a firm commitment underwritten public offering of the Common Stock of the Company under the Securities Act, which results in aggregate net cash proceeds to the Company of not less than $15,000,000 (a "Designated Offering"), a default interest rate of 8.0% per annum shall apply to the amounts owed hereunder.
1.2. CONVERSION PRIVILEGES. The Conversion Privileges set forth in Article II shall remain in full force and effect until all principal and interest due and payable under this Note is paid in full.
1.3. INTEREST PAYMENTS; MATURITY PREMIUM.
(a) Borrower shall pay interest on the outstanding principal amount of the Note upon conversion as set forth in Section 1.3(b) hereof or upon repayment of this Note at or after the Maturity Date.
(b) Upon the completion of a Designated Offering, all accrued and unpaid interest hereunder shall be added to the principal outstanding hereunder and shall be converted into shares of Common Stock pursuant to Article II hereof and with respect to all interest to accrue for the remaining term of this Note, the interest rate hereunder shall be reduced by forty percent (40%) (ex., the initial interest rate of 6.0% shall be reduced to 3.6%) and all interest to become due for the remainder of the term through the Maturity Date shall be paid in shares of Common Stock of the Company at the Conversion Price.
(c) Upon repayment at or after the Maturity Date (other than a conversion), a premium (the "Maturity Premium") equal to ten percent (10%) of the outstanding principal amount shall also be due and payable.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount due under this Note into Shares of the Borrower's Common Stock as set forth below.
2.1. CONVERSION AFTER DESIGNATED OFFERING
(a) At any time at or after the consummation of a Designated Offering and prior to the payment in full of all principal of the Note, the Holder shall have the right to convert any outstanding and unpaid principal of this Note into fully paid and nonassessable shares of Common Stock of Borrower as such stock exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which such stock shall hereafter be changed or reclassified (the "Common Stock") at the conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein.
(b) Subject to adjustment as provided in Section 2.3 hereof, (i) if a Designated Offering is completed on or before September 25, 2000, the Conversion Price shall be the lesser of (A)$5.00 per share and (B) fifty percent (50%) of the per share offering price to the public in the Designated Offering; (ii) if a Designated Offering is completed between September 25, 2000 and the Maturity Date, the Conversion Price shall be the lesser of (A) $5.00 per share and (B) between thirty-five percent (35%) and fifty percent (50%) of the per share offering price to the public in the Designated Offering, calculated on a declining straight-line basis, through the day on which the Designated Offering is completed during such period, calculated on a 30 day per month basis (by way of example, in the event a Designated Offering is completed on the day that is 150 days after September 25, 2000, the percentage shall be 45.83% [50% - (15/540 x 150)]); and (iii) if a Designated Offering is not completed on or before the Maturity Date, the Conversion Price shall be $5.00 per share; PROVIDED, HOWEVER, in the event
that upon completion of a Designated Offering after the Maturity Date, thirty-five percent (35%) of the per share offering price to the public in the Designated Public Offering is less than $5.00 per share, the Company shall issue to the former Holders of Notes who converted to Shares at $5.00 per share, such additional shares of Common Stock so as to reduce the Conversion Price to such lesser amount.
2.2 CONVERSION PRIOR TO DESIGNATED OFFERING.
() If, prior to the consummation of a Designated Offering, and prior to the payment in full of all principal of, and accrued interest on, this Note, any of the following events occurs (each a "Trigger Event"): (i) a merger or consolidation of the Borrower with or into another corporation or entity such that the Borrower is not the surviving entity thereof (a "Merger Event"), (ii) the conveyance of all or substantially all of the assets of the Borrower to an unaffiliated entity (a "Sale Event"), (iii) a "Change of Control" (as defined below) or (iv) the dissolution of the Borrower or other event causing the final liquidation of its assets or winding up of its business affairs of the Company (a "Liquidation Event"), notice of which shall be delivered to the Holder, the Holder of this Note shall have the right to elect to (I) receive payment in full of all principal of this Note and interest earned thereon through the date of payment or (II) convert all outstanding and unpaid principal of this Note, and all accrued but unpaid interest on this Note, into a number of fully paid and nonassessable shares of Common Stock equal to the greater of:
(r) the number of shares derived by dividing the outstanding and unpaid principal of this note and all accrued but unpaid interest on this Note by $5.00; or
(s) the number of shares having an aggregate value (as determined below) equal to (A) 200% of the outstanding and unpaid principal amount of this Note plus (B) all accrued but unpaid interest on this Note.
For purposes of clause (s) above:
(x) the per share value of Common Stock to be issued to the Holder in a Merger Event shall equal the per share amount of cash and the value of securities to be received by holders of Common Stock as a result of such Merger Event;
(y) the per share value of Common Stock to be issued to the Holder in a Sale Event or a Liquidation Event shall equal the per share amount of cash that would be distributed to the holders of Common Stock as a result thereof assuming an immediate distribution of such cash after such Sale Event or Liquidation Event; and
(z) the per share value of the Common Stock to be issued to the Holder in a Change of Control shall equal the per share price paid for shares of Common Stock in the last transaction that results in the occurrence of a Change of Control.
() The Holder shall have a period of no less than 30 days after Borrower delivers notice to any proposed Trigger Event in which to make an election to convert this Note pursuant to this Section 2.2.
(c) In the case of a Merger Event, the shares to be delivered upon conversion of this Note shall be shares of stock or other securities of the successor to the Borrower that the Holder would have been entitled to receive as a result of such Merger Event had the Holder converted this Note to Common Stock of the Borrower immediately prior to such Merger Event.
(d) For purposes of this Section 2.2, a "Change in Control" shall occur at any time when the shareholders of the Borrower on the Original Issue Date no longer beneficially own a majority of the issued and outstanding voting securities of the Borrower.
(e) In addition to the other rights of a Holder prior to a Designated Offering, in the event Collin D'Silva seeks to sell any Common Shares owned by him, and Holder desires to exercise its rights under the Co-Sale provision of Section 2 of the Investors Rights Agreement, dated as of the date hereof among the Holders of the Notes, Collin D'Silva and the Company (the "Investors Rights Agreement"). Holder may convert that portion of this Note at a Conversion Price of $5.00 per share to obtain the number of Shares necessary for the Holder to exercise its rights thereunder.
2.3. ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(a) SPECIAL DEFINITIONS. The following definitions shall apply:
(i) "OPTION" shall mean options, warrants or other rights to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities.
(ii) "ORIGINAL ISSUE DATE" shall mean, with respect to any Note, the first date on which the first Note shall have been issued.
(iii) "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness, shares (other than Common Stock) of capital stock or other securities directly or indirectly convertible into or exchangeable for Common Stock.
(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall mean any or all shares of Common Stock issued (or, pursuant to Section 2.3(c), deemed to be issued) by the Company after the Original Issue Date, other than shares of Common Stock issued or issuable:
(1) upon conversion of shares of any Note in accordance with this Article II;
(2) to employees, officers or directors of, or consultants to, the Company pursuant to (i) employee stock purchase plans, stock option plans or the like that provide for the issuance of such number of shares of Common Stock as are specified in such plan or plans at such price per share as is specified therein, provided that each such plan existed as of
the Original Issue Date or has been approved by a majority of the Board of Directors, including the director designated by the Holders of the Notes (a "Special Majority"); or (ii) one or more options, grants or issuances that are approved by a Special Majority of the Board of Directors; all of such plans, options and grants shall be collectively referred to as the "Plans";
(3) pursuant to any warrant or option that was outstanding on the Original Issue Date of the first Note to be issued; or
(4) to financial institutions or other sellers or lessors of property in connection with borrowing or lease financing arrangements of the Company, provided that such issuances or grants are approved by a Special Majority of the Board of Directors.
(b) NO ADJUSTMENT OF CONVERSION PRICE, Subject to the provisions of Section 2.3(c)(ii) and Section 2.3(f) below, no adjustment in the number of shares of Common Stock into which the Note is convertible shall be made, by adjustment in the Applicable Conversion Price of the Note in respect of the issuance of Additional Shares of Common Stock or otherwise, (i) unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Company is less than the Applicable Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Share of Common Stock or (ii) if the holders of a majority of the Voting Power of the Notes waive any such adjustment.
(c) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
(i) OPTIONS AND CONVERTIBLE SECURITIES. In the event the Company at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2.3(e) hereof) of such Additional Shares of Common Stock would be less than the Applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustment in the Applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;
(3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall upon such expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Company upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange, and
(B) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company (determined pursuant to Section 2.3(e) hereof) upon the issue of the Convertible Securities with respect to which such Options were actually exercised;
(4) no readjustment pursuant to clause (2) or (3) above shall have the effect of increasing the Applicable Conversion Price to an amount which exceeds the lower of: (i) the Applicable Conversion Price on the original date on which an adjustment was made pursuant to this Section 2.3(c)(i), or (ii) the Applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between such original adjustment date and the date on which a readjustment is made pursuant to clause (2) or (3) above;
(5) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Applicable Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (3) above; and
(6) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Applicable Conversion Price that became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Applicable Conversion Price shall be adjusted pursuant to this Section 2.3(c) as of the actual date of their issuance.
(ii) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND SUBDIVISIONS. In the event the Company at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued:
(1) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or
(2) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective.
If such record date shall have been fixed and such dividend shall not have been paid on the date fixed for the payment thereof, the adjustment previously made in the Applicable Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Applicable Conversion Price shall be adjusted pursuant to this Section 2.3(c) as of the time of actual payment of such dividend.
(d) ADJUSTMENT OF APPLICABLE CONVERSION PRICE OF
NOTES UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the
Company shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 2.3(c)(i), but
excluding Additional Shares of Common Stock deemed to be issued pursuant to
Section 2.3(c)(ii), which event is dealt with in Section 2.2 hereof) without
consideration or for a consideration per share less than the Applicable
Conversion Price for this Note in effect on the date of and immediately prior to
such issue, then and in such event, such Applicable Conversion Price for this
Note shall be reduced concurrently with such issue, to a price (calculated to
the nearest cent) equal to the consideration per share for which such Additional
Shares of Common Stock are so issued.
(e) DETERMINATION OF CONSIDERATION. For purposes of this Section 2.3, the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follows:
(i) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be the aggregate amount of cash received by the Company excluding amounts paid or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and
(3) in the event Additional Shares of Common Stock are issued together with other shares of securities or other assets of the Company for a single undivided consideration, be the proportion of such consideration so received allocable to such Additional Shares of Common Stock, computed as provided in clauses (1) and (2) above, as determined in good faith by a Special Majority of the Board of Directors.
(ii) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the Company for Additional Shares of Common Stock deemed to have been issued pursuant to Section 2.3(c)(i) shall be determined by dividing
(x) the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.
(f) ADJUSTMENT FOR STOCK DIVIDENDS, STOCK DISTRIBUTIONS, SUBDIVISIONS, COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK.
(i) STOCK DIVIDENDS, STOCK DISTRIBUTIONS OR
SUBDIVISIONS. In the event the Company shall issue Additional Shares of Common
Stock pursuant to Section 2.3(c)(ii) in a stock dividend, other stock
distribution or subdivision, the Applicable Conversion Price in effect
immediately prior to such stock dividend, stock distribution or subdivision
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, be proportionately decreased to adjust equitably
for such dividend, distribution or subdivision.
(ii) COMBINATIONS OR CONSOLIDATIONS. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Applicable Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness
of such combination or consolidation, be proportionately increased to adjust equitably for such combination or consolidation.
(g) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Applicable Conversion Price pursuant to this Section 2.3, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder, furnish or cause to be furnished to such Holder a like certificate setting forth (i) all such adjustments and readjustments theretofore made, (ii) the Applicable Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at such time would be received upon the conversion of this Note.
2.4. MANDATORY CONVERSION. At any time after a Designated
Offering, the outstanding principal of this Note shall be converted to Common
Stock at the Company's election in the event the sum of (a) the average closing
bid price for the Common Stock over twenty (20) consecutive trading days, plus
(b) all accrued interest on this Note (when converted to an amount per share
using the Conversion Price then in effect), equals or exceeds $13.72 per share.
2.5. METHOD OF CONVERSION.
(a) FULL CONVERSION. Except as otherwise provided in
Section (b) below, this Note may be converted by the Holder in whole, but not in
part, by the surrender of this Note at the principal office of the Borrower,
accompanied by a written request from the Holder for conversion of the Note as
provided in Section 2.1 or 2.2 hereof at the then Applicable Conversion Price.
Upon the surrender of this Note, accompanied by the Holder's written request for
conversion, Borrower shall issue and deliver to the Holder that number of shares
of Common Stock for the Note converted. The number of shares of Common Stock to
be issued upon conversion of this Note shall be determined by dividing the
principal of the Note to be converted by the Conversion Price.
(b) CONVERSION PURSUANT TO SECTION 2.2(e). In connection with the exercise of any Holder of its rights under the Co-Sale provision set forth in Section 2 of the Investors Rights Agreement, this Note may be converted by the Holder in whole or in part, pursuant to Section 2.2(e) hereof, by the surrender of this Note at the principal office of the Borrower, accompanied by a written request from the Holder for conversion of such part of the Note to acquire the number of Shares to be sold by a Holder pursuant to the exercise of such Co-Sale rights. Upon such partial exercise hereof, a new Note containing the same date and provisions of this Note shall be issued by the Borrower to the Holder for the principal balance of this Note which shall not have been converted.
2.6. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the
Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Notes against impairment. Without limiting the generality of the foregoing, before taking any action which would result in any adjustment to the Applicable Conversion Price then in effect below the par value of the Common Stock, the Company will take or cause to be taken any and all necessary corporate or other action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock upon receipt of such Applicable Conversion Price as so adjusted. The taking of such corporate or other action shall be a condition precedent to the Company's taking the action which would result in such adjustment.
2.7. COMMON STOCK RESERVED. The Company shall reserve and at all times keep available out of its authorized but unissued Common Stock, free from preemptive or other preferential rights, restrictions, reservations, dedications, allocations, options, other warrants and other rights under any stock option, conversion option or similar agreement, such number of shares of Common Stock as shall from time to time be sufficient to effect conversion of the Notes.
ARTICLE III
REPAYMENT AT MATURITY
3.1. PAYMENT. In the event the Holder has not converted to Common Shares prior to the Maturity Date, Borrower shall pay in United States currency to the Holder the outstanding principal amount hereof, all accrued and unpaid interest hereon, the Maturity Date Premium and any and all other amounts due and payable hereunder in immediately available federal funds on the Maturity Date.
3.2. NOTICE OF INTENTION. Not more than 150 days prior to the Maturity Date nor less than 120 days prior to the Maturity Date, Borrower shall deliver to Holder, a Request for Notice of Intention substantially in the form of EXHIBIT I hereto. In the event Holder does not deliver a reply to Borrower at least 90 days prior to the Maturity Date, Borrower may by written notice to the Holder at least 30 days prior to the maturity elect not to pay Holder all amounts due hereunder as required in Section 3.1 hereof on the Maturity Date; whereupon the Maturity Date and Borrower's obligation to make payment hereunder shall be extended for a period ending on the 120th day after a demand for payment is delivered by the Holder to the Borrower during which extension period all of the terms and conditions, covenants and other obligations of the Borrower hereunder and under the Documents shall remain in full force and effect.
ARTICLE IV
EVENTS OF DEFAULT
The occurrence of any of the following events of default (each a "Event of Default") shall, at the option of the Holder hereof on written notice to the Borrower, make all
sums of principal and interest then remaining unpaid hereon, and all other amounts payable hereunder immediately due and payable, all without demand, presentment or notice, or grace period, all of which hereby are expressly waived; PROVIDED, HOWEVER, that in the case of an event described in Section 4.5 hereof the obligations of the Company under this Note shall immediately become due and payable without any election or action on the part of the Holder:
4.1. FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay any principal of or interest on the Note or any other fee when due and payable;
4.2. BREACH OF COVENANT. The Borrower breaches any covenant or other term or condition of this Note and/or the Documents and such breach continues unremedied for a period of ten (10) days from the date of delivery of a notice from a Holder of a Note;
4.3. BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or warranty of the Borrower made herein, in the Documents, or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith shall be false or misleading in any material respect;
4.4. OTHER INDEBTEDNESS. The Borrower shall (a) fail to pay (within the applicable cure period, if any) any indebtedness for borrowed money (other than the Notes) of the Borrower or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise); or (b) fail to perform or observe any term, covenant, or condition on its part to be performed or observed (within the applicable cure period, if any) under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or permit the acceleration of after the giving of notice or passage of time, or both, the maturity of such indebtedness, whether or not such failure to perform or observe shall be waived by the holder of such indebtedness, or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof;
4.5. INABILITY TO PAY DEBTS. The Borrower (a) shall generally not pay, or shall be unable to pay, or shall admit in writing its inability to pay its debts as such debts become due; or (b) shall make an assignment for the benefit of creditors, or petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it or a substantial part of its assets; or (c) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (d) shall have had any such petition or application filed or any such proceeding commenced against it in which an order for relief is entered or an adjudication or appointment is made and which remains undismissed for a period of 30 days or more; or (e) shall take any corporate action indicating its consent to, approval of, or acquiescence in any such petition, application, proceeding, or order for relief or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; or (f) shall suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of 30 days or more; or
4.6 FAILURE TO REGISTER SHARES. The Borrower shall fail to register the Shares into which the Notes may be converted at the time of any public offering of the Common Stock of the Borrower (including but not limited to a Designated Offering) pursuant to the terms of the Subscription Agreement.
ARTICLE V
MISCELLANEOUS
5.1. FAILURE OR INDULGENCY NOT WAIVER. No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
5.2. NOTICES. Any notice, request, consent, or other communication herein required or permitted to be given shall be in writing and may be personally served and shall be deemed to be delivered upon receipt or sent by United States mail and shall be deemed to have been given three (3) days after being deposited in the United States mail, certified, registered, with postage pre-paid and properly addressed or on receipt, or sent by fax transmission (with the original sent by certified or registered mail or by overnight courier) and shall be deemed to have been delivered on the day telecopied. For the purposes hereof, the address and fax number of the Holder is as set forth on the first page hereof the address and fax number of the Borrower is as set forth on the signature page hereof. Both Holder and Borrower may change the address and fax number for service by service of written or fax notice to the other as herein provided. Notice of Conversion shall be deemed given when made pursuant to the Subscription Agreement. All such notices, requests, consents and other communications shall be deemed to have been delivered (a) in the case of personal delivery or delivery by telecopy, on the date of such delivery, provided such day is a business day; otherwise on the next business day following such delivery, (b) in the case of dispatch by nationally-recognized overnight courier, on the next business day following such dispatch and (c) in the case of mailing, on the third business day after the posting thereof.
5.3. AMENDMENT PROVISION. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
5.4. ASSIGNABILITY. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns.
5.5. COST OF COLLECTION. If default is made in the payment of this Note, Borrower shall pay the Holder hereof costs of collection, including attorneys' fees and expenses.
5.6. CHOICE OF LAW. It is the intention of the parties that the laws of New York shall govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties.
5.7. SUBMISSION TO JURISDICTION; CONSENT TO SERVICE OF
PROCESS. The Company hereby submits to the non-exclusive jurisdiction of the
United States District Court for the Southern District of New York and of any
New York State court sitting in The City of New York for purposes of all legal
proceedings which may arise hereunder. The Company irrevocably waives to the
fullest extent permitted by law, any objection which it may have or hereafter
have to the laying of the venue of any such proceeding brought in such a court,
any claim that any such proceeding brought in such a court has been brought in
an inconvenient forum and trial by jury. The Company hereby consents to process
being served in any such proceeding by the mailing of a copy thereof by
registered or certified mail, postage prepaid, to its address specified in
Section 5.2 hereof or in any other manner permitted by law.
5.8. WAIVER OF TRIAL BY JURY. THE COMPANY HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its President on this ____ day of March, 1999.
TRANSGENOMIC, INC.
By:________________________________
Name:________________________________
Title:________________________________
ADDRESS FOR NOTICES:
5600 South 42nd Street
Omaha, Nebraska 68107
Telecopy: (402) 733-1264
EXHIBIT I TO CONVERTIBLE NOTE
REQUEST FOR NOTICE OF INTENTION
[Name]
[Address]
Re: Convertible Note # CN-000 ___
Dear Sirs:
The Maturity Date of the above referenced Note is March ____, 2002. We hereby request you notify us of your Intention with respect to conversion of the Note into Common Stock pursuant to Article II of the Note or repayment of the Note by checking the appropriate box below, countersign this letter in the space provided and returning this letter to us.
Very truly yours,
Transgenomic, Inc.
By: _________________________
Name:_________________________
Title:_________________________
The undersigned, an authorized representative of _________________________, the holder of Convertible Note # CN-000 ____, hereby notifies you that the Holder elects to:
_ Convert the Note pursuant to Article II of the Note.
_ Receive payment in full on the Maturity Date.
Note Holder: ____________________________
[print name]
By: _____________________________
Name:_____________________________
Title:_____________________________
EXHIBIT 10.6
TRANSGENOMIC, INC.
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
ARTICLE I
NAME AND PURPOSES
Section 1.1. NAME. The name of the plan shall be the Transgenomic, Inc. 1997 Stock Option Plan (the "Plan"). The Plan was originally adopted as of the Effective Date set forth in Section 11.3 hereof and is hereby amended and restated as provided herein as of the 1st day of December, 1997.
Section 1.2. PURPOSE. The purpose of the Plan is to enable the Employees, directors and Advisors of Transgenomic, Inc. (the "Company") to share in the growth and prosperity of the Company by encouraging stock ownership by Employees, directors and Advisors and to assist the Company to obtain and retain key management personnel. Either Incentive Stock Options or Nonqualified Stock Options may be granted to Employees of the Company under the Plan but only Nonqualified Stock Options may be granted to Non-Employee Directors and Advisors under the Plan.
ARTICLE II
DEFINITIONS
"ADVISOR" means a person who is not an employee of the Company but who has agreed to serve as a source of information and advice regarding scientific, technical or other matters relating to the Company's business and products.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means conduct involving fraud, gross negligence, breach of a fiduciary duty or criminal activity.
"CHANGE OF CONTROL" means the approval by the Company's shareholders of
(a) a merger or consolidation of the Company with or into another corporation
(other than a merger or consolidation in which the Company is the surviving
corporation and which does not result in any capital reorganization or
reclassification or other change in the Company's then outstanding shares of
common stock); (b) a sale or disposition of all or substantially all of the
Company's assets; or (c) a plan of liquidation or dissolution of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board. If the Board does not have a Compensation Committee, the Board shall constitute the Compensation Committee.
"COMPANY" means Transgenomic, Inc., a Delaware corporation, and its successors.
"COMPANY STOCK" means shares of the common stock, par value $.01 per share, of the Company.
"EMPLOYEE" means any person employed by the Company as an employee and not as an independent contractor.
"EXCHANGE ACT" means the Securities and Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means the fair market value of the Company Stock as of the relevant time under this Agreement. If the Company Stock is not publicly traded, Fair Market Value shall be reasonably determined by the Committee. If the Company Stock is publicly traded, then the Fair Market Value will be equal to the average of the closing sales price per share for the five trading days immediately preceding the date of the determination.
"INCENTIVE STOCK OPTION" means any stock option granted to an Employee under the Plan, which the Committee intends at the time it is granted to be an incentive stock option within the meaning of Section 422 of the Code.
"NON-EMPLOYEE DIRECTOR" means any person who is a member of the Board but is not an Employee of the Company and has not been an Employee of the Company or any subsidiary of the Company at any time during the preceding 12 months. Service as a director does not in itself constitute employment for purposes of this definition.
"NONQUALIFIED STOCK OPTION" means any stock option granted to an Employee, Non-Employee Director or Advisor under the Plan which is not a stock option within the meaning of Section 422 of the Code.
"OPTIONEE" is any Employee, Non-Employee Director or Advisor who has been granted Options under the Plan.
"OPTIONS" mean Nonqualified Stock Options and Incentive Stock Options.
"PARTICIPANT" means any Employee, Non-Employee Director or Advisor who meets the requirements for participation in the Plan as described in Article III.
"PERMANENT AND TOTAL DISABILITY" means, as determined by the Committee, an illness or injury of a potentially permanent nature, expected to last for a continuous period of at least 12 months, certified by a physician selected by or satisfactory to the Committee, which prevents the Participant from engaging in any occupation for wage or profit for which the Participant is reasonably fitted by training, education or experience.
"QUALIFYING STOCK" means Company Stock which has been owned by an Employee for at least six months prior to the date of exercise of an Option and has not been used in a stock-for-stock swap transaction within the preceding six months.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
Every Employee, Non-Employee Director and Advisor shall be eligible to become a Participant in the Plan. Only Employees shall be eligible for the Incentive Stock Options, and Employees, Non-Employee Directors and Advisors shall be eligible for the Nonqualified Stock Options. The Committee shall determine the number and type of Options granted and Participants to receive awards under the Plan.
ARTICLE IV
OPTION CONDITIONS
Section 4.1. NO OPTION COMBINATIONS. Options under the Plan may only be granted as either Incentive Stock Options or as Nonqualified Stock Options dependent upon whether the Participant is an Employee, a Non-Employee Director or an Advisor. Incentive Stock Options may only be granted to Employees, and Nonqualified Stock Options may be granted to Employees, Non-Employee Directors or Advisors.
Section 4.2. OPTION CONDITIONS. Without limiting the Committee's authority, the Committee may make the grant of Options conditional upon an election by a Participant to defer payment of a portion of his or her compensation and subject to any condition or conditions consistent with the terms of the Plan that the Committee in its sole discretion may determine.
Section 4.3. COMMITTEE MEMBERS. Voting members of the Committee shall neither receive any Option pursuant to the Plan while serving on the Committee unless such an Option is a formula award within the meaning of Rule 16b-3 under the Exchange Act nor have received any such Option or any other grant or award of equity securities pursuant to the Plan or any other plan of the Company or any of its affiliates or subsidiaries at any time within one year prior to his or her service on the Committee or, if different, for the time period necessary to fulfill the then current requirements of Rule 16b-3 under the Exchange Act. However, provided that, if for any reason the Committee does not qualify to administer the Plan, as contemplated by Rule 16b-3 of the Exchange Act, then the Board may appoint a new Committee so as to comply with Rule 16b-3.
Section 4.4. EFFECTIVE DATE OF PRIOR SECTION. Section 4.3 hereof shall take effect on the day following the date on which a registration statement filed by the Company with the Securities and Exchange Commission is first declared effective under the Securities Act of 1933, as amended.
ARTICLE V
COMPANY STOCK SUBJECT TO PLAN
The total number of Company Stock for which Options may be granted under the Plan shall not exceed 4,000,000 shares of Company Stock subject always to the provisions of Article VIII. The Company Stock issued under the Plan may be authorized and unissued shares or treasury shares.
In the event that any outstanding Option issued pursuant to the Plan shall expire or terminate, additional Options for the number of shares of Company Stock which were subject to such expired or terminated Options may be granted under the Plan. In addition, if shares of Company Stock are used by an Optionee to pay all or a part of the exercise price of any Option (or applicable withholding taxes), additional Options for the number of shares of Company Stock so used may be granted under the Plan, including Replacement Options granted under Section 6.3 hereof.
ARTICLE VI
OPTIONS
Section 6.1. TERMS OF OPTIONS. (a) The Committee from time to time may grant Options. Each Option granted shall be embodied in a written agreement between the Company and the Participant in such form and containing such provisions as the Committee from time to time shall deem appropriate, consistent with the requirements of the Plan and this Amendment. Option agreements need not be identical, and the Option agreement shall specify whether or not an Option is an Incentive Stock Option.
(b) The exercise price for each Option granted under the Plan shall be fixed by the Committee in good faith, but in no event shall the exercise price of any Incentive Stock Option be less than 100% of the Fair Market Value of the Company Stock on the date such Incentive Stock Option is granted.
(c) The Committee shall fix the term or duration of all Options issued under this Plan, provided that such term shall not exceed ten years after the date on which the Option was granted.
(d) At all times during the period beginning on the date of the grant of an Incentive Stock Option and ending on the day three months before the date of the exercise of such Incentive Stock Option, the Optionee must be an Employee of the Company. Options designated as Incentive Stock Options that fail to meet the requirements of Section 422 of the Code shall be redesignated as Nonqualified Stock Options for federal income tax purposes automatically without further action by the Committee on the date of such failure to continue to meet the requirements of Section 422 of the Code.
Section 6.2. TRANSFERABILITY OF OPTIONS. Options shall not be transferable otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined in the Code, and during the Participant's lifetime such Options shall be exercisable only by the Participant.
Section 6.3. REPLACEMENT OPTION. The Committee may grant a replacement option (a "Replacement Option") to any Employee who exercises all or part of an Option granted under this Plan using Qualifying Stock as payment for the exercise price. A Replacement Option shall grant to the Employee the right to purchase, at a price not less than the Fair Market Value of the Company Stock as of the date of said grant, the number of shares of stock equal to the sum of the number of whole shares (i) used by the Employee in payment of the exercise price for the Option which was exercised and (ii) used by the Employee in connection with applicable withholding taxes on such transaction. A Replacement Option may not be exercised for six months following the date of grant, and shall expire on the same date as the Option which it replaces.
ARTICLE VII
ADMINISTRATION
Section 7.1. AUTHORITY OF THE COMMITTEE. (a) The Plan shall be administered by the Committee. A majority vote of the Committee at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee for the purposes of this Plan.
(b) The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan, to determine the terms of all Options granted under the Plan, including, without limitation, the purchase price, if any, the Participants to whom and the time or times at which Options shall be granted, when an Option can be exercised and whether in whole or in installments, and the number of shares covered by an Option and to interpret the Plan and to make all other determinations deemed advisable for the administration of the Plan. All determinations of the Committee shall be made by not less than a majority of its members. The Committee may designate Employees of the Company to assist the Committee in the administration of the Plan and may grant authority to such persons to execute Option agreements or other documents on behalf of the Committee.
(c) The Committee may make such rules and regulations and establish such procedures as it deems appropriate for the administration of the Plan.
(d) In the event of a disagreement as to the interpretation of the Plan or any amendment hereto or any rule, regulation or procedure thereunder or as to any right or obligation arising from or related to the Plan, the decision of the Committee shall be final and binding. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any benefit granted under it.
Section 7.2. PAYMENT FOR OPTIONS. Payment in full for the number of shares purchased under any Option shall be made to the Company at the time of such exercise. The Committee, in its discretion, may provide that any Option by its terms may permit a Participant to elect, subject to Committee approval, to pay for an exercised Option in any combination of cash and Company
Stock. Shares of Company Stock used to pay all or a part of the exercise price of an Option will be valued at their Fair Market Value on the date of the exercise of the Option.
ARTICLE VIII
ADJUSTMENT UPON CHANGES OF STOCK
If any change is made with respect to the Company Stock by reason of any stock dividend, stock split or combination of shares, appropriate adjustments shall be made by the Committee to the maximum number of shares subject to the Plan and the number of shares and price per share of Company Stock subject to each outstanding Option. No fractional shares of Company Stock resulting from any such adjustment shall be issued upon exercise of an Option, but the Fair Market Value of any such fractional share shall be paid in cash upon such exercise.
ARTICLE IX
EFFECT OF CORPORATE CHANGES
An Optionee shall not have any additional right to exercise any outstanding Options, whether or not vested, in whole or in part, solely by reason of any Change of Control, merger, consolidation, reorganization, recapitalization, exchange of shares, or change in corporate structure (including an initial public offering), than such Optionee had prior to such an event. If a Change of Control, merger, consolidation, reorganization, recapitalization, exchange of shares, or change in corporate structure (including an initial public offering) shall occur, the Committee may, but shall not be required to, accelerate or adjust the vesting of Options, solely at the discretion of the Committee and subject to the terms of the Plan.
ARTICLE X
TERMINATION OF OPTIONS
Section 10.1. DEATH OF OPTIONEE. (a) If the Optionee shall die at any time after the date an Option is granted and prior to any termination thereof, the executor or administrator of the estate of the Optionee or the person or persons to whom the Option shall have been validly transferred by the executor or the administrator pursuant to will or the laws of descent and distribution shall have the right, during the period ending one year after the date of the Optionee's death, to exercise the Option to the extent that it was exercisable at the date of death and shall not have been exercised. Any Options not exercised within said time period shall terminate and all rights thereunder shall cease. In the event of the Optionee's death, any Options not vested as of the date of the Optionee's death shall become immediately vested; provided, however, that the Optionee was continuously employed by the Company, or continuously served on the Board or as an Advisor, for at least three years, or such shorter period as the Committee determines in its sole discretion.
(b) Notwithstanding the foregoing, no transfer of an Option by will or the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and an authenticated copy of the will and/or such
other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of the Option.
Section 10.2. PERMANENT AND TOTAL DISABILITY. If the Optionee becomes Permanently and Totally Disabled at any time after the date an Option is granted and prior to any termination thereof, the Optionee (or in the case of the Optionee becoming mentally incapacitated, his guardian or legal representative) shall have the right, during a period ending one year after such Permanent and Total Disability, to exercise the Option to the extent that it was exercisable at the date of such Permanent and Total Disability and shall not have been exercised. Any Options not exercised within said time period shall terminate and all rights thereunder shall cease. In the event of the Optionee's Permanent and Total Disability, any Options not vested as of the date of the Optionee's Permanent and Total Disability shall become immediately vested; provided, however, that the Optionee was continuously employed by the Company, or continuously served on the Board or as an Advisor, for at least three years, or such shorter period as the Committee determines in its sole discretion.
Section 10.3. OTHER. (a) In the event of an Optionee's termination of employment with the Company or from the Board or as an Advisor, or in the event an Optionee's employment is terminated for any reason other than death or Permanent and Total Disability, any Options not vested as of the date of the Optionee's resignation or termination shall immediately terminate and all rights thereunder shall cease unless the Committee determines otherwise in its sole discretion.
(b) If the Optionee's employment or directorship with the Company or service as an Advisor is terminated by the Company for Cause, the Optionee's right to exercise an Option, whether or not vested, shall immediately terminate and all rights thereunder shall cease unless the Committee determines otherwise in its sole discretion.
ARTICLE XI
MISCELLANEOUS
Section 11.1. RIGHTS OF EMPLOYEES AND NON-EMPLOYEE DIRECTORS. Neither this Plan nor any Option granted hereunder shall confer upon any Employee or Non-Employee Director any right to continue to serve as an employee or director of the Company.
Section 11.2. WITHHOLDING. The Company shall have the right to withhold with respect to any payments made to Participants under the Plan any taxes required by law to be withheld because of such payments. With respect to any such withholding:
(a) Each Participant shall take whatever action that the Committee deems appropriate to comply with the law regarding withholding of federal, state and local taxes.
(b) When a Participant is obligated to pay to the Company an amount required to be withheld under applicable income tax laws in connection with an Option, the Committee may, in its discretion and subject to such rules as it may adopt, permit the Participant to satisfy this obligation, in whole or in part, either (i) by having the Company
withhold from the shares to be issued upon the exercise of an Option or
(ii) by delivering to the Company already-owned shares to satisfy the
withholding amount.
Section 11.3. EFFECTIVE DATE. This Plan is effective on June 27, 1997 ("Effective Date"). Options hereunder may be granted at any time subject to the limitations contained within the Plan. No Company Stock may be issued unless the Plan is approved by a vote of the holders of a majority, or as otherwise provided in the Company's First Amended and Restated Articles of Incorporation, of the outstanding shares of the Company's common stock at a meeting of the stockholders of the Company held within 12 months following the Effective Date.
ARTICLE XII
MISCELLANEOUS
Section 12.1. AMENDMENT. The Board may amend the Plan from time to time as it deems desirable or as necessitated by any applicable rules and regulations and such amendments shall include the ability of the Board to amend the Plan and, with shareholder approval, to increase the number of shares subject to the Plan; provided, however, the Plan may not be amended to decrease the price at which Incentive Stock Options may be granted. Any amendment to the Plan shall not apply to (i) Options granted to Non-Employee Directors prior to the effective date of the amendment or (ii) Options granted to Employees or Advisors that have vested prior to the effective date of the amendment unless, in either case, it has been otherwise agreed to, in writing, by the Committee and the affected Plan Participant.
Section 12.2. TERMINATION OF PLAN. The Board may, in its discretion, terminate the Plan at any time, but no such termination shall deprive Participants of their rights under outstanding Options.
Section 12.3. GOVERNING LAW. This Plan shall be construed in accordance with and governed by the laws of the State of Delaware.
EXHIBIT 10.7
PRIVATE & CONFIDENTIAL
THE TRANSGENOMIC INC. 1997
STOCK OPTION PLAN
(AS AMENDED AND RESTATED)
UK APPROVED STOCK OPTION SUB PLAN 1999
APPROVED BY THE INLAND REVENUE UNDER REF: X19932
DELOITTE & TOUCHE
HILL HOUSE
1, LITTLE NEW STREET
LONDON
EC4A 3TR
Ref:- SVW/NN
THE TRANSGENOMIC INC.
1997 STOCK OPTION PLAN
UK APPROVED STOCK OPTION SUB PLAN 1999
1. INTRODUCTION
1.1 For the purpose of granting options under a scheme approved by the United Kingdom's Inland Revenue under Schedule 9 to the United Kingdom's Income and Corporation Taxes Act 1988 ("Schedule 9"), the terms of the Transgenomic Inc. Amended and Restated 1997 Stock Option Plan, as amended and restated as of 14 October 1997 (hereafter called the "1997 Plan") are amended by the creation of the UK Share Option Sub-Plan 1999 ("the Sub-Plan") which shall be applicable to the employees of Transgenomic Inc. and its subsidiaries and affiliates who are resident in the United Kingdom.
1.2 The terms of the Sub Plan shall be the terms of the 1997 Plan, amended as set out below.
2. NATURE OF OPTIONS
2.1 No options or rights may be granted under the Sub Plan other than Approved Stock Options.
2.2 The Company Stock over which Approved Stock Options are granted under the Sub Plan must satisfy paragraphs 10-14 of Schedule 9.
3. ELIGIBILITY AND GRANT OF OPTIONS
3.1 No Approved Stock Options may be granted under the Sub Plan to a person who is not an employee or a full-time director of the Company or such companies under the control of the Company as may be nominated from time to time within the meaning of paragraph 27 of Schedule 9.
3.2 For the purposes of Rule 3.1 of this Sub Plan above, a person shall be treated as a full-time director of a Company if he is obliged to devote to the performance of the duties of his office of employment with the Company, or with the Company and any other participating Company, not less than 25 hours a week (excluding meal-breaks).
3.3 No Approved Stock Options may be granted under the Sub Plan to, or exercised by, a person who is not eligible to participate by virtue of paragraph 8 of Schedule 9.
3.4. No person shall be granted an option under the Sub Plan for which the exercise price, when added to the exercise price of all Approved Stock Options for such individual subsisting under the Sub Plan, or any other option granted under a discretionary share option scheme approved by the United Kingdom Inland Revenue and established by the Company or any associated company (as defined in section 187(2) of the Income and Corporation Taxes Act 1988), would exceed L30,000 (or such limit as may from time to time be provided for by paragraph 28 of Schedule 9).
3.5 No option shall be granted under this Sub Plan at any price which is less than its Fair Market Value, or in the case of an option to subscribe for shares, the nominal value of the Company Stock, if higher.
3.6 If and so long as the Company Stock is listed on the London Stock Exchange or the New York Stock Exchange, "Fair Market Value" shall mean its middle market quotation (as derived from the Daily Official List). If and so long as the Company Stock is not so listed, "Fair Market Value" shall mean the fair market value of the relevant stock on the relevant date, as determined in accordance with Part VIII of the Taxation of Chargeable Gains Act 1992 and agreed in advance of each grant with the Shares Valuation Division of the UK Inland Revenue.
3.7 The Committee may grant an Approved Stock Option subject to such objective conditions as it may determine and specify at the date of grant, provided that such conditions have been approved by the UK Inland Revenue.
3.8 Section 6.3 of the 1997 Plan shall not apply.
3.9 Section 7.2 of the 1997 Plan shall read as if it contained only the words:
"Payment in full for the number of shares purchased under any Approved Stock Option shall be made to the Company in cash at the time of such exercise".
3.10 The Committee shall procure the issue or transfer of shares pursuant to the exercise of an Approved Stock Option within 28 days following the effective date of exercise of the Option. Shares to be issued pursuant to the Sub Plan shall rank pari passu in all respects with the Company Stock of the same class for the time being in issue same as regards any rights attaching to a record date prior to the date of issue and in the case of a transfer of shares, the transferee shall not acquire any rights attaching to such shares by reference to a record date prior to the date of transfer.
4. ADJUSTMENTS
4.1 Article VIII of the 1997 Plan shall read as if it contained only the words:
"The number of shares of Company Stock over which an Approved Stock Option is granted and the exercise price shall be adjusted in such manner as the Committee shall determine following any capitalisation issue, rights issue, subdivision, consolidation or reduction of share capital of the Company or any other variation of share capital to the intent that (as nearly as may be without involving fractions of a share or an exercise price calculated to more than two places of decimals) the exercise price payable in respect of an Approved Stock Option shall remain unchanged provided that:-
(a) the aggregate amount payable on the exercise of the Approved Stock Option in full is not increased;
(b) the exercise price for shares of Company Stock is not reduced below its nominal value; and
(c) no such adjustment is made without the prior approval of the UK Inland Revenue.
5. EFFECT OF CORPORATE CHANGES
5.1 If any person obtains Control (as defined in Rule 5.6 below) of the Company as a result of making:
(a) a general offer to acquire the whole of the issued stock of the Company (where such an offer is made upon a condition such that if it is satisfied the person making the offer will have control of the Company; or
(b) a general offer to acquire all the shares in the Company which are of the same class as the Company Stock subject to Approved Stock Options;
any existing Approved Stock Option may be exercised within 6 months of the time when the person making such an offer obtains Control of the Company.
5.2 If, as a result of the events specified in 5.1 another Company has obtained Control of the Company, a holder of an Approved Stock Option may, by agreement with that other Company (the "Acquiring Company"), within 6 months release such existing options held over the Company Stock (the "Old Option") for an option fulfilling the requirements of Rule 5.3 (a "New Option").
5.3 An Approved Stock Option shall only be New Option if it:
(a) is held over stock in the Acquiring Company or some other Company falling within Schedule 9 paragraph 10(b) or (c);
(b) is a right to acquire such an amount of stock as would have on acquisition of the New Option an aggregate market value equal to the aggregate market value of the stock which was subject to the Old Option upon its release;
(c) has a subscription price such that the aggregate price payable upon the complete exercise equals the aggregate price which would have been payable on completion of the Old Option; and
(d) is otherwise identical to the Old Option.
5.4 The New Option shall, for all other purposes of this Sub Plan, be treated as having been acquired at the same time as Old Option.
5.5 Where New Options are granted under this Rule, all references to Transgenomic Inc in the 1997 Plan, or this Sub Plan, shall be construed as references to the Acquiring Company, or as the case may be, to any other company to which the Stock or stock subject to New Options relates.
5.6 For the purposes of this Rule, a person shall be deemed to have Control of the Company, if he and others acting in concert with him have obtained control of it, within the meaning of section 840 of the UK Income and Corporation Taxes Act 1988
6. TERMINATION OF OPTIONS
6.1 For the purposes of this Sub Plan, Section 10 of the 1997 Plan shall be read as if it contained only the words:
"An Approved Stock Option may be exercised by the personal representative of a deceased Optionee within one year following the date of his death and by the Optionee within one year following the date upon which such Optionee ceases to hold office or employment with the Company, if such cessation is as a result of:
(a) permanent or total disability (provided the Optionee has been continuously employed by the Company for at least three years or such shorter period as the Committee may determine upon the grant of any Approved Stock Option);
(b) pregnancy;
(c) redundancy within the meaning of the UK Employment Rights Act 1996;
(d) retirement at the normal age provided that the option has been held for at least 2 years at the date of such retirement (or such longer period as the Committee may determine upon the grant of any Approved Stock Option); or
(e) any other reason at the discretion of the Committee.
6.2 Where an Optionee ceases to hold office or employment with the Company for any reason other than those set out in Rule 6.1, the Approved Stock Option shall lapse, whether or not vested.
7. MISCELLANEOUS
7.1 Section 11.2 shall not apply to the Sub Plan.
7.2 In the event of any conflict between the terms of the 1997 Plan and this Sub Plan, the Sub Plan shall prevail.
7.3 No amendment made to:
(a) any Approved Stock Option granted under this Sub Plan;
(b) any part of this Sub Plan;
(c) any part of the 1997 Plan insofar as those amendments affect this Sub Plan,
shall have any effect until it has been approved by the Board of the UK
Inland Revenue.
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of March 1, 2000, by and between Transgenomic, Inc., a Delaware corporation (the "Company"), and Collin D'Silva ("Employee").
The Company and Employee desire to enter into an Employment Agreement (this "Agreement"). Accordingly, the Company and Employee agree as follows:
Section 1. EFFECTIVE DATE; POSITION; TERM. This Agreement shall become effective on March 1, 2000 (the "Effective Date"). The Company shall employ Employee as Chief Executive Officer. The initial term of the Agreement will be for a minimum of four (4) years from the Effective Date, and the Agreement may be extended upon mutual consent of the parties.
Section 2. POSITION AND DUTIES. During the Employment Period:
(a) Employee shall have the normal responsibilities, duties and authorities of Chief Executive Officer.
(b) Employee shall report to the Board of Directors of the Company and Employee shall perform faithfully the executive duties assigned to him to the best of his ability in a diligent, trustworthy, businesslike and efficient manner and will devote his full business time and attention to the business and affairs of the Company and its Subsidiaries and Affiliates; provided, however, that Employee may serve as a director of or a consultant to other corporations which do not compete with the Company, nonprofit corporations, civic organizations, professional groups and similar entities.
(c) For purposes of this Agreement, "Subsidiary" shall mean any corporation or other entity of which securities having a majority of the voting power in electing directors or comparable management are, at the time of determination, owned by the Company, directly or through one or more Subsidiaries.
(d) For purposes of this Agreement, "Affiliate" of any particular person means any other person controlling, controlled by or under common control with such particular person.
Section 3. BASIC COMPENSATION.
(a) BASE SALARY. As compensation for his services hereunder, the Company shall pay to Employee during the Employment Period an initial base salary of $132,000.00 per year.
Base Salary shall be payable in equal installments in arrears on a biweekly basis or as otherwise may be mutually agreed upon.
The salary will be reviewed and determined by the Compensation Committee of the Board of Directors.
Section 4. BONUS. In addition to the Base Salary, Employee shall be eligible to receive an annual bonus based on Employee's performance in conjunction with specific mutually agreed goals and objectives defined prior to such calendar year payable at such time or times during or following each calendar year as shall be determined by the Chief Executive Officer and the Board of Directors (the "Board") or a committee thereof in its sole discretion and based on formulas to be determined each year by the Board or such committee in its sole discretion for the Company's management bonus plan.
Section 5. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. Employee will be entitled to participate in all Company salaried employee benefit plans and programs, subject to the terms and conditions of each such employee benefit plan or program and to the extent commensurate with his position as Chief Executive Officer.
Section 6. OTHER BENEFITS.
(a) VACATION. Employee shall initially be entitled to four weeks' paid vacation each year.
(b) INSURANCE. The Company shall make available to Employee health, hospitalization, major medical insurance and dental insurance (including dependent coverage), and other benefits from time to time provided to employees.
Section 7. BUSINESS EXPENSES. The Company shall reimburse Employee for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to report and documentation of such expenses.
Section 8. TERMINATION OF EMPLOYMENT.
(a) EVENTS OF TERMINATION AND SEVERANCE PAYMENT. In the event that,
during the term of this Agreement, Employee is discharged for any reason other than for Just Cause (as defined below), Employee shall be entitled to receive certain payment (the "Severance Payment") following termination of employment. Severance Payment will be made at the Employees then current base salary for an amount equal to 12 (twelve) months' salary.
(b) "Just Cause" means embezzlement or misappropriation of corporate funds, other acts of dishonesty, significant activities materially harmful to the reputation of the Company as reasonably defined by the Company, commission of a felony, willful refusal to perform or substantial disregard of the duties properly assigned, significant violation of any statutory or common law, duty of loyalty to the Company or a material violation of Section 10 or 11 below, or takes any other action materially detrimental to the best interest of the Company as reasonably determined by the Company.
(c) EFFECT OF BREACH OF NONCOMPETITION PROVISIONS. In the event Employee breaches or otherwise fails to comply with the provisions of Section 10 or 11 below, then, in addition to any other remedies provided herein or at law or in equity, the Company shall have the right to require return of any severance payment made to the Employee. Return of such Severance Payment pursuant to the preceding sentence shall not relieve Employee's obligations pursuant to Section 10 or 11 below.
Section 9. ASSIGNMENT AND SUCCESSION. (a) The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its respective successors and assigns, and Employee's rights and obligations hereunder shall inure to the benefit of and be binding upon his successors and permitted assigns, whether so expressed or not.
(b) Employee acknowledges that the services to be rendered by him hereunder are unique and personal. Accordingly, Employee may not pledge or assign any of his rights or delegate any of his duties or obligations under this Agreement without the express prior written consent of the Company.
(c) The Company may not assign its interest in or obligations under this Agreement without the prior written consent of Employee.
Section 10. CONFIDENTIAL INFORMATION. (a) Employee acknowledges that the information, observations and data obtained by him during the course of his performance under this Agreement concerning the business or affairs of the Company and its Subsidiaries is the property of the Company or such Subsidiary, as the case may be. Therefore, during the Employment Period and at all times thereafter, Employee will not directly or indirectly use, divulge, furnish or make accessible to any unauthorized person or use for his own account any confidential or proprietary information or trade secrets of the Company or any of its
Subsidiaries without the Board's prior written consent except and to the extent required by law (and upon prompt written notice of such requirement to the Company and such Subsidiary) any of such information, observations or data without the Board's prior written consent unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Employee's acts or omissions to act. In the event Employee shall be required by law to make any disclosure as set forth above, Employee shall promptly notify the Company and such Subsidiary in writing of the basis for and the extent of the required disclosure and shall cooperate with the Company and such Subsidiary to preserve in full the confidentiality of all intellectual property, trade secrets, confidential information and other proprietary rights of the Company and such Subsidiary. For purposes hereof, confidential information does not include any information that has become publicly known are made generally available through no wrongful act of Employee or of any other person who is subject to a confidentiality agreement with the Company.
(b) Employee agrees to deliver to the Company at the termination of his employment, or at any other time upon written request by the Company, all memoranda, notes, plans, records, reports and other documents relating to the business of the Company and its Subsidiaries which he may then possess or have under his control.
Section 11. COVENANT NOT TO COMPETE. (a) Employee agrees that during
the Employment Period, and for one year after the Termination Date (the
"Noncompete Period"), he will neither directly nor indirectly engage in, have
any interest in, own, manage, operate, control, be connected with as a
stockholder, joint venturer, officer, employee, partner or consultant or invest
or participate in a business competing with any of the businesses then conducted
(or, to the knowledge of Employee, planned to be conducted within one year) by
the Company or any of its successors or then Subsidiaries, within any
geographical area in which the Company or its Subsidiaries engage or plan within
one year to engage in any such businesses. During the Noncompete Period,
Employee shall not directly or indirectly through another entity (i) induce or
attempt to induce any employee of the Company or any Subsidiary to leave the
employ of the Company or such Subsidiary, or in any way interfere with the
relationship between the Company or any Subsidiary and any employee thereof,
(ii) hire any person who was an employee of the Company or any Subsidiary at any
time during the Employment Period or (iii) induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company or any
Subsidiary to cease doing business with the Company or such Subsidiary, or in
any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any Subsidiary.
(b) Nothing contained in this Section 11 shall prevent Employee from owning up to a 5% interest in any corporation or entity having one or more classes of its securities listed on a national securities exchange or publicly traded in the over-the-counter market, provided Employee is not actively involved in the operation or management of such corporation or entity. Nothing contained herein shall prevent Employee from serving as a paid consultant to other companies or serving as a
member of the Board of Directors of other corporations.
(c) If, under the circumstances existing at the time of enforcement of this Section 11, the period, scope or geographic area described in this Section 12 shall be found or held to be unreasonable, the parties hereto agree that the maximum period, scope or geographic area reasonable under the circumstances shall be substituted for the stated period, scope or geographic area.
Section 12. CONFLICTS OF INTEREST POLICIES. Employee shall diligently adhere to the Company's Conflict of Interest Policy as adopted by the Board and in effect from time to time.
Section 13. ARBITRATION AND EQUITABLE REMEDIES. (a) Except as provide in Section 13(b) hereof, the parties agree that any dispute or controversy arising out of, relating to, or concerning the interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held in Nebraska, in accordance with the Employment Dispute Resolution rules of the American Arbitration Association then in effect. The arbitrator may grant injunctions or other relief in such dispute or controversy and the decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. The Company and Employee shall each pay one-half of the costs and expenses of such arbitration, and each shall separately pay the fees and expenses of their respective legal counsel.
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP.
(b) Notwithstanding paragraph (a) of this Section 13, the parties agree that, in the event of the breach or threatened breach of Sections 10, 11 or 12 of this Agreement by Employee, monetary damages alone would not be an adequate remedy to the Company and its Subsidiaries for the injury that would result from such breach, and that the Company and its Subsidiaries shall be entitled to apply to any court of competent jurisdiction for specific performance and/or injunctive relief (without posting bond or other security) in order to enforce or prevent any violation of such provisions of this Agreement. Employee further agrees that any such injunctive relief obtained by the Company or any of its Subsidiaries shall be in addition to monetary damages.
Section 14. INDEMNIFICATION. The Company agrees to indemnify and hold harmless Employee for any and all actions taken by Employee in carrying out his duties under this Agreement.
Section 15 ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties relating to the subject matters covered hereby and shall supersede any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof in any way and shall not be amended or waived except in a writing signed by the parties hereto.
Section 16. NOTICES. Any notice or request required or permitted to be given hereunder shall be in writing and will be deemed to have been given (i) when delivered personally, sent by telecopy (with hard copy to follow) or overnight express courier or (ii) five days following mailing by certified or registered mail, postage prepaid and return receipt requested, to the addresses below unless another address is specified by such party in writing:
To the Company: Transgenomic, Inc.
5600 South 42nd Street
Omaha, NE 68107
Telephone: (402) 738-5480
Telecopy: (402) 733-1264
To the Employee: Collin D'Silva
5600 South 42nd Street
Omaha, NE 68107
Telephone: (402) 738-5480
Telecopy: (402) 733-1264
|
Section 17. HEADINGS. The article and section headings herein are for convenience of reference only and shall not define or limit the provisions hereof.
Section 18. APPLICABLE LAW. The corporate law of the State of Delaware will govern all questions concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed by the internal laws of the State of Nebraska.
Section 19. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held prohibited by, invalid or unenforceable in any respect under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
Section 20. AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended or waived only with the prior written consent of the Company and Employee.
Section 21. NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto.
Section 22. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
Section 23. EMPLOYEE REPRESENTATIONS. Employee hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Employee does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Employee is a party or by which he is bound, (ii) Employee is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms.
Section 24. SURVIVAL. Sections 10, 11 and 14 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and Employee has signed this Agreement as of the date first written above.
TRANSGENOMIC, INC.
By /s/Stephen F. Dwyer --------------------------- Name: Stephen F. Dwyer Title: Director |
EMPLOYEE
/s/Collin D'Silva --------------------------- Name: Collin D'Silva |
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of March 1, 2000, by and between Transgenomic, Inc., a Delaware corporation (the "Company"), and John Allbery ("Employee").
The Company and Employee desire to enter into an Employment Agreement (this "Agreement"). Accordingly, the Company and Employee agree as follows:
Section 1. EFFECTIVE DATE; POSITION; TERM. This Agreement shall become effective on March 1, 2000 (the "Effective Date"). The Company shall employ Employee as Chief Financial Officer and Managing Director, European Operations. The initial term of the Agreement will be for a minimum of four (4) years from the Effective Date, and the Agreement may be extended upon mutual consent of the parties.
Section 2. POSITION AND DUTIES. During the Employment Period:
(a) Employee shall have the normal responsibilities, duties and authorities of Chief Financial Officer and Managing Director, European Operations to be defined prior to the Effective Date.
(b) Employee shall report to the Chief Executive Officer of the Company and Employee shall perform faithfully the executive duties assigned to him to the best of his ability in a diligent, trustworthy, businesslike and efficient manner and will devote his full business time and attention to the business and affairs of the Company and its Subsidiaries and Affiliates; provided, however, that Employee may serve as a director of or a consultant to other corporations which do not compete with the Company, nonprofit corporations, civic organizations, professional groups and similar entities.
(c) For purposes of this Agreement, "Subsidiary" shall mean any corporation or other entity of which securities having a majority of the voting power in electing directors or comparable management are, at the time of determination, owned by the Company, directly or through one or more Subsidiaries.
(d) For purposes of this Agreement, "Affiliate" of any particular person means any other person controlling, controlled by or under common control with such particular person.
Section 3. BASIC COMPENSATION.
(a) BASE SALARY. As compensation for his services hereunder, the Company shall pay to Employee during the Employment Period an initial base salary of $200,000 per year.
Base Salary shall be payable in equal installments in arrears on a biweekly basis or as otherwise may be mutually agreed upon.
The salary shall be increased over the previous year's salary as mutually agreed to.
Section 4. BONUS. In addition to the Base Salary, Employee shall be eligible to receive an annual bonus based on Employee's performance in conjunction with specific mutually agreed goals and objectives defined prior to such calendar year payable at such time or times during or following each calendar year as shall be determined by the Chief Executive Officer and the Board of Directors (the "Board") or a committee thereof in its sole discretion and based on formulas to be determined each year by the Board or such committee in its sole discretion for the Company's management bonus plan.
Section 5. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. Employee will be entitled to participate in all Company salaried employee benefit plans and programs, subject to the terms and conditions of each such employee benefit plan or program and to the extent commensurate with his position as Chief Financial Officer and Managing Director, European Operations.
Section 6. OTHER BENEFITS.
(a) VACATION. Employee shall initially be entitled to four weeks' paid vacation each year.
(b) INSURANCE. The Company shall make available to Employee health, hospitalization, major medical insurance and dental insurance (including dependent coverage), and other benefits from time to time provided to employees, including such coverage reasonably required while living abroad.
Cost not to exceed $1,000 per month while living in Europe, to provide health insurance coverage similar to what the Company normally provides its employees.
(c) Relocation. Employee shall be entitled to reimbursement of all reasonable costs of relocation back to the U.S. as previously discussed and agreed.
Section 7. BUSINESS EXPENSES. The Company shall reimburse Employee for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to report and documentation of such expenses, including temporary office and support costs, and periodic travel back to the U.S. while living abroad.
Section 8. STOCK OPTIONS AND OPTION SHARES. Employee shall be granted 100,000 shares at $10.00 per share of options, 20,000 shares to vest immediately upon starting, and 20,000 shares to vest per year on the anniversary date of each of the next four years of your employment.
Section 9. TERMINATION OF EMPLOYMENT.
(a) EVENTS OF TERMINATION AND SEVERANCE PAYMENT. In the event that, during the term of this Agreement, Employee is discharged for any reason other than for Just Cause (as defined below), Employee shall be entitled to receive certain payment (the "Severance Payment") following termination of employment. Severance Payment will be made at the Employees then current base salary for an amount equal to 12 (twelve) months' salary. In addition, in case of such discharge, Employee will retain all vested stock options. All unvested stock options will lapse.
(b) "Just Cause" means embezzlement or misappropriation of corporate funds, other acts of dishonesty, significant activities materially harmful to the reputation of the Company as reasonably defined by the Company, commission of a felony, willful refusal to perform or substantial disregard of the duties properly assigned, significant violation of any statutory or common law, duty of loyalty to the Company or a material violation of Section 11 or 12 below, or takes any other action materially detrimental to the best interest of the Company as reasonably determined by the Company.
(c) EFFECT OF BREACH OF NONCOMPETITION PROVISIONS. In the event Employee breaches or otherwise fails to comply with the provisions of Section 11 or 12 below, then, in addition to any other remedies provided herein or at law or in equity, the Company shall have the right to require return of any severance payment made to the Employee. Return of such Severance Payment pursuant to the preceding sentence shall not relieve Employee's obligations pursuant to Section 11 or 12 below.
Section 10. ASSIGNMENT AND SUCCESSION. (a) The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its respective successors and assigns, and Employee's rights and obligations hereunder shall inure to the benefit of and be binding upon his successors and permitted assigns, whether so expressed or not.
(b) Employee acknowledges that the services to be rendered by him hereunder are unique and personal. Accordingly, Employee may not pledge or assign any of his rights or delegate any of his duties or obligations under this Agreement without the express prior written consent of the Company.
(c) The Company may not assign its interest in or obligations under this Agreement without the prior written consent of Employee.
Section 11. CONFIDENTIAL INFORMATION. (a) Employee acknowledges that the information, observations and data obtained by him during the course of his performance under this Agreement concerning the business or affairs of the Company and its Subsidiaries is the property of the Company or such Subsidiary, as the case may be. Therefore, during the Employment Period and at all times thereafter, Employee will not directly or indirectly use, divulge, furnish or make accessible to any unauthorized person or use for his own account any confidential or proprietary information or trade secrets of the Company or any of its Subsidiaries without the Board's prior written consent except and to the extent required by law (and upon prompt written notice of such requirement to the Company and such Subsidiary) any of such information, observations or data without the Board's prior written consent unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Employee's acts or omissions to act. In the event Employee shall be required by law to make any disclosure as set forth above, Employee shall promptly notify the Company and such Subsidiary in writing of the basis for and the extent of the required disclosure and shall cooperate with the Company and such Subsidiary to preserve in full the confidentiality of all intellectual property, trade secrets, confidential information and other proprietary rights of the Company and such Subsidiary. For purposes hereof, confidential information does not include any information that has become publicly known are made generally available through no wrongful act of Employee or of any other person who is subject to a confidentiality agreement with the Company.
(b) Employee agrees to deliver to the Company at the termination of his employment, or at any other time upon written request by the Company, all memoranda, notes, plans, records, reports and other documents relating to the business of the Company and its Subsidiaries which he may then possess or have under his control.
Section 12. COVENANT NOT TO COMPETE. (a) Employee agrees that during
the Employment Period, and for one year after the Termination Date (the
"Noncompete Period"), he will neither directly nor indirectly engage in, have
any interest in, own, manage, operate, control, be connected with as a
stockholder, joint venturer, officer, employee, partner or consultant or invest
or participate in a business competing with any of the businesses then conducted
(or, to the knowledge of Employee, planned to be conducted within one year) by
the Company or any of its successors or then Subsidiaries, within any
geographical area in which the Company or its Subsidiaries engage or plan within
one year to engage in any such businesses. During the Noncompete Period,
Employee shall not directly or indirectly through another entity (i) induce or
attempt to induce any employee of the Company or any Subsidiary to leave the
employ of the Company or such Subsidiary, or in any way interfere with the
relationship between the Company or any Subsidiary and any employee thereof,
(ii) hire any person who was an employee of the Company or any Subsidiary at any
time during the Employment Period or (iii) induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company or any
Subsidiary to cease doing business with the Company or such Subsidiary, or in
any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any Subsidiary.
(b) Nothing contained in this Section 12 shall prevent Employee from owning up to a 5% interest in any corporation or entity having one or more classes of its securities listed on a national securities exchange or publicly traded in the over-the-counter market, provided Employee is not actively involved in the operation or management of such corporation or entity. Nothing contained herein shall prevent Employee from serving as a paid consultant to other companies or serving as a member of the Board of Directors of other corporations.
(c) If, under the circumstances existing at the time of enforcement of this Section 12, the period, scope or geographic area described in this Section 12 shall be found or held to be unreasonable, the parties hereto agree that the maximum period, scope or geographic area reasonable under the circumstances shall be substituted for the stated period, scope or geographic area.
Section 13. CONFLICTS OF INTEREST POLICIES. Employee shall diligently adhere to the Company's Conflict of Interest Policy as adopted by the Board and in effect from time to time.
Section 14. ARBITRATION AND EQUITABLE REMEDIES. (a) Except as provide in Section 14(b) hereof, the parties agree that any dispute or controversy arising out of, relating to, or concerning the interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held in Nebraska, in accordance with the Employment Dispute Resolution rules of the American Arbitration Association then in effect. The arbitrator may grant injunctions or other relief in such dispute or controversy and the decision of the
arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. The Company and Employee shall each pay one-half of the costs and expenses of such arbitration, and each shall separately pay the fees and expenses of their respective legal counsel.
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP.
(b) Notwithstanding paragraph (a) of this Section 14, the parties agree that, in the event of the breach or threatened breach of Sections 11, 12 or 13 of this Agreement by Employee, monetary damages alone would not be an adequate remedy to the Company and its Subsidiaries for the injury that would result from such breach, and that the Company and its Subsidiaries shall be entitled to apply to any court of competent jurisdiction for specific performance and/or injunctive relief (without posting bond or other security) in order to enforce or prevent any violation of such provisions of this Agreement. Employee further agrees that any such injunctive relief obtained by the Company or any of its Subsidiaries shall be in addition to monetary damages.
Section 15. INDEMNIFICATION. The Company agrees to indemnify and hold harmless Employee for any and all actions taken by Employee in carrying out his duties under this Agreement.
Section 16 ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties relating to the subject matters covered hereby and shall supersede any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof in any way and shall not be amended or waived except in a writing signed by the parties hereto.
Section 17. NOTICES. Any notice or request required or permitted to be given hereunder shall be in writing and will be deemed to have been given (i) when delivered personally, sent by telecopy (with hard copy to follow) or overnight express courier or (ii) five days following mailing by certified or registered mail, postage prepaid and return receipt requested, to the addresses below unless another address is specified by such party in writing:
To the Company: Transgenomic, Inc.
5600 South 42nd Street
Omaha, NE 68107
Attention: Chief Executive Officer
Telephone: (402) 738-5480
Telecopy: (402) 733-1264
|
To the Employee: John L. Allbery
H-1022, Budapest
Endrodi Sandor u. 75/B
Hungary
Telephone: 36-1-200-5415
Telecopy: 36-1-274-0071
|
Section 18. HEADINGS. The article and section headings herein are for convenience of reference only and shall not define or limit the provisions hereof.
Section 19. APPLICABLE LAW. The corporate law of the State of Delaware will govern all questions concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed by the internal laws of the State of Nebraska.
Section 20. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held prohibited by, invalid or unenforceable in any respect under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
Section 21. AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended or waived only with the prior written consent of the Company and Employee.
Section 22. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto.
Section 23. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
Section 24. EMPLOYEE REPRESENTATIONS. Employee hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Employee does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Employee is a party or by which he is bound, (ii) Employee is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms.
Section 25. SURVIVAL. Sections 8, 11, 12 and 15 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and Employee has signed this Agreement as of the date first written above.
TRANSGENOMIC, INC.
By /s/ Collin D'Silva
----------------------------------
Name: Collin D'Silva
Title: Chief Executive Officer
|
EMPLOYEE
/s/ JOHN ALLBERY ------------------------------------------- Name: John Allbery |
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of March 1, 2000, by and between Transgenomic, Inc., a Delaware corporation (the "Company"), and Douglas T. Gjerde ("Employee").
The Company and Employee desire to enter into an Employment Agreement (this "Agreement"). Accordingly, the Company and Employee agree as follows:
Section 1. EFFECTIVE DATE; POSITION; TERM. This Agreement shall become effective on March 1, 2000 (the "Effective Date"). The Company shall employ Employee as Chief Scientific Officer. The initial term of the Agreement will be for a minimum of four (4) years from the Effective Date, and the Agreement may be extended upon mutual consent of the parties.
Section 2. POSITION AND DUTIES. During the Employment Period:
(a) Employee shall have the normal responsibilities, duties and authorities of Chief Scientific Officer.
(b) Employee shall report to the Chief Executive Officer of the Company and Employee shall perform faithfully the executive duties assigned to him to the best of his ability in a diligent, trustworthy, businesslike and efficient manner and will devote his full business time and attention to the business and affairs of the Company and its Subsidiaries and Affiliates; provided, however, that Employee may serve as a director of or a consultant to other corporations which do not compete with the Company, nonprofit corporations, civic organizations, professional groups and similar entities.
(c) For purposes of this Agreement, "Subsidiary" shall mean any corporation or other entity of which securities having a majority of the voting power in electing directors or comparable management are, at the time of determination, owned by the Company, directly or through one or more Subsidiaries.
(d) For purposes of this Agreement, "Affiliate" of any particular person means any other person controlling, controlled by or under common control with such particular person.
Section 3. BASIC COMPENSATION.
(a) BASE SALARY. As compensation for his services hereunder, the Company shall pay to Employee during the Employment Period an initial base salary of $120,000.00 per year.
Base Salary shall be payable in equal installments in arrears on a biweekly basis or as otherwise may be mutually agreed upon.
The salary shall be determined by the Chief Executive Officer and approved by the Compensation Committee of the Board of Directors.
Section 4. BONUS. In addition to the Base Salary, Employee shall be eligible to receive an annual bonus based on Employee's performance in conjunction with specific mutually agreed goals and objectives defined prior to such calendar year payable at such time or times during or following each calendar year as shall be determined by the Chief Executive Officer and the Board of Directors (the "Board") or a committee thereof in its sole discretion and based on formulas to be determined each year by the Board or such committee in its sole discretion for the Company's management bonus plan.
Section 5. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. Employee will be entitled to participate in all Company salaried employee benefit plans and programs, subject to the terms and conditions of each such employee benefit plan or program and to the extent commensurate with his position as Chief Scientific Officer.
Section 6. OTHER BENEFITS.
(a) VACATION. Employee shall initially be entitled to four weeks' paid vacation each year.
(b) INSURANCE. The Company shall make available to Employee health, hospitalization, major medical insurance and dental insurance (including dependent coverage), and other benefits from time to time provided to employees.
Section 7. BUSINESS EXPENSES. The Company shall reimburse Employee for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to report and documentation of such expenses.
Section 8. TERMINATION OF EMPLOYMENT.
(a) EVENTS OF TERMINATION AND SEVERANCE PAYMENT. In the event that, during the term of this Agreement, Employee is discharged for any reason other than for Just Cause (as defined below), Employee shall be entitled to receive certain payment (the "Severance Payment") following termination of employment. Severance Payment will be made at the Employees then current base salary for an amount equal to 12 (twelve) months' salary. In addition, in case of such discharge, Employee will retain all vested stock options.
(b) "Just Cause" means embezzlement or misappropriation of corporate funds, other acts of dishonesty, significant activities materially harmful to the reputation of the Company as reasonably defined by the Company, commission of a felony, willful refusal to perform or substantial disregard of the duties properly assigned, significant violation of any statutory or common law, duty of loyalty to the Company or a material violation of Section 10 or 11 below, or takes any other action materially detrimental to the best interest of the Company as reasonably determined by the Company.
(c) EFFECT OF BREACH OF NONCOMPETITION PROVISIONS. In the event Employee breaches or otherwise fails to comply with the provisions of Section 10 or 11 below, then, in addition to any other remedies provided herein or at law or in equity, the Company shall have the right to require return of any severance payment made to the Employee. Return of such Severance Payment pursuant to the preceding sentence shall not relieve Employee's obligations pursuant to Section 10 or 11 below.
Section 9. ASSIGNMENT AND SUCCESSION. (a) The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its respective successors and assigns, and Employee's rights and obligations hereunder shall inure to the benefit of and be binding upon his successors and permitted assigns, whether so expressed or not.
(b) Employee acknowledges that the services to be rendered by him hereunder are unique and personal. Accordingly, Employee may not pledge or assign any of his rights or delegate any of his duties or obligations under this Agreement without the express prior written consent of the Company.
(c) The Company may not assign its interest in or obligations under this Agreement without the prior written consent of Employee.
Section 10. CONFIDENTIAL INFORMATION. (a) Employee acknowledges that the information, observations and data obtained by him during the course of his performance
under this Agreement concerning the business or affairs of the Company and its Subsidiaries is the property of the Company or such Subsidiary, as the case may be. Therefore, during the Employment Period and at all times thereafter, Employee will not directly or indirectly use, divulge, furnish or make accessible to any unauthorized person or use for his own account any confidential or proprietary information or trade secrets of the Company or any of its Subsidiaries without the Board's prior written consent except and to the extent required by law (and upon prompt written notice of such requirement to the Company and such Subsidiary) any of such information, observations or data without the Board's prior written consent unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Employee's acts or omissions to act. In the event Employee shall be required by law to make any disclosure as set forth above, Employee shall promptly notify the Company and such Subsidiary in writing of the basis for and the extent of the required disclosure and shall cooperate with the Company and such Subsidiary to preserve in full the confidentiality of all intellectual property, trade secrets, confidential information and other proprietary rights of the Company and such Subsidiary. For purposes hereof, confidential information does not include any information that has become publicly known are made generally available through no wrongful act of Employee or of any other person who is subject to a confidentiality agreement with the Company.
(b) Employee agrees to deliver to the Company at the termination of his employment, or at any other time upon written request by the Company, all memoranda, notes, plans, records, reports and other documents relating to the business of the Company and its Subsidiaries which he may then possess or have under his control.
Section 11. COVENANT NOT TO COMPETE. (a) Employee agrees that during
the Employment Period, and for one year after the Termination Date (the
"Noncompete Period"), he will neither directly nor indirectly engage in, have
any interest in, own, manage, operate, control, be connected with as a
stockholder, joint venturer, officer, employee, partner or consultant or invest
or participate in a business competing with any of the businesses then conducted
(or, to the knowledge of Employee, planned to be conducted within one year) by
the Company or any of its successors or then Subsidiaries, within any
geographical area in which the Company or its Subsidiaries engage or plan within
one year to engage in any such businesses. During the Noncompete Period,
Employee shall not directly or indirectly through another entity (i) induce or
attempt to induce any employee of the Company or any Subsidiary to leave the
employ of the Company or such Subsidiary, or in any way interfere with the
relationship between the Company or any Subsidiary and any employee thereof,
(ii) hire any person who was an employee of the Company or any Subsidiary at any
time during the Employment Period or (iii) induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company or any
Subsidiary to cease doing business with the Company or such Subsidiary, or in
any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any Subsidiary.
(b) Nothing contained in this Section 11 shall prevent Employee from
owning up to a 5% interest in any corporation or entity having one or more classes of its securities listed on a national securities exchange or publicly traded in the over-the-counter market, provided Employee is not actively involved in the operation or management of such corporation or entity. Nothing contained herein shall prevent Employee from serving as a paid consultant to other companies or serving as a member of the Board of Directors of other corporations.
(c) If, under the circumstances existing at the time of enforcement of this Section 11, the period, scope or geographic area described in this Section 11 shall be found or held to be unreasonable, the parties hereto agree that the maximum period, scope or geographic area reasonable under the circumstances shall be substituted for the stated period, scope or geographic area.
Section 12. CONFLICTS OF INTEREST POLICIES. Employee shall diligently adhere to the Company's Conflict of Interest Policy as adopted by the Board and in effect from time to time.
Section 13. ARBITRATION AND EQUITABLE REMEDIES. (a) Except as provide in Section 13(b) hereof, the parties agree that any dispute or controversy arising out of, relating to, or concerning the interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held in Nebraska, in accordance with the Employment Dispute Resolution rules of the American Arbitration Association then in effect. The arbitrator may grant injunctions or other relief in such dispute or controversy and the decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. The Company and Employee shall each pay one-half of the costs and expenses of such arbitration, and each shall separately pay the fees and expenses of their respective legal counsel.
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP.
(b) Notwithstanding paragraph (a) of this Section 13, the parties agree that, in the event of the breach or threatened breach of Sections 10, 11 or 12 of this Agreement by Employee, monetary damages alone would not be an adequate remedy to the Company and its Subsidiaries for the injury that would result from such breach, and that the Company and its Subsidiaries shall be entitled to apply to any court of competent jurisdiction for specific performance and/or injunctive relief (without posting bond or other security) in order to enforce or prevent any violation of such provisions of this Agreement. Employee further agrees that any such injunctive relief obtained by the Company or any of its Subsidiaries shall be in addition to monetary damages.
Section 14. INDEMNIFICATION. The Company agrees to indemnify and hold harmless Employee for any and all actions taken by Employee in carrying out his duties under this Agreement.
Section 15 ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties relating to the subject matters covered hereby and shall supersede any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof in any way and shall not be amended or waived except in a writing signed by the parties hereto.
Section 16. NOTICES. Any notice or request required or permitted to be given hereunder shall be in writing and will be deemed to have been given (i) when delivered personally, sent by telecopy (with hard copy to follow) or overnight express courier or (ii) five days following mailing by certified or registered mail, postage prepaid and return receipt requested, to the addresses below unless another address is specified by such party in writing:
To the Company: Transgenomic, Inc.
5600 South 42nd Street
Omaha, NE 68107
Attention: Chief Executive Officer
Telephone: (402) 738-5480
Telecopy: (402) 733-1264
To the Employee: Douglas T. Gjerde
2320 Concourse Drive
San Jose, CA 95131
Telephone: (408) 432-3230
Telecopy: (408) 432-8910
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Section 17. HEADINGS. The article and section headings herein are for convenience of reference only and shall not define or limit the provisions hereof.
Section 18. APPLICABLE LAW. The corporate law of the State of Delaware will govern all questions concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed by the internal laws of the State of Nebraska.
Section 19. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held prohibited by, invalid or unenforceable in any respect under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
Section 20. AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended or waived only with the prior written consent of the Company and Employee.
Section 21. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto.
Section 22. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
Section 23. EMPLOYEE REPRESENTATIONS. Employee hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Employee does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Employee is a party or by which he is bound, (ii) Employee is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms.
Section 24. SURVIVAL. Sections 10, 11 and 14 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and Employee has signed this Agreement as of the date first written above.
TRANSGENOMIC, INC.
By /s/ Collin D'Silva
-----------------------------------
Name: Collin D'Silva
Title: Chief Executive Officer
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EMPLOYEE
/s/ Douglas T. Gjerde ----------------------------------- Name: Douglas T. Gjerde |
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of November 16, 1998 by and between Transgenomic, Inc., a Delaware corporation (the "Company"), and William B. Walker ("Employee").
The Company and Employee desire to enter into an Employment Agreement (this "Agreement"). Accordingly, the Company and Employee agree as follows:
Section 1. EFFECTIVE DATE; POSITION; TERM. This Agreement shall become effective on the date first set forth above (the "Effective Date"). The Company shall employ Employee as Vice President--Intellectual Property and Assistant General Counsel of the Company for a term (the "Employment Period") commencing on November 16, 1998 and continuing until November 16, 2000, unless sooner terminated pursuant to Section 9 hereof, provided that the Employment Period shall by mutual agreement be extended on the first anniversary date (November 16, 1999) and on each anniversary date thereafter for the two-year period following such renewal unless either the Company or Employee delivers to the other a notice of nonextension.
Section 2. POSITION AND DUTIES. During the Employment Period:
(a) Employee shall have the normal responsibilities, duties and authorities of Vice President--Intellectual Property and Assistant General Counsel.
(b) Employee shall report to the General Counsel of the Company and Employee shall perform faithfully the executive duties assigned to him to the best of his ability in a diligent, trustworthy, businesslike and efficient manner and will devote his full business time and attention to the business and affairs of the Company and its Subsidiaries and Affiliates; provided, however, that Employee may serve as a director of or a consultant to other corporations which do not compete with the Company, nonprofit corporations, civic organizations, professional groups and similar entities.
(c) For purposes of this Agreement, "Subsidiary" shall mean any corporation or other entity of which securities having a majority of the voting power in electing directors or comparable management are, at the time of determination, owned by the Company, directly or through one or more Subsidiaries.
(d) For purposes of this Agreement, "Affiliate" of any particular person means any other person controlling, controlled by or under common control with such particular person.
Section 3. BASIC COMPENSATION.
(a) BASE SALARY. As compensation for his services hereunder, the Company shall pay to Employee during the Employment Period a base salary (the "Base Salary") at the following rates per calendar year:
CALENDAR YEAR ANNUAL BASE SALARY
------------- ------------------
November 16, 1998--December 31, 1998 $
--------------
1999 $200,000
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Base Salary shall be payable in equal installments in arrears on a biweekly basis or as otherwise may be mutually agreed upon.
Section 4. BONUS. In addition to the Base Salary, Employee shall be eligible to receive an annual bonus based on Employee's performance and the Company's operating results during such calendar year payable at such time or times during or following each calendar year as shall be determined by the Board of Directors (the "Board") or a committee thereof in its sole discretion and based on formulas to be determined each year by the Board or such committee in its sole discretion for the Company's management bonus plan.
Section 5. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. Employee will be entitled to participate in all Company salaried employee benefit plans and programs, subject to the terms and conditions of each such employee benefit plan or program and to the extent commensurate with his position as Vice President--Intellectual Property and Assistant General Counsel of the Company.
Section 6. OTHER BENEFITS.
(a) VACATION. Employee shall be entitled to a maximum of four weeks' paid vacation each year.
(b) INSURANCE. The Company shall provide Employee with health, hospitalization, dental and major medical insurance (including dependent coverage) and other similar benefits.
Section 7. BUSINESS EXPENSES. The Company shall reimburse Employee for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to report and documentation of such expenses.
Section 8. STOCK OPTIONS AND OPTION SHARES. Employee shall be eligible to participate in the Company's 1997 Stock Option Plan, as amended.
Section 9. TERMINATION OF EMPLOYMENT.
(a) EVENTS OF TERMINATION AND SEVERANCE PAYMENTS. In the event that during the Employment Period Employee should become Totally and Permanently Disabled, the Company (acting by resolution of the Board) may elect to terminate the Employment Period by written notice to Employee and Employee shall be entitled to receive full compensation pursuant to subsection 3(a) at his then Base Salary rate for a period of six months following
the date of such notice. In the event of Employee's death during the Employment Period, his personal representative shall be entitled to receive any compensation pursuant to Sections 3 and 4 which is accrued and unpaid as of the date of his death plus six months of salary. In the event that during the Employment Period Employee should commit Serious Misconduct (as defined in subsection 9(b)(ii) below), the Company (acting by resolution of the Board) may elect to terminate the Employment Period by written notice to Employee. In the event that Employee is discharged for any reason other than for Serious Misconduct, Employee shall be entitled to receive certain payments (the "Severance Payments") following termination of employment in an aggregate amount equal to the Severance Amount listed below:
SEVERANCE AMOUNT
Since this Employment Agreement is subject to renewal on each anniversary date (November 16, 1999 and each November 16 thereafter) on a rolling two-year period following such renewal the Severance Amount shall be equal to such amount remaining to be paid on the balance of this Employment Agreement based on his current base salary so long as the total amount payable does not exceed 299% of the then current base salary. Such amounts to be paid in equal semi-monthly payments in the amounts and on the Company's regularly scheduled employee pay periods.
(b) DEFINITION OF CERTAIN TERMS. (i) "Totally and Permanently Disabled" means such physical or mental condition of Employee as is determined by the Board in its sole discretion to be expected to continue indefinitely and which renders him incapable of performing any substantial portion of the services contemplated hereby (as confirmed by competent medical evidence).
(ii) "Serious Misconduct" means embezzlement or misappropriation of corporate funds, other acts of dishonesty, significant activities materially harmful to the reputation of the Company, commission of a felony, willful refusal to perform or substantial disregard of the duties properly assigned by the Board, significant violation of any statutory or common law duty of loyalty to the Company or a material violation of Section 11 or 12 below.
(iii) "Termination Date" means the date on which Employee's employment with the Company and its Subsidiaries is terminated, whether on account of death, disability, resignation or discharge.
(c) EFFECT OF BREACH OF NONCOMPETITION PROVISIONS. In the event Employee breaches or otherwise fails to comply with the provisions of Section 11 or 12 below, then, in addition to any other remedies provided herein or at law or in equity, the Company shall not have any further obligation to make any additional Severance Payments. Termination of such Severance Payments pursuant to the preceding sentence shall not relieve Employee's obligations pursuant to Section 11 or 12 below.
Section 10. ASSIGNMENT AND SUCCESSION. (a) The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its respective successors and assigns, and Employee's rights and obligations hereunder shall inure to the benefit of and be binding upon his successors and permitted assigns, whether so expressed or not.
(b) Employee acknowledges that the services to be rendered by him hereunder are unique and personal. Accordingly, Employee may not pledge or assign any of his rights or delegate any of his duties or obligations under this Agreement without the express prior written consent of the Company.
(c) The Company may not assign its interest in or obligations under this Agreement without the prior written consent of Employee.
Section 11. CONFIDENTIAL INFORMATION. (a) Employee acknowledges that the information, observations and data obtained by him during the course of his performance under this Agreement concerning the business or affairs of the Company and its Subsidiaries is the property of the Company or such Subsidiary, as the case may be. Therefore, during the Employment Period and at all times thereafter, Employee will not directly or indirectly use, divulge, furnish or make accessible to any unauthorized person or use for his own account any confidential or proprietary information or trade secrets of the Company or any of its Subsidiaries without the Board's prior written consent except and to the extent required by law (and upon prompt written notice of such requirement to the Company and such Subsidiary) any of such information, observations or data without the Board's prior written consent unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Employee's acts or omissions to act. In the event Employee shall be required by law to make any disclosure as set forth above, Employee shall promptly notify the Company and such Subsidiary in writing of the basis for and the extent of the required disclosure and shall cooperate with the Company and such Subsidiary to preserve in full the confidentiality of all intellectual property, trade secrets, confidential information and other proprietary rights of the Company and such Subsidiary. For purposes hereof, confidential information does not include any information that has become publicly known and made generally available through no wrongful act of Employee or of any other person who is subject to a confidentiality agreement with the Company.
(b) Employee agrees to deliver to the Company at the termination of his employment, or at any other time upon written request by the Company, all memoranda, notes, plans, records, reports and other documents relating to the business of the Company and its Subsidiaries which he may then possess or have under his control.
Section 12. COVENANT NOT TO COMPETE. (a) Employee agrees that during the Employment Period, and for one year after the Termination Date (the "Noncompete Period"), he will neither directly nor indirectly engage in, have any interest in, own, manage, operate, control, be connected with as a stockholder, joint venturer, officer, employee, partner or consultant or invest or participate in a business competing with any of the businesses then conducted (or, to the knowledge of Employee, planned to be conducted within one year) by the Company or any of its successors or then Subsidiaries, within any geographical area in which the Company or its Subsidiaries engage or plan within one year to engage in any such businesses. During the
Noncompete Period, Employee shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) hire any person who was an employee of the Company or any Subsidiary at any time during the Employment Period or (iii) induce or attempt to induce any customer, supplier, licensee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary.
(b) Nothing contained in this Section 12 shall prevent Employee from owning up to a 5% interest in any corporation or entity having one or more classes of its securities listed on a national securities exchange or publicly traded in the over-the-counter market, provided Employee is not actively involved in the operation or management of such corporation or entity. Nothing contained herein shall prevent Employee from serving as a paid consultant to other companies or serving as a member of the Board of Directors of other corporations.
(c) If, under the circumstances existing at the time of enforcement of this Section 12, the period, scope or geographic area described in this Section 12 shall be found or held to be unreasonable, the parties hereto agree that the maximum period, scope or geographic area reasonable under the circumstances shall be substituted for the stated period, scope or geographic area.
Section 13. CONFLICTS OF INTEREST POLICIES. Employee shall diligently adhere to the Company's Conflict of Interest Policy as adopted by the Board and in effect from time to time.
Section 14. ARBITRATION AND EQUITABLE REMEDIES. (a) Except as provided in Section 14(b) hereof, the parties agree that any dispute or controversy arising out of, relating to, or concerning the interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held in Nebraska, in accordance with the Employment Dispute Resolution rules of the American Arbitration Association then in effect. The arbitrator may grant injunctions or other relief in such dispute or controversy and the decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. The Company and Employee shall each pay one-half of the costs and expenses of such arbitration, and each shall separately pay the fees and expenses of their respective legal counsel.
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP.
(b) Notwithstanding paragraph (a) of this Section 14, the parties agree that, in the event of the breach or threatened breach of Sections 11, 12 or 13 of this Agreement by Employee, monetary damages alone would not be an adequate remedy to the Company and its Subsidiaries for the injury that would result from such breach, and that the Company and its Subsidiaries shall be entitled to apply to any court of competent jurisdiction for specific performance and/or injunctive relief (without posting bond or other security) in order to enforce
or prevent any violation of such provisions of this Agreement. Employee further agrees that any such injunctive relief obtained by the Company or any of its Subsidiaries shall be in addition to monetary damages.
Section 15. ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties relating to the subject matters covered hereby and shall supersede any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof in any way and shall not be amended or waived except in a writing signed by the parties hereto.
Section 16. NOTICES. Any notice or request required or permitted to be given hereunder shall be in writing and will be deemed to have been given (i) when delivered personally, sent by telecopy (with hard copy to follow) or overnight express courier or (ii) five days following mailing by certified or registered mail, postage prepaid and return receipt requested, to the addresses below unless another address is specified by such party in writing:
To the Company: Transgenomic, Inc.
5600 South 42nd Street
Omaha, NE 68107
Attention: Chief Executive Officer
Telephone: (402) 738-5408
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Telecopy: (402) 733-1264
Section 17. HEADINGS. The article and section headings herein are for convenience of reference only and shall not define or limit the provisions hereof.
Section 18. APPLICABLE LAW. The corporate law of the State of Delaware will govern all questions concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed by the internal laws of the State of Nebraska.
Section 19. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held prohibited by, invalid or unenforceable in any respect under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
Section 20. AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended or waived only with the prior written consent of the Company and Employee.
Section 21. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto.
Section 22. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
Section 23. EMPLOYEE REPRESENTATIONS. Employee hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Employee does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Employee is a party or by which he is bound, (ii) Employee is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms.
Section 24. SURVIVAL. Sections 8, 11 and 12 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and Employee has signed this Agreement as of the date first written above.
TRANSGENOMIC, INC.
By /s/ Collin D'Silva
-------------------------------------
Name Collin D'Silva
--------------------------------
Title Chief Executive Officer
-------------------------------
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EMPLOYEE
/s/ William B. Walker ---------------------------------------- Name: William B. Walker |
EXHIBIT 10.12
[TRANSGENOMIC LETTERHEAD]
February 18, 2000
Mr. Gregory J. Duman
17540 Bay Wood Circle
Omaha, NE 68130
Dear Greg:
From time to time we have discussed with our officers and directors the substantial increase in corporate litigation which can subject officers and directors to expensive litigation risks and large claims for damages. We have also discussed the uncertainties involved in obtaining and maintaining directors' and officers' liability insurance on a reasonable basis and the limited scope of the coverage of such insurance as can be obtained.
You have informed us that you are concerned about the level of protection available to you as an officer or director of Transgenomic, Inc., a Delaware corporation ("Transgenomic") in the present legal climate, and we understand that your willingness to continue to serve as an officer or director of Transgenomic depends upon, among other things, assurance of adequate protection on a long-term basis. You have also informed us that you know of no pending or threatened claim against you relating to Transgenomic.
In order to attract and retain your services as an officer or Director of Transgenomic, Transgenomic has agreed to indemnify you to the fullest extent of its authority to do so, subject to the limitations set forth herein. This letter agreement ("Agreement") is intended to set forth our agreement with respect to your right to indemnification by Transgenomic.
Transgenomic and you (the "Indemnitee") hereby agree as follows:
1. INDEMNIFICATION. Transgenomic shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to or is otherwise involved with any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative, for actions performed by or inaction on the part of Indemnitee with respect to occurrences taking place when or by reason of the fact that (i) Indemnitee is or was a director, officer, employee or agent of Transgenomic, or any subsidiary of Transgenomic, (ii) Indemnitee is or was serving at the request of Transgenomic as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) Indemnitee is or was serving at the request of Transgenomic in any capacity with respect to any employee benefit plan, against any "Loss or Expense" (as hereinafter defined). As used in this
Agreement Loss and Expense shall mean all (x) expenses (including attorney's fees), (y) judgments, fines, penalties, and (z) losses, claims, damages or liabilities, including without limitation amounts paid in settlement (but only if such settlement is approved in advance in writing by Transgenomic, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding. Notwithstanding the foregoing, no indemnification shall be paid under this Agreement with respect to claims involving acts or omissions as to which Indemnitee is finally adjudicated (by court order or judgment from which no right of appeal exists) not to have acted in good faith in the reasonable belief that Indemnitee's action was in (or not opposed to) the best interests of Transgenomic or, to the extent that such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan.
2. NO EMPLOYMENT AGREEMENT. In consideration of the protection afforded by this Agreement, Indemnitee agrees not to resign voluntarily from the position now held by him with Transgenomic without first giving to Transgenomic not less than three weeks' written notice of his intention to resign. Nothing contained in this Agreement is intended to create or shall create in Indemnitee any right to employment (in the case of a director) or continued employment (in the case of an employee).
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. Transgenomic shall advance all expenses reasonably incurred by Indemnitee in connection with the defense of any threatened or actual civil or criminal action or proceeding described in Section 1 hereof. If Indemnitee shall be adjudicated by a court order or judgment from which no right of appeal exists to be not entitled to indemnification by Transgenomic as authorized hereby, Indemnitee hereby undertakes to promptly repay all such amounts advanced by Transgenomic. The advances to be made hereunder shall be paid by Transgenomic to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to Transgenomic. If for any reason the Indemnitee is not an employee of Transgenomic at the time of any activities performed by the Indemnitee in connection with the defense of any civil or criminal action or proceeding described in Section 1 hereof, Transgenomic shall compensate the Indemnitee on the basis of $500 per day (or portion thereof) spent by the Indemnitee on behalf of such activities at the request of Transgenomic, and reimburse the Indemnitee for all related and reasonable out-of-pocket expenses, such compensation and expense reimbursement to be advanced in the manner set forth in Section 3(c) .
(b) NOTICE; COOPERATION BY INDEMNITEE. Indemnitee shall give Transgenomic prompt notice of the commencement of any action or proceeding, or the threat thereof against Indemnitee, for which indemnification will or could be sought under this Agreement. In addition, Indemnitee shall give Transgenomic such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. Transgenomic shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which consent shall not be unreasonably withheld or delayed.
(c) PROCEDURE.
(1) Any amounts payable by Transgenomic pursuant to
the indemnification provided for in Section 1 shall be paid no later than twenty
(20) days after receipt of the written request of Indemnitee. If a claim is
brought by Indemnitee under this Agreement, under any statute, or under any
provision of Transgenomic's Charter or By-laws, as amended or restated from time
to time (the "By-laws"), which provision provides for indemnification, and if
such claim is not paid in full by Transgenomic within twenty (20) days after a
written request by Indemnitee for payment thereof was first received by
Transgenomic, Indemnitee may, but need not, at any time thereafter bring an
action against Transgenomic to recover the unpaid amount of the claim and,
subject to Section 18 of this Agreement, Indemnitee shall also be entitled to be
reimbursed for the expense (including reasonable attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action
or proceeding in advance of its final disposition) that Indemnitee has not met
the standards of conduct which make it permissible under applicable law for
Transgenomic to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on Transgenomic, and Indemnitee shall be entitled
to receive interim payments of expenses pursuant to Section 3(a) unless and
until such defense shall be finally adjudicated by court order or judgment from
which no further right of appeal exists.
(2) If Transgenomic refuses or rejects Indemnitee's claim for indemnification hereunder, and in the event the Indemnitee shall thereafter seek judicial enforcement of this Agreement, neither the failure of Transgenomic (including its Board of Directors, any committee or subgroup of the Board of Directors, or independent legal counsel) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by Transgenomic (including its Board of Directors, any committee or subgroup of the Board of Directors, or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.
4. NOTICE TO INSURERS. If, at the time of the receipt of a notice of a prospective claim pursuant to Section 3(b) hereof, Transgenomic has in effect any insurance, including, without limitation, director and officer liability insurance, which may provide for payment of or reimbursement for such claim, Transgenomic shall give prompt notice of the assertion of such claim to each issuer of such insurance in accordance with the procedures set forth in the respective policies. Transgenomic shall thereafter (if it is appropriate to do so pursuant to the terms of the applicable insurance policy) take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
5. PRIMARY INDEMNITY. Transgenomic's obligation to provide indemnification to the Indemnitee under this Agreement is intended to be the Indemnitee's primary source of indemnification for the expenses and other liabilities payable to Indemnitee hereunder, notwithstanding the fact that Indemnitee may provide services to Transgenomic at the request or direction of any other person or entity and may be entitled to indemnification from, or to the proceeds of insurance purchased and maintained for Indemnitee's benefit by, such other person or entity; it being understood, however, that nothing contained in this subsection shall be
deemed to enlarge the scope of Transgenomic's obligation to provide indemnification as provided elsewhere herein.
6. SELECTION OF COUNSEL. In the event Transgenomic shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding or threatened proceeding against Indemnitee, Transgenomic shall be entitled to participate in such proceeding and, to the extent it shall wish, to assume the defense of such proceeding, with counsel chosen by Transgenomic and approved by Indemnitee, which approval shall not be unreasonably withheld. Upon the delivery to Indemnitee of written notice of its election to assume such defense, approval of such counsel by Indemnitee and retention of such counsel by Transgenomic, Transgenomic will not be liable to Indemnitee under this Agreement for any fees of counsel or other expenses subsequently incurred by Indemnitee in connection with the defense of the same proceeding, except for fees and expenses incurred by Indemnitee as a consequence of Indemnitee's obligation to cooperate with Transgenomic in the defense of such matters (as set forth in Section 3 hereof). Notwithstanding the foregoing, the reasonable fees and expenses of Indemnitee's counsel shall be paid by Transgenomic if (i) the employment of counsel by Indemnitee has been previously authorized by Transgenomic, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between Transgenomic and Indemnitee in the conduct of such defense or that such counsel and Indemnitee have fundamental and material disagreements as to the proper method of managing the litigation, or (iii) Transgenomic shall not, in fact, have employed counsel to assume the defense of such proceeding. Indemnitee shall have the right to employ his own counsel in any such proceeding at Indemnitee's expense.
7. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement, Transgenomic hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law with respect to any claim, action or proceeding described in Section 1 hereof, whether or not such indemnification is specifically authorized by the other provisions of this Agreement, Transgenomic's Charter or By-laws, or by other statutes. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a Delaware corporation such as Transgenomic to indemnify a member of its board of directors or an officer, such changes shall, without any further action by Transgenomic, be included within the scope of the indemnification provided to Indemnitee by, and Transgenomic's obligations under, this Agreement. In the event of any change in any applicable law, statute or rule that limits or restricts the right of Transgenomic to indemnify a member of its Board of Directors or an officer, such changes shall have no effect on this Agreement or the parties' rights and obligations hereunder, except to the extent specifically required by such law, statute or rule to be applied to this Agreement.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under Transgenomic's Charter or By-laws, any agreement, any vote of disinterested directors, applicable law, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though the Indemnitee may have ceased to serve in such capacity at the time of commencement of any claim or action for which indemnification is requested.
8. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by Transgenomic for some or a portion of the expenses,
judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, Transgenomic shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.
9. MUTUAL ACKNOWLEDGMENT. Both Transgenomic and Indemnitee acknowledge that in certain instances, applicable law or applicable public policy could be construed to prohibit Transgenomic from indemnifying its directors and officers under this Agreement or otherwise. Nothing in this Agreement is intended to require or shall be construed as requiring Transgenomic to do or fail to do any act in violation of any applicable law. Transgenomic's inability, as a result of a binding order of any court of competent jurisdiction, to perform its obligations under this Agreement shall not constitute a breach of this Agreement and Transgenomic's compliance with any such order shall constitute compliance with this Agreement.
10. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. Transgenomic shall, from time to time, make the good faith determination whether or not it is practicable for Transgenomic to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of Transgenomic with coverage for losses from wrongful acts, or to ensure Transgenomic's performance of its indemnification obligations under this Agreement. Among other matters, Transgenomic may consider the costs of obtaining such insurance coverage, the protection afforded by such coverage and the restrictions or other terms required by such insurance. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of Transgenomic's directors, if Indemnitee is a director, or of Transgenomic's officers, if Indemnitee is not a director of Transgenomic but is an officer, or of Transgenomic's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, Transgenomic shall have no obligation to obtain or maintain such insurance if Transgenomic determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of Transgenomic.
11. SEVERABILITY. The provisions of this Agreement shall be severable as provided in this Section 11. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then Transgenomic shall nevertheless indemnify Indemnitee to the greatest extent permitted by any applicable law or any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.
12. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, Transgenomic shall not be obligated pursuant to the terms of this Agreement:
(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or omissions or transactions from which a director or officer may not be relieved of liability under applicable Delaware law; or
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law and (ii) declaratory judgment or similar proceedings brought to obtain a judicial interpretation of an applicable statute or regulation, provided that such indemnification or advancement of expenses may be provided by Transgenomic in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been reimbursed directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability insurance maintained by Transgenomic.
13. SALE OF ASSETS. If Transgenomic is merged into or consolidated with another corporation and Transgenomic is not the surviving corporation, or if substantially all of the assets of Transgenomic are acquired by any other corporation, or in the event of any other similar reorganization involving Transgenomic, Transgenomic shall to the extent possible cause the acquiring corporation to assume the obligations of Transgenomic under this Agreement with respect to Indemnitee.
14. EFFECTIVENESS OF AGREEMENT. This Agreement shall be effective as of the date set forth on the first page hereof and shall continue in effect from through the time period described in Section 15 hereof. In addition this Agreement shall also apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was a director, officer, employee or other agent of Transgenomic, or was serving at the request of Transgenomic as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or in any other capacity set forth in Section 1 above, at the time such act or omission occurred.
15. DURATION OF AGREEMENT. This Agreement shall continue until and terminate upon the later of: (a) ten years after Indemnitee has ceased to serve in any of the capacities set forth in Section 1 above; and (b) the final termination of all pending or threatened actions, suits, proceedings or investigations to which Indemnitee may be subject by reason of his service in any such capacity. The indemnification provided under this Agreement shall continue as to Indemnitee even though he may have ceased to be a director, officer, employee or agent of Transgenomic.
16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
17. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Transgenomic and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's spouse, estate, heirs and legal representatives.
18. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, a court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of Transgenomic under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such was made in bad faith or was frivolous.
19. NOTICES. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the first page of this Agreement, or as subsequently modified by written notice. Notice to Transgenomic shall be directed to the Company at its main office in Omaha or such other address as Transgenomic shall designate in writing to Indemnitee. Notice to the Indemnitee shall be directed to the Indemnitee at the address shown on the first page of this Agreement (or such other address as the Indemnitee shall designate in writing to Transgenomic).
20. CHOICE OF LAW. This Agreement shall be governed by and its provisions construed in accordance with the laws of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware.
If the foregoing correctly sets forth our understanding, I would appreciate your executing the enclosed counterpart of this agreement and returning it to me. Upon your signature this letter agreement shall constitute a binding agreement, executed under seal.
Very truly yours,
TRANSGENOMIC, INC.
By: /s/ Collin J. D'Silva
----------------------------------
Collin J. D'Silva
|
AGREED TO AND ACCEPTED:
INDEMNITEE:
/s/ Gregory J. Duman --------------------------------- Gregory J. Duman |
EXHIBIT 10.13
AMENDED AND RESTATED
REVOLVING LOAN AGREEMENT
THIS AMENDED AND RESTATED REVOLVING LOAN AGREEMENT, dated March 8, 2000, by and between Transgenomic, Inc., a Delaware corporation ("BORROWER") and First National Bank of Omaha, a national banking association with principal business offices in Omaha, Nebraska ("BANK").
W I T N E S S E T H:
Background. Whereas, BANK and Cetac Technologies, Inc. originally executed a Revolving Loan agreement March 14, 1997. Subsequently, Cetac Holding Company, Inc. acquired all assets and liabilities of Cetac Technologies, Inc., and on July 1, 1997, Cetac Holding Company, Inc. was merged into Transgenomic, Inc., a Delaware corporation. Whereas, Transgenomic, Inc. is the surviving corporation and is now known to BANK as the BORROWER.
Subsequently, BANK and BORROWER executed a Revolving Loan Agreement September 17, 1997, which has been amended from time to time (said Agreement together with all amendments are herein referred to as the "ORIGINAL AGREEMENT"), pursuant to which BANK agreed to make available to BORROWER a revolving line of credit ("REVOLVING CREDIT FACILITY").
Therefore, in consideration of the promises herein contained, and each intending to be legally bound thereby, the parties agree as follows:
Section I. Definitions as used herein:
1. "ACCOUNTS" "CHATTEL PAPER", "CONTRACTS", "DOCUMENTS", "EQUIPMENT", "FIXTURES", "GENERAL INTANGIBLES", "GOODS", "INSTRUMENTS", "INVESTMENT PROPERTY" and "INVENTORY" shall have the same meaning as is given that term in the Uniform Commercial Code as presently adopted and in effect in the State of Nebraska.
2. ACCOUNTING. Accounting terms used and not otherwise defined in this AGREEMENT have the meanings determined by, and all calculations with respect to accounting or financial matters unless otherwise provided herein shall be computed in accordance with, GAAP.
3. "AFFILIATE" means as to any PERSON, each other PERSON that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or under common control with, such PERSON.
4. "AGREEMENT" means this Agreement, as the same may from time to time be amended or supplemented.
5. "BORROWING BASE" means, at any time, the amount computed as Total Borrowing Base on the BORROWING BASE CERTIFICATE most recently delivered to, and accepted by, the BANK in accordance with this AGREEMENT, and equal to the lesser of:
A. $5,000,000.00; or
B. The aggregate of (i) eighty percent (80%) of ELIGIBLE ACCOUNTS of the BORROWER, plus (ii) fifty percent (50%) of the Ending Inventory of BORROWER at cost (not to exceed $1,500,000.00). It is provided, however, that for purposes of the foregoing computation, no more than fifty percent (50%) of ELIGIBLE ACCOUNTS used in the foregoing computation may consist of Accounts due from non-United States entities. It is further provided, however, no demo Inventory of BORROWER located outside of the United States shall be included in such computation.
6. "BORROWING BASE CERTIFICATE" means a fully completed certificate certified by the chief financial officer of the BORROWER to be correct and delivered to, and accepted by, the BANK. Attached hereto, marked Exhibit "A" and by this reference made a part hereof is a form of BORROWING BASE CERTIFICATE, acceptable to BANK, which shall, effective immediately, be used by the parties.
7. "COLLATERAL" has the meaning given to such term in Section IV.
8. "COLLATERAL DOCUMENTS" means the note, financing statements and other documents required by BANK as set forth herein, together with any real estate mortgage or deed of trust documents used in this transaction.
9. "ELIGIBLE ACCOUNT" means, at any time, an Account that conforms and continues to conform to the following conditions:
A. The Account arose from a bona fide outright sale of Goods by the BORROWER or from services performed by the BORROWER, and such Goods have been shipped to the appropriate account debtors or their designees (or the sale has otherwise been consummated), or the services have been performed for the appropriate account debtors;
B. The Account is due and payable not more than 90 days from the date of the invoice therefor;
C. If more than ten per cent (10%) of the invoices to a particular account debtor are ineligible, then all invoices to such account debtor shall become ineligible for borrowing purposes;
D. BORROWER has not received any notice of the filing of a petition in bankruptcy or insolvency laws by or against, the account debtor. Upon the receipt by the BORROWER of any such notice, it will immediately give the BANK written advice thereof;
E. The account debtor is not a subsidiary or other AFFILIATE of the BORROWER; and
F. The BANK has not deemed such account ineligible because of uncertainty about the credit worthiness of the account debtor or because the BANK otherwise reasonably considers the collateral value thereof to the BANK to be impaired or its ability to realize such value to be insecure.
In the event of any dispute, under the foregoing criteria, about whether an Account is or has ceased to be an ELIGIBLE ACCOUNT the decision of the BANK shall control.
10. "EVENT OF DEFAULT" has the meaning provided for in Section VII.
11. "FINANCIAL STATEMENTS" means the balance sheet of the BORROWER as of December 31, 1999, and 1998, and statements of income, stockholders' equity, and statement of cash flow, and notes thereto, of the BORROWER for the years or, as appropriate, month ended on such dates as audited by independent certified public accountants of recognized standing to present fairly the consolidated financial position and results of operations of the BORROWER at such dates and for such periods in accordance with GAAP.
12. "GAAP" means generally accepted accounting principles applied consistently as was done in the preparation of the FINANCIAL STATEMENTS with such changes or modifications hereto as may be approved in writing by the BANK.
13. "INDEBTEDNESS" means, as to the BORROWER, all items of indebtedness, obligation or liability, whether matured or unmatured, liquidated or unliquidated, direct or contingent, joint or several.
14. "LOAN TERMINATION DATE" means the earliest to occur of the following: (i) July 31, 2000, (ii) the date the obligations are accelerated pursuant to this AGREEMENT, and (iii) the date BANK receives (a) notice in
writing from BORROWER of BORROWER's election to terminate this AGREEMENT and (b) indefeasible payment in full of the OBLIGATIONS, or such other date as may later be agreed to by BANK and BORROWER in a written amendment to this AGREEMENT.
15. "OBLIGATIONS" means the obligation of the BORROWER:
A. To pay the principal of, and interest on, any promissory note in accordance with the terms thereof and to satisfy all of its other liabilities to the BANK, whether hereunder or otherwise, whether now existing or hereafter incurred, matured or unmatured, direct or contingent, joint or several, including any extensions, modifications, renewals thereof, and substitutions therefor and including, but not limited to, any obligations under letter of credit agreements;
B. To repay to the BANK all amounts advanced by the BANK hereunder or otherwise on behalf of the BORROWER, including, but without limitation, advances for principal or interest payments to prior secured parties, mortgagees, or licensors, or taxes, levies, insurance, rent, or repairs to, or maintenance or storage of, any of the COLLATERAL; and
C. To reimburse the BANK, on demand, for all of the BANK's expenses and costs, including the reasonable fees and expenses of its counsel, in connection with the preparation, administration, amendment, modification, or enforcement of this AGREEMENT and the documents required hereunder, including, without limitation, any proceeding brought or threatened, to enforce payment of any of the OBLIGATIONS referred to in the foregoing Paragraphs A and B.
16. "PERMITTED LIENS" means:
A. Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business that are not yet delinquent;
B. Pledges or deposits made in the ordinary course of business to secure payment of workers' compensation, or to participate in any fund in connection with workers' compensation, unemployment insurance, old-age pensions or other social security programs;
C. Liens of mechanics, materialmen, warehousemen, carriers, or other like liens, securing obligations incurred in the ordinary course of business that are not yet due and payable;
D. Liens in favor of the BANK; and
E. Liens in favor of Security National Bank, Omaha, Nebraska, as evidenced by Nebraska Sec. of State financing statement #709241 covering all equipment and fixtures of BORROWER, to the extent that such lien encumbers only those items as described on the attachment filed with the financing statement #709241.
17. "PERSON" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture, court, or government or political subdivision or agency thereof.
18. "SUBORDINATED NOTES" means the BORROWER's promissory notes dated March 24, 1999, in the original aggregate principal amount of $12,000,000, denominated as "Convertible Notes".
Section II. REVOLVING CREDIT FACILITY.
1. REVOLVING CREDIT FACILITY. BANK agrees to lend $5,000,000.00 to BORROWER pursuant to this facility. BANK will credit proceeds of this REVOLVING CREDIT FACILITY to BORROWER's deposit account with the BANK, bearing number 11225078.
A. Subject to the terms hereof the BANK will lend the BORROWER, from time to time until the LOAN TERMINATION DATE such sums in integral multiples of $1,000 as the BORROWER may request by reasonable same day notice to BANK, received by the BANK not later than 11:00 A.M. of such day, but which shall not exceed in the aggregate principal amount at any one time outstanding, $5,000,000.00 (the "LOAN COMMITMENT"). The BORROWER may borrow, repay without penalty or premium and reborrow hereunder, from the date of this AGREEMENT until the LOAN TERMINATION DATE, either the full amount of the LOAN COMMITMENT or any lesser sum. It is the intention of the parties that the outstanding principal amount of the REVOLVING CREDIT FACILITY shall at no time exceed the amount of the then existing BORROWING BASE and if, at any time, an excess shall for any reasons exist, the full amount of such excess, together with accrued and unpaid interest thereon as herein provided, shall be immediately due and payable in full.
B. THE NOTE. The LOAN COMMITMENT shall be evidenced by a promissory note ("NOTE") having stated maturity on the LOAN TERMINATION DATE, in the form attached hereto as Exhibit B. The NOTE shall specify the manner of principal and interest payments and rate of interest accrual.
2. PAYMENT TO THE BANK AND COLLECTIONS.
A. All outstanding principal and unrepaid interest shall be due and payable on LOAN TERMINATION DATE, unless earlier paid or due as the result of acceleration.
B. COLLECTION OF ACCOUNTS
1. BANK shall have the rights at any time or times hereafter all the rights of a secured creditor holding a valid, and indefeasibly perfected security interest in accounts pursuant to the Nebraska Uniform Commercial Code, as well as the rights conferred by the COLLATERAL DOCUMENTS.
2. BORROWER hereby authorizes BANK to endorse, in the name BORROWER, any item, howsoever received by BANK representing payment on or other proceeds of any of the COLLATERAL.
3. For purposes of determining the amount of the OBLIGATIONS, including, without limitation, the computations of interest which may from time to time be owing by BORROWER to BANK, the receipt of any check or other item of payment by BANK shall not be treated as a payment on account of the liabilities until such check or other item of payment is actually paid in cash or cash equivalent.
Section III. CONDITIONS PRECEDENT.
The obligations of the BANK to make the REVOLVING CREDIT FACILITY is subject to the following conditions precedent:
1. DOCUMENTS REQUIRED FOR THE CLOSING. The BORROWER shall have delivered to the BANK, prior to the initial disbursement of the funds (the "CLOSING"), the following:
A. The COLLATERAL DOCUMENTS, and the FINANCIAL STATEMENTS,
duly executed by the BORROWER.
B. A copy, certified as of the date of the CLOSING, of the by-laws of the BORROWER.
C. A copy of all amendments to the articles of incorporation subsequent to June 27, 1997, certified as of the most recent date practicable by the Secretary of State of Delaware, together with a
certificate (dated the date of CLOSING) of the corporate secretary of the BORROWER to the effect that these are all the amendments to such articles of incorporation, together with a certificate of good standing.
D. A certificate, dated the date of the CLOSING, signed by the president or a vice president of the BORROWER and to the effect that:
1. The representations and warranties set forth in
Section V.1. are true as of the date of the CLOSING; and
2. No EVENT OF DEFAULT hereunder, and no event which, with the giving of notice or passage of time or both, would become such an EVENT OF DEFAULT, has occurred as of such date;
E. A duly executed BORROWING BASE CERTIFICATE as of a date not more than one (1) day prior to the CLOSING, acceptable to the BANK.
F. An assignment of the General American life insurance policy number 3949515, in form satisfactory to BANK, which policy insures the life of Colin D'Silva in an amount no less than $4,000,000.
2. CERTAIN EVENTS. At the time of, and as a condition to, the CLOSING and each disbursement of any part of the REVOLVING LOAN to be made by the BANK at or subsequent to the CLOSING:
A. No EVENT OF DEFAULT shall have occurred and be continuing, and no event shall have occurred and be continuing that, with the giving of notice or passage of time or both, would be an EVENT OF DEFAULT;
B. No material adverse change shall have occurred in the business prospects, financial condition, or results of operations of the BORROWER since the dates of the FINANCIAL STATEMENTS; and
C. All of the COLLATERAL DOCUMENTS shall have remained in full force and effect.
Section IV. COLLATERAL SECURITY.
1. BORROWER has executed a security agreement, granting a security interest in and to certain property ("COLLATERAL") to BANK. Such separate security agreement is a COLLATERAL DOCUMENT.
Section V. REPRESENTATIONS AND WARRANTIES.
1. ORIGINAL. To induce the BANK to enter into this AGREEMENT, the BORROWER represents and warrants to the BANK as follows:
A. The BORROWER has no subsidiaries, except for Transgenomic Ltd. in the United Kingdom, CETAC-Scientific Instruments B.V. in the Netherlands, and Transgenomic St. Thomas Inc. in the USVI (a foreign sales corporation) (collectively the "SUBSIDIARIES");
B. The BORROWER is not in default with respect to any of its existing INDEBTEDNESS, and the making and performance of this agreement and the COLLATERAL DOCUMENTS will not (immediately or with the passage of time, the giving of notice, or both):
1. Violate the articles of incorporation or by-laws of the BORROWER, or violate any laws or result in a default under any contract, agreement, or instrument to which the BORROWER is a party or by which the BORROWER or its property is bound; or
2. Result in the creation or imposition of any security interest in, or lien or encumbrance upon, any of the assets of the BORROWER except in favor of the BANK;
C. This agreement and the COLLATERAL DOCUMENTS are, or when delivered will be, valid, binding, and enforceable in accordance with their respective terms;
D. There is no pending order, notice, claim, litigation, proceeding, or litigation against or affecting the BORROWER, whether or not covered by insurance, that would materially or adversely affect the financial condition or business prospects of the BORROWER if adversely determined;
E. The FINANCIAL STATEMENTS, including any schedules and notes pertaining thereto, have been prepared in accordance with GAAP, and fully and fairly present the financial condition of the BORROWER at the dates thereof and the results of operations for the periods covered thereby, and there have been no material adverse changes in the consolidated financial condition or business of the BORROWER from December 31, 1999, to the date hereof;
F. As of the date hereof the BORROWER has no material INDEBTEDNESS of any nature, including but without limitation, liabilities for taxes and any interest or penalties relating thereto except to
the extent reflected (in a footnote or otherwise) in the FINANCIAL STATEMENT or as disclosed in, or permitted by, this agreement; and the BORROWER does not know or have reasonable ground to know of any basis for the assertion against it of any such INDEBTEDNESS as of the date of the CLOSING;
G. No representation or warranty by or with respect to the BORROWER contained herein or in any certificate or other document furnished by the BORROWER pursuant hereto contains any untrue statement of a material fact or omits to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made;
H. Any federal tax returns for all years of operation, including the last tax year for BORROWER have been, or will be, filed by October 15, 2000, with the Internal Revenue Service and have not been challenged;
I. Any Employee Pension Benefit Plans, as defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of the BORROWER meet, as of the date hereof, the minimum funding standards of 29 U.S.C. Sec. 1082 (Sec. 302 of ERISA), and no Reportable Event or Prohibited Transaction as defined in ERISA, has occurred with respect to any Employee Benefit Plans, as defined in ERISA, of the BORROWER;
J. BORROWER warrants (and this shall be a continuing warranty which shall survive until all the OBLIGATIONS of BORROWER to BANK have been fully satisfied) that it is in compliance with all federal, state and local environmental laws and regulations and has obtained all environmental permits necessary or appropriate to the conduct of its business. There is not pending nor, to the best of the BORROWER's knowledge after due inquiry, are there any threatened environmental enforcement actions, suits or proceedings before any court, tribunal or administrative body or official. Responsible officers and agents of the BORROWER have made an extensive investigation and have determined that the BORROWER has not, nor has any former owner of real property occupied by BORROWER stored, used or disposed of any toxic or hazardous substance on its properties or transported any such substance to or from its properties in violation of any presently existing or previously existing laws, regulations or policies. The BORROWER will store, use or dispose of such substances on its properties in accordance with presently existing or previously existing laws, regulations or policies.
2. SURVIVAL. All of the representations and warranties set forth in
Section V.1. shall survive until all OBLIGATIONS are satisfied in full and there
remain no outstanding commitments hereunder.
Section VI. COVENANTS OF THE BORROWER.
1. AFFIRMATIVE COVENANTS. The BORROWER does hereby covenant and agree with the BANK that, so long as any of the OBLIGATIONS remain unsatisfied or any commitments hereunder remain outstanding, it will comply at all times with the following covenants:
A. The BORROWER will furnish the BANK:
1. Within thirty (30) days after the close of each monthly accounting period in each fiscal year an income statement and balance sheet of the BORROWER for such month in reasonable detail, subject to normal year-end audit adjustments and certified by the BORROWER's president or principal financial officer to have been prepared in accordance with GAAP;
2. Within thirty (30) days after the end of each calendar month, in such form and detail as shall be satisfactory to the BANK, an aging, as of the end of such month, of (a) the then ELIGIBLE ACCOUNTS, and (b) all other Accounts of the BORROWER, certified by the president or chief financial officer of the BORROWER to be complete and correct;
3. Each month (and at any additional time in the discretion of the BANK or if any material deterioration in the BORROWING BASE would be disclosed thereby) a BORROWING BASE CERTIFICATE as of the end of such period. Each BORROWING BASE CERTIFICATE shall be effective only as accepted by the BANK (and with such revisions, if any, as the BANK may require as a condition to such acceptance);
4. Within ninety (90) days after the close of each fiscal year, income statements, balance sheets and statement of cash flow of the BORROWER, for such fiscal year. These reports are to be audited by independent certified public accountant of recognized standing to present fairly the consolidated financial position and results of operations of the BORROWER in accordance with GAAP; and accompanied by such accountants' opinion thereof that such documents have been audited in compliance with the American Institute of Certified Public Accountants Statements of Auditing Standards in effect as of the
execution hereof; such accountants' opinion and certification shall be directed to the BANK, providing that the client representation of the accountants extends to BANK;
B. The BORROWER will maintain:
1. A BORROWING BASE such that the amount of the BORROWER'S outstanding REVOLVING CREDIT FACILITY will not, at any time, exceed its BORROWING BASE;
2. A minimum Tangible Net Worth of $6,000,000 as of December 31, 1999, and at the end of each subsequent calendar quarter. (For purposes of the calculation of this ratio, SUBORDINATED NOTES should be added to Tangible Net Worth);
3. A minimum Net Working Capital of $3,000,000 as of December 31, 1999, and at the end of each subsequent calendar quarter;
4. A maximum ratio of "Total Liabilities/Tangible Net Worth" of 1.5:1.0, as of December 31, 1999, and at the end of each subsequent calendar quarter. (For purposes of the calculation of this ratio, SUBORDINATED NOTES should be deducted from Total Liabilities and added to Tangible Net Worth).
For purposes of this agreement, Current Assets and Current Liabilities, mean, at any time, all assets or liabilities, respectively, that should, in accordance with GAAP, be classified as current assets or current liabilities, respectively, or be classified as a liability on a balance sheet of BORROWER. Net Working Capital means, at any time, the amount by which Current Assets exceed Current Liabilities. Total Liabilities mean all liabilities, which should, in accordance with GAAP, be classified as a liability. Tangible Net Worth means, at any time, Stockholders' Equity (the par value of outstanding capital stock, plus capital surplus, plus retained earnings, plus the principal balance of the SUBORDINATED NOTES, plus any amount reflecting cost of patents and proprietary software) less the sum of:
a. Any surplus resulting from any write up of assets subsequent to December 31, 1998;
b. Goodwill, including any amounts, however designated on a balance sheet of the BORROWER, representing the excess of the purchase price paid for assets or stock acquired over the value assigned thereto on the books of the BORROWER;
c. Any amount at which shares of capital stock of the BORROWER appear as an asset on the BORROWER'S balance sheet;
d. Loans and advances to stockholders, directors, officers, or AFFILIATES;
e. Deferred taxes and deferred expenses;
f. Any amount reflecting value of trademarks, trade names, and copyrights; and
g. Any other amount in respect of an intangible that should be classified as an asset on a balance sheet of the BORROWER in accordance with GAAP except for the cost of patents and proprietary software, which are included in Tangible Net Worth as indicated above.
C. The BORROWER will take all necessary steps to preserve its corporate existence and franchises and comply with all present and future laws applicable to it in the operation of its business, and all material agreements to which it is subject.
D. The BORROWER will give immediate notice to the BANK of (1) any litigation or proceeding in which it is a party if an adverse decision therein would require it to pay more than $10,000.00 or deliver assets the value of which exceeds such sum (whether or not the claim is considered to be covered by insurance); and (2) the institution of any other suit or proceeding involving it that might materially and adversely affect its operations, financial condition, property, or business prospects.
E. The BORROWER will pay when due all of its INDEBTEDNESS due third persons except when the amount thereof is being contested in good faith by appropriate proceedings and with adequate reserves therefor being set aside on its books.
F. The BORROWER will notify the BANK immediately 1) if it becomes aware of the occurrence of any EVENT OF DEFAULT or of any fact, condition, or event that only with the giving of notice or passage of time or both, could become an EVENT OF DEFAULT; 2) if it becomes aware of any material adverse change in the business prospects, financial condition (including, without limitation, proceedings in bankruptcy, insolvency, or reorganization), or results of operations of the BORROWER, or 3) upon the failure of the BORROWER to observe any of
its respective undertakings hereunder or under the COLLATERAL
DOCUMENTS.
G. The BORROWER will (1) fund any of its Employee Pension Benefit Plans in accordance with no less than the minimum funding standards of 29 U.S.C. Sec. 1082 (Section 302 of ERISA); (2) furnish the BANK, promptly after the filing of the same, with copies of any reports or other statements filed with the United States Department of Labor or the Internal Revenue Service with respect to any such Plan; and (3) promptly advise the BANK of the occurrence of any Reportable Event or Prohibited Transaction with respect to any Employee Benefit Plan.
H. BORROWER shall retain the services of Collin D'Silva as its Chairman of the Board and CEO.
I. The BORROWER shall furnish BANK an opinion of counsel, in form and substance satisfactory to BANK, opining that the execution and delivery of the AGREEMENT, as hereby amended, does not conflict with any provisions of the SUBORDINATED NOTES, the charter or bylaws of the BORROWER, or of any applicable LAWS, or any other agreement binding the BORROWER or its property of which, after reasonable inquiry, such counsel has knowledge.
J. BORROWER has negotiated a sale of its scientific instrument business to a former officer of BORROWER, or his nominee. The proceeds of that sale will include no less than $5,000,000 in cash paid to BORROWER. BORROWER agrees that the said proceeds will be either utilized as working capital by BORROWER; paid to BANK to reduce the principal balance of the OBLIGATIONS; or paid to reduce the loans due to Security National Bank in an amount no greater than that listed on the draft of the Audited Financial Statement dated 12-31-1999 plus accrued interest. BORROWER agrees that no portion of the said proceeds shall be paid on account of any other security interest or lien on assets of BORROWER other than the OBLIGATIONS, nor paid to any Stockholder of BORROWER or holder of any debentures issued by BORROWER, without BANK'S written approval.
2. NEGATIVE COVENANTS. The BORROWER does hereby covenant and agree with the BANK that, so long as any of the OBLIGATIONS remain unsatisfied or any commitments hereunder remain outstanding, it will comply at all times with the following negative covenants, unless the BANK shall otherwise have agreed in writing, which agreement will not be unreasonably withheld:
A. The BORROWER shall not change its name, enter into any merger, consolidation, reorganization or recapitalization, or reclassify its capital stock;
B. BORROWER will not mortgage, pledge, grant, or permit to exist a security interest in, or a lien upon, any of its assets of any kind, now owned or hereafter acquired, except for liens in favor of BANK, or PERMITTED LIENS, or liens subordinate and junior to the lien of the BANK;
C. BORROWER will not become liable, directly or indirectly, as Guarantor or otherwise for any OBLIGATION of any other person;
D. BORROWER will not declare or pay any dividends, or make any other payment or distribution on account of its capital stock; nor make any assignment or transfer of Accounts, or, other than in the ordinary course of business, of Inventory;
E. BORROWER will form no subsidiary, make no investment in (including any assignment of Inventory or other property), or make any loan in the nature of an investment to, any person;
F. BORROWER will not make any loan or advance to any officer, shareholder, director, or employee of the BORROWER, except for business travel and similar temporary advances in the ordinary course of business;
G. BORROWER will not redeem, purchase, or retire any of its capital stock, or purchase or retire for any consideration, any warrant, right or option pertaining thereto, or permit any redemption, retirement, or other acquisition by BORROWER of the ownership of the outstanding capital stock of the BORROWER;
H. BORROWER shall not furnish the BANK any certificate or other document that will contain any untrue statement of material fact or that will omit to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished; and
I. BORROWER will not directly or indirectly apply any part of the proceeds of the OBLIGATIONS to the purchasing or carrying of any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations, or rulings thereunder.
J. BORROWER will not make any prepayments of principal or interest on the SUBORDINATED NOTES, and in the EVENT OF DEFAULT under the AGREEMENT, the BORROWER will not make any
further payments of principal or interest on the SUBORDINATED NOTES without prior consent of the BANK. BORROWER will not take any other actions that would result in these SUBORDINATED NOTES being or becoming superior in any manner to the OBLIGATIONS. BORROWER agrees not to give SUBORDINATED NOTES any security interest in the assets of the BORROWER without the permission of BANK.
Section VII. DEFAULT.
1. EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an EVENT OF DEFAULT hereunder:
A. The BORROWER shall fail to perform any covenant, promise, or payment obligation made in this AGREEMENT or any COLLATERAL DOCUMENTS;
B. Any financial statement, representation, warranty, or certificate made or furnished by or with respect to the BORROWER to the BANK in connection with this AGREEMENT, or as an inducement to the BANK to enter into this AGREEMENT, or in any separate statement or document to be delivered to the BANK hereunder, shall be materially false, incorrect, or incomplete when made.
2. ACCELERATION. At the option of the BANK upon the occurrence of any EVENT OF DEFAULT, all OBLIGATIONS, whether hereunder or otherwise, shall immediately become due and payable.
3. REMEDIES. After any acceleration, as provided for in Section VII.
2., the BANK shall have, in addition to the rights and remedies given it by this
AGREEMENT and the COLLATERAL DOCUMENTS, all those allowed by all applicable
laws, including, but without limitation, the Uniform Commercial Code as enacted
in any jurisdiction in which any COLLATERAL may be located. The rights of the
BANK under this Section VII.3. are in addition to the other rights and remedies
(including, without limitation, other rights of set-off) which the BANK may
have.
Section VIII. MISCELLANEOUS.
1. CONSTRUCTION. Nothing herein contained shall prevent the BANK from enforcing any or all other guaranty, pledge or security agreements, notes, mortgages, deeds of trust, other evidences of liability, or other COLLATERAL DOCUMENTS in accordance with their respective terms.
2. ENFORCEMENT AND WAIVER BY THE BANK. The BANK shall have the right at all times to enforce the provisions of this agreement and the
COLLATERAL DOCUMENTS in strict accordance with the terms hereof and thereof, notwithstanding any conduct or custom on the part of the BANK in refraining from so doing at any time or times to enforce its rights under such provisions, strictly in accordance with the same, shall not be construed as having created a custom in any way or manner contrary to specific provisions of this AGREEMENT or as having in any way or manner modified or waived the same. All rights and remedies of the BANK are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy.
3. RENEWAL. On the existing LOAN TERMINATION DATE, all of the OBLIGATIONS become due, and the BANK's commitment to lend shall terminate. BORROWER may request an amendment of the LOAN TERMINATION DATE and a renewal, in some form, of the commitment. BANK agrees to consider such request when made, using as a basis for its decision all of the FINANCIAL STATEMENTS furnished by BORROWER, together with any other information available to BANK. BANK may make such renewal or amendment if, in BANK's sole discretion, such renewal or amendment is warranted in the exercise of sound banking practices.
4. EXPENSE OF THE BANK. The BORROWER will, on demand, reimburse the BANK for all expenses, including the reasonable fees and expenses of legal counsel for the BANK, incurred by the BANK in connection with the preparation, administration, amendment, modification, or enforcement of this AGREEMENT, the COLLATERAL DOCUMENTS, and the collection or attempted collection of the OBLIGATIONS.
5. NOTICES. Any notice or consents required or permitted by this AGREEMENT shall be in writing and shall be deemed delivered if delivered in person or if sent by certified mail, postage prepaid, return receipt requested, or telegraph, as follows, unless such address is changed by written notice hereunder:
A. If to the BORROWER: Transgenomic, Inc.
5600 South 42nd Street
Omaha, Nebraska 68107
Attn: Collin D'Silva
B. If to the BANK: First National Bank of Omaha
One First National Center
Omaha, Nebraska 68102
ATTN: Mark McMillan
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6. WAIVER AND RELEASE BY THE BORROWER. To the maximum extent permitted by applicable laws, the BORROWER:
A. Waives notice of acceleration and of intention to accelerate; and notice and opportunity to be heard, after acceleration in the manner provided in Section VII, before exercise by the BANK of the remedies of self-help, set-off, or of other summary procedures permitted by any applicable laws or by any agreement with the BORROWER, and, except where required hereby or by any applicable law, notice of any other action taken by the BANK; and
B. Releases the BANK and its officers, attorneys, agents, and employees from all claims for loss or damage caused by any act or omission on the part of any of them except willful misconduct or gross negligence.
7. APPLICABLE LAW. This AGREEMENT is entered into and performable in Omaha, Douglas County, Nebraska, and shall be subject to and construed and enforced in accordance with the laws of the State of Nebraska.
8. BINDING EFFECT, ASSIGNMENT, AND ENTIRE AGREEMENT. This AGREEMENT shall inure to the benefit of, and shall be binding upon, the respective successors and permitted assigns of the parties hereto. The BORROWER has no right to assign any of its rights or OBLIGATIONS hereunder without the prior written consent of the BANK. This AGREEMENT, including the Exhibits hereto, all of which are hereby incorporated herein by reference, and the documents executed and delivered pursuant hereto, constitute the entire agreement between the parties and may be amended only by a writing signed on behalf of each party.
9. SEVERABILITY. If any provision of this AGREEMENT shall be held invalid under any applicable law, such invalidity shall not affect any other provision of this AGREEMENT that can be given effect without the invalid provision, and, to this end, the provisions hereof are severable.
IN WITNESS WHEREOF, the parties hereto have duly executed this AGREEMENT as of the day and year first above written.
TRANSGENOMIC, INC.
By: /s/ Collin J. D'Silva
-------------------------
Title: Chief Executive Officer
----------------------
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FIRST NATIONAL BANK OF OMAHA
By: /s/ Mark McMillan
-------------------------
Title: Second Vice President
----------------------
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Exhibit A - Borrowing Base Certificate
Exhibit B - Promissory Note
EXHIBIT A
EXHIBIT B
PROMISSORY NOTE
[LOGO]
Transgenomic, Inc. 5600 So. 42nd St.
Omaha, NE 68107
Principal Amount Interest Rate Note Date Maturity Date Obligor # Note #
$5,000,000.00 Variable 07/31/99 07/31/00 2000046172 1
NAT Base
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Maker promises to pay to the order of First National Bank of Omaha ("Bank") at any of its offices, the principal sum hereof, which shall be: (Revolving) the lesser of FIVE MILLION AND NO/100 Dollars or so much thereof as may have been advanced by Bank. The Maker may borrow, repay without penalty, and reborrow from Note Date until Maturity Date, either the full amount of this loan or any lesser sum.
Interest shall accrue on the outstanding principal amount from and including the Note Date above to the Maturity Date at the rate of: The rate in effect from time to time and designated by Bank as its National Base Rate ("Base Rate").
Interest shall be computed on the basis of actual days elapsed and a year of 360 days. The unpaid principal and interest due on this Note at maturity (whether the Note matures by demand, acceleration, lapse of time or otherwise) shall bear interest at the lesser of 6% per annum above the interest rate stated above, or the highest rate allowed by law.
Principal and interest shall be paid as follows: Principal due on Maturity Date, interest due MONTHLY beginning AUGUST 31, 1999 and on the same day of each MONTH thereafter.
Related Documents: Maker has signed the following documents in connection with this Note: Security Agreement(s) dated 09/17/97 covering all business assets.
Assignment(s) of Collateral dated July 31, 1999 covering life insurance policy.
Loan Agreement dated 09/17/97 and all amendments thereof.
A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be writing to be effective.
Witnessed By: Transgenomic, Inc. /s/ Mark McMillan By: /s/ Stephen F. Dwyer Title: V.C. --------------------- ------------------------ --------- |
TERMS AND CONDITIONS
1. Maker shall reimburse Bank for all expenses incurred in protecting or enforcing its rights. Maker's liability under its Obligations ("all Maker's existing and future obligations of whatever nature and whenever incurred to Bank") shall not be affected by any of the following:
- Acceptance or retention by Bank of other property or interests as security for the Obligations, or for the liability of any person other than a Maker with respect to the Obligations;
- Any release, extension, renewal, modification or compromise of any of the Obligations or the liability of any obligor thereon; or
- Failure by Bank to resort to other security or any person liable for the Obligations.
Each maker specifically consents to multiple renewals or extensions of the Obligations. This Note shall be deemed extended through the date of any advance made by Bank after the original maturity hereof; and any such advance shall constitute principal due under this Note.
2. REPRESENTATION, WARRANTIES AND COVENANTS. Each Maker represents,
warrants and covenants as follows:
This Note, security agreement, deed of trust, mortgage, or other lien
documents(s), if any, securing the Note have been duly authorized,
executed and delivered by the Maker and constitute legal, valid and
binding Obligations of Maker.
This Note evidences a loan for business or agricultural purposes.
Maker will provide business reports and with such frequency as Bank
shall request; and
Maker agrees to pay all costs of collection in connection with this
Note, including reasonable attorneys' fees and legal expenses.
3. DEFAULTS AND REMEDIES. Upon the occurrence of one of more of the following events of default:
- Maker fails to pay when due any of the Obligations, or to perform or rectify breach of, any warranty or other undertaking by Maker in this Note or the other Obligations; or breaches any other covenant or condition described in any other document;
- Any Maker, endorser, surety, or guarantor of any of the Obligations dies, ceases to exist, makes an assignment for the benefit of creditors, becomes insolvent or the subject of bankruptcy or insolvency proceedings;
- Any representation made to induce Bank to extend credit under this Note or otherwise is false in any material respect when made;
- A material adverse change, in the opinion of Bank, occurs in the financial or business condition of any Maker or of any endorser, surety or guarantor of this Note;
- The entry of a judgment against any Maker;
- Filling of any lien against any Maker;
- The taking possession of any substantial part of the property of any Maker at the instance of any governmental authority;
- The dissolution, merger, consolidation, or reorganization of any Maker, or other entity liable for this Obligation;
- Any other event occurs which causes Bank in good faith to deem itself insecure;
then in such event, all of the Obligations shall, at the option of Bank and without notice or demand, mature and become immediately due and payable; and Bank shall have all rights and remedies for default provided by the Uniform Commercial Code, and any other applicable law and/or the Obligations.
All costs and expenses incurred by Bank in enforcing its rights under this Note or any mortgage or other lien, endorsement, surety agreement, guarantee relating thereto are the obligations of Maker and are immediately due and payable. Interest shall accrue on such costs and expenses from the date of incurrence at the rate specified herein for delinquent Note payments. Each Maker, endorser, surety and guarantor hereby waives presentment, protest, demand, notice of dishonor, and the defense of any statute of limitations.
4. GENERAL. Without affecting the liability of any Maker, endorser, surety, or guarantor, the holder may, without notice, renew or extend the time for payment, accept partial payments, release or impair any collateral security for the payment of this Note or agree to sue any party liable on it.
Subject to rights afforded by law, Bank may at any time and for any reason, charge to or off-set against any amount then on deposit in any account (including a savings certificate), whether or not then due, any and all debts or liabilities (sole, several, joint, or joint and severable, absolute or contingent, due or not due, liquidated or unliquidated, secured or unsecured) then owed to Bank by depositor or in the case of a multiple-party account, by any party to such multiple-party account, and this agreement shall be construed to be the consent of depositor and any such party for the Bank to make such charge or off-set if consent be required by any person or future law.
Bank shall not be deemed to have waived any of its rights upon or under this Note, or under any mortgage or other lien, endorsement, surety agreement, or guarantee unless such waivers be in writing and signed by Bank. No delay or omission on the part of Bank in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall note be construed as a bar to or waiver of any right on any future occasion. All rights and remedies of Bank on liabilities or the collateral whether evidenced hereby or by any other instrument or papers shall be cumulative and may be exercised singularly or concurrently.
Maker, if more than one, shall be jointly and severally liable hereunder and all provisions hereof regarding the liabilities or security of Maker shall apply to any liability or any security of any or all of them. This agreement shall be binding upon the heirs, executors, administrators, assigns or successors of Maker; shall constitute a continuing agreement, applying to all future as well as existing transaction, whether or not of the character contemplated at the date of this Note, and if all transactions between Bank and Maker shall be at any time closed, shall be equally applicable to any new transactions thereafter; shall benefit Bank, its successors, and assigns; and shall so continue in force not withstanding any change in any partnership party hereto, whether such change occurs through death, retirement or otherwise.
If any party of this Note is a married person, such person or persons hereby separately charges his or her separate estate, including both that now owned and that hereafter acquired, with the payment of this Note.
This Note shall be construed according to the laws of the State of Nebraska. Unless the content otherwise requires, all terms used herein which are defined the Uniform Commercial Code shall have the meanings therein stated.
Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
EXHIBIT 10.14
** Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text indicated by two double-stricken through asterisks "**". This Exhibit has been filed separately with the Secretary of the Commission without the ** pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act.
LICENSE AGREEMENT
This agreement, entered into and effective as of the first day of September, 1994, by and between Sarasep, Inc., a corporation of the state of Nevada, having a place of business at 1600 Wyatt Drive, Suite 10, Santa Clara, CA 95054 (hereinafter "LICENSEE"), and a group of inventors consisting of Prof. Dr. Gunther Bonn, Bahnhof Umgebung Nr. 3, A-6170 Zirl, Austria, Dr. Christian Huber, Ulmenstrasse 65, A-6064 Rum, Austria, and Dr. Peter Oefner, Unterbergerstrasse 19a/5, A-6020 Innsbruck, Austria, presently at 1300 Oak Creek Drive, Apartment 221, Palo Alto, California US 94306-2008, inventors represented by Prof. Dr. Bonn (hereinafter "LICENSOR"). Prof. Dr. Bonn will be the interface for all contact between LICENSEE AND LICENSOR unless directed otherwise by Dr. Bonn.
WITNESSETH:
WHEREAS, LICENSOR is the owner of polymer technology and is the owner of patent applications set forth in Schedule A appended to this Agreement relating to nonporous, chromatographic, polymer resins;
WHEREAS, LICENSEE wishes to obtain and Licensor is willing to grant a exclusive, royalty-bearing license under this technology.
NOW, THEREFORE, the parties intending to be legally bound agree as follows:
ARTICLE 1 - DEFINITIONS
1.01 "TECHNOLOGY RIGHTS" shall mean the technology and/or patents applications or patents issued from said applications listed in Schedule A, or as later amended by written agreement of the parties.
1.02 "PRODUCTS" shall mean columns and bulk material listed in Schedule for the separation and/or solid phase clean-up of DNA, DNA fragments or oligonucleotides.
1.03 "NET SALES" shall mean the actual gross amount of the invoices covering all of LICENSEE's sales of PRODUCTS to customers other than affiliates, less cash discounts and rebates actually given, duties, returns and free replacements. NET SALES of PRODUCTS used by LICENSEE or AFFILIATES shall be the highest price paid during the reporting period by another to LICENSEE or any AFFILIATE for such PRODUCTS. In the event the NEW SALES price of PRODUCTS sold cannot be reasonably determined, the NET SALES price shall be the cost of manufacture plus 300% of the cost of manufacture as determined by normal accounting practices. In the event of sales or transfer to an AFFILIATE for eventual sales to an end-user or an intermediary, the royalty shall be paid by LICENSEE based on the NET SALES by the AFFILIATE to the end-user or intermediary.
1.04 "AFFILIATE" shall mean any entity in which at least forty-nine percent (49%) of the stock normally entitles to vote for the election of directors is directly or indirectly owned or controlled by LICENSEE.
ARTICLE 2 - GRANT
LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, subject to the terms and conditions set forth in this Agreement, a exclusive license under the TECHNOLOGY RIGHTS to make use and sell PRODUCTS to LICENSEE's customers for PRODUCTS purchased from LICENSEE, provided that only to the extent that LICENSEE has paid royalties due to LICENSOR under this Agreement.
This Agreement is for columns sold to affiliates, users, distributors or instrument manufacturers or for bulk media sold to affiliates or directly to HPLC users for DNA separations. Bulk media shall not be sold to column manufacturers or instrument manufacturers unless by mutual agreement of LICENSEE AND LICENSOR.
This Agreement covers the sale and distribution of nonporous columns or media for DNA separations as shown in Schedule A. Sale of HPLC instrumentation employing said columns or shall require a separate agreement to determine the terms of royalty payment to LICENSOR. Should LICENSOR or its assigns not pursue sale and distribution of HPLC instrumentation for DNA separations, it is understood that LICENSOR shall attempt to negotiate agreement or agreements with one or more instrument manufacturers for the sale and distribution of HPLC instrumentation DNA separations using the technology as shown in Schedule A. It is also understood that LICENSOR shall have the right to negotiate an agreement with an instrument manufacturer, through mutual agreement of LICENSOR AND LICENSEE.
ARTICLE 3 - MARKING
LICENSEE shall mark and label product literature or packages for the PRODUCTS with the following legend:
This product is subject to one or more US or World patent applications.
When patent applications have been granted the LICENSEE shall mark and label product literature or packages for the PRODUCTS with the following legend where x denotes the patent number.
The Purchaser is entitled to utilize this product under Patent Number x for the separation of DNA fragments.
In addition, all literature, product packages or performance sheets shall carry relevant citations of the inventors. The list of citations is shown in Schedule A and shall be updated by mutual agreement of LICENSOR and LICENSEE.
ARTICLE 4 - PAYMENTS AND REPORTS
4.01 For the rights granted under this Agreement, LICENSEE shall pay to LICENSOR as licensing fee, ** for every column for the first ** columns sold to users. LICENSOR shall provide packing material for said columns. The first material for packing columns shall be available starting January 9, 1995. The Licensee fee shall be paid quarterly for only those columns that have been actually sold.
4.02 For the rights granted under this Agreement, LICENSEE shall pay to LICENSOR as a royalty ** of NET SALES of columns and bulk media sold beyond the first ** columns. A minimum royalty payment of ** per year shall be paid on a quarterly basis. Royalty payments shall be effective starting January 1, 1995, but amount of royalty payment shall be deducted from licensing fee until the first ** columns have been sold.
4.03 LICENSEE shall make written reports to LICENSOR within sixty (60) days after the end of each calendar quarter during the term of this Agreement. Each report shall state the net sales of the PRODUCT during the calendar quarter. The report shall also set forth the manner in which the license fee and royalty has been computed. The license fee and royalty for PRODUCTS sold during each calendar quarter shall be due and payable with the report for that quarter.
4.04 LICENSEE shall maintain sufficiently detailed book and records for the PRODUCT sold or used by LICENSEE and AFFILIATES to enable LICENSOR to verify the payments made to LICENSOR by LICENSEE. LICENSEE shall permit an accountant, appointed by LICENSOR and reasonably acceptable to LICENSEE, to inspect, at reasonable times and upon reasonable notice, but not to exceed once per year, the book and records of licensee relating to the sale of PRODUCT. The accountant shall report to LICENSOR only whether the amounts reported and paid to LICENSOR by LICENSEE are accurate. In no event, however, shall an examination of LICENSEE's book be made for a period prior to three (3) years before the date such audit is requested by LICENSOR. In the event the accountant reports to LICENSOR that LICENSEE has underpaid the amounts due to LICENSOR by more than ten percent (10%), then LICENSEE shall bear the costs of such audit.
4.05 LICENSEE shall pay all reasonable costs for US and Europe patent costs and shall make reasonable efforts to argue the prosecution of the application to the appropriate patent examiners. LICENSEE shall have the right to pursue patent rights in any other country that LICENSEE determines to be commercially in the best interest of LICENSEE. LICENSEE shall inform LICENSOR of all steps of prosecution and defense of the patent applications or patents thereof. Should LICENSEE intend to abandon or assign any application or any part thereof, LICENSEE will provide the possibility for LICENSOR to acquire said applications or parts thereof. LICENSOR shall be responsible for the reassignment costs. LICENSOR will retain a non-exclusive license.
ARTICLE 5 - PATENTS AND TECHNOLOGY
5.01 LICENSOR shall provide reasonable support to LICENSEE of technical information and other information to allow LICENSEE to argue the prosecution of the various patent applications before the patent examiners.
5.02 LICENSEE shall pay for patents costs as set forth in Article 4 above.
5.03 LICENSOR has assigned patent rights to LICENSEE in accordance to document signed prior to US patent application and World PCT patent application and specific country and Europe applications.
5.04 LICENSOR AND LICENSEE both agree to keep confidential synthesis or manufacturing procedures except to the extent required in journal publications or patent applications. LICENSOR and LICENSEE both agree that synthesis descriptions in journals or other publications shall be stated in general terms and not state key manufacturing details.
ARTICLE 6 - TERM AND TERMINATION
6.01 In the event that LICENSEE is able to obtain European and/or US patent rights, this Agreement shall remain in effect for twenty (20) years. In the event that LICENSEE is not able to obtain either European or US patent rights, this Agreement shall be in effect for five (5) years.
6.02 LICENSEE may terminate the Agreement and the licenses granted under this Agreement by giving LICENSOR three (3) months prior written notice of LICENSEE's intention to terminate.
6.03 LICENSOR, at it discretion, may terminate the Agreement for one of the following reasons by giving notice to LICENSEE:
(1) If there is a proceeding commenced against LICENSEE under any bankruptcy act or under any present or future law for relief of debtors, or a receiver or trustee is appointed for LICENSEE or LICENSEE's asset, or an action or proceeding is commenced to dissolve LICENSEE, or LICENSEE makes an assignment for the benefit of creditors or ceases to carry on business for any reason; or
(2) If LICENSEE fails to perform or observe any of the agreements, provisions, duties or obligations under the Agreement such as the timely reporting and payment of royalties, and does not remedy the failure within thirty (30) days after receipt of notice from LICENSOR, provided, however, that repeated failures by LICENSEE shall constitute an independent basis for LICENSOR to terminate this Agreement.
6.04 The termination of the Agreement shall not prejudice any rights or remedies which shall have accrued to either party prior to the date of such termination.
6.05 LICENSOR shall keep confidential all technology manufacturing processes. Confidentiality shall survive this agreement for a period of ten (10) years beyond termination of this agreement.
ARTICLE 7 - ASSIGNMENT
This Agreement and the right granted in this Agreement are personal to LICENSEE. LICENSEE shall have the right to assign rights of this Agreement provided that assignee assumes all rights and responsibilities of the Agreement.
ARTICLE 8 - NOTICES
Any notice required or provided for by the terms of this Agreement shall be in writing. All notices shall be sent by first class mail, postage prepaid, to the business address of the party to be given notice. The business addresses of the parties shall be as follows:
Sarsep, Inc. Prof. Dr. Gunther Bonn 1600 Wyatt Dr., Suite 10 Bahnhof Umgebung Nr. 3 Santa Clara, CA 95054 A-6170 Zirl USA Austria |
Attn: President
Either party may change its business address by notice to the other party.
ARTICLE 9 _- AGREEMENT
This Agreement is full and complete and replaces Marketing Agreement dated November 27, 1993.
ARTICLE 10 - MISCELLANEOUS
10.01 This Agreement shall be construed and the legal relations between the parties determined in accordance with the laws of California.
10.02. Neither party shall be deemed to have waived any of its rights under this Agreement by failure to take any actin to enforce any of its rights at any particular time.
10.03 This Agreement is the entire Agreement between the parties and there are no other terms, obligation, covenants, representation, statements or conditions, oral or otherwise, of any kind. This Agreement may not be changed, modified, or amended in whole or in part except by written document signed by the duly-authorized officers of the parties.
10.04 The provisions of the Agreement shall be deemed separable. A holding by a court of competent jurisdiction that any provision of this Agreement which is not material to the consideration provided by either party is void or unenforceable shall not affect the validity or enforceability of the remaining provisions of the Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate to be effective as of September 1, 1994.
SARASEP, INC. LICENSOR
By /s/ Douglas T. Gjerde By /s/ Gunther Bonn
------------------------------ ------------------------------
Douglas T. Gjerde, President Prof. Dr. Gunther Bonn
Date 1-5-95 Date 6.2.1995
------------------------------ ------------------------------
By /s/ Christian Huber
------------------------------
Dr. Christian Huber
Date January 6th, 1995
------------------------------
By /s/ Dr. Peter Oefner
------------------------------
Dr. Peter Oefner
Date January 6th, 1995
------------------------------
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AGREEMENT
This Agreement is made and entered into this 14th day of March, 1997. This Agreement is intended to amend and modify Original Agreement dated September 1, 1994 by and among Sarsep, Inc., a corporation, herein and therein referred to as "Licensee" and a group of Inventors consisting of Prof. Dr. Gunther Bonn, Dr. Christian Huber, and Dr. Peter Oefner. Original Agreement sates that the inventors are represented by Prof. Dr. Gunther Bonn herein and therein referred to as "Licensor." Prof. Dr. Bonn will be the interface for contact between the Licensor and Licensee. All definitions in the original Agreement are incorporated herein.
WHEREAS, the Original Agreement among the parties provided in Article 2 that the Licensee with the mutual agreement of the Licensor would have the right to negotiate an agreement with an equipment manufacturer, and
WHEREAS, the Licensee wishes to develop and market the equipment to be used with the DNA Technology Rights and the Products and the Licensor is agreeable to granting the Licensee this right.
NOW THEREFORE based upon the mutual covenants and considerations contained herein, the parties agree as follows:
1. Licensee shall have the exclusive right to develop and manufacture the instrumentation necessary to use the DNA Products and the Technology Rights. The Licensor agrees to work exclusively with the licensee on the method of use of the products and the Technology rights and the Licensor in this regard agrees not to disclose method of use, proprietary information or competitive information to any third party.
2. Licensor agrees to work diligently with Licensee in the development and application of instrumentation for the Technology Rights and Products.
3. The parties further agree that ** will be paid with respect to the instrumentation but the minimum royalty fee set out in paragraph 4.02 shall be increased to ** per year payable at the rate of ** per quarter. The parties understand and agree that the Licensee will form a new corporation which will acquire the Licensee's interest in the Agreement. The principal purpose of the new corporation will be to promote and develop DNA separation technology. The new minimum license fee shall begin on the first quarterly payment date following the funding of the new corporation with a minimum of One Million Five Hundred Thousand Dollars ($1,500,000.00) of capital. Licensee shall have 18 months from date of this Agreement to complete funding of the new corporation. If funding is not completed within 18 months, then this Agreement shall expire but the Original Agreement shall continue.
4. The parties understand and agree that the inventors use instrumentation utilizing said DNA separation technology in the course of performing their research. The inventors shall have the right to develop, assemble and use instrumentation for the purpose of performing research and developing new methods and new instrumentation.
5. In all other respects, the original Agreement is confirmed and ratified.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed to be effective as of February 1, 1997.
SARASEP, INC. LICENSOR
By /s/ Douglas T. Gjerde By /s/ Gunther Bonn
---------------------------- ---------------------------
Douglas T. Gjerde, Ph.D. President Prof. Dr. Gunther Bonn
Date 3-14-97 Date
---------------------------- ---------------------------
By /s/ Dr. Peter Oefner
---------------------------
Dr. Peter Oefner
Date 3-29-97
---------------------------
By /s/ Dr. Christian Huber
---------------------------
Dr. Christian Huber
Date April 7, 1997
---------------------------
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** Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text indicated by two double-stricken through asterisks "**". This Exhibit has been filed separately with the Secretary of the Commission without the ** pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act.
EXHIBIT 10.15
** Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text indicated by two double-stricken through asterisks "**". This Exhibit has been filed separately with the Secretary of the Commission without the ** pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act.
AGREEMENT
Effective as of August 20, 1997 ("Effective Date"), THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California ("STANFORD"), and TRANSGENOMIC, INC., a Delaware corporation having a principal place of business at 5600 South 42nd Street, Omaha, Nebraska 68107 ("LICENSEE"), agree as follows:
1. BACKGROUND
1.1 STANFORD has an assignment of "Detection of DNA Heteroduplices by Denaturing High Performance Liquid Chromatography" from the laboratory of Dr. Peter Oefner and Dr. Peter Underhill, as described in Stanford Docket S95-024, ("Invention(s)") and any Licensed Patent(s), as hereinafter defined.
1.2 STANFORD desires to have the Invention(s) perfected and marketed at the earliest possible time in order that products resulting therefrom may be available for public use and benefit.
1.3 LICENSEE desires a license under said Invention(s) and Licensed Patent(s) for commercialization of this technology.
1.4 The Invention(s) were made in the course of research supported by the National Institutes of Health.
2. DEFINITIONS
2.1 "Invention(s)" means any invention disclosed in Stanford Docket S95-024.
2.2 "Licensed Patent(s)" means STANFORD's U.S. Patent Application, Serial Number 512,681 filed August 8, 1995 and any divisions, continuations, continuations-in-part, reexaminations or reissues of any such patent applications or patents.
2.3 "Licensed Field of Use" is for the detection of nucleic acid heteroduplex molecules.
3. GRANT
3.1 STANFORD hereby grants and LICENSEE hereby accepts a non-exclusive license to the Invention(s) and to the Licensed Patents in the Licensed Field of Use.
3.2 Said license of Paragraph 3.1 shall commence on August 20, 1997 and continue until expiration of the last to expire of Licensed Patent(s).
3.3 STANFORD acknowledges that future inventions and discoveries relating to this technology may be useful to LICENSEE in its development and/or commercialization process. Subject to STANFORD's obligations to sponsored research, STANFORD will, as soon as practicable, bring any such new invention and discovery related to this technology to LICENSEE's attention and provide LICENSEE a reasonable opportunity to negotiate a license therefor.
4. GOVERNMENT RIGHTS
This Agreement is subject to all of the terms and conditions of Title 35 United States Code Sections 200 through 204, and LICENSEE agrees to take all reasonable action necessary on its part as licensee to enable STANFORD to satisfy its obligation thereunder, relating to Invention(s).
5. REPORTS
PROGRESS REPORT -- On or before August 25 of each year, beginning August 25, 1998, during the term of the Agreement, LICENSEE shall make a written annual report to STANFORD covering the preceding year ending July 31, regarding the progress of LICENSEE toward commercial use of the Invention(s) and Licensed Patent(s). Such report shall include, as a minimum, information sufficient to enable STANFORD to satisfy reporting requirements of the U.S. Government and for STANFORD to ascertain progress by LICENSEE toward commercializing the Invention(s) and Licensed Patent(s).
6. ROYALTIES
6.1 LICENSEE agrees to pay to STANFORD a nonrefundable license issue royalty of ** upon signing this Agreement. Such payment is due August 25, 1997.
6.2 On August 25, 1998 and each August 25 thereafter, LICENSEE agrees to pay to STANFORD annual royalty payments of ** each year.
6.3 LICENSEE will also pay to STANFORD a one time, nonrefundable patent issue royalty of ** after the issuance of a Licensed Patent(s). Such payment is due within thirty (30) days after notification from STANFORD.
7. NEGATION OF WARRANTIES
7.1 Nothing in this Agreement is or shall be construed as:
(a) A warranty or representation by STANFORD as to the validity or scope of any Licensed Patent(s);
(b) A warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents, copyrights, and other rights of third parties;
(c) An obligation to bring or prosecute actions or suits against third parties for infringement; or
(d) Granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of STANFORD or other persons other than to the Invention(s) and Licensed Patent(s), regardless of whether such patents or other rights are dominant or subordinate to any Licensed Patent(s).
7.2 Except as expressly set forth in this Agreement, STANFORD MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE LICENSED PATENT(S) WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES.
7.3 LICENSEE agrees that nothing in this Agreement grants LICENSEE any express or implied license or right under or to:
(a) U.S. Patent No. 4,237,224, "Process for Producing Biologically Functional Molecular Chimeras," U.S. Patent No. 4,468,464 and U.S. Patent No. 4,740,470, both entitled, "Biologically Functional Molecular Chimeras" (collectively known as the Cohen/Boyer patents) or reissues thereof; or
(b) U.S. Patent 4,656,134 "Amplification of Eucaryotic Genes" or any patent application corresponding thereto.
8. INDEMNITY
8.1 LICENSEE agrees to indemnify, hold harmless, and defend STANFORD and Stanford Health Services and their respective trustees, officers, employees, students, and agents against any and all claims for death, illness, personal injury, property damage, and improper business practices arising out of the manufacture, use, sale, or other disposition of Invention(s), Licensed Patent(s), or Licensed Product(s) by LICENSEE, or their customers.
8.2 STANFORD shall not be liable for any indirect, special, consequential, or other damages whatsoever, whenever grounded in tort (including negligence), strict liability, contract or otherwise. STANFORD shall not have any responsibilities or liabilities whatsoever with respect to Licensed Product(s).
8.3 LICENSEE shall at all times comply, through insurance or self-insurance, with all statutory workers' compensation and employers' liability requirements covering any and all employees with respect to activities performed under this Agreement.
8.4 In addition to the foregoing, LICENSEE shall maintain, during the term of this Agreement, Comprehensive General Liability Insurance, including Products Liability Insurance, with reputable and financially secure insurance carrier(s) to cover the activities of LICENSEE. Such insurance shall provide minimum limits of liability of Two Million Dollars ($2,000,000) and shall include STANFORD, Stanford Health Services, their trustees, directors, officers, employees, students, and agents as additional insureds. Such insurance shall be written to cover claims incurred, discovered, manifested, or made during or after the expiration of this Agreement. At STANFORD's request, LICENSEE shall furnish a Certificate of Insurance evidencing primary coverage and requiring thirty
(30) days prior written notice of cancellation or material change to STANFORD. LICENSEE shall advise STANFORD, in writing, that it maintains excess liability coverage (following form) over primary insurance for at least the minimum limits set forth above. All such insurance of LICENSEE shall be primary coverage; insurance of STANFORD or Stanford Health Services shall be excess and noncontributory.
9. STANFORD NAMES AND MARKS
9.1 LICENSEE agrees not to identify STANFORD in any promotional advertising or other promotional materials to be disseminated to the public or any portion thereof or to use the name of any STANFORD faculty member, employee, or student or any trademark, service mark, trade name, or symbol of STANFORD or Stanford Health Services, or that is associated with either of them, without STANFORD's prior written consent.
9.2 LICENSEE with respect to sales, marketing, advertising or promotional materials disseminated concerning the technology covered by the Invention(s) and Licensed Patent(s) shall have the right to refer to and use the name, number(s), and owner(s) of the Invention(s) and Licensed Patent(s), as referred to in Paragraphs 2.1 and 2.2. LICENSEE may optionally use the following citation, and LICENSEE agrees when using said citation for sales, marketing, advertising, or promotional materials to use the entire citation written as follows:
Oefner, Peter J., and Underhill, Peter A. (1995). Comparative DNA sequencing by denaturing high-performance liquid chromatography (DHPLC), Am. J. Hum. Genet. 57 {Suppl.}, A266.
10. INFRINGEMENT BY OTHERS: PROTECTION OF PATENTS
During the Non-exclusive period of this Agreement, STANFORD and LICENSEE agree to discuss the appropriate course of action to be taken should either party be aware of any suspected infringement of any Licensed Patent(s) by a third party.
11. SUBLICENSE(S)
Purchasers of equipment, columns, reagents and software from LICENSEE for use in the Licensed Field of Use shall be deemed to have an implied license under the Licensed Patent(s) to practice the inventions thereof and shall be free from any suit brought based on the Licensed Patent(s). Otherwise, LICENSEE may not grant sublicense(s).
12. TERMINATION
12.1 LICENSEE may terminate this Agreement by giving STANFORD notice in
writing at least thirty (30) days in advance of the effective date of
termination selected by LICENSEE.
12.2 STANFORD may terminate this Agreement if LICENSEE:
(a) Is in default in payment of royalty or providing of
reports;
(b) Is in breach of any provision hereof; or
(c) Provides any false report;
and LICENSEE fails to remedy any such default, breach, or false report
within ninety (90) days after written notice thereof by STANFORD.
12.3 Surviving any termination are:
(a) Any cause of action or claim of LICENSEE or STANFORD,
accrued or to accrue, because of any breach or default by
the other party; and
(b) The provisions of Articles 7 and 8.
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13. ASSIGNMENT
This Agreement may not be assigned except to a successor in business of all or substantially all the assets of LICENSEE.
14. ARBITRATION
14.1 Any controversy arising under or related to this Agreement, and any
disputed claim by either party against the other under this Agreement
excluding any dispute relating to patent validity or infringement
arising under this Agreement, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
14.2 Upon request by either party, arbitration will be by a third party
arbitrator mutually agreed upon in writing by LICENSEE and STANFORD
within thirty (30) days of such arbitration request. Judgment upon the
award rendered by the arbitrator shall be final and nonappealable and
may be entered in any court having jurisdiction thereof.
14.3 The parties shall be entitled to discovery in like manner as if the
arbitration were a civil suit in the California Superior Court. The
Arbitrator may limit the scope, time and/or issues involved in
discovery.
14.4 Any arbitration shall be held at Stanford, California, unless the
parties hereto mutually agree in writing to another place.
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15. NOTICES
All notices under this Agreement shall be deemed to have been fully given when done in writing and deposited in the United States mail, registered or certified, and addressed as follows:
To STANFORD: Office of Technology Licensing
Stanford University
900 Welch Road, Suite 350
Palo Alto, CA 94304-1850
Phone: (650) 723-0651
Fax: (650) 725-7295
Attention: Director
To LICENSEE: Transgenomic, Inc.
5600 South 42nd Street
Omaha, Nebraska 68107
Phone: (402) 738-5480
Fax: (402) 733-1264
Attention: P. Thomas Pogge
General Counsel
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Either party may change its address upon written notice to the other party.
16. WAIVER
None of the terms of this Agreement can be waived except by the written consent of the party waiving compliance.
17. APPLICABLE LAW
This Agreement shall be governed by the laws of the State of California applicable to agreements negotiated, executed and performed wholly within California.
This Agreement constitutes the entire agreement between LICENSEE and STANFORD and supersedes all prior communications, understandings and agreements with respect to all matters covered in the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate originals by their duly authorized officers or representatives.
THE BOARD OF TRUSTEES OF THE LELAND
STANFORD JUNIOR UNIVERSITY
Signature /s/ Katharine Ku
--------------------------------
Name Katharine Ku
--------------------------------
Title Director, Technology Licensing
--------------------------------
Date August 25, 1997
--------------------------------
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LICENSEE
Signature /s/ Collin D'Silva
--------------------------------
Name Collin D'Silva
--------------------------------
Title Chief Executive Officer
--------------------------------
Date August 28, 1997
--------------------------------
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** Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text indicated by two double-stricken through asterisks "**". This Exhibit has been filed separately with the Secretary of the Commission without the ** pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act.
EXHIBIT 10.16
** Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text indicated by two double-stricken through asterisks "**". This Exhibit has been filed separately with the Secretary of the Commission without the ** pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act.
SUPPLY AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of March 10, 2000 by and between TRANSGENOMIC, INC., a Delaware corporation ("Transgenomic"), and HITACHI INSTRUMENTS, INC., a California corporation ("HII"). (TRANSGENOMIC and HII are hereinafter referred to jointly as the "Parties" and individually as a "Party.")
Section 1. SCOPE AND PURPOSE.
(a) HII agrees to sell to Transgenomic on a non-exclusive basis certain equipment and related accessories as more fully set forth in Exhibit A hereto ("Equipment") in accordance with the terms and conditions of this Agreement. Exhibit A may be amended from time to time by the addition, substitution or modification of Equipment or the specifications relating thereto as agreed to by the Parties.
(b) Transgenomic agrees to purchase from HII Transgenomic's requirements for Equipment; provided that HII is able to supply Equipment to Transgenomic meeting all agreed to specifications set forth in Exhibit A hereto including, but not limited to, those relating to performance and quality of the Equipment, and is able to deliver Equipment to Transgenomic in such quantities and at such times as is required by Transgenomic.
(c) HII acknowledges that Transgenomic will incorporate Equipment into one or more products manufactured by Transgenomic, including its WAVE-Registered Trademark- products for the separation of nucleic acids (the "Transgenomic Products"). Transgenomic reserves all rights to market Transgenomic Products incorporating Equipment on a worldwide basis either directly or through other third parties. Transgenomic shall have the right to modify the Equipment in order to configure the Equipment for a variety of uses in connection with its needs.
(d) HII agrees to assist and support Transgenomic in modifications of source code of the software HSM 3.0-20 as required for implementation of Transgenomic applications. If such support is deemed to be of significant expense to HII, then a mutually agreed to fee will be paid by Transgenomic.
Section 2. PURCHASING PROCEDURES.
(a) All purchases of Equipment by Transgenomic shall be made by written purchase order issued to HII (a "Purchase Order") in a form agreed to by the parties. Each Purchase Order shall include, among other things, a description of Equipment to be purchased, the quantity to be purchased, routing instructions, delivery schedule, destination and confirmation of price. HII agrees to accept telegraphic or telecopied (fax) Purchase Orders. HII will deliver confirmation of the receipt of each Purchase Order to Transgenomic within five (5) business days of receipt by email or fax.
(b) Except for the specific items set forth in Section 2(a), special instructions or different or additional terms which appear either on Transgenomic's Purchase Order or on HII's confirmation form shall not apply unless mutually agreed to in writing by duly authorized officers of each of the Parties.
(c) HII shall only accept blanket Purchase Orders that originate from the following Transgenomic facility or other locations designated by Transgenomic:
Transgenomic, Inc.
[Purchasing Department]
5600 South 42 Street
Omaha, NE 68107
(d) Under no circumstances is HII to proceed with the manufacture or delivery of Equipment for Transgenomic under this Agreement or otherwise without the receipt and confirmation of a Purchase Order relating thereto. HII acknowledges and agrees that Transgenomic will not be responsible for any costs or expenses incurred by HII for materials, supplies, labor or other commitments relating to the manufacture or delivery of Equipment other than as authorized by Purchase Order duly delivered to HII.
Section 3. PRICES AND TERMS AND CONDITIONS OF SALE.
(a) PRICES. The price of Equipment and other terms and conditions of sale are as stated in Exhibit B. Either Party may request a renegotiation of the price together with the date on which such price change will become effective. In the event the Parties agree to a change in the specifications of Equipment, such change will not become effective until the Parties have agreed on a revised price and the conditions of sale for the newly specified Equipment. Changes in specifications may only be initiated by the following named individuals on behalf of HII and Transgenomic:
Changes may be accepted only by Mark McDonald or his designee on behalf of HII.
Changes may be accepted only by Collin J. D'Silva or his designee on behalf of Transgenomic.
New Equipment types will be added to Exhibit A upon the mutual agreement of both Parties. New Equipment added to Exhibit A shall be accompanied by an amendment to Exhibit B which will specify price and other terms and conditions.
(b) TAXES. The amount of any present, retroactive or future sales, use, excise or similar tax applicable to Transgenomic's purchase of Equipment shall be added to the HII invoice and paid by Transgenomic unless Transgenomic provides HII with tax exemption certificates acceptable to the appropriate taxing authorities.
(c) PAYMENT. HII may invoice Transgenomic for Equipment sold hereunder immediately upon delivery and Transgenomic shall pay the full invoiced amount within forty five (45) days after the date of HII's invoice.
Section 4a. FORECASTS. Transgenomic will provide HII with a rolling
forecast of Transgenomic's estimated requirements for Equipment ("Forecast").
Each Forecast will relate to a four month period and will be delivered in
writing to HII at the address specified in Section 15 hereof no later than five
(5) business days after the first day of each month. In addition, no Forecast
shall be construed as a purchase order for Equipment. Transgenomic agrees to
place orders for a minimum of 75% of its Forecast for a given period. An initial
Forecast form is set forth in Exhibit C.
Section 4b. DELIVERY. All deliveries shall be made FOB HII's San Jose facilities, and title and risk of loss shall pass to Transgenomic at such delivery point. HII will use reasonable efforts to deliver Equipment to a carrier at such delivery point on the estimated shipment date for transportation to the location(s) specified in Transgenomic's Purchase Order. Shipments shall be in quantities specified in Purchase Orders. Shipping dates shall be the later of five (5) days within receipt of the Purchase Order, or a date as specified on the order, provided that if the quantity of Equipment which Transgenomic orders for delivery in a month exceeds the quantity forecast for that month by more than 25%, HII may exceed the five (5) day delivery requirement for a reasonable period for that quantity that exceeds the Forecast. In the event HII is unable to deliver to Transgenomic quantities as specified in Transgenomic's Purchase Orders, Transgenomic reserves the right to cancel those Purchase Orders and purchase from alternate sources. When HII is able to satisfy the production requirements of Transgenomic, Transgenomic will resume purchasing from HII.
Section 5. INSPECTION AND ACCEPTANCE. Transgenomic will inspect any shipment of Equipment received from HII and will notify HII of any defects within five (5) days after Transgenomic has discovered such defects. If Transgenomic fails to notify HII of any such defects within such period, the shipment shall be deemed accepted. Transgenomic will allow HII to inspect any defective Equipment at Transgenomic's site. At the request of HII, Transgenomic will ship to HII Equipment that Transgenomic believes is defective, provided HII pays for the freight charges. HII agrees to replace all defective Equipment rejected by Transgenomic or, at HII's option, to reimburse Transgenomic for the full purchase price thereof, including any related shipping costs and taxes.
Section 6. WARRANTY AND LIMITATION OF REMEDIES AND DISCLAIMER.
(a) HII warrants the Equipment to be free from defects in material and manufacture and to conform to specifications set forth in Exhibit A at the time of shipment. If any Equipment fails to conform to the specifications or any defect in material or manufacture appears within 24 months from the date of shipment, HII's entire liability, and Transgenomic's exclusive remedy, shall be, at HII's option, either to repair or replace such defective Equipment within a reasonable time after written notification thereof and return of the defective Equipment to HII in San Jose, California.
(b) THIS WARRANTY IS MADE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTY OF MERCHANTABILITY, THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, ANY IMPLIED WARRANTY ARISING OUT OF A COURSE OF DEALING OR OF PERFORMANCE, CUSTOM OR USAGE OF TRADE EXCEPT OF TITLE AND AGAINST PATENT INFRINGEMENT.
Section 7. LIMITATION OF LIABILITIES; TIME LIMIT FOR FILING ACTION.
(a) NEITHER PARTY SHALL UNDER ANY CIRCUMSTANCES BE LIABLE TO EACH OTHER FOR DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, REVENUE OR BUSINESS) RESULTING FROM OR IN ANY WAY RELATED TO THE EQUIPMENT, ANY OF TRANSGENOMIC'S PURCHASE ORDERS, THIS AGREEMENT OR THE TERMINATION OR NONRENEWAL OF THIS AGREEMENT. This limitation applies regardless of whether such damages are sought based on breach of contract, negligence, strict liability in tort or any other legal theory.
(b) Any action for breach of warranty or any other obligation under this Agreement must be commenced within one year after the breach occurs.
(c) Each limitation on liability or limited or exclusive remedy set forth in this Agreement is independent of any other limitation or remedy and if any such limitation or remedy fails of its essential purpose or is otherwise held to be unenforceable, that shall not affect the validity of any other such limitation or remedy.
Section 8. TECHNICAL SUPPORT AND SERVICING OF EQUIPMENT.
(a) HII agrees to provide all available technical support and literature, including information on the use of the Equipment being supplied to Transgenomic to facilitate its use in Transgenomic Products.
(b) HII shall make available for purchase all necessary consumables, accessories and spare parts for the operation, repair and proper servicing of each unit of Equipment to Transgenomic and to Transgenomic's customers for a period of seven years following the date of the delivery of the Equipment. This provision shall survive termination of this Agreement.
(c) HII shall provide, free of charge, Transgenomic with all necessary copies (maximum of three copies) of all manuals, brochures and part price lists concerning the servicing of each unit of Equipment. Hitachi will make no provision to re-label or otherwise modify such manuals, brochures and part price lists without a prior written agreement.
Section 9. PRODUCT IDENTIFICATION AND LABELING. All Transgenomic Products shall carry the Transgenomic name (or other name designated by Transgenomic) and will not use the HII brand name except as mutually agreed to by the Parties. There shall be no obligation on the part of Transgenomic to purchase or acquire any right to use the HII name or any other trademark, tradename or other symbol or designation used by HII or to make any reference to HII on any Equipment or Transgenomic Products incorporating Equipment.
Section 10. CONFIDENTIAL INFORMATION.
(a) "Confidential Information" shall mean all such confidential and proprietary information of any kind, whether or not fixed in a tangible medium, including, without limitation, systems concepts, drawings, models, software embodiments, specifications, plans, designs, marketing plans, identity of customers, trade secrets and technical data, as either of the Parties (the disclosing Party) may designate as confidential upon disclosure to the other (the receiving Party). For the purposes of this Agreement, appropriate words of designation include, without limitation, the words "Confidential" or "Proprietary." Any information disclosed orally by either Party shall not be considered "Confidential Information" unless clearly identified as confidential or proprietary at the time of such oral disclosure and summarized by the disclosing Party in a writing which is clearly marked "confidential" or "proprietary" and sent to the recipient Party within 30 days after the initial oral disclosure. Confidential Information includes the existence and terms of this Supply Agreement.
(b) Confidential Information shall not include any information that the receiving Party reasonably establishes:
(i) was in the public domain at the time the receiving Party learns of it, or later becomes publicly known through no wrongful act of the receiving Party;
(ii) was known to the receiving Party prior to the date of their Agreement, as shown by written records of the receiving Party, and was not subject to prior confidentiality obligations with the disclosing Party;
(iii) was received by the receiving Party from a third party who had a lawful right to disclose it to the receiving Party and no obligation to maintain the confidentiality of such information;
(iv) was independently developed by the receiving Party without the use of or reference to the Confidential Information of the disclosing Party; provided, however, that such information as is not included within Confidential Information because it meets the conditions of subsection (b)(i), (iii), or (iv) or of this Section 10 shall be deemed to be Confidential Information until the date it becomes public knowledge, is independently developed, is received from a third party or is approved for release, as the case may be.
(c) All Confidential Information received under this Agreement shall be treated by the recipient Party with reasonable care to assure that the confidentiality of such
Confidential Information is maintained, and that such Confidential Information is not distributed, disclosed or disseminated in any way to anyone except employees of the recipient Party who are involved in the work related to this Agreement and who have a need to know such information.
(d) All rights the disclosing Party may have in Confidential Information prior to disclosure, including, without limitation, rights of patent, copyright and trade secret, shall remain exclusively with the disclosing Party, and nothing in this Agreement shall be construed as granting any license, waiver or other right to the receiving Party with respect to Confidential Information.
(e) Each of the Parties shall have the right to refuse to receive any information under this Agreement and nothing in this Agreement shall obligate either Party to disclose to the other any information whatsoever.
(f) The receiving Party shall promptly return all Confidential Information to the disclosing Party upon termination of this Agreement or at any time upon request and shall certify, represent and warrant that all such Confidential Information and copies and extracts thereof have been returned or destroyed, provided that the recipient Party may retain one copy of the Confidential Information for archival purposes in the event of a dispute as to the Confidential Information received.
(g) The Parties agree that the production processes used by HII to manufacture Equipment covered by this Agreement are confidential and will be treated as Confidential Information under this Agreement and are proprietary to HII. In addition, the Parties agree that the specifications of Equipment covered by this Agreement as supplied by Transgenomic are Confidential Information and proprietary to HII and will be treated as Confidential Information under this Agreement. The Parties agree that the production processes used by Transgenomic to manufacture Transgenomic Products are confidential and will be treated as Confidential Information under this Agreement and are proprietary to Transgenomic. In addition, the Parties agree that the specifications of Transgenomic Products are Confidential Information and proprietary to Transgenomic and will be treated as Confidential Information under this Agreement. All such treatment shall be effective without regard to whether the subject information is specifically designated as confidential under Section 10(a).
Section 11. INDEMNIFICATION.
(a) HII will indemnify, defend and hold harmless Transgenomic and its directors, officers, agents and employees from any loss, claim, liability and expense (including reasonable attorneys' fees and other expenses of litigation) with respect to:
(i) workers' compensation benefits payable on account of sickness, injury or death of any HII employee, or to any employee of HII's subcontractors, agents or delegates, where the sickness, injury or death arises out of or is in
any way related to the work performed or to be performed under this Agreement; and
(ii) claims for sickness, bodily injury, personal injury, death, property damage or loss as asserted by third parties (including employees of HII or by HII's subcontractors, agents or delegates, or by any other person at HII's plant), where the claim is based in whole or in any part on, or is in any way related to, any act or omission attributable to HII, its agents, employees or subcontractors, or in any way related to the work performed or to be performed or the Equipment supplied under this Agreement, except to the extent that such claims are due solely and directly to the negligence of Transgenomic.
(b) HII agrees that the indemnities stated in subsection 11(a)
should be construed and applied in favor of indemnification.
To the extent permitted by law, the stated indemnities apply
(i) regardless of any strict liability or negligence
attributable to Transgenomic (excluding sole negligence) and
(ii) regardless of the extent to which the underlying harm is
attributable to the negligent or otherwise wrongful act or
omission (including breach of contract) of HII, its
subcontractors, agents or employees. HII also agrees that if
applicable law limits or precludes any aspect of the stated
indemnities, then the indemnities will be considered limited
only to the extent necessary to comply with that applicable
law. The stated indemnities continue until all applicable
statutes of limitations have run.
Section 12. TERM AND TERMINATION.
(a) TERM. The term of this Agreement begins on the date first above written and continues until terminated by either Party as provided herein.
(b) TERMINATION WITH CAUSE. Either Party may terminate this
Agreement during the term of this Agreement, upon written
notice, sent registered or certified mail, return receipt
requested, in the event the other Party fails to perform a
material obligation under this Agreement or otherwise is in
breach of any of its material obligations hereunder. Failure
to perform or breach of a material obligation includes,
without limitation, (i) failure to deliver Equipment as agreed
to by the Parties or (ii) failure of the Equipment delivered
to Transgenomic to conform to the specifications. The Party
receiving such notice shall have 30 days from the date of
receipt thereof to cure the failure or breach. If the Party
receiving such notice does not cure the failure or breach
within such cure period, the Party claiming breach may
terminate this Agreement by sending written notice of
termination, by certified mail, return receipt requested. The
issuance of a Blanket Purchase Order Release during the 30-day
cure period does not waive the notice of breach. If HII has
the right to terminate this Agreement pursuant to this Section
12(b), or has demanded cure of a Transgenomic default pursuant
hereto which has not yet been cured, HII may also suspend its
performance under this Agreement and any individual sales
contracts concluded pursuant hereto and, by written demand to
Transgenomic, cause all amounts owed to it by Transgenomic
which are not yet due to become immediately due and payable.
(c) TERMINATION WITHOUT CAUSE. Transgenomic or HII may terminate this Agreement at any time without having to state, demonstrate or possess cause by giving written notice of termination to the other party at least 180 days prior to the effective date of termination.
(d) ORDER AFTER TERMINATION. Any order placed by Transgenomic and
accepted by HII after the termination of this Agreement is
governed by the provisions of this Agreement. The placing or
acceptance of post-termination or shipment of post-termination
orders does not otherwise extend the term of this Agreement.
Notwithstanding the foregoing, if terminated by HII pursuant
to Section 12(c), Transgenomic shall have the option to
purchase during the six month period after termination, the
quantity of Equipment equivalent to three times its previous
six-month's purchases and such purchases shall be governed by
this Agreement, and if terminated by Transgenomic pursuant to
Section 12(c), Transgenomic shall have the obligation to
purchase the quantity of Equipment equal to its current four
month Forecast or the prior four month period if no forecast
has been provided, and such purchases shall be governed by
this Agreement.
(e) EFFECT OF TERMINATION OR NONRENEWAL. The termination of this Agreement shall not release either Party from the obligation to pay any sum that may be owing (whether then or thereafter due) or operate to discharge any liability that had been incurred by either Party prior to any such termination. The provisions of Sections 3(b), 3(c), 6, 7, 10, 11, 12(d), 12(e), and 13 through 21, shall survive any termination of this Agreement.
Section 13. EXCUSED PERFORMANCE. No Party shall be liable for or be deemed to be in default on account of any failure to perform (except payment of HII's invoices) if due to any cause or condition beyond reasonable control of the nonperforming Party.
Section 14. RELATIONSHIP OF THE PARTIES. The relationship established between HII and Transgenomic by this Agreement is that of a vendor to its vendee. No Party is an agent of another Party and no Party has authority to bind another Party, transact any business in another Party's name or on its behalf in any manner or make any promises or representations on behalf of another Party.
Section 15. NOTICES. All notices and other communications shall be in writing and shall be deemed to have been given when received. Any notice to be given to Transgenomic shall be addressed to:
Transgenomic, Inc.
5600 South 42 Street
Omaha, NE 68107
USA
Attention: Collin J. D'Silva
Telephone: (402) 738-5480
Telecopier: (402) 733-1264
Any notice to HII shall be addressed to:
Hitachi Instruments, Inc.
3100 North First Street
San Jose, CA 95134
USA
Attention: Mark McDonald
Telephone: (408) 955-7001
Telecopier: (408) 432-8258
Any change in address shall be promptly communicated by either Party to the other Party.
Section 16. NO ASSIGNMENT. No Party shall assign its rights or delegate its duties under this Agreement without written consent of the other Party. Any assignment, delegation or transfer of this Agreement or any interest herein is void and cause for termination of this Agreement.
Section 17. WAIVER. Any failure or delay by any Party in exercising any right or remedy in one or many instances will not prohibit a Party from exercising it at a later time or from exercising any other right or remedy.
Section 18. MODIFICATION. No part of this Agreement may be waived, modified or supplemented in any manner whatsoever (including a course of dealing or of performance or usage of trade) except by a written document signed by authorized officers of the Parties.
Section 19. GOVERNING LAW. This Agreement and any questions, claims, disputes or litigation concerning or arising from this Agreement shall be governed by the laws of California, United States of America without giving effect to the conflicts of law doctrines of any state, provided that the Federal Arbitration Act shall apply in place of and instead of the California Arbitration Act and the California International Arbitration Act.
Section 20. ENTIRE AGREEMENT. This Agreement and the Exhibits referred to in this Agreement, which Exhibits are incorporated and made a part of this Agreement by this reference, supersede and terminate any and all prior agreements, if any, whether written or oral, between the Parties with respect to the subject matter contained herein. Each Party agrees that it has not relied on any representation, warranty or provision not explicitly stated in this Agreement and that no oral statement has been made to either Party that in any way tends to waive any of the terms or conditions of this Agreement. This Agreement constitutes the final written expression of all terms of the Agreement, and it is a complete and exclusive statement of those terms.
Section 21. DISPUTE RESOLUTION. The parties agree that all disputes arising in connection with this Agreement shall be finally settled by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association by one or more arbitrators appointed in accordance with said rules and taking place in San Jose, California USA. If a party commences any action or proceeding against the other party to enforce this Agreement or any rights related thereto, the prevailing party in such action or proceeding shall be entitled to recover from the other party the reasonable attorneys' fees and other costs and expenses incurred
by that prevailing party in connection with such action or proceeding and in connection with enforcing any judgment, award or order thereby obtained.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.
TRANSGENOMIC, INC.
By /s/ COLLIN J. D'SILVA -------------------------------------------- Collin J. D'Silva, Chief Executive Officer |
HITACHI INSTRUMENTS, INC.
By /s/ MARK MCDONALD -------------------------------------------- Mark McDonald, President |
EXHIBIT A
EQUIPMENT DESCRIPTION AND SPECIFICATIONS
The nucleic acid analysis unit shall contain at a minimum the following components:
ITEM P/N DESCRIPTION QPA
--------------------------------------------------
**
|
Changes in specifications may be initialized only by authorized individuals on behalf of HII and Transgenomic.
EXHIBIT B
EQUIPMENT PRICES AND TERMS
The instrument as specified in Exhibit A will be $** per system with no minimum purchase order requirement, or for individual components, prices will be as follows:
ITEM P/N DESCRIPTION QPA UNIT PRICE EXTENSION
--------------------------------------------------------------------------------
**
|
NOTE: COMMENCING MAY 15, 2000, ITEMS 19 AND 20 WILL REPLACE ITEMS 4 AND 5, RESPECTIVELY. AT SUCH TIME THE EFFECTIVE SYSTEM PRICE WILL BE $**.
TERMS AND CONDITIONS
TERMS
I. The following terms apply to all purchase orders. These terms supersede the terms that may be printed on the purchase order.
A. FOB Point is "San Jose, CA".
B. Shipments will not be insured unless they are in excess of
$400,000. If a shipment is in excess of $400,000, HII will
insure the shipment at Transgenomic's expense.
C. Shipment charges will be prepaid by HII and added to invoice.
D. For orders in excess of $75,000, payment will be due 45
days from date of shipment with payment secured by Bank
Draft for an additional charge of $120. For orders of
$75,000 or less, payment will be due 30 days from date of
shipment.
II. All Orders are subject to credit review. Current Bank Draft Credit Limit is $1,000,000 and the open line of credit is $120,000. Credit limits are subject to periodic review.
III. HII will not accept unsigned purchase orders or unsigned releases against a signed purchase order.
IV. For purchase orders where the shipping method is either unspecified or specified as "Best Way", shipment will be (3-5 day ground service) determined by HII.
CONDITIONS
I. The accompanying pricing schedule may be voided, at HII's discretion, if a system component supplied by HII is removed from the system configuration by Transgenomic. The only exception to this condition is AN0-0371, the modified L-7300 column oven.
II. Pricing is effective immediately upon execution of this document by both parties.
III. This agreement does not provide for modifications to any existing purchase order. Such modifications, cancellations, substitutions, or otherwise, to purchase orders that have already been received by HII, are expressly forbidden.
EXHIBIT C
INITIAL FORECAST
Pursuant to Section 4(a), Transgenomic forecasts the following items of Equipment for delivery in each of the initial four months of this Agreement:
MONTH EQUIPMENT ---------------------------------------------- April 2000 May 200 June 2000 July 2000 |
** Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text indicated by two double-stricken through asterisks "**". This Exhibit has been filed separately with the Secretary of the Commission without the ** pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act.
EXHIBIT 10.17
STANDARD INDUSTRIAL LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, November 2, 1998, is made by and between Westlake Development Company, Inc. (herein called "Lessor") and Transgenomic, Inc. (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Santa Clara, State of California commonly known as 2030 Concourse Drive, San Jose and described as Containing approximately 5,250 square feet of light industrial space being a part of a larger building.
Said real property including the land and all improvements therein, is herein called "the Premises."
3. TERM.
3.1 TERM. The term of this Lease shall be for forty three (43) months commencing on November 1, 1988 and ending on May 31, 2002 unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therfor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the parties shall be discharged from all obligations hereunder;
provided further, however, that if such written notice of Lessee is not received
by Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payments of $7,297.50, in advance, on the first day of each month of the term hereof. Lessee shall pay Lessor upon the execution hereof $7,297.50 as rent for November 1, 1998 through November 30, 1998
See Addendum #47 for rent schedule
Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $7,297.50 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a material breach of this Lease. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall thereupon deposit with Lessor additional security deposit so that the amount of security deposit held by Lessor shall at all times bear the same proportion to current rent as the original security deposit bears to the original monthly rent set forth in paragraph 4 hereof. Lessor shall not be required to keep said deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for manufacturing and sales of chromatograph products and related legal uses, or any other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and, in such event, Lessee shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof, regulating the use by Lessee of the Premises. Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant in the building containing the Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris on Lease commencement date (unless Lessee is already in possession) and Lessor further warrants to Lessee that the plumbing, lighting, air conditioning, heating, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive _____________ that Lessor has _____________ with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) ________________________ was the owner of occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record and accepts this lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of the Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 6, 7.2, and 9 and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's agents, employees, or invitees in which event Lessee shall repair the damage, Lessor, at Lessor's expense shall keep in good order, condition and repair the foundations, exterior walls and the exterior roof of the Premises. Lessor shall not, however, be obligated to paint such exterior, nor shall Lessor be required to maintain the interior surface of exterior walls, windows, doors or plate glass. Lessor shall have no obligation to make repairs under this Paragraph 7.1 until a reasonable time after receipt of written notice of the need for such repairs. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air conditioning system maintenance contract) ventilating, electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surface of exterior walls, ceilings, windows, doors, plate glass, and skylights located within the Premises, and all landscaping, driveways, parking lots, fences and signs located in the Premises and all sidewalks and parkways adjacent to the Premises.
(b) If Lessee fails to perform Lessee's obligations under this Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of its trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the premises in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility installations in, on or about the Premises, except for nonstructural alterations not exceeding $5,000 in cumulative costs during the term of this Lease. In any event, whether or not in excess of $5,000 in cumulative costs, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the building(s) on the Premises without Lessor's prior written consent. As used in this Paragraph 7.3 the term "Utility installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility installations at the expiration of the term, and restore the Premises to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations in, or about the Premises that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Lessor
may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph 7.3(a), all alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall become the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c).
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and all other areas appurtenant thereto. Such insurance shall be in an amount not less than $500,000 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this Paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto in an amount not less than $500,000 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ("all risk", as such term is used in the insurance industry) but not plate glass insurance. In addition, the Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) Lessee shall pay to Lessor, during the term hereof, in addition to the rent, the amount of any increase in premiums for the insurance required under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base period, as hereinafter defined, whether such premium increased shall be the result of the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, or general rate increases. In the event that the Premises have been occupied previously, the words "Base Period" shall mean the last twelve months of the prior occupancy. In the event that the Premises have never been previously occupied, the premiums during the "Base period" shall be deemed to be the lowest premiums reasonably obtainable for said insurance assuming the most nominal use of the Premises. Provided, however, in lieu of the Base Period, the parties may insert a dollar amount at the end of this sentence which figure shall be considered as the insurance premium for the Base Period: $__________________. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance in excess of $1,000,000 procured under paragraph 8.2.
(b) Lessee shall pay any such premium increases to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or other satisfactory evidence of the amount due. If the insurance policies maintained hereunder cover other improvements in addition the Premises, Lessor shall also deliver to Lessee a statement of the amount of such increase attributable to the Premises and showing in reasonable detail, the manner in which such amount was computed. If the term of this Lease shall not expire concurrently with the expiration of the period covered by such insurance, Lessee's liability for premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall not be responsible for paying any increase in the property insurance premium caused by the acts or omissions of any other tenant of the building of which the Premises are a part.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide" Lessee shall deliver to Lessor copies of policies of liability insurance required under Paragraph 8.1 or certificates evidencing the existence and amounts of such insurance. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days' prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or days' prior written notice to Lessor. Lessees shall, at thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Paragraph 8.3.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against _______ paragraph 8.3, which perils occur in, on or about the Premises, whether due to the negligence of_______________ and/or_________________ Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach of default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon, and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor, excluding damages caused by negligence of Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee. Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liability for injury to the person of Lessee. Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the building in which the Premises are located.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50% of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Partial Damage" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is less than 50% of the fair market value of such building as a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the total cost of repair is 50% or more of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Total Destruction" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is 50% or more of the fair market value of such building as a whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8.
9.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. Subject to the provisions of paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease, as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessee's intention to cancel and terminate this Lease. Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be cancelled and terminated as of the date of the occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease there is damage, whether or not an Insured Loss, (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, this Lease shall automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage in excess of $20,000.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said 20 day period, Lessor shall, at Lessor's expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said 20 day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20 day period by giving written notice to Lessee of Lessor's election to do so within 10 days after the expiration of said 20 day period, notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the provisions of this Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration, except damage caused by Lessor.
(b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence such repair or restoration within 90 days after such obligations shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice.
9.7 TERMINATION -- ADVANCE PAYMENTs. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Premises; provided, however, that Lessee shall pay, in addition to rent, the amount, if any, by which real property taxes applicable to the Premises increase over the fiscal real estate tax year 1998, 1999. Such payment shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount of such increase and the computation thereof. if the term of this Lease shall not expire concurrently with the expiration of the tax fiscal year, Lessee's liability for increased taxes for the last partial lease year shall be prorated on an annual basis.
10.2 ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1 hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, provided that said assignee assumes, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting or assignment shall release Lessee of Lessee's obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due where such failure shall continue for a period of three days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of 30 days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee default is such that more than 30 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment for the benefit or creditors; (ii) Lessee becomes a debtor as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days), (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days. Provided, however, in the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach.
(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss from the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be recovered by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the building on the Premises, or more than 25% of the land area of the Premises which is not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under the threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to Cornish & Carey Commercial per Cornish and Carey's gross lease schedule as historically used with Westlake Development Company.
(b) Lessor further agrees that if Lessee exercises any Option as defined in paragraph 39 of this Lease which is granted to Lessee under this Lease, or any subsequently granted option which is substantially similar to the Option granted to Lessee with this Lease, or if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to ____________________ an Option herein granted to Lessee been exercised, or if Lessee remains in possession of the Premises after the expiration of the term of this Lease after having failed to exercise an Option, or if said broker(s) are the procuring cause of any other lease or sale entered into between the parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, then as to any of said transactions, Lessor shall pay said broker(s) a fee in accordance with the schedule of said broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on behalf of any person, corporation, association, or other entity having an ownership interest in said real property or any part thereof, when such fee is due hereunder. Any transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Said broker shall be a third party beneficiary of the provisions of this Paragraph 15.
16. ESTOPPEL CERTIFICATE
(a) Lessee shall at any time upon not less than ten (10) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement within such time shall be a material breach of this Lease or shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance and (iii) that not more than one month's rent has been paid in advance or such failure may be considered by Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser. Such statements ____________ include the past three years financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee, title or a Lessee's interest in a ground lease of the Premises, and except as expressly provided in Paragraph 15, in the event of any transfer of such title or interest. Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease, provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employees or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupations Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of any act, shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all options and rights of first refusal, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the real property of which the Premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within 10 days after written demand shall constitute a material default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's prior written consent except that Lessee shall have the right, without the prior permission of Lessor to place ordinary and usual for rent or sublet signs thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party, such consent shall not be unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder., Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right to first offer to lease other property of Lessor; (3) the right or option to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are personal to Lessee and may not be exercised or be assigned voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, the Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have not right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each of such defaults, or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period prior to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of 30 days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee) or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within 30 days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each such default, or paragraph 13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a larger building or group of buildings then Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the building. The violations of any such rules and regulations shall be deemed a material breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of Lessee, its agents and invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.
46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 47 through 48 which constitutes a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
Executed at WESTLAKE DEVELOPMENT COMPANY, INC.
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on By /s/ Walter H.Y. Chang
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Address 520 El Camino Real, 9th Floor By
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San Mateo, CA 94402 "LESSEE" (Corporate seal)
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Executed at TRANSGENOMIC, INC.
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on 2036 Concourse Drive By /s/ Collin D'Silva
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Address San Jose, CA 95131 By
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"LESSEE" (Corporate seal)
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|
EXHIBIT 10.17
C O R N I S H & C A R E Y C O M M E R C I A L
O N C O R I N T E R N A T I O N A L
ADDENDUM TO THE LEASE DATED NOVEMBER 1, 1998, BY AND BETWEEN WESTLAKE DEVELOPMENT COMPANY, INC., LANDLORD, AND TRANSGENOMIC, INC., TENANT, FOR THOSE PREMISES LOCATED AT 2030 CONCOURSE DRIVE, SAN JOSE, CALIFORNIA.
47. Base Rent Schedule:
Dates Rent per Month 11/1/1998 through 10/31/1999 $7,297.50 per month 11/1/1999 through 10/31/2000 $7,560.00 per month 11/1/2000 through 10/31/2001 $7,822.50 per month 11/1/2001 through 05/31/2002 $8,085.00 per month |
48. A. Lessee, at Lessee's sole cost and expense, shall have Lessor's permission to install one (1) man door and a double door and remove a wall as shown on Exhibit A attached.
B. Lessor, at Lessor's sole cost and expense, shall install the following items after Lessee completes the work in Item A above:
1. Paint the entire inside walls of the premises.
2. Install new industrial grade carpet in the rooms that are currently carpeted. Color of carpet to be mutually acceptable to Lessee and Lessor.
LANDLORD: WESTLAKE DEVELOPMENT COMPANY, INC.
TENANT: TRANSGENOMIC, INC.
EXHIBIT 10.17
EXHIBIT A
[Property Diagram]
EXHIBIT 10.18
STANDARD INDUSTRIAL LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease dated, for reference purposes only, May 15, 1996, is made by and between Westlake Development Co., Inc., 520 South El Camino Real, Suite 900, San Mateo, California 94402 (herein called "Lessor") and Interaction Chromatography Inc., wholly owned subsidiary of Sarasep Inc., 2036 Concourse Drive, San Jose, California 95131 (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Santa Clara, State of California commonly known as 2032 Concourse Drive, San Jose and described as containing approximately 9,110 square feet of light industrial space being a part of a larger building. Said real property including the land and all improvements therein, is herein called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for five (5) years commencing on June 1, 1997 and ending on May 31, 2002, unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the parties shall be discharged from all obligations hereunder;
provided further, however, that if such written notice of Lessee is not received
by Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below.
*4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payments of $10,476.50, in advance, on the first day of each month in year 1, CPI annual increase in year 2 to 5, as rent for N/A. *See Rent Schedule in Addendum. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing.
**5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $12,750.00 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a material breach of this Lease. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall thereupon deposit with Lessor additional security deposit so that the amount of security deposit held by Lessor shall at all times bear the same proportion to current rent as the original security deposit bears to the original monthly rent set forth in paragraph 4 hereof. Lessor shall not be required to keep said deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's
option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for manufacturing and sales of chromatograph products and related legal use or any other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and, in such event, Lessee shall correct any such violation at Lessee's sole costs.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof, regulating the use by Lessee of the Premises. Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant in the building containing the Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris on Lease commencement date (unless Lessee is already in possession) and Lessor further warrants to Lessee that the plumbing, lighting, air conditioning, heating, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record and accepts this Lease subject thereto and to all matters disclosed thereby and by an exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 6, 7.2, and 9 and except for the damage caused by any negligent or intentional act or omission of Lessee, Lessee's agents, employees, or invitees in which event Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good order, condition and repair the foundations, exterior walls and the exterior roof of the Premises. Lessor shall not, however, be obligated to paint such exterior, nor shall Lessor be required to maintain the interior surface of exterior walls, windows, doors or plate glass. Lessor shall have no obligation to make repairs under this Paragraph 7.1 until a reasonable time after receipt of written notice of the need for such repairs. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraph 6, 7.1 and 9, Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air conditioning system maintenance contract) ventilating, electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surface of exterior walls, ceilings, windows, doors, plate glass, and skylights, located within the Premises, and all landscaping, driveways, parking lots, fences and signs located in the Premises and all sidewalks and parkways adjacent to the Premises. Any cost of repairs to outside common area will be calculated on a pro rata basis due on square footage occupied.
(b) If Lessee fails to perform Lessee's obligations under this Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of its trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the premises in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent, make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, except for nonstructural alterations not exceeding $5,000 in cumulative costs during the term of this Lease. In any event, whether or not in excess of $5,000 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the building(s) on the Premises without Lessor's prior written consent. As used in this Paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility Installations at the expiration of the term, and restore the Premises to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations in, or about the Premises that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Lessor
may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph 7.3(a), all alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall become the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c).
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and all other areas appurtenant thereto. Such insurance shall be in an amount not less than $500,000 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this Paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto in an amount not less than $500,000 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises), special extended perils ("all risk", as such term is used in the insurance industry) but not plate glass insurance. In addition, the Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) Lessee shall pay to Lessor, during the term hereof, in addition to the rent, the amount of any increase in premiums for the insurance required under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base Period, as hereinafter defined, whether such premium increase shall be the result of the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, or general rate increases. In the event that the Premises have been occupied previously, the words "Base Period" shall mean the last twelve months of the prior occupancy. In the event that the Premises have never been previously occupied, the premiums during the "Base Period" shall be deemed to be the lowest premiums reasonably obtainable for said insurance assuming the most nominal use of the Premises. Provided, however, in lieu of the Base Period, the parties may insert a dollar amount at the end of this sentence which figure shall be considered as the insurance premium for the Base Period: $ . In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $1,000,000 procured under paragraph 8.2.
(b) Lessee shall pay any such premium increases to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or other satisfactory evidence of the amount due. If the insurance policies maintained hereunder cover other improvements in addition to the Premises, Lessor shall also deliver to Lessee a statement of the amount of such increase attributable to the Premises and showing in reasonable detail, the manner in which such amount was computed. If the term of this Lease shall not expire concurrently with the expiration of the period covered by such insurance, Lessee's liability for premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall not be responsible for paying any increase in the property insurance premium caused by the acts or omissions of any other tenant of the building of which the Premises are a part.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall deliver to Lessor copies of policies of liability insurance required under Paragraph 8.1 or certificates evidencing the existence and amounts of such insurance. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days' prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Paragraph 8.3.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against under paragraph 8.3, which perils occur in, on or about the Premises whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor, excluding damages caused by negligence by Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the building in which the Premises are located.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50% of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Partial Damage" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair, is less than 50% of the fair market value of such building as a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is 50% or more of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Total Destruction" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is 50% or more of the fair market value of such building as a whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8.
9.2 PARTIAL DAMAGE - INSURED LOSS. Subject to the provisions of paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease, as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be cancelled and terminated as of the date of the occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease there is damage, whether or not an Insured Loss, (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, this Lease shall automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage in excess of $20,000.00.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said 20 day period, Lessor shall, at Lessor's expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said 20 day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20 day period by giving written notice to Lessee of Lessor's election to do so within 10 days after the expiration of said 20 day period, notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the provisions of this Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration except by damage caused by Lessor.
(b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence such repair or restoration within 90 days after such obligations shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Premises, provided, however, that Lessee shall pay, in addition to rent, the amount, if any, by which real property taxes applicable to the Premises increase over the fiscal real estate tax year 1992-1993. Such payment shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount of such increase and the computation thereof. If the term of this Lease shall not expire concurrently with the expiration of the tax fiscal year, Lessee's liability for increased taxes for the last partial lease year shall be prorated on an annual basis.
10.2 ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1 hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, provided that said assignee assumes, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting or assignment shall release Lessee of Lessee's obligations or after the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEE. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other payment required to be made by lessee hereunder, as and when due, where such failure shall continue for a period of three days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of 30 days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than 30 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion.
(d)(i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days. Provided, however, in the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the building on the Premises, or more than 25% of the land area of the Premise which is not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair.
15. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statements may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement within such time shall be a material breach of this Lease or shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance or such failure may be considered by Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past three years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
16. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title or a lessee's interest in a ground lease of the Premises, and except as expressly provided in Paragraph 15, in the event of any transfer of such title or interest. Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership.
17. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
18. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease, provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee.
19. TIME OF ESSENCE. Time is of the essence.
20. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent.
21. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employees or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease.
22. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee.
23. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of any act, shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent.
24. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes.
25. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all options and rights of first refusal, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy.
26. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
27. COVENANTS AND CONDITION. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition.
28. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State wherein the Premises are located.
29. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the real property of which the Premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, Lessee's failure to execute such documents within 10 days after written demand shall constitute a material default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 29(b).
30. ATTORNEY'S FEES. If either party or the broker named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder.
31. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee.
32. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent.
33. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's prior written consent except that Lessee shall have the right without the prior permission of Lessor to place ordinary and usual for rent or sublet signs thereon.
34. MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies.
35. CONSENTS. Except for paragraph 32 hereof, wherever in this Lease the consent of one party is required to an act of the other party, such consent shall not be unreasonably withheld.
36. GUARANTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease.
37. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Premises.
38. OPTIONS.
38.1 DEFINITION. As used in this paragraph the word "Options" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (3) the right or option to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor.
38.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are personal to Lessee and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, the Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee are not assignable separate and apart from this Lease.
38.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised.
38.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each of such defaults, or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period prior to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 38.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of 30 days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee) or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within 30 days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each such default, or paragraph 13.1(c), whether or not the defaults are cured.
39. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a larger building or group of buildings then Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the building. The violations of any such rules and regulations shall be deemed a material breach of this Lease by Lessee.
40. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of Lessee, its agents and invitees from acts of third parties.
41. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material breach of this Lease.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.
45. ADDENDUM. Attached hereto is an addendum and Exhibit A which constitutes a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATE SPECIFIED IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
Executed at
--------------------- -------------------------------------------
on By /s/ Walter H. Y. Chang
------------------------------ ----------------------------------------
Walter H. Y. Chang, General Manager.
Westlake Development Co., Inc.
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Address By
------------------------- ----------------------------------------
"LESSOR" (Corporate Seal)
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Executed at
--------------------- -------------------------------------------
on By /s/ Douglas Gjerde
------------------------------ ----------------------------------------
Douglas Gjerde, Ph.D., President.
Interaction Chromatography, Inc.
Address By Wholly Owned Subsidiary of Sarasep, Inc.
------------------------- ----------------------------------------
"LESSEE" (Corporate Seal)
---------------------------------
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ADDENDUM TO THAT CERTAIN LEASE DATED MAY 15, 1996 BY AND BETWEEN WESTLAKE DEVELOPMENT CO., INC. (LESSOR) AND INTERACTION CHROMATOGRAPHY, INC. WHOLLY OWNED SUBSIDIARY OF SARASEP INC. (LESSEE) FOR 9,110 SQUARE FEET OF SPACE LOCATED AT 2032 CONCOURSE DRIVE, SAN JOSE, CALIFORNIA (PREMISES).
46. RENT SCHEDULE.
Rent for year 1 shall commence on June 1, 1997 at $13.80 per annum amounting to $125,718.00, to be paid in 12 installments of $10,476.50 per month. For years 2 to 5, there shall be an annual rent adjustment as specified in Paragraph Four (4). Base rent shall be adjusted on each Adjustment Date to reflect any increase in the cost of living. The adjustment will be calculated upon the basis of the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index ("CPI") for all Urban Consumers (CPI-U), subgroup "All Items" for the San Francisco - Oakland - San Jose, California Metropolitan Area (1967=100) (the "INDEX"). The Index published nearest preceding the Commencement Date is the "Base Index". The Index published nearest preceding each Adjustment Date is the "Adjustment Index". On each Adjustment Date, Base Rent shall be adjusted by multiplying the largest amount of rent payable under Section 4 by a fraction, the numerator of which is the Adjustment Index and the denominator of which is the Base Index. Notwithstanding the foregoing, (a) in no event shall the monthly Base Rent be less than the largest amount of monthly Base Rent set forth in Section 4, and (b) in no event shall each net annual percentage increase in Base Rent be less than four percent (4%) per annum, nor more than seven percent (7%) per annum.
47. TENANT IMPROVEMENTS.
Lessor agrees to provide an amount up to Forty-seven Thousand Five Hundred Eighty-six Dollars ($47,586.00) to Lessee to be applied to the total estimated cost of improvements as per attached proposal submitted by San Jose Construction Co., Inc. Lessor will reimburse Lessee after completion of said improvements. Any and all other improvements shall be paid by Lessee.
48. TERMINATION OF THE LEASE.
So long as Lessee is not in default of the terms of the lease, Lessee
shall have the right to terminate this Lease at the end of the 36th month or at
the end of the 48th month of the lease term by giving Lessor a notice at least
60 days prior thereto. Lessee shall pay to Lessor a fee of Nineteen Thousand
Thirty-four Dollars and Forty Cents (40% x $47,586.00 = $19,034.40) plus Two (2)
months' rent if Lessee elects to terminate the lease at the end of the 36th
month, or pay Nine Thousand Five Hundred Seventeen Dollars and Twenty Cents (20%
x $47,586.00 = $9,517.20) plus One (1) month's rent to terminate the lease at
the end of the 48th month.
49. STATEMENT OF SQUARE FOOTAGE.
Any statements of square footage set forth in this Lease that have been used in calculating rent or other Lessee's monetary obligations is an approximation. Both Lessor and Lessee agree that the approximation is fair and reasonable and the rent based thereon is not subject to revision whether or not the actual square footage is more or less.
FOR THE LESSOR: FOR THE LESSEE
WESTLAKE DEVELOPMENT CO., INC. INTERACTION CHROMATOGRAPHY
WHOLLY OWNED SUBSIDIARY OF
SARASEP, INC.
By: /s/ Walter H.Y. Chang By: /s/ Douglas Gjerde
----------------------------- ----------------------------
Walter H. Y. Chang, Douglas Gjerde, Ph. D.
General Manager. President.
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[San Jose Construction Co., Inc. Letterhead]
April 2, 1996
INTER ACTION CHROMATOGRAPHY, INC.
2032 Concourse Drive
San Jose, CA 95131
Attn: Mr. David Hometchko Re: INTER ACTION CHROMATOGRAPHY Subject: Plan Changes due to Plan Check Comments |
Dear Mr. Hometchko,
Enclosed is the detailed cost breakdown for changes associated with plan check comments and the construction of the 1-hour rated corridor. I would be happy to sit down with you to go over the cost impacts in detail in relation to the plan.
The basic impacts are as follows:
- All existing sidelites must be replaced with 45 minute rated frames and wire glazing. New sidelite at Office 127 must be 45 minute rated assembly also.
- Three new rated doors, frames & hardware have been added as well as wall framing associated with these doors.
- Ceilings of corridor are now framed and sheetrocked which includes paint, relocated sprinkler drops, relocated light fixtures and relocated ductwork. Acoustical ceiling tile must be removed now to allow for tunnel construction.
- Overall schedule will increase by 1 week requiring additional supervision.
- Parking lot striping and signage are included per plan.
- Additional area at rear corridor requires electrical & sprinkler modifications not included in the first pricing.
- Permit fees have increased slightly due to revised valuation.
We are requesting a change order in the amount of: $28,162.
Please do not hesitate to contact me if you have any questions or comments.
Sincerely,
SAN JOSE CONSTRUCTION CO., INC.
Tina Moore
Project Manager
[San Jose Construction Co., Inc. Letterhead]
Dated: 04/02/96
SAN JOSE CONSTRUCTION
INTER ACTION CHROMATOGRAPHY, INC. 2,262 SF
2032 CONCOURSE DRIVE
SAN JOSE, CA
COST ORIGINAL PLAN REVISED
CODE DESCRIPTION CONTRACT CHECK TOTAL
REVISIONS
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
11200 Project Supervision $4,381 $1,219 $5,600
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
13100 Temporaries/visqueen barrier 230 200 430
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
17150 Clean Up 280 122 402
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
28400 Parking Lot Striping & Signage 0 460 460
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
62200 Millwork 965 0 965
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
81000 Doors/Frames/Hardware 3,400 7,850 11,250
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
88000 Glass & Glazing 0 1,652 1,852
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
92500 Metal Stud Framing/Sheetrock 5,650 6,903 12,553
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
95000 Acoustical Ceilings 600 720 1,320
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
96800 Rubber Topset Base @ new walls 580 0 580
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
99000 Painting 2,525 830 3,355
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
153000 Fire Sprinklers 980 2,870 3,850
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
154000 Plumbing 4,451 0 4,461
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
155000 HVAC 5,410 560 5,970
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
160000 Electrical 12,800 2,800 15,600
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
Subtotal 42,252 26,186 68,438
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
Building Permit 2,522 233 2,755
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
General Contractors OH &P 2,812 1,743 4,555
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
Total $47,586 $28,162 $75,748
---------------- ------------------------------------------------ ----------------- ---------------- ---------------
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EXHIBIT A
COMPLIANCE WITH LAW AND REGULATION
TENANT'S OBLIGATIONS.
Tenant shall, at its sole cost and expense, comply with all of the requirements of all municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to the leased premises, and shall faithfully observe in the use of the leased premises all municipal ordinances and state and federal statutes now in force or which may hereafter be in force. The judgement of any court of competent jurisdiction, or the admission of Tenant in any action or proceeding against Tenant, whether Landlord be a party thereto or not, that any such ordinance or statute pertaining to the leased premises has been violated, shall be conclusive of that fact as between Landlord and Tenant. As part of its obligation hereunder, Tenant covenants that it will comply with all applicable laws, rules, regulations, orders, permits, licenses and operating plans of any governmental authority, including those relating to the receipt, use, handling, generation, transportation, storage, treatment and/or disposal of Hazardous Materials (as defined below).
CONDITION OF LEASED PREMISES.
Subject to Landlord's work, if any, Tenant hereby accepts the leased premises in the condition existing as of the date of occupancy, subject to all applicable zoning, municipal, county and state laws, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the term or any part of the term hereof regulating the leased premises.
HAZARDOUS MATERIALS.
A) Hazardous Materials Defined: As used herein, the term "Hazardous Materials"
shall mean (i) any hazardous or toxic wastes, materials or substances, and any
other pollutants or contaminants, which are or may become regulated by any
applicable local, state or federal laws, including but not limited to 33 U.S.C.
Section 1251 ET SEQ., 42 U.S.C. Section 6901 ET SEQ., 42 U.S.C. Section 7401 ET
SEQ., 42 U.S.C. Section 9601 ET SEQ., and California Health and Safety Code
Section 25100 ET SEQ., Section 25300 ET SEQ., and Section 25500 ET SEQ.,
California Water Code, Section 13020 ET SEQ., or any successor(s) thereto
(collectively "environmental Law"); (ii) petroleum; (iii) asbestos; (iv)
polychlorinated biphenyls; and (v) radioactive materials.
B) Use, etc., of Hazardous Materials: Tenant agrees that during the term of this lease, there shall be no use, presence, disposal, storage, generation (collectively "Hazardous Use"), or intentional Release, as defined in 42 U.S.C. 9601 (22), or any successor(s) thereto, or threatened Release of Hazardous Materials on, from or under the leased premises except to the extent that, and in accordance with such conditions as, Landlord may have previously approved in writing.
It is further agreed that, notwithstanding the previous sentence, Tenant shall be entitled to use and store only those Hazardous Materials which are necessary for Tenant's business, provided that such usage and storage is in full compliance with Environmental Laws, and all judicial and administrative decisions pertaining thereto. The signing of this lease constitutes Landlord
approval for Tenant to use perchloroethylene on the premises as part of the drycleaning process. Tenant shall not be entitled to install any tanks under, on or about the leased premises for the storage of Hazardous Materials without the express written consent of Landlord, which may be given or withheld in Landlord's sole arbitrary judgment. For the purposes of this paragraph, the terms Hazardous Use and Release shall include Hazardous Use(s) and/or Release(s) of Hazardous Materials on, from or under the leased premises by any and all tenants, occupants, and/or users of the leased premises (except Landlord).
C) Hazardous Materials Report, When Required: Tenant shall submit to Landlord a written report with respect to Hazardous Materials ("Report") in the form prescribed in subparagraph (D) below on the following dates:
(i) Within ten (10) days after commencement date.
(ii) Within ten (10) days after each anniversary of the commencement date during
the term.
(iii) At any time within ten (10) days after written request by , and
(iv) At any time when there has been or is planned any condition
which constitutes or would constitute a change in the information submitted in
the most recent Report, including any notice of violation as referred to in
subparagraph (D) (vii) below.
D) Hazardous Materials Report; Contents: The report shall contain, without limitation, the following information:
(i) Whether on the date of the Report and (if applicable) during the period
since the last Report there has been any Hazardous Use on, from or under the
leased premises.
(ii) If there was such Hazardous Use, the exact identity of the Materials, the
dates upon which such materials were brought upon the leased premises, the dates
upon which the Hazardous Materials were removed therefrom, and the quantity,
location, use and the purpose thereof.
(iii) If there was such Hazardous Use, any governmental permits maintained by
Tenant with respect to such Hazardous Materials, the issuing agency, original
date of issue, renewal dates (if any) and expiration date. Copies of any such
permits and applications therefor shall be attached.
(iv) If there was such Hazardous Use, any governmental reporting or inspection
requirements with respect to such Hazardous Materials, the governmental agency
to which reports are made and/or which conducts inspections, and the dates of
any such reports and/or inspections (if applicable) since the last Report.
Copies of any such Reports shall be attached.
(v) If there was such Hazardous Use, identification of any operation or business
plan prepared for any governmental agency with respect to Hazardous Use.
(vi) Any liability insurance carried by Tenant with respect to Hazardous
Materials, the insurer, policy number, date of issue, coverage amounts, and date
of expiration. Copies of any such policies or certificates of coverage shall be
attached.
(vii) Any notices of violation of Environmental Laws, written or oral, received
by Tenant from any governmental agency since last Report, the date, name of
agency, and description of violation. Copies of any such written notices shall
be attached.
(viii) Such other pertinent information or documents as are requested by
Landlord in writing.
(ix) With respect to any Hazardous Materials received, used, handled, generated,
transported, stored, treated or disposed, Tenant shall attach to the Report (or,
if the volume of the documents make it impracticable, shall make available to
Landlord) copies of all material safety data sheets
required to be completed with respect to the operations of Tenant at the leased premises in accordance with Title 26, California Code of Regulations section 8-5194 or 42 U.S.C. Section 11021, or any amendments thereto.
E) Release of Hazardous Materials: Notification and Cleanup. If any time during the term Tenant knows or believes that any Release of any Hazardous Materials has come or will come to be located upon, about or beneath the leased premises, then Tenant shall, as soon as reasonably possible, either prior to the Release or following the discovery thereof by Tenant, give verbal and follow-up written notice of that condition to Landlord. Tenant covenants to investigate, clean up and otherwise remediate any Release of Hazardous Materials at Tenant's cost and expense; such investigation, clean up and remediation shall be performed only after Tenant has obtained Landlord's written consent, which shall not be unreasonably withheld; provided, however, that Tenant shall be entitled to respond immediately to an emergency without first obtaining Landlord's written consent. All clean up and remediation shall be done to the reasonable satisfaction of Landlord. It is the express intention of the parties hereto that Tenant shall be liable under this Section HAZARDOUS MATERIALS only or any and all conditions covered hereby which were caused or created by Tenant or Tenant's business operation.
F) Inspection and Testing by Landlord. Landlord shall have the right at all
times during the term of this lease to (i) inspect the leased premises, and to
(ii) conduct tests and investigation to determine whether Tenant is in
compliance with the provisions of this Section, without being deemed guilty of,
or liable in any respect for any disturbance (actual or alleged) of Tenant's
use, enjoyment or occupation of the leased premises. Except in cases of
emergency, Landlord shall give reasonable notice to Tenant before conducting any
inspections, tests or investigations.
The cost of all such inspections, tests and investigations shall be borne by Tenant, but only if Landlord reasonably believes them to be necessary and the results of such Inspection, test or investigation finds the release of hazardous materials by Tenant.
G) Indemnity. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, judgements, damages, penalties, fines, liabilities, losses, suits, administrative proceedings and costs (including, but not limited to, attorneys' and consultants' fees) arising from or related to Hazardous Use or Release of Hazardous Materials on or about the leased premises caused by the acts or omissions of Tenant during the term of this lease. Tenant warrants that it is leasing the premises "as-is, where-is," and that it has thoroughly inspected the leased premises prior to execution of the lease.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Name Jurisdiction of Organization
---- -----------------------------
1. Transgenomic, Ltd. (f/k/a CETAC Technologies, Ltd.) United Kingdom
2. Transgenomic St. Thomas, Inc. St. Thomas, U.S. Virgin Islands
(f/k/a CETAC St. Thomas, Inc.)
|
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Transgenomic, Inc. and subsidiaries on Form S-1 of our report dated March 7, 2000 appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP Omaha, Nebraska March 9, 2000 |
POWER OF ATTORNEY
KNOW ALL MEN BY THERE PRESENTS that the undersigned, a director, officer or both, of Transgenomic, Inc., a Delaware corporation (the "Company"), acting pursuant to the authorization of the Board of Directors of the Company, hereby appoints Collin J. D'Silva as my true and lawful attorney-in-fact to act for me and in my name and on my behalf, individually and as an officer or director or both of the Company, to sign a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, and any amendment (including any post-effective amendments) and supplements thereto with respect to the registration of shares held by the shareholders of the Company and generally to do and perform all things necessary to be done in connection with the foregoing as fully in all respects as I could do personally.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of March, 2000.
/s/Gregory J. Duman ---------------------- Gregory J. Duman |
POWER OF ATTORNEY
KNOW ALL MEN BY THERE PRESENTS that the undersigned, a director, officer or both, of Transgenomic, Inc., a Delaware corporation (the "Company"), acting pursuant to the authorization of the Board of Directors of the Company, hereby appoints Collin J. D'Silva as my true and lawful attorney-in-fact to act for me and in my name and on my behalf, individually and as an officer or director or both of the Company, to sign a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, and any amendment (including any post-effective amendments) and supplements thereto with respect to the registration of shares held by the shareholders of the Company and generally to do and perform all things necessary to be done in connection with the foregoing as fully in all respects as I could do personally.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of March, 2000.
/s/Stephen F. Dwyer ---------------------- Stephen F. Dwyer |
POWER OF ATTORNEY
KNOW ALL MEN BY THERE PRESENTS that the undersigned, a director, officer or both, of Transgenomic, Inc., a Delaware corporation (the "Company"), acting pursuant to the authorization of the Board of Directors of the Company, hereby appoints Collin J. D'Silva as my true and lawful attorney-in-fact to act for me and in my name and on my behalf, individually and as an officer or director or both of the Company, to sign a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, and any amendment (including any post-effective amendments) and supplements thereto with respect to the registration of shares held by the shareholders of the Company and generally to do and perform all things necessary to be done in connection with the foregoing as fully in all respects as I could do personally.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of March, 2000.
/s/Douglas T. Gjerde ---------------------- Douglas T. Gjerde |
POWER OF ATTORNEY
KNOW ALL MEN BY THERE PRESENTS that the undersigned, a director, officer or both, of Transgenomic, Inc., a Delaware corporation (the "Company"), acting pursuant to the authorization of the Board of Directors of the Company, hereby appoints Collin J. D'Silva as my true and lawful attorney-in-fact to act for me and in my name and on my behalf, individually and as an officer or director or both of the Company, to sign a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, and any amendment (including any post-effective amendments) and supplements thereto with respect to the registration of shares held by the shareholders of the Company and generally to do and perform all things necessary to be done in connection with the foregoing as fully in all respects as I could do personally.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of March, 2000.
/s/Jeffrey Sklar ---------------------- Jeffrey Sklar |
POWER OF ATTORNEY
KNOW ALL MEN BY THERE PRESENTS that the undersigned, a director, officer or both, of Transgenomic, Inc., a Delaware corporation (the "Company"), acting pursuant to the authorization of the Board of Directors of the Company, hereby appoints Collin J. D'Silva as my true and lawful attorney-in-fact to act for me and in my name and on my behalf, individually and as an officer or director or both of the Company, to sign a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, and any amendment (including any post-effective amendments) and supplements thereto with respect to the registration of shares held by the shareholders of the Company and generally to do and perform all things necessary to be done in connection with the foregoing as fully in all respects as I could do personally.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of March, 2000.
/s/Roland J. Santoni ---------------------- Roland J. Santoni |
POWER OF ATTORNEY
KNOW ALL MEN BY THERE PRESENTS that the undersigned, a director, officer or both, of Transgenomic, Inc., a Delaware corporation (the "Company"), acting pursuant to the authorization of the Board of Directors of the Company, hereby appoints Collin J. D'Silva as my true and lawful attorney-in-fact to act for me and in my name and on my behalf, individually and as an officer or director or both of the Company, to sign a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, and any amendment (including any post-effective amendments) and supplements thereto with respect to the registration of shares held by the shareholders of the Company and generally to do and perform all things necessary to be done in connection with the foregoing as fully in all respects as I could do personally.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of March, 2000.
By /s/ Gregory J. Duman
----------------------
Name Gregory J. Duman
----------------------
|
| ARTICLE 5 |
| CIK: 0001043961 |
| NAME: TRANSGENOMIC, INC. |
| PERIOD TYPE | YEAR | YEAR | YEAR |
| FISCAL YEAR END | DEC 31 1999 | DEC 31 1998 | DEC 31 1997 |
| PERIOD START | JAN 01 1999 | JAN 01 1998 | JAN 01 1997 |
| PERIOD END | DEC 31 1999 | DEC 31 1998 | DEC 31 1997 |
| CASH | 153,336 | 187,455 | 0 |
| SECURITIES | 0 | 0 | 0 |
| RECEIVABLES | 6,359,652 | 4,987,064 | 0 |
| ALLOWANCES | 160,593 | 561,645 | 0 |
| INVENTORY | 6,043,025 | 4,183,509 | 0 |
| CURRENT ASSETS | 13,018,881 | 9,237,309 | 0 |
| PP&E | 6,263,155 | 4,342,701 | 0 |
| DEPRECIATION | 3,682,016 | 2,931,886 | 0 |
| TOTAL ASSETS | 19,963,510 | 14,736,064 | 0 |
| CURRENT LIABILITIES | 9,525,000 | 7,392,419 | 0 |
| BONDS | 12,537,968 | 694,536 | 0 |
| PREFERRED MANDATORY | 0 | 0 | 0 |
| PREFERRED | 0 | 0 | 0 |
| COMMON | 130,000 | 130,000 | 0 |
| OTHER SE | (2,229,458) | 6,519,109 | 0 |
| TOTAL LIABILITY AND EQUITY | 19,963,510 | 14,736,064 | 0 |
| SALES | 23,034,954 | 18,935,440 | 11,576,677 |
| TOTAL REVENUES | 23,034,954 | 18,935,440 | 11,576,677 |
| CGS | 12,090,036 | 9,590,663 | 6,335,986 |
| TOTAL COSTS | 12,090,036 | 9,590,663 | 6,335,986 |
| OTHER EXPENSES | 17,828,519 | 11,319,529 | 8,459,029 |
| LOSS PROVISION | 0 | 0 | 0 |
| INTEREST EXPENSE | 1,198,012 | 531,648 | 427,389 |
| INCOME PRETAX | (8,081,613) | (2,506,400) | (3,645,727) |
| INCOME TAX | 1,745,273 | (930,007) | (1,236,188) |
| INCOME CONTINUING | (9,826,886) | (1,576,393) | (2,409,539) |
| DISCONTINUED | 0 | 0 | 0 |
| EXTRAORDINARY | 0 | 0 | 0 |
| CHANGES | 0 | 0 | 0 |
| NET INCOME | (9,826,886) | (1,576,393) | (2,409,539) |
| EPS BASIC | (0.76) | (0.13) | (0.22) |
| EPS DILUTED | (0.76) | (0.13) | (0.22) |