10-Q

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15() OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15() OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                  to
Commission file number: 000-30975

TRANSGENOMIC, INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	911789357 (I.R.S. Employer Identification No.)
12325 Emmett Street, Omaha, Nebraska (Address of principal executive offices)	68164 (Zip Code)
(402) 452-5400 (Registrant's telephone number, including area code)

        Indicate whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        As of April 29, 2002, the number of shares of common stock outstanding was 23,695,321 consisting of 23,957,225 shares issued less 261,904 shares of Treasury Stock.

TRANSGENOMIC INC.

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001	1
	Consolidated Statements of Operations for the Three Months ended March 31, 2002 and 2001	2
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2002 and 2001	3
	Notes to Consolidated Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
PART II.	OTHER INFORMATION	17
Item 1.	Legal Proceedings	17
Item 2.	Changes in Securities and Use of Proceeds	17
Item 6.	Exhibits and Reports on Form 8-K	17
Signatures		18

PART I    FINANCIAL INFORMATION

Item 1.    Financial Statements

Transgenomic, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(In thousands except share and per share data)

				March 31, 2002			December 31, 2001
ASSETS
Current Assets
	Cash and cash equivalents			$	7,517		$	19,613
	Short term investments				27,301			23,913
	Accounts receivable—net				11,241			11,248
	Inventories				9,052			5,829
	Notes Receivable				1,513			—
	Prepaid expenses and other current assets				2,635			2,273
		Total current assets			59,259			62,876
Property & Equipment
	Equipment				11,596			10,459
	Furniture & fixtures				3,138			3,004
		Total property & equipment			14,734			13,463
	Less: accumulated depreciation				6,053			5,278
		Net property & equipment			8,681			8,185
Other assets					19,604			18,225
Total Assets				$	87,544		$	89,286
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
	Accounts payable			$	5,202		$	2,664
	Accrued expenses				1,576			3,306
	Accrued compensation				1,745			1,212
		Total current liabilities			8,523			7,182
Commitments and contingencies
Stockholders' Equity
	Preferred stock $.01 par value, 15,000,000 shares authorized, none outstanding				—			—
	Common stock $.01 par value, 60,000,000 shares authorized, 23,933,725 and 23,867,907 issued and outstanding in 2002 and 2001				239			239
	Additional paid-in capital				113,647			113,260
	Unearned compensation				(132	)		(158	)
	Accumulated other comprehensive income (loss)				(216	)		(81	)
	Accumulated deficit				(31,767	)		(28,406	)
					81,771			84,854
	Less: Treasury stock, at cost, 261,904 shares				(2,750	)		(2,750	)
		Total stockholders' equity			79,021			82,104
			Total liabilities and stockholders' equity	$	87,544		$	89,286

The accompanying notes are an integral part of these financial statements.

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Transgenomic, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(In thousands except share and per share data)

		Three Months Ended March 31,
		2002			2001
Net sales		$	9,831		$	7,930
Cost of goods sold			4,723			3,667
	Gross profit		5,108			4,263
Operating expenses:
	Selling, general and administrative		5,886			4,153
	Research and development		2,772			2,090
	Stock based compensation expense		25			33
			8,683			6,276
Loss from operations			(3,575	)		(2,013	)
Interest income			251			887
Other income (expense), net			(14	)		7
			237			894
Loss before income taxes			(3,338	)		(1,119	)
Income tax expense			21			9
	Net loss	$	(3,359	)	$	(1,128	)
Basic and diluted weighted average shares outstanding			23,653,544			21,227,564
Net loss per common share—basic and diluted		$	(0.14	)	$	(0.05	)

The accompanying notes are an integral part of these financial statements.

2

Transgenomic, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)

			Three Months Ended March 31,
			2002			2001
Cash Flows from Operating Activities
	Net loss		$	(3,359	)	$	(1,128	)
	Adjustments to reconcile net loss to net cash flows from operating activities:
		Depreciation and amortization		869			474
		Non-cash compensation expense		25			33
		Other		—			28
	Changes in operating assets and liabilities net of acquisitions:
		Accounts receivable		28			(1,531	)
		Inventories		(3,246	)		(214	)
		Prepaid expenses and other current assets		(383	)		(313	)
		Accounts payable		2,621			476
		Accrued expenses		(1,213	)		62
	Net cash flows from operating activities			(4,658	)		(2,113	)
Cash Flows from Investing Activities
	Purchase of property and equipment			(1,440	)		(1,439	)
	Proceeds from asset sales			—			15
	Proceeds from maturities and sales of available for sale securities			12,450			2,094
	Purchases of available for sale securities			(15,880	)		(23,325	)
	Increase in notes receivable			(1,513	)		—
	Increase in other assets			(1,398	)		(162	)
	Net cash flows from investing activities			(7,781	)		(22,817	)
Cash Flows from Financing Activities
	Issuance of common stock			388			123
	Net cash flows from financing activities			388			123
Effect of foreign currency exchange rates on cash				(45	)		18
Net change in cash and cash equivalents				(12,096	)		(24,789	)
Cash and cash equivalents at beginning of period				19,613			38,193
Cash and cash equivalents at end of period			$	7,517		$	13,404

The accompanying notes are an integral part of these financial statements.

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Transgenomic, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Unaudited)
(In thousands except share and per share data)

A. CONSOLIDATED FINANCIAL STATEMENTS

        The accompanying unaudited consolidated financial statements of Transgenomic, Inc. and Subsidiaries (the "Company") have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. In the opinion of management of the Company, all adjustments (consisting of only normal and recurring accruals) have been made to present fairly the financial positions, the results of operations and cash flows for the periods presented. Although the Company believes that the disclosures are adequate to make the information presented not misleading, these financial statements should be read in conjunction with the consolidated financial statements for the period ended December 31, 2001 that are included in the Company's Annual Report on Form 10-K.

        New Accounting Pronouncements    In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142 establishes new guidelines for accounting for goodwill and other intangible assets and provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be evaluated for impairment annually. The Company adopted SFAS No. 142 beginning January 1, 2002. The provisions of SFAS No. 142 also require the completion of a transitional impairment test within six months of adoption, with any impairments treated as a cumulative effect of a change in accounting principle. The Company will perform and report the results of the transitional impairment tests in the Company's June 30, 2002, financial statements. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization follows:

	Three Months Ended March 31,
	2002			2001
Reported Net Income	$	(3,359	)	$	(1,128	)
ADD: Goodwill Amortization		—			37
Adjusted Net Income	$	(3,359	)	$	(1,091	)
Earnings Per Share:
As Reported	$	(0.14	)	$	(0.05	)
Adjusted	$	(0.14	)	$	(0.05	)

        The Company is currently in the process of implementing this standard and, other than the impact of discontinuing to amortize goodwill, the Company believes the adoption of SFAS No. 142 will not have a significant impact on the financial statements of the Company.

        In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 develops one accounting model based upon the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. The accounting model applies to all long-lived assets, including discontinued operations, and it replaces the provisions of APB Opinion No. 30, Reporting Results of Operations—Reporting the Effects of Disposal of

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a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for a disposal of segments of a business. SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 also broadens the definition of discontinued operations. SFAS No. 144 was effective for the Company's fiscal year beginning January 1, 2002. The adoption of SFAS No. 144 did not have a significant impact on the financial statements of the Company.

B. SHORT TERM INVESTMENTS

        At March 31, 2002 and December 31, 2001, short-term investments consisted of the following:

March 31, 2002	Amortized		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Commercial paper	$	15,653	$	—	$	4	$	15,649
U.S. government agencies		4,372		—		1		4,371
Corporate debt		7,251		30		—		7,281
Total securities available-for-sale	$	27,276	$	30	$	5	$	27,301

December 31, 2001	Amortized		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Commercial paper	$	8,782	$	10	$	—	$	8,792
U.S. government agencies		5,774		—		—		5,774
Corporate debt		9,322		25		—		9,347
Total securities available-for-sale	$	23,878	$	35	$	—	$	23,913

        Maturities of short-term investments are due within one year.

C. INVENTORIES

        At March 31, 2002 and December 31, 2001, inventories consist of the following:

	2002			2001
Finished goods	$	3,255		$	2,335
Raw materials and work in progress		5,576			3,248
Demonstration inventory		471			496
		9,302			6,079
Less long-term demonstration inventory		(250	)		(250	)
	$	9,052		$	5,829

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D. NOTES RECEIVABLE

        In February 2002, pursuant to a Term Loan Agreement, the Company loaned $1.5 Million to Genodyssee, S.A., a French limited company located near Paris. The loan proceeds are to be used by Genodyssee for general corporate purposes. The loan carries an annual interest rate of 5% and all accrued interest and principal are due on the earlier of January 31, 2003, or the first closing date of a "qualified offering" defined as the issuance of new voting equity securities in Genodyssee pursuant to a private or public offering that raises gross proceeds of not less than $5 million. Genodyssee may prepay this debt in whole or in part at anytime. Genodyssee may make repayment of the principal and accrued interest in one of the following forms:

•

Shares of Genodyssee issued as the same type and class and under the same terms and conditions, including share price, as shares issued in a "qualified offering".



•

Shares of Genodyssee issued based on an independent third party appraisal in the event that a "qualified offering" is not consummated prior to January 31, 2003, or



•

Cash.

E. STOCKHOLDERS' EQUITY AND STOCK OPTIONS

        Other Comprehensive Income.    Results of operations for the Company's foreign subsidiary are translated using the average exchange rates during the period. Assets and liabilities are translated at the exchange rate in effect on the balance sheet dates. These translation adjustments, along with unrealized gains and losses on available-for-sale securities, are the Company's only components of other comprehensive income.

	Three Months Ended March 31,
	2002			2001
Net loss	$	(3,359	)	$	(1,128	)
Unrealized gain (loss) on available for sale securities		(43	)		38
Currency translation adjustments		(92	)		(147	)
Total comprehensive loss	$	(3,494	)	$	(1,237	)

        Stock Options.    During the first quarter of fiscal 2002, the Company granted 133,000 options with an exercise price of $9.63 per share. The following table summarizes activity under the 1997 Stock Option Plan during the three months ended March 31, 2002.

		Number of Options	Weighted Average Exercise Price
Balance at December 31, 2001		5,133,831	$	6.90
	Granted	133,000	$	9.63
	Exercised	67,400	$	5.01
	Canceled	139,000	$	8.23
Balance at March 31, 2002		5,060,431	$	6.96
Exercisable at March 31, 2002		2,617,681	$	6.07

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        The weighted average fair value of options granted was $5.52 for the first three months of fiscal 2002. At March 31, 2002, the weighted average remaining contractual life of options outstanding was 7.4 years. 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 the first three months of fiscal 2002: no common stock dividends; risk-free interest rates of 5.07%; 85% volatility; and an expected option life of 3 years. Pro forma net income and income per share for the three months ended March 31, 2002 and 2001, assuming compensation expense for the Stock Option Plan had been determined under SFAS 123, is as follows:

		Three Months Ended March 31, 2002			Three Months Ended March 31, 2001
Net Loss:
	As reported	$	(3,359	)	$	(1,128	)
	Pro forma	$	(3,863	)	$	(1,506	)
Basic and diluted loss per share:
	As reported	$	(0.14	)	$	(0.05	)
	Pro forma	$	(0.16	)	$	(0.07	)

F. INCOME TAXES

        Due to the Company's cumulative losses in recent years, expected losses in future years and inability to utilize any additional losses as carrybacks, the Company has not provided for an income tax benefit during the three months ended March 31, 2002, based on management's determination that it was more likely than not that such benefits would not be realized. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate income in future periods and it determines that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time. During the three months ended March 31, 2002, the Company recorded current tax expense related to its Japan branch operations.

        As of March 31, 2002 and December 31, 2001, the Company's deferred tax assets were offset by a valuation allowance of approximately $16.0 million and $14.7 million, respectively, due to the Company's cumulative losses in recent years, expected losses in future years and inability to utilize any additional losses as carrybacks.

G. ACQUISITION

        Effective May 1, 2001, the Company acquired Annovis, Inc, a privately held company, for approximately $16.9 million through the issuance of approximately 1.9 million shares of Transgenomic, Inc. common stock and the payment of approximately $0.6 million in cash in lieu of common stock to certain Annovis stockholders and the payment of approximately $3.2 million of direct acquisition related expenses. Included in the total purchase price are costs related to the Company's plan to close the Aston, Pennsylvania facility and consolidate those operations in Omaha, Nebraska. The anticipated costs to consolidate these operations total $0.45 million and consist of employee severance payments, relocation expenses, fixed asset write-offs and other facility closure costs. The acquisition was structured as a merger of Annovis with a subsidiary of the Company and resulted in

7

Annovis becoming a wholly-owned subsidiary of the Company. A total of 15% of the total shares of common stock issued in the merger is held in an escrow account with a bank. Delivery of the escrowed shares to the former shareholders of Annovis is subject to certain other conditions described in the merger agreement. Annovis is a specialty chemicals company that develops, manufactures and markets a wide variety of nucleic acid based products and service for the life sciences industry. Annovis's results of operations have been included in the accompanying financial statements beginning on May 1, 2001.

        The Company accounted for this transaction as a purchase. The Company obtained an appraisal of the fair value of the tangible and intangible assets acquired from an independent appraiser. As of March 31, 2002, all identifiable tangible and intangible assets acquired and liabilities assumed have been allocated a portion of the cost equal to their estimated fair value as follows:

Net tangible assets and liabilities	$	1,390
Intangible assets		60
Goodwill	$	15,463
Total Purchase Price (including direct expenses)	$	16,913

        The costs assigned to goodwill have been amortized through December 31, 2001, on a straight-line basis over a period of 10 years. On January 1, 2002, the Company implemented Statement of Financial Accounting Standard No. 142. Under these new guidelines goodwill is no longer being amortized.

        The Company's unaudited pro forma results of operations for the three months ended March 31, 2001, assuming the acquisition of Annovis, Inc. occurred as of the beginning of the periods presented are as follows:

	Three Months Ended March 31, 2001,
Net Sales	$	11,191
Net Loss	$	(1,440	)
Basic and diluted loss per share	$	(0.06	)

        The unaudited pro forma results of operations are not necessarily indicative of the actual results of operations had the acquisition and sale occurred on the dates indicated nor are they indicative of the results of operations for future periods.

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Item 2.    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 filing.

Overview

        We provide innovative solutions for the synthesis, purification and analysis of nucleic acids. Our solutions include automated instrument systems, associated consumables, and chemical building blocks for nucleic acid synthesis. Our technologies center around three core competencies: separation chemistries, enzymology, and nucleic acid chemistries. We develop, assemble, manufacture and market our products to the life sciences industry to be used in research focused on molecular genetics of humans and other organisms. Such research could lead to development of new diagnostics and therapeutics. Our products can be used to analyze DNA or RNA at the molecular level, amplify, separate, and isolate nucleic acid fragments of particular interest and synthesize conventional or chemically-modified nucleic acid molecules. These capabilities are central to research seeking to discover and understand variations in the genetic code, the relationship of these variations to disease and, ultimately, to develop diagnostics and therapeutics based on this understanding. Our business plan is to participate in the value chain associated with these activities by providing key technology, tools, consumables, and biochemical reagents to those entities engaged in basic biomedical research and the development of diagnostics and therapeutic agents.

        Revenues are generated from the sale of our principal products, the WAVE System and our consumable products. Since the WAVE System product introduction in 1997 we have sold over 790 instruments to customers in over 25 countries. Revenues from the sale of consumable products increased significantly during the first quarter of 2002, due largely to our acquisition of Annovis, Inc. discussed below, and represented approximately 50% of our net sales as compared to approximately 16% in 2001.

        Before July 1, 1997, we manufactured and sold instruments and other products used in the non-life sciences instrumentation industry through our predecessor company, CETAC Holding Company, Inc. and its subsidiaries. On July 1, 1997, we merged these companies into Transgenomic, Inc., a new Delaware corporation, for the purpose of developing, manufacturing and selling our new life sciences product line in addition to continuing to manufacture and market our existing non-life sciences products. In 1999, we decided to focus our resources on our life sciences product line. Accordingly, during the second quarter of 2000 we sold the assets related to our non-life sciences instrument products. These assets consisted of inventory, property, plant and equipment, patents, other intellectual property rights and a lease deposit. Financial information for periods ending before the effective date of the sale, April 1, 2000, includes the results of our non-life sciences instrument product line. On July 21, 2000, we completed our initial public offering, selling 5,152,000 shares of common stock at $15.00 per share for net proceeds of approximately $69.9 million. In May 2001, we acquired Annovis, Inc., a specialty chemicals company that develops, manufactures and markets a wide variety of nucleic acid-based products and services for the life science industry, for a total purchase price of approximately $16.9 million.

        We have incurred significant losses resulting principally from costs incurred in research and development and selling, general and administrative costs associated with our operations. At March 31, 2002, we had an accumulated deficit of $31.8 million. Although we expect to continue to incur substantial research and development and selling, general and administrative costs as we continue to expand our operations we also expect these costs as a percentage of sales to decline.

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Accounting Policies

        Accounting policies used in the preparation of the consolidated financial statements may involve the use of management judgments and estimates. Our judgements and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgment or estimates may vary under different assumptions or circumstances. The following are accounting policies that may involve the use of judgment or estimates.

        Allowance for Doubtful Accounts    Accounts receivable are shown net of an allowance for doubtful accounts. In determining an allowance for doubtful accounts, we consider the following:

•

the age of the accounts receivable,



•

customer credit history,



•

customer financial information,



•

reasons for non-payment, and



•

our knowledge of the customer.

        If our customers' financial condition were to deteriorate, resulting in a change in their ability to make payment, additional allowances may be required.

        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. All demonstration units are held for resale and included in inventory at the lower of cost or market. Demonstration inventory that is greater than one year old and remains held for resale is reclassified from current assets to long-term assets and carried at the lower of cost or market. If the customer or institution does not purchase the instrument, it is retrieved, and, if necessary, reconditioned for sale. Demonstration inventory is evaluated for impairment based on its physical condition and technological status. No impairment loss has been recognized to date. At the time these instruments no longer are held for resale and will be used for in-house testing, analysis and training, they are transferred from inventory to property at the lower of cost or market and depreciated.

        Depreciation and Amortization of Long-Lived Assets    The Company's long-lived assets consist primarily of property, plant and equipment, goodwill, patents, intellectual property and capitalized software development costs. We believe the useful lives we assigned to these assets are reasonable. If our assumptions about these assets change as a result of events or circumstances and we believe the assets may have declined in value we may record impairment charges resulting in lower profits. 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 ranging from 3 to 7 years. 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 on the date the patent is issued. Intellectual property, which is purchased technology, is recorded at cost and is amortized over its estimated useful life of between 5 and 10 years.

        Impairment of Long-Lived Assets    The Company assesses the recoverability of long-lived assets 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 is 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.

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        Income Taxes    Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities at each balance sheet date using tax rates expected to be in effect in the year the differences are expected to reverse. A valuation allowance has been provided for our remaining deferred tax assets due to the Company's cumulative losses in recent years, expected losses in future years and an inability to utilize any additional losses as carrybacks. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time.

Results of Operations

Three Months Ended March 31, 2002 and 2001

        Net Sales.    Revenue on the sales of products is recognized in accordance with the terms of the sales arrangement, which is generally based on receipt of an unconditional customer order and shipment of product. Our sales terms do not provide for the right of return unless the product is damaged or defective. Revenues from certain services associated with our research instruments, to be performed subsequent to shipment of the products, is deferred and recognized when the services are provided. Such services, mainly limited to installation and training services that are not essential to the functionality of the instruments, typically are performed in a timely manner subsequent to shipment of the instrument.

        Net sales increased 24%, from $7.9 million in 2001 to $9.8 million in 2002. The increase was a result of increased sales of consumable products. Total consumable sales increased 278%, from $1.3 million in 2001 to $4.9 million in 2002. Sales of consumables increased largely due to sales of specialty chemical products added through the acquisition of Annovis in May, 2001. Specialty chemical product revenues were $3.6 million in 2002. Total revenues from sales of WAVE Systems decreased 26%, from $6.6 million in 2001 to $4.9 million in 2002. The decrease in WAVE system sales was seen mainly in our commercial and industrial customer base. Our commercial and industrial customers have delayed purchase decisions and as a result systems sold to these customers accounted for approximately 8% of our systems placements during the quarter. During fiscal years 2000 and 2001 sales to our commercial and industrial customers accounted for between 25% to 35% of systems placements. At this time we are uncertain of the duration of such delayed purchase decisions.

        Cost of Goods Sold.    Cost of goods sold increased 29% from $3.7 million in 2001 to $4.7 million in 2002. This increase was attributable to increased sales. Cost of goods sold represented 48% of net sales in 2002, as compared to 46% in 2001. Cost of goods sold as a percent of sales increased year over year due to the mix of products sold. Currently our specialty chemical consumable products are sold at lower margins as compared to our WAVE systems. Our specialty chemical consumable product margins are lower mainly due to two factors, (1) bulk sales pricing to large customers under supply contracts and (2) small scale production versus large scale production. Our current small scale production requires similar fixed cost inputs as would large scale production. We continue to expand our production capabilities in order to leverage our fixed costs into larger production. We anticipate that this percentage will improve in the future as we refine our systems configurations potentially reducing material costs, as we move to larger scale production of our specialty chemicals and as consumable sales increase thereby spreading our fixed production costs over a larger revenue base.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased 42%, from $4.2 million in 2001 to $5.9 million in 2002. The increase is the result of higher personnel and personnel-related expenses and depreciation. Direct personnel expenses accounted for approximately 76% of the overall increase and were the result of our expanded employee base. Our employee base has increased largely due to the acquisition of Annovis. Increased depreciation expense

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accounted for 10% of the overall increase. The remaining increase is attributable to the costs associated with the expanded activities of the staff. Selling, general and administrative expenses as a percent of net sales was approximately 52% in 2001 and 60% in 2002. While we anticipate selling, general and administrative expenses to increase, in absolute dollars, over the next several years to support our growing marketing, sales and business activities and costs associated with operating a public company we also expect that these expenses will decline as a percentage of sales.

        Research and Development Expenses.    Research and development expenses increased 33%, from $2.1 million in 2001 to $2.8 million in 2002. The increase in these expenses is attributable to increased personnel and personnel related expenses and professional service fees. Direct personnel expenses accounted for approximately 82% of the total increase and were due to our expanded employee base. Professional service fees increased as the Company has engaged professionals to supplement the activities of our internal research and development personnel. Other increases were attributable to the costs associated with the expanded activities of the staff and the Annovis operations and were offset by amounts capitalized related to the development of software to be used to operate our WAVE systems. During the quarter we capitalized approximately $530,000 in costs related mainly to the development of WAVE Navigator software. Research and development expenses represented approximately 26% of net sales in 2001 and approximately 28% of net sales in 2002. While we expect research and development spending to increase significantly, in absolute dollars, over the next several years as we expand our development efforts we also expect that these expenses will decline as a percentage of sales.

        Stock Based Compensation.    Stock based compensation expense was $33,000 in 2001 and $25,000 in 2002. This expense reflects the amortization of deferred compensation related to stock options issued.

        Other Income.    Other income, which consists of net interest income and other expense, declined from $0.9 million in 2001 to $237,000 in 2002. Interest income for the quarter was $251,000 as compared to $0.9 million in 2001. The decrease in interest income is a result of declining interest rates on investments and changes in our short term investments balances.

        Income Taxes.    No income tax benefit was recorded in 2002 or 2001. No further tax benefits are being recorded due to our cumulative losses in recent years, expected losses in future years and the uncertainty as to whether we will be able to utilize any additional losses as carrybacks. During the three months ended March 31, 2002, the Company recorded current tax expense related to its Japan branch operations. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized.

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 $31.8 million as of March 31, 2002. On July 21, 2000, we issued 5,152,000 shares of common stock in our initial public offering at $15.00 per share. After payment of the underwriters' discounts and commissions and other expenses, we received net proceeds of approximately $69.9 million from this offering. In addition, warrants and options to purchase shares of common stock have been exercised at various times since our initial public offering providing us with approximately $5.2 million in additional cash. As of March 31, 2002 and December 31, 2001, we had approximately $7.5 million and $19.6 million, respectively, in cash and cash equivalents. In addition, as of March 31, 2002 and December 31, 2001, we had approximately $27.3 million and $23.9 million, respectively, in short-term investments for total cash and short-term investments of approximately $34.8 million and $43.5 million, respectively.

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        Our operating activities resulted in net cash outflows of $4.7 million in 2002 as compared to $2.1 million in 2001. The operating cash outflows for these periods resulted from significant investments in research and development and sales and marketing, which resulted in operating losses. Additionally, inventory balances increased as raw materials, work in process and finished goods inventory related to our specialty chemicals consumable products were increased as we continue to expand production capabilities in our Glasgow, Scotland production facility and plan for production needs to fulfill long-term supply contracts.

        Net cash used in investing activities was $7.8 million in 2002 compared to $22.8 million in 2001. The cash used in investing activities in 2002 was due primarily to our investment in property, plant and equipment, increased notes receivable and our increase in short-term investments. Notes receivable increased as we entered into a convertible note agreement with Genodyssee S.A., as discussed below. During the remainder of 2002 and 2003 we expect to continue to make significant investments in property, plant and equipment. Our capital expenditures budget for 2002 is approximately $5.0 million, exclusive of our synthetic nucleic acid product facility expansion project, and is expected to relate to general facility and equipment improvements. Plans and budgets for our synthetic nucleic acid product production facility expansion project are being finalized and we currently expect the capital expenditures on this project to be in the $15.0 to $20.0 million range over the next 2 to 3 years. Approximately $6.0 to $7.0 million is expected to be spent in 2002. The facility expansion is being planned in anticipation of the expected growth in our synthetic nucleic acid products business.

        Net cash provided by financing activities was $0.4 million in 2002 compared to $0.1 million in 2001. The financing cash inflows in 2002 were the result of the sale of common stock through the exercise of stock options.

        As of March 31, 2002, as part of our synthetic nucleic acid production expansion project, we have entered into a conditional purchase agreement to buy a 45,000 square foot production facility in Glasgow, Scotland, for approximately $1.8 million. The purchase of this facility is expected to close in the second quarter. Given the current interest rate environment and the expected costs of our planned facility expansion we are currently investigating various financing vehicles for the project including a mortgage for the purchase of the building.

        Additionally, we are party to a number of lease agreements mainly for office, research and development and production facilities. Such lease agreements expire at various dates through 2007.

        In February 2002, pursuant to a Term Loan Agreement, the Company loaned $1.5 million to Genodyssee, S.A., a French limited company located near Paris. Genodyssee is a European genomics company that operates in two main divisions, one that is developing drug targets based on genetic variability and one that provides custom research services. The loan proceeds are to be used by Genodyssee for general corporate purposes. The loan carries an annual interest rate of 5% and all accrued interest and principal are due on the earlier of January 31, 2003, or the first closing date of a "qualified offering" defined as the issuance of new voting equity securities in Genodyssee pursuant to a private or public offering that raises gross proceeds of not less than $5 million. Genodyssee may prepay this debt in whole or in part at anytime. Genodyssee may make repayment of the principal and accrued interest in one of the following forms:

•

Shares of Genodyssee issued as the same type and class and under the same terms and conditions, including share price, as shares issued in a "qualified offering",



•

Shares of Genodyssee issued based on an independent third party appraisal in the event that a "qualified offering" is not consummated prior to January 31, 2003, or



•

Cash.

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        Genodyssee has been a customer of Transgenomic since July of 2000 purchasing multiple WAVE systems, system upgrades and consumable products. In addition, in December 2001, the Company and Genodyssee entered into a Service Provider Agreement. The Service Provider Agreement is a strategic alliance between Transgenomic and Genodyssee whereby Transgenomic will perform sales and marketing activities in the United States, Europe and Japan for certain analytical services related to nucleic acids which will be performed by Genodyssee. The Service Provider Agreement has an initial term of 3 years and automatically renews for successive 1 year periods until cancelled under the terms of the Agreement. In conjunction with the Service Provider Agreement, the Company entered into a $1.0 Million Revolving Line of Credit Agreement with Genodyssee. Genodyssee will utilize the Line of Credit in managing its cash flows and working capital needs to perform services under the Service Provider Agreement. The outstanding balance of the Line of Credit is not to exceed the lesser of $1.0 million or 25% of the total amount currently due to Genodyssee under customer contracts entered into under the Service Provider Agreement. The Line of Credit carries an annual interest rate of 5% and the same term as the Service Provider Agreement. As of March 31, 2002, there was no balance outstanding on the Line of Credit.

        In May 2001, we acquired Annovis, Inc., a specialty chemicals company that develops, manufactures and markets a wide variety of nucleic acid-based products and services for the life science industry, for a total purchase price of approximately $16.9 million. As part of the purchase price we issued approximately 1.9 million shares of common stock valued at $13.1 million. The remaining purchase price is made up of direct acquisition related expenses of approximately $3.2 million and cash paid in lieu of shares to certain Annovis stockholders of approximately $0.6 million.

        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. 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. Given the current interest rate environment and the expected costs of our planned facility expansion in Glasgow, Scotland, we are currently investigating various financing vehicles for the project, including a mortgage for the purchase of the building. Even if we complete our facility expansion using existing cash, we believe that our current cash balances will be sufficient to fund operations through at least fiscal year 2003. During or after this period, if cash generated by operations is insufficient to satisfy our liquidity requirement, we may need to sell additional equity or debt securities, or obtain additional credit arrangements. 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 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142 establishes new guidelines for accounting for goodwill and other intangible assets and provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be evaluated for impairment annually. The Company adopted SFAS No. 142 beginning January 1, 2002. The provisions of SFAS No. 142 also require the completion of a transitional impairment test within six months of adoption, with any impairments treated as a cumulative effect of a change in accounting principle. The Company will perform and report the results of the transitional impairment tests in the Company's June 30, 2002, financial

14

statements. The Company is currently in the process of implementing this standard and, other than the impact of discontinuing to amortize goodwill, the Company believes the adoption of SFAS No. 142 will not have a significant impact on the financial statements of the Company.

        In August 2001, the FASB issued SFAS No. 143, Accounting For Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and is effective for the Company's fiscal year beginning January 1, 2003. Management is in the process of evaluating the impact, if any, this standard will have on the Company's consolidated financial statements.

        In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 develops one accounting model based upon the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. The accounting model applies to all long-lived assets, including discontinued operations, and it replaces the provisions of APB Opinion No. 30, Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for a disposal of segments of a business. SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 also broadens the definition of discontinued operations. SFAS No. 144 was effective for the Company's fiscal year beginning January 1, 2002. The adoption of SFAS No. 144 did not have a significant impact on the financial statements of the Company.

Foreign Currency Rate Fluctuations

        Historically approximately 50% of our net sales have been to customers outside the United States. Most of these sales are completed by our wholly-owned subsidiaries, Transgenomic, Ltd. and Cruachem, Ltd., and are made in their operating currency British pounds sterling, or the Euro. Results of operations for the Company's foreign subsidiaries are translated using the average exchange rate during the period. Assets and liabilities are translated at the exchange rate in effect on the balance sheet dates. To further limit our exposure to exchange rate risk all sales quotes issued by Transgenomic, Ltd. are based upon the United States dollar pricing converted at prevailing exchange rates at the time of the quote. Additionally, such quotes have short expiration dates. As a result, although we are subject to exchange rate risk, management feels we do not have a material exposure to foreign currency rate fluctuations at this time.

Forward-looking information

        This report contains a number of "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. Many of these forward-looking statements refer to our plans, objective, 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. Such factors would include the growth of the markets for DNA analysis technology and consumable products, the acceptance of our technology, our ability to continue to improve our products, the development of competing technologies, and our ability to protect our intellectual property rights.

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Item 3.    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 market value 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 market value 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 the first quarter of 2002 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.

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PART II    OTHER INFORMATION

Item 1.    Legal Proceedings

        We are not a party to, and none of our assets or properties are subject to, any material legal proceedings.

Item 2.    Changes in Securities and Use of Proceeds

d)

The amount of net proceeds from our initial public offering was approximately $69.9 million.
Approximately $3.5 million of these net offering proceeds was used to repay outstanding indebtedness and approximately $4.6 million was used to acquire notes evidencing loans made by a bank to the Company owned by one of our directors that purchased the assets of our non-life sciences product line in May 2000. We used approximately $3.1 million of the net proceeds for capital expenditures during 2000, an additional $5.7 million during 2001 and an additional $1.4 million in the first three months of 2002. We expect to apply up to $12.0 million of the net proceeds of this offering for capital expenditures during 2002. Such expenditures were made for, and are expected to be made for, general infrastructure investments (i.e. computer equipment, software and leasehold improvements) and production facility improvements and expansion. At March 31, 2002, approximately $32.0 million was invested in cash equivalent investments and in short-term, investment-grade, interest-bearing securities. We expect to use the remaining amount of the net offering proceeds for general working capital needs, including research and development and sales and marketing expenses. The amounts actually expended for each purpose may vary significantly depending upon many factors, including future sales growth, the progress of our product development efforts and the amount of cash generated or used by our operations.

Item 4.    Submission of Matters to a Vote of Security Holders

        None

Item 6.    Exhibits and Reports on Form 8-K

(a)

Exhibits

(2.1	)	Asset Purchase Agreement, dated May 16, 2000 between the Registrant and SD Acquisition Inc. (incorporated by reference to Exhibit 2 to Amendment No. 1 to Registration Statement on Form S-1 (Registration No. 333-32174) as filed on May 17, 2000)
(2.2	)	Agreement and Plan of Merger, dated as of April 30, 2001 among Transgenomic, Inc., TBIO Nebraska, Inc., TBIO, Inc. and Annovis, Inc. (incorporated by reference to Exhibit 2.1 to Report on Form 8-K (Registration No. 000-30975) as filed on May 31, 2001)
(2.3	)	Addendum to Agreement and Plan of Merger, dated as of May 18, 2001 among Transgenomic, Inc., TBIO Nebraska, Inc., TBIO, Inc. and Annovis, Inc. (incorporated by reference to Exhibit 2.2 to Report on Form 8-K (Registration No. 000-30975) as filed on May 31, 2001)
(3.1	)	Second Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 2 to Amendment No. 1 to Registration Statement on Form S-1 (Registration No. 333-32174) as filed on May 17, 2000)
(3.2	)	Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 (Registration No. 333-32174) as filed on March 10, 2000)
(4)		Form of Certificate of the Registrant's Common Stock (incorporated by reference to Exhibit 4 to Registration Statement on Form S-1 (Registration No. 333-32174) as filed on March 10, 2000)
(10.1	)	Employment Agreement, dated January 22, 2002, between the Registrant and Keith A. Johnson
(10.2	)	Term Loan Agreement, dated February 1, 2002, between the Registrant and Genodyssee S.A. 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 24b-2 of the Securities Exchange Act.

(b)

Reports on Form 8-K

        The Registrant did not file a Report on Form 8-K during the quarter ended March 31, 2002.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TRANSGENOMIC, INC.
By:	/s/  Gregory J. Duman,Chief Financial Officer (authorized officer and principal financial officer)

May 14, 2002

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INDEX
PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets (Unaudited)
Consolidated Statements of Operations (Unaudited)
Consolidated Statement of Cash Flows (Unaudited)
Notes to the Consolidated Financial Statements (Unaudited)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk

PART II OTHER INFORMATION

Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

EX-10.1

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Exhibit 10.1

EMPLOYMENT AGREEMENT

        THIS AGREEMENT is made effective as of January 22, 2002, by and between Transgenomic, Inc., a Delaware corporation (the "Company"), and Keith A. Johnson ("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 January 31, 2002 (the "Effective Date"). The Company shall employ Employee as Vice President, General Counsel. The initial term of the Agreement will be for a minimum of three (3) 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 Vice President, General Counsel (Attached hereto as Exhibit B.)

        (b)  Employee shall report to the Executive Vice President 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 $135,000 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 is mutually agreed to.

        Section 4.    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, General Counsel.

        Section 5.    Other Benefits.

(a)

Vacation. Employee shall initially be entitled to three weeks' paid vacation each year.



(b)

Insurance. The Company shall make available to Employee life, health and dental insurance (including dependent coverage), and other benefits from time to time provided to employees.



(c)

Relocation. The Company during the initial term of this Agreement shall pay for or reimburse Employee for all costs reasonably related to relocation, including, but not limited to, travel expenses, moving expenses, real estate commissions and real estate closing costs.

        Section 6.    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. The Company shall pay for or reimburse Employee for all expenses necessary to maintain Employee's professional qualifications as General Counsel including, but not limited to, bar examination fees, preparatory courses, state bar fees, expense for continuing legal education, and reasonable expenses for memberships in professional organizations.

        Section 7.    Stock Options and Option Shares.    Employee will initially be granted 35,000 shares subject to the approval of the Compensation Committee of the Board of Directors. The price of the options will be the fair market value on the date the options are granted. Twenty five percent (25%) of the options will vest immediately on the date of the grant, the remaining options will vest twenty five percent (25%) on the next three anniversary dates of the date of the grant. All unvested options will vest upon the Company being acquired or merged into another entity.

        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" being defined as any criminal act (felony) being committed by employee, if employee commits fraud or dishonesty toward the Company, other significant activities materially harmful to the reputation of the Company as reasonably defined by the Company, willful refusal to perform or substantial disregard of the duties properly assigned, significant violation of any statutory or common law or a material violation of Section 11 or 12 below, or intentionally takes any other action materially inimical to the best interests of 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)  Company Information. Employee agrees at all times during the term of his Relationship with the Company and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm, corporation or other entity without

written authorization of the Board of Directors of the Company, any Confidential Information of the Company which Employee obtains or creates, by whatever means. Employee further agrees not to make copies of such Confidential Information except as authorized by the Company. Employee understands that "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research. product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom Employee called or with whom Employee became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to Employee by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment or created by Employee during the period of the Relationship, whether or not during working hours. Employee understands that "Confidential Information" includes, but is not limited to, information pertaining to any aspects of the Company's business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. Employee further understands that "Confidential Information" does not include any of the foregoing items which have become publicly and widely known and made generally available through no wrongful act of Employee's or of others who were under confidentiality obligations as to the item or items involved.

        (b)  Former Employer Information. Employee represents that as an employee of the Company, he has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by Employee in confidence or trust prior or subsequent to the commencement of Employee's Relationship with the Company, and Employee will not disclose to the Company, or induce the Company to use, any inventions, confidential or proprietary information or material belonging to any previous employer or any other party.

        (c)  Third Party Information. Employee recognizes that the Company has received and in the future will receive confidential or proprietary information from third parties subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Employee agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out Employee's work for the Company consistent with the Company's agreement with such third party.

        Section 12.    Return of Company Documents.    Employee agrees that, at the time of termination of his Relationship with the Company, he will deliver to the Company (and will not keep in his possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, flow charts; equipment, other documents or property, or reproductions of any aforementioned items developed by Employee pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns. Employee further agrees that any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. In the event of the termination of the Relationship, Employee agrees to sign and deliver the "Termination Certification" attached hereto as Exhibit "A."

        Section 13.    Noncompetition.    Independent of any obligation under any other contract or agreement between Employee and the Company, for a period of one (1) year following the termination of Employee's employment relationship with the Company, Employee shall not, directly or indirectly, whether as an individual for his own account, or for or with any other person, firm, corporation, partnership, joint venture, association, or other entity whatsoever, which is or intends to be engaged in biotechnology business and, more particularly, that provides technologies for DNA/RNA analysis and purification utilization DHPLC technologies (provided, however, that the restrictions set forth in this clause shall not apply to involvement that consists solely of "beneficially owning," as such term is used

in Rule 13d-3 promulgated under the Exchange Act 2% or less of the outstanding securities of any class of securities issued by a publicly-traded entity):

        (a)  Solicit, interfere with, or endeavor to entice away from the Company, any person, firm, corporation, partnership, or entity of any kind whatsoever, which was or is a client or licensor of the Company, for which the Company performed services, with respect to any business, product or service that is competitive to the products or services offered by the Company, or under development by the Company, as of the date of the termination of Employee's relationship with the Company. This restriction shall apply only to such clients or licensors of the Company as were serviced or solicited by Employee at any time during the one (1) year prior to the separation of Employee's relationship with the Company, either as an independent contractor or as an employee of the Company;

        (b)  Solicit or endeavor to induce any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for Employee or for any other person or entity;

        (c)  Induce or attempt to induce any supplier, licensee or other business relation of the Company to cease doing business with the Company, or in any way interfere with the relationship between any such supplier, licensee or business relation and the Company.

        Section 14.    Business Opportunity.    Employee represents and acknowledges that the foregoing restrictions will not prevent him from obtaining gainful employment in his field of expertise or cause him undue hardship; and that there are numerous other employment opportunities available to him that are not affected by the foregoing restrictions. Employee further acknowledges that the foregoing restrictions are reasonable and necessary, in order to protect the Company's legitimate interests, and that any violation thereof would result in irreparable injury to the Company.

        Section 15.    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 16.    Arbitration and Equitable Remedies.

        a)    Except as provide in Section 16 (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 16, the parties agree that, in the event of the breach or threatened breach of Sections 11, 13 or 14 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 17.    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 18.    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 19.    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. 12325 Emmet Street Omaha, NE 68164 Attention: Chief Executive Officer Telephone: (402) 452-5433 Telecopy: (402) 452-5447
To the Employee:	Keith A. Johnson 48 Farms Road Circle East Brunswick, NJ, 08816

        Section 20.    Headings.    The article and section headings herein are for convenience of reference only and shall not define or limit the provisions hereof.

        Section 21.    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 22.    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 23.    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 24.    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 25.    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 26.    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, other than as disclosed with Integra LifeSciences Corporation, 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 27.    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.

TRANSGENOMIC, INC.
By	/s/  COLLIN J. D'SILVA
	Name:	Collin D'Silva
	Title:	Chief Executive Officer
EMPLOYEE
/s/  KEITH A. JOHNSON Name: Keith A. Johnson

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Exhibit 10.2

**

Certain Confidential portions of this Exhibit were omitted by means of redacting a portion of the text indicated by two 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 24b-2 of the Securities Exchange Act.

TERM LOAN AGREEMENT

        THIS TERM LOAN AGREEMENT (this "Agreement") is dated and effective as of February 1, 2002 by and between TRANSGENOMIC, INC., a corporation organized under the laws of the State of Delaware U.S.A. (the "Lender"), and GENODYSSEE S.A., a société anonyme organized under the laws of France, with a share capital of 65,122 euros, having its registered office at Parc Affaires Technopolis, 3, avenue du Canada, BP 810 Les Ulis, 91974 Courtaboeuf, France and registered with the Registre du Commerce et des Sociétés of Evry under number 424 796 548 (the "Borrower"). The Lender and the Borrower are sometimes collectively referred to herein as the "parties" and individually as a "party."

PREAMBLE

        WHEREAS, the Lender has agreed to lend to the Borrower, on the terms and conditions set forth herein, an amount of One Million Five Hundred Thousand U.S. Dollars (US $1,500,000) (the "Loan") which Loan will be evidenced by that certain promissory note, of even date herewith, made by the Borrower to the Lender, in the form attached as Exhibit A hereto (the "Note"); and

        WHEREAS, the parties desire to set forth certain terms and conditions relating to the Loan;

        NOW, THEREFORE, in consideration of the mutual covenants, promises, representations and warranties set forth herein, the parties agree as follows:

ARTICLE I
DEFINITIONS

        All capitalized terms used in this Agreement shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined):

        "Agreement" shall mean this Term Loan Agreement, including all exhibits hereto, as the same may be amended or otherwise modified from time to time.

        "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks are authorized or required to close under the laws of the United States of America or the Republic of France.

        "Default" shall mean any of the events specified in Section 6.01, without giving effect to any requirement for the giving of notice, for the lapse of time, or both, or for the happening of any other condition, event or act.

        "Event of Default" shall mean any of the events specified in Section 6.01, provided that any requirement for the giving of notice, the lapse of time, or both, or for the happening of any further condition, event or act has been satisfied.

        "Governmental Authority" shall mean any government (whether the located within or outside the United States or France) or any department, agency, division or instrumentality thereof.

        "Law" shall mean any statute, rule, regulation, order, judgment, award or decree of any Governmental Authority.

        "Major Shareholders" shall mean those holders of the Borrower's ordinary voting shares that together hold not less than 66.667% of Borrower's issued and outstanding share capital.

        "Person" shall mean and include an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or any other entity or a government or any agency or political subdivision thereof.

        "Principal Balance" shall mean U.S.$ 1,500,000, as reduced from time to time by the amount of any prepayment made by the Borrower.

        All monetary amounts expressed herein are stated in terms of U.S. Dollars.

ARTICLE II
THE LOAN

        Section 2.01. Loan Disbursement.    Upon execution and delivery to Lender of this Agreement and the undertaking of the Major Shareholders described in Section 4.03 hereof, the Lender agrees to advance U.S. $1,500,000 to the Borrower. The disbursement of the Loan proceeds shall be made by direct wire transfer of funds from the Lender no later than February 10, 2002 to the account of the Borrower at the **.

        Section 2.02. Use of Proceeds.    The Loan shall be applied by the Borrower for general corporate purposes.

ARTICLE III
INTEREST

        Section 3.01. Interest Rate.    The Borrower shall pay interest on the unpaid principal balance of the Loan at the rate of 5.0% per annum from the date of issuance of the Loan proceeds thereof to and including the date of repayment.

        Section 3.02. Computation.    Interest on the Loan shall be computed on the basis of a year deemed to consist of 365 days and paid for the actual number of days elapsed.

ARTICLE IV
PAYMENTS

        Section 4.01. Interest Payments.    Accrued but unpaid interest on the outstanding Principal Balance of the Loan shall be due and payable in full, without demand by the Lender, immediately (i) upon repayment of the Principal Balance as provided herein, (ii) with respect to any full or partial prepayment of the Principal Balance as described under section 4.05 hereof, at the time of such prepayment.

        Section 4.02. Principal Payments.    The Principal Balance shall be paid in full on the earlier of (i) 3:00 p.m. GMT on January 31, 2003 (the "Maturity Date") or (ii) the first closing date on which new voting equity securities in the Borrower are subscribed pursuant to a private or public offering thereof that raises gross proceeds (prior to the payment of any underwriters' commissions or discounts and other offering expenses) of not less than US $5,000,000 (a "Qualified Offering"). The Borrower shall give notice of any Qualified Offering to the Lender, including all material terms of such proposed issuance, at least 25 Business Days prior to the consummation thereof.

Section 4.03. Repayment by means of issuance of Equity Securities.

        (a)  The Principal Balance of, and accrued interest on, the Loan will be repaid by the Borrower through the issuance of newly issued voting equity securities to the Lender as provided in Section 4.02 and this Section 4.03, subject to (i) the certification of the amount of the Principal Balance of, and accrued interest on the Loan by the statutory auditors of the Borrower and (ii) approval of the necessary capital increase at an extraordinary general meeting of the shareholders of the Borrower in

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accordance with French law. If a Qualified Offering is proposed prior the Maturity Date, the Borrower will use its commercially reasonable efforts to cause the capital increase required in order to issue securities to the Lender to be submitted to the vote of the shareholders of the Borrower at the same extraordinary general meeting as the Qualified Offering. As such, the Borrower shall use its commercially reasonable efforts to have such capital increase put on the agenda of such general meeting by its board of directors convening it and to have such capital increase in favor of the Lender voted on by its shareholders in accordance with French law. In the event that a Qualified Offering is not consummated prior to the Maturity Date, the Borrower shall use its commercially reasonable efforts to have an extraordinary general meeting convened by its board of directors prior the end of March 31, 2003, with a capital increase in favor of the Lender on its agenda and to have the said capital increase in favor of the Lender voted on by its shareholders in accordance with French law. As a condition to the advancement of funds by the Lender to the Borrower hereunder, the Borrower shall obtain from the Major Shareholders an irrevocable undertaking in the form attached as Exhibit B hereto.

        (b)  If a Qualified Offering is consummated prior the Maturity Date, the voting equity securities of the Borrower issued in repayment of the Principal Balance of, and interest on, the Loan will be of the same type and class as those issued in the Qualified Offering and on the same terms and conditions (including, but not limited to, price per share) as such securities issued to investors in the Qualified Offering.

        (c)  In the event that a Qualified Offering is not consummated prior to the Maturity Date, the voting equity securities of the Borrower issued in repayment of the Principal Balance of, and interest on, the Loan will be ordinary voting shares and will be issued at a price per share determined by an appraisal of the Borrower conducted by an independent qualified investment banking firm agreed to by the Borrower and the Lender. In such event, the Lender will be entitled to such rights, including but not limited to, rights of co-sale, rights of first offer, rights of first refusal, registration rights, and voting rights, as the Major Shareholders are granted pursuant to the shareholders' agreement dated September 8, 2000.

        (d)  In the event that the shareholders of the Borrower do not vote at any general meeting of shareholders described in this Section 4.03 in favor of the necessary capital increase to the benefit of the Lender, the Loan will be required to be repaid in cash at the Maturity Date (or such later date as provided in Section 4.03(a), but in no event later than February 28, 2003).

        (e)  In the event of a repayment after the Maturity Date as permitted pursuant to this Section 4.03, so long as there has otherwise been no Event of Default, interest shall continue to accrue at the rate set forth in Section 3.01 until and including the date of repayment.

        Section 4.04. Due Dates Not on Business Days.    If payment required hereunder becomes due on a date that is not a Business Day, then such due date shall be deemed to be the next following Business Day.

        Section 4.05. Right to prepay.    The Borrower shall have the right, in its sole discretion, to prepay in cash, in whole or in part, the Principal Balance of the Loan at any time, without any penalty.

ARTICLE V
COVENANTS, REPRESENTATIONS AND ACKNOWLEDGEMENTS

        Section 5.01. Affirmative Covenants.    During the term of this Agreement, the Borrower covenants and agrees as follows:

        (a)  Board Seat. The Borrower undertakes to use its commercially reasonable efforts to have its statuts (by-laws) or any shareholders' agreement relating to its shares amended in order to entitle the Lender to appoint one member of the Borrower's Board of Directors (it being understood by the

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parties that such actions may be taken only by the shareholders of the Borrower under French Law) but only if the Loan is repaid through the issuance of voting equity securities in accordance with Article IV hereof and then only for so long as the equity securities held by the Lender represent at least 10% of the Borrower's issued and outstanding voting securities.

        (b)  Qualified Offering. The Borrower shall use its commercially reasonable best efforts to conduct a Qualified Offering prior to the Maturity Date, it being understood that the approval required to conduct such capital increase may only be obtained by a vote of the Borrowers' shareholders at a general meeting of shareholders.

        (c)  Corporate Existence and Authorizations. The Borrower shall maintain in good standing its corporate existence and its right to transact business in those jurisdictions in which it is now or hereafter doing a material amount of business, and the Borrower shall maintain all material licenses, permits and registrations necessary for the conduct of its operations.

        (d)  Compliance With Laws. The Borrower shall comply with all material Laws applicable to its business operations.

        (e)  Payment of Obligations. The Borrower shall promptly pay and discharge or cause to be paid and discharged, as and when due (or as amended or extended by the lender or creditor), any and all of its lawful debts and other obligations, including all lawful taxes, rates, levies and assessments and all claims for labor, materials or supplies; provided, however, that nothing herein contained shall be construed as prohibiting the Borrower from diligently contesting in good faith by appropriate proceedings the validity of any such debt or other obligation, provided Borrower has established adequate reserves for such debt or obligation on its books and records.

        (f)    Financial Information. The Borrower will provide the Lender with copies of its audited financial statements for the year ending December 31, 2001 as soon as reasonably practicable after such financial statements are available, but in no event later than March 31, 2002. The Borrower will provide the Lender with unaudited quarterly financial statements within 45 days of the end of each calendar quarter ending prior to repayment of the Loan.

        (g)  Securities Offering Documents. The Borrower will provide the Lender with copies of all documents prepared by the Borrower in connection with the private or public offering of any equity or debt securities prior to the Maturity Date as soon as reasonably practicable after such documents are available.

        Section 5.02. Negative Covenants.    During the term of this Agreement, the Borrower covenants and agrees, that without the prior written consent of the Lender:

        (a)  Dividends. The Borrower shall not declare or pay dividends or other distributions to its existing shareholders or other equity owners.

        (b)  Use of Proceeds. The Borrower will not use the proceeds of the Loan to be used for any purpose other than that stated herein.

        (c)  Conflicting Agreements. The Borrower will not enter into any agreement, any term or condition of which would, if complied with by Borrower, result in an Event of Default.

        Section 5.03. Representations and Acknowledgements of Lender.    In connection with the potential issuance of securities of the Borrower in repayment of the Loan pursuant to Article IV hereof:

        (a)  the Lender represents that it is an "accredited investor" as defined in Regulation D of the U.S. Securities Act of 1933 (the "Securities Act"); and

        (b)  the Lender acknowledges that (i) such securities have not and will not be registered under the Securities Act, (ii) that the securities will be "restricted securities" for purposes of the Securities Act

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and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except (A) in compliance with the registration requirements of the Securities Act and all other applicable securities laws or (B) pursuant to an exemption from or a transaction not subject to the registration requirements of the Securities Act or any other applicable securities laws; (iii) the foregoing will be deemed to be repeated by the Lender at the time of the issuance of the securities; and (iv) securities issued to the Lender will be notated with the foregoing transfer restrictions on the books of the Borrower.

ARTICLE VI
DEFAULT

        Section 6.01. Events of Default.    Any one or more of the following shall constitute an Event of Default under this Agreement, unless waived by the Lender:

        (a)  Payment. Failure to pay principal or interest when due and payable under the Note, or failure to pay any other material indebtedness for borrowed money of the Borrower, including the $1,000,000 revolving line of credit made available by Lender to Borrower under that certain Revolving Line of Credit Agreement, dated as of December 28, 2001 (the "Line of Credit"), which continues beyond any applicable grace period or negotiated extension.

        (b)  Breach of Covenants. The material breach of any covenant in Article VI unless expressly waived, in writing, by the Lender, which breach is not cured within 30 Business Days.

        (c)  Acceleration of Other Indebtedness. Any obligation of the Borrower (including the Line of Credit) for the payment of borrowed money becomes or is declared to be due and payable or required to be prepaid (other than by a regularly scheduled prepayment) prior to the expressed maturity thereof and the Borrower has not cured the default giving rise to such an acceleration within 30 Business Days.

        (d)  Judgments; Attachment; Etc. Any one or more judgments or orders against the Borrower or any attachment or other levy against the property of the Borrower with respect to a claim or claims, involving in the aggregate liabilities (not paid or fully covered by insurance, less the amount of reasonable deductibles) in excess of $500,000, remains unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of 30 Business Days.

Section 6.02. Rights and Remedies in the Event of Default.

        (a)  Upon any Event of Default, and at any time thereafter, the Lender may declare in writing to the Borrower all or any part of the outstanding Principal Balance and accrued interest thereon immediately due and payable, and upon such declaration the then outstanding Principal Balance and such accrued interest shall automatically become immediately due and payable.

        (b)  If, within 15 Business Days of a valid declaration by the Lender as set forth in clause 6.02(a) above the relevant default has not been cured by the Borrower (if capable of being cured), the Lender shall be entitled to exercise any or all of the rights of the Lender under this Agreement.

        (c)  Any funds received by the Lender with respect to the Loan shall be applied as follows: (i) first, to the payment of the reasonable and necessary expenses incurred by Lender in connection with the collection of amounts due hereunder, not to exceed US$50,000; (ii) second, to the payment of interest accrued and unpaid on the Loan; and (iii) third, to the payment of outstanding Principal Balance. Any remaining amounts shall be paid to the Borrower.

        (d)  At the option of the Lender, the Borrower shall pay interest on (i) all amounts overdue by more than five Business Days and (ii) all amounts due by the Borrower, whether mature or not, after the occurrence of an Event of Default (until such time as the Event of Default may be cured), at a rate

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equal to the greater of (x) 7.0% per annum or (y) the prime interest rate prevailing in the United States as of the date of the Event of Default, as published in the Wall Street Journal.

        Section 6.03. Remedies not Exclusive.    The Lender shall be entitled to enforce payment and performance of all obligations of the Borrower hereunder or under the Note and to exercise all rights and powers hereunder or under the Note, or under any Law and the pursuit of any remedy available to the Lender against the Borrower shall not prejudice or in any manner affect the Lender's right to realize upon or enforce any other remedy or security now or hereafter available to it in such order and in such manner as the Lender may determine in its sole discretion. No such right or remedy shall be exclusive, but each shall be cumulative and shall be in addition to every other remedy provided herein or in any other agreement or by Law and each such remedy may be exercised concurrently or independently. Nothing in this Agreement shall be construed as prohibiting the Lender from seeking a deficiency judgment against the Borrower.

ARTICLE VII
MISCELLANEOUS

        Section 7.01. Notices.    All notices or other communications to be given hereunder shall be given in writing and delivered by (a) certified mail, return receipt requested, (b) personal delivery, (c) facsimile or (d) express carrier addressed as follows:

If to the Lender:	Transgenomic, Inc. 12325 Emmet Street Omaha, Nebraska 68164 U.S.A. Attention: Gregory J. Duman Email: gduman@transgenomic.com Telephone: (402) 452-5400 Telecopy: (402) 452-5447
If to the Borrower:	Genodyssee S.A. Parc Affaires Technopolis 3, avenue du Canada—Bâtiment Alpha BP 810 Les Ulis—91974 Courtaboeuf Cedex France Attention: Jean-Louis Escary Email: escary@genodyssee.com Telephone: (33) (0) 1 69 29 80 55 Telecopy: (33) (0) 1 69 29 80 79

or to such other address furnished by any party to the other in writing at any time and from time to time for such notice purposes. Any notice served by either party on the other shall be deemed effective upon receipt of return receipt if sent by certified mail, return receipt requested, when received, if delivered personally, upon machine confirmation if sent by facsimile, or upon confirmation of delivery by an express carrier.

        Section 7.02. Amendments and Waivers.    No amendment, modification or waiver of any provision of this Agreement or the Note shall be effective unless the same shall be in writing and signed by the Borrower and the Lender; provided, however, that any such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

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        Section 7.03. Successors and Assigns.    Neither the Borrower nor the Lender may assign, delegate or transfer any of its rights or obligations under this Agreement or the Note without the prior written consent of the other.

        Section 7.04. Severability.    If any provision of this Agreement is held invalid or unenforceable, or which is prohibited under Law for any reason, the invalidity shall not affect the validity of the remaining provisions of this Agreement, and the parties shall substitute for the invalid provision a valid provision which most closely approximates the intent and economic effect of the invalid provision.

        Section 7.05. Counterparts.    This Agreement may be executed by the parties hereto on any number of separate counterparts, and all such counterparts taken together shall constitute one and the same instrument. It shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart signed by the party to be charged.

Section 7.06. Governing Law; Arbitration; No Third-Party Rights.

        (a)  This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed and interpreted in accordance with the laws of the United States and State of New York applicable to contracts made and to be performed wholly within such State, without regard to any choice or conflict of laws rules. Notwithstanding the foregoing, any issuance of equity securities of the Borrower to the Lender hereunder shall be governed by French law.

        (b)  The parties to this Agreement shall act in good faith to resolve any dispute or other controversy arising under this Agreement. Absent agreement resolving a dispute within 20 days after written notice of the dispute has been delivered from one party to the other, any party shall have the right to seek to settle the matter by arbitration to the exclusion of any other form of dispute resolution. Any arbitration shall be conducted according to the applicable rules of the American Arbitration Association and shall take place in New York, New York. Such arbitration shall be heard by a single arbitrator, who shall be jointly designated by the Lender and the Borrower if the parties are unable to agree within ten (10) days after the dispute is submitted to arbitration, by the American Arbitration Association. The decision of the arbitrator shall be final and binding upon the parties hereto. The each party in any arbitration proceeding shall pay its own costs in connection therewith, including attorneys' fees.

        (c)  This Agreement is solely for the benefit of the parties hereto and their respective successors and assigns, and no other Person shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement.

        Section 7.07. Headings.    The section headings are for convenience only and shall not affect the interpretation or construction of this Agreement or the Note. The Exhibits referred to throughout this Agreement are attached to this Agreement and are incorporated into this Agreement. Unless the context clearly indicates, words used in the singular include the plural, words in the plural include the singular and the word "including" means "including but not limited to."

        Section 7.08. The Lender's Sole Discretion.    Any provision in any of this Agreement or the Note which requires the Lender's approval or consent shall be interpreted to mean at the Lender's sole discretion unless otherwise specified.

        Section 7.09. Conflict of Terms.    In the event of any material conflict between the terms of this Agreement and the Note, the terms of this Agreement shall control.

        Section 7.10. Waiver.    The failure of either party at any time to require performance by the other party of any provision of this Agreement shall not affect in any way the full right to require the performance at any subsequent time. The waiver by either party of a breach of any provision of this

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Agreement shall not be taken or held to be a waiver of the provision itself. Any course of performance shall not be deemed to amend or limit any provision of this Agreement.

        Section 7.11. Section References.    References to "Sections," "subsections" and "Exhibits" shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided.

        Section 7.12. Relationship of Parties.    Nothing contained in this Agreement shall be deemed or construed by the parties, or by any third party, to create the relationship of partnership or joint venture between the parties hereto, it being understood and agreed that no provision contained herein shall be deemed to create any relationship between the parties hereto other than the relationship of borrower and lender.

        Section 7.13. Entire Agreement.    This Agreement and the Note set forth all of the promises, agreements, conditions and understandings between the parties respecting the subject matter hereof and supersedes all negotiations, conversations, discussions, correspondence, memorandums and agreements between the parties concerning the subject matter.

        Section 7.14. Time of the Essence.    Time is of the essence with respect to this Agreement

        IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

LENDER
TRANSGENOMIC, INC., a Delaware corporation
By	/s/  COLLIN J. D'SILVA Collin J. D'Silva, President and Chief Executive Officer
BORROWER
GENODYSSEE S.A., a French société anonyme
By	/s/  JEAN LOUIS ESCARY Jean-Louis Escary, President du Conseil d'Administration

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EXHIBIT A

PROMISSORY NOTE

$1,500,000.00
February 1, 2002 Courtaboeuf, France

        For value received, the undersigned, GENODYSSEE S.A., a société anonyme formed under the laws of France (herein, the "Maker") hereby promises to pay to the order of TRANSGENOMIC, INC., a corporation formed under the laws of the State of Delaware, U.S.A. (hereinafter, the "Holder"), at any place designated at any time by the Holder, the principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($1,500,000.00) (the "Principal Balance") on or before January 31, 2003.

        This Note is issued pursuant to that certain Term Loan Agreement, dated February 1, 2002, between the Maker and the Holder (the "Loan Agreement"). All capitalized terms used and not otherwise defined shall have the meanings given them in the Loan Agreement.

        The Maker promises to pay the Principal Balance as set forth in the Loan Agreement. The Maker further promises to pay interest from the date hereof on the outstanding Principal Balance at the rate set forth in the Loan Agreement. Interest shall be computed and payable as provided in the Loan Agreement.

        If, within 15 Business Days of a valid declaration by the Lender as set forth in the Loan Agreement, the relevant Event of Default has not been cured by the Borrower (if capable of being cured), the Holder may, without notice or demand, declare the then outstanding Principal Balance and all outstanding interest immediately due and payable and shall then have in any jurisdiction where enforcement hereof is sought, in addition to any other rights or remedies, the rights and remedies set forth in the Loan Agreement.

        If this Note is not paid as provided herein and in the Loan Agreement and is referred to an attorney for collection, the Maker promises to pay the reasonable and necessary fees and expenses of such attorney, not to exceed US$50,000, in addition to the full amount due hereon, whether or not litigation is commenced.

        Demand for payment, protest, notice of dishonor and all other notices and demands under this Note and any and all lack of diligence in the enforcement of this Note are hereby waived by the Maker, and the same hereby assents to each and every extension or postponement of the time of payment, at or after demand, or other indulgence, and hereby waive any and all notice thereof.

        No amendment, modification or waiver of any provision of this Note, nor consent to any departure by the Maker herefrom, shall be effective unless the same shall be in a writing signed by an authorized officer of the Holder, and then only in the specific instance and for the purpose for which given. No failure to exercise, and no delay in exercising, any right under the Loan Agreement or this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right under the Loan Agreement or this Note preclude any other or further exercise thereof or the exercise of any other right. Each and every right granted hereunder or by law or in equity shall be deemed cumulative, and such remedies may be exercised from time to time concurrently or consecutively.

        All notices required to be given or which may be given in connection with this Note shall be given in the manner required for notices under the Loan Agreement.

        Any term of this Note that does not comply with applicable law will not be effective if that law does not expressly or impliedly permit variations by agreement. If any part of this Note cannot be enforced according to its terms, that fact will not affect the balance of this Note.

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        Neither this Note nor the Maker's or Holder's rights and obligations under this Note are assignable or delegable without the prior written consent of the other as set forth in the Loan Agreement.

        This Note will be governed by the laws of the State of New York.

        IN WITNESS WHEREOF, the Maker has executed and delivered this Note effective as of the date first set forth above.

GENODYSSEE S.A., a French société anonyme
By	/s/  JEAN LOUIS EXCARY Jean-Louis Escary, Président du conseil d'administration

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EXHIBIT B

SHAREHOLDERS' UNDERTAKINGS

This Agreement, dated as of February 1, 2002, is by and among:

Jean-Louis Escary, born on **, a French citizen residing at **

Marie-Pierre Schmitz, born on **, a French citizen residing at **;

Didier Lanson, born on **, a French citizen residing at **;

Matignon Investissement et Gestion, a French limited company (société anonyme) with a share capital of ** euros, having its registered office at 5, avenue Matignon, 75008 Paris (France) and registered with the Registre du Commerce et des Sociétés of Paris under number 404 380 305, acting in its name and for and on behalf of the FCPR Matignon Investissements, a venture enterprise investment fund (governed by the Act of December 23, 1988), and represented by Mr. de Massignac, its managing director;

Société Générale Asset Management, a French limited company (société anonyme) with a share capital of ** euros, having its registered office at 2, place de la Coupole, 92400 Courbevoie (France) and registered with the Registre du Commerce et des Sociétés of Nanterre (France) under number 308 396 308, acting for and on behalf of the FCPI SOGE Innovation, a venture capital investment fund, and represented by

Société Générale Asset Management, a French limited company (société anonyme) with a share capital of ** euros, having its registered office at 2, place de la Coupole, 92400 Courbevoie (France) and registered with the Registre du Commerce et des Sociétés of Nanterre (France) under number 308 396 308, acting for and on behalf of the FCPI SOGE Innovation 2, a venture capital investment fund, and represented by

Société Générale Asset Management, a French limited company (société anonyme) with a share capital of ** euros, having its registered office at 2, place de la Coupole, 92400 Courbevoie (France) and registered with the Registre du Commerce et des Sociétés of Nanterre (France) under number 308 396 308, acting for and on behalf of the FCPI SGAM Innovation 1, a venture capital investment fund, and represented by

(hereinafter jointly referred to as the "Major Shareholders")

AND

TRANSGENOMIC, INC., a corporation organized under the laws of the State of Delaware U.S.A., with its registered office at Omaha (Nebraska, U.S.A.), represented by Collin J. D'Silva, its President and Chief Executive Officer;

(hereinafter referred as the "Lender")

WITH THE PARTICIPATION OF

GENODYSSEE S.A., a French limited company (société anonyme) with a share capital of ** euros, having its registered office at Parc Affaires Technopolis, 3, avenue du Canada, BP 810 Les Ulis, 91974 Courtaboeuf, France and registered with the Registre du Commerce et des Sociétés of Evry under number 424 796 548, represented by Mr. Jean-Louis Escary, its Président-Directeur Général;

(hereinafter referred as the "Company")

PREAMBLE

WHEREAS, pursuant to a certain Term Loan Agreement, dated as of even date herewith (the "Loan Agreement", capitalized terms used herein and not otherwise defined shall have the meanings assigned

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thereto in the Loan Agreement as in effect on the date hereof), by and among the Company and the Lender, the Lender has agreed to advance U.S. $1,500,000 to the Company;

WHEREAS, pursuant to Section 4.03 of the Loan Agreement, the Loan may be repaid by means of an issuance of shares of the Company;

WHEREAS, pursuant to Section 4.03 of the Loan Agreement, if a Qualified Offering is proposed prior the Maturity Date, the Company has agreed to use its commercially reasonable efforts (i) to cause the capital increase required in order to issue securities to the Lender to be submitted to the vote of the shareholders of the Company at the same extraordinary general meeting as the Qualified Offering and so (ii) to have such capital increase put on the agenda of such general meeting by its board of directors convening it and (iii) to have such capital increase in favor of the Lender voted on by its shareholders in accordance with French law;

WHEREAS, pursuant to Section 4.03 of the Loan Agreement, in the event that a Qualified Offering is not consummated prior to the Maturity Date, the Company has agreed to use its commercially reasonable efforts (i) to have an extraordinary general meeting convened by its board of directors prior the end of February 28, 2003 with a capital increase in favor of the Lender on its agenda and (ii) to have the said capital increase in favor of the Lender voted on by its shareholders in accordance with French law; and

WHEREAS, at the date hereof, the Major Shareholders hold together 74.16% of the Company's share capital, it being understood by the parties hereto that the qualified majority required for a vote at an extraordinary general meeting of the shareholders is 66.66% of such share capital;

NOW, THEREFORE, the Major Shareholders have agreed to make the following undertakings in order to ensure the affirmative vote of a capital increase in favor of the Lender under the conditions set forth in Section 4.03 of the Loan Agreement.

UNDERTAKINGS

Section 1        A Qualified Offering is proposed prior to the Maturity Date

If a Qualified Offering is proposed prior the Maturity Date:

(a)    each Major Shareholder of the Company, on the condition that it is a member of the board of directors at that time, undertakes to use its commercially reasonable efforts to convene an extraordinary general meeting of the shareholders of the Company so as to vote for a capital increase of the Company in order to issue new shares of the Company to the Lender in addition to the capital increase with respect to the Qualified Offering;

(b)    each Major Shareholder of the Company, on the condition that it is a member of the board of directors at that time, undertakes to use its commercially reasonable efforts to put on the agenda of the extraordinary general meeting of the shareholders which will vote the Qualified Offering a resolution with respect to the issuance of shares to the Lender in full repayment of the Loan and a resolution with respect to the waiver by the existing shareholders of the Company of their preferential subscription right over these new shares, and;

(c)    the Major Shareholders undertake to vote in favor of such resolutions at such extraordinary general meeting convened by the board of directors in accordance with French law.

Section 2        In the event that a Qualified Offering is not consummated prior to the Maturity Date

In the event that a Qualified Offering is not consummated prior to the Maturity Date:

(a)    each Major Shareholder of the Company, on the condition that it is a member of the board of directors on the Maturity Date, undertakes to use its commercially reasonable efforts to convene prior

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the end of February 28, 2003 an extraordinary general meeting of the shareholders of the Company so as to vote for a capital increase of the Company in order to issue new shares of the Company to the Lender;

(b)    each Major Shareholder of the Company, on the condition that it is a member of the board of directors on the Maturity Date, undertakes to use its commercially reasonable efforts to put on the agenda of such an extraordinary general meeting of the shareholders a resolution with respect to the issuance of shares to the Lender in full repayment of the Loan and a resolution with respect to the waiver by the existing shareholders of the Company of their preferential subscription right over these new shares; and

(c)    The Major Shareholders undertake to vote in favor of such resolutions at such extraordinary general meeting convened by the board of directors in accordance with French law.

Section 3 Transferee or subscriber of newly issued shares

No Major Shareholder shall transfer its shares in the Company or approve the transfer of shares in the Company by another Major Shareholder (to the extent such approval is required) if such transfer would cause the Major Shareholders collectively to hold less than the qualified majority required for a vote at an extraordinary general meeting of the shareholders of the Company, unless the transferee of such shares agrees to enter into irrevocable undertakings identical to the shareholders' undertakings contained herein.

Section 4 Shareholders' agreement

Once the Lender has been repaid by means of issuance of shares of the Company, the Major Shareholders undertake to use their commercially reasonable efforts to have the Shareholder's Agreement dated September 8, 2000 amended in order to take into account the holding of the Lender, it being understood that the assent of all other parties thereto will also be required for such amendment of the Shareholders' Agreement.

MISCELLANEOUS

Section 5 Governing Law

These undertakings shall be governed by and construed in accordance with French law.

Section 6 Term and termination

These undertakings shall expire and be of no further effect or force upon the earlier of (ii) the Loan being repaid either in cash or in shares and (ii) the termination of the Loan Agreement for any reason.

IN WITNESS WHEREOF, each the parties have caused this Agreement to be duly executed as of the day and year first above written.

/s/  JEAN LOUIS ESCARY Jean-Louis Escary

/s/  MARIE PIERRE SCHMITZ Marie-Pierre Schmitz

/s/  DIDIER LANSON Didier Lanson

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Illegible Matignon Investissement et Gestion
Represented by

Illegible FCPR Matignon Investissements
Represented by

/s/  J. GRIMALIN FCPI SOGE Innovation
Represented by J. Grimalin

/s/  J. GRIMALIN FCPI SOGE Innovation 2
Represented by J. Grimalin

/s/  J. GRIMALIN FCPI SGAM Innovation 1
Represented by J. Grimalin

/s/  COLLIN J. D'SILVA Transgenomic (the Lender)
Represented by Collin J. D'Silva,

/s/  JEAN LOUIS ESCARY Genodyssee (the Company)
represented by Jean-Louis Escary

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Exhibit 10.2