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PRPO Precipio

Filed: 7 May 17, 8:00pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

SCHEDULE 14A
 
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 2)



 
Filed by the Registrantþ
Filed by a Party other than the Registranto

Check the appropriate box:

þPreliminary Proxy Statement
oConfidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
oDefinitive Proxy Statement
oDefinitive Additional Materials
oSoliciting Material Pursuant to §240.14a-12

TRANSGENOMIC, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

oNo fee required.
oFee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)Title of each class of securities to which transaction applies:

Precipio Diagnostics, LLC membership interests

(2)Aggregate number of securities to which transaction applies:

3,820,811

(3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

$0.2572294 per unit, calculated in accordance with Rule 0-11(c)(1)(i) based on the stated value of the membership interests being acquired by the registrant, who is the acquiring person, established in accordance with Rule 0-11(a)(4) for securities of issuers with an accumulated capital deficit based on one third of the stated value of such membership interests (determined based on the stated value of the target company’s membership interests at December 31, 2016 of $2,948,475), or $982,825 in the aggregate.

(4)Proposed maximum aggregate value of transaction:

$982,825

(5)Total fee paid:

$113.91

þFee paid previously with preliminary materials.
oCheck box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)Amount Previously Paid:

(2)Form, Schedule or Registration Statement No.:

(3)Filing Party:

(4)Date Filed:


 
 

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May [•], 2017

To the Stockholders of Transgenomic, Inc.:

We cordially invite you to attend a special meeting of the stockholders of Transgenomic, Inc. (“Transgenomic”) to be held at Troutman Sanders LLP’s offices located at 1001 Haxall Point, Richmond, Virginia 23219 on May [•], 2017 at 10:00 a.m., local time.

On October 12, 2016, Transgenomic entered into an Agreement and Plan of Merger, as amended on February 2, 2017, (as amended, the “Merger Agreement”) with New Haven Labs Inc., or Merger Sub, which is a wholly owned subsidiary of Transgenomic, and Precipio Diagnostics, LLC, or Precipio. Precipio is a privately held company specializing in harnessing the advanced expertise of leading academic researchers to provide oncologists with a superior level of diagnostic accuracy for their cancer patients. At the effective time of the merger, Merger Sub will merge with and into Precipio, with Precipio as the surviving entity. Following the merger, Transgenomic will change its name to Precipio, Inc. (“New Precipio”).

When the merger is completed, (i) the outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of common stock of New Precipio (“New Precipio common stock”), together with cash in lieu of fractional units, which will result in Precipio common unit holders owning approximately 52% of the issued and outstanding shares of New Precipio common stock on a fully diluted basis, taking into account the issuance of shares of convertible preferred stock of New Precipio (“New Precipio preferred stock”) in the merger, upon conversion of certain secured indebtedness of Transgenomic, and in the private placement as discussed below (the “fully diluted New Precipio common stock”) and (ii) the outstanding preferred units of Precipio will be converted into the right to receive approximately 24.1 million shares of New Precipio preferred stock with an aggregate face amount equal to $3 million (based upon the purchase price of the new preferred stock of New Precipio in the new preferred stock financing), which will result in the Precipio preferred unit holders owning approximately 8% of the fully diluted New Precipio common stock.

In connection with the merger, at the effective time, in addition to the New Precipio preferred stock to be issued to holders of preferred units of Precipio, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock to holders of certain secured indebtedness of Transgenomic, whereby such holders will receive in exchange for such indebtedness, approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million, which represents approximately 8% of the fully diluted New Precipio common stock, and approximately 10.4 million shares of New Precipio common stock, which represents approximately 3% of the fully diluted New Precipio common stock.

In addition and as a condition to the merger and conversion of secured debt, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock in a related private placement, whereby New Precipio will issue for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to investors in a private placement, which represents approximately 18% of the fully diluted New Precipio common stock.

Upon completion of the merger, the conversion of secured debt and the private placement, the current holders of Transgenomic common stock will own approximately 9% of the fully diluted New Precipio common stock.

Transgenomic is also requesting your approval of the issuance of 2,999,836 shares of Transgenomic common stock upon the exercise or exchange of certain warrants issued by Transgenomic in 2016 (the “Warrants”).

Shares of Transgenomic common stock currently trade on the OTCQB Market (“OTCQB”). Prior to February 22, 2017 and at the time the parties entered into the Merger Agreement on October 12, 2016, shares


 
 

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of Transgenomic common stock were listed on the Nasdaq Capital Market (“Nasdaq”). Additionally, Transgenomic has agreed to use commercially reasonable efforts to have shares of New Precipio common stock listed on Nasdaq following the merger. Pursuant to the rules of Nasdaq, (i) the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, the conversion of secured debt and the related private placement, including the shares of New Precipio common stock that may be issued upon future conversion of New Precipio preferred stock, and (ii) the issuance of Transgenomic common stock upon the exercise of the Warrants requires approval of Transgenomic’s stockholders because each issuance exceeds 20% of the number of shares of Transgenomic common stock outstanding prior to the issuance. Further, the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, including the shares that may be issued upon future conversion of New Precipio preferred stock, requires approval of Transgenomic’s stockholders under Nasdaq rules because such issuance will result in a “change of control” of Transgenomic.

On February 17, 2017, Transgenomic received written notification from the staff of Nasdaq that, as a result of Transgenomic’s inability to maintain certain Nasdaq continued listing requirements, Nasdaq had determined to delist Transgenomic’s shares from Nasdaq. Accordingly, trading in Transgenomic’s shares was suspended, and on February 22, 2017, Transgenomic’s shares began trading on the OTCQB under the ticker “TBIO”. Transgenomic has filed an initial listing application with Nasdaq relating to New Precipio common stock. After completion of the merger, Transgenomic anticipates New Precipio common stock will trade on Nasdaq under the symbol “PRPO.”

In addition, Transgenomic is requesting your approval of the Transgenomic, Inc. 2017 Stock Option and Incentive Plan (the “2017 Stock Option and Incentive Plan”).

At the special meeting, you will be asked to consider and vote on:

a proposal to approve the issuance of shares of New Precipio common stock and New Precipio preferred stock pursuant to the merger, including shares of New Precipio common stock to be issued upon conversion of New Precipio preferred stock to be issued in the merger and the resulting “change of control” of Transgenomic;
a proposal to approve the issuance of shares of New Precipio common stock and New Precipio preferred stock to holders of certain secured indebtedness of Transgenomic, whereby such holders will receive in exchange for such indebtedness shares of New Precipio common stock and New Precipio preferred stock, including shares of New Precipio common stock to be issued upon conversion of New Precipio preferred stock;
a proposal to approve the issuance of shares of New Precipio preferred stock pursuant to a private placement, including shares of New Precipio common stock to be issued upon conversion of New Precipio preferred stock to be issued in the private placement;
a proposal to approve the issuance of shares of Transgenomic common stock to be issued upon the exercise or exchange of the Warrants;
a proposal to approve the 2017 Stock Option and Incentive Plan;
a proposal to approve, on a non-binding, advisory basis, payment by Transgenomic of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger; and
a proposal to adjourn the special meeting of stockholders, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the other proposals.

The board of directors of Transgenomic has determined that the Merger Agreement, the merger, the issuance of New Precipio common stock and New Precipio preferred stock pursuant to the merger, the conversion of secured debt and the related private placement, the issuance of New Precipio common stock upon conversion of New Precipio preferred stock and the resulting “change of control” of Transgenomic, the issuance of shares of Transgenomic common stock upon exercise or exchange of the Warrants and the 2017


 
 

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Stock Option and Incentive Plan are advisable and in the best interests of Transgenomic stockholders and has approved the Merger Agreement, the merger, the issuance of New Precipio common stock and New Precipio preferred stock pursuant to the merger, the conversion of secured debt and the related private placement, the issuance of New Precipio common stock upon conversion of New Precipio preferred stock and the resulting “change of control” of Transgenomic, the issuance of shares of Transgenomic common stock upon exercise of the Warrants and the 2017 Stock Option and Incentive Plan.Accordingly, the board of directors of Transgenomic recommends that you vote “FOR” the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic, “FOR” the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock to holders of certain secured indebtedness of Transgenomic in exchange for such indebtedness and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, “FOR” the proposal to approve the issuance of New Precipio preferred stock in connection with the merger in the related private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, “FOR” the proposal to approve the issuance of Transgenomic common stock upon exercise of the Warrants, “FOR” the proposal to approve the 2017 Stock Option and Incentive Plan, “FOR” the proposal to approve payment by Transgenomic of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger and “FOR” the proposal to adjourn the special meeting, if necessary, to enable us to solicit additional proxies.

Your vote is very important. We cannot complete the merger, the conversion of secured debt and the private placement without the approval of the issuance of New Precipio common stock, including the shares that may be issued upon future conversion of New Precipio preferred stock. This approval requires the affirmative vote of the holders of a majority of the common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Even if you plan to attend the special meeting, we recommend that you submit your proxy before the special meeting so that your vote will be counted if you later decide not to attend the meeting. You can also vote your shares via the Internet or by telephone as provided in the instructions set forth on the enclosed proxy card. If you hold your shares in “street name” through a broker, you should follow the procedures provided by your broker.

The accompanying proxy statement explains the proposed merger, the conversion of secured debt, private placement and other proposals in greater detail. We urge you to carefully read this proxy statement, including the annexes and information incorporated by reference and the matters discussed under “Risk Factors” beginning on page 20.

Sincerely,
 
[INSERT SIGNATURE PICTURE]

Paul Kinnon
President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the proposed issuance of shares of New Precipio common stock and New Precipio preferred stock in connection with the merger, the conversion of secured debt and the private placement or determined whether this proxy statement is truthful or complete. Any representation to the contrary is a criminal offense.

This proxy statement is dated May [•], 2017 and is first being mailed to Transgenomic stockholders on or about May [•], 2017.


 
 

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REFERENCE TO ADDITIONAL INFORMATION

The documents that are incorporated by reference in this proxy statement are included with this proxy statement. You also may obtain documents that are incorporated by reference in this proxy statement without charge by requesting them in writing or by telephone from Transgenomic at:

Transgenomic, Inc.
12325 Emmet Street
Omaha, Nebraska 68164
Attention: Corporate Secretary

In addition, you may also obtain these and other documents filed with the Securities and Exchange Commission at Transgenomic’s website atwww.transgenomic.com/ir/investor-information.

Please note that copies of the documents provided to you will not include exhibits, unless the exhibits are specifically incorporated by reference in the documents or this proxy statement.

In order to receive timely delivery of requested documents in advance of the special meeting, you should make any written or telephonic requests by no later than May [•], 2017. Documents will be distributed within one business day of receipt of such request.

For a more detailed description of the information incorporated by reference in this proxy statement and how you may obtain it, see the section entitled “Where You Can Find Additional Information” on page 136.


 
 

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
 
To be held on May [•], 2017

To the Stockholders of Transgenomic, Inc.:

A special meeting of stockholders of Transgenomic, Inc., a Delaware corporation (“Transgenomic”), will be held at Troutman Sanders LLP’s offices at 1001 Haxall Point, Richmond, Virginia 23219 on May [•], 2017 at 10:00 a.m., local time, for the following purposes:

 
Proposal No. 1: To approve the issuance of 160,585,422 shares of common stock, par value $0.01 per share, as well as 24,087,813 shares of senior convertible preferred stock to be issued, pursuant to the Merger Agreement, dated as of October 12, 2016 and amended as of February 2, 2017, by and among Transgenomic, New Haven Labs Inc., which is a wholly owned subsidiary of Transgenomic, and Precipio Diagnostics, LLC (“Precipio”), and the issuance of 24,087,813 shares of common stock issuable upon conversion of such senior convertible preferred stock and the resulting “change of control” of Transgenomic.
Proposal No. 2: To approve the issuance of 24,087,813 shares of senior convertible preferred stock and approximately 10.4 million shares of common stock to holders of certain secured indebtedness of Transgenomic in exchange for such indebtedness and the issuance of 24,087,813 shares of common stock issuable upon conversion of such senior convertible preferred stock.
Proposal No. 3: To approve the issuance of 56,204,898 shares of senior convertible preferred stock to be issued to investors in a related private placement and the issuance of 56,204,898 shares of common stock issuable upon conversion of such senior convertible preferred stock.
Proposal No. 4: To approve the issuance of 2,999,836 shares of Transgenomic common stock upon exercise or exchange of certain outstanding warrants.
Proposal No. 5: To approve the Transgenomic, Inc. 2017 Stock Option and Incentive Plan.
Proposal No. 6: To approve, on a non-binding, advisory basis, payment by Transgenomic of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger.
Proposal No. 7: To approve a proposal to adjourn the special meeting of Transgenomic stockholders, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting of Transgenomic stockholders to approve the other proposals.

Please refer to the accompanying proxy statement for further information with respect to the business to be transacted at the special meeting of stockholders.

The close of business on April 12, 2017 has been fixed as the record date for determining those Transgenomic stockholders entitled to notice of and to vote at the special meeting. Accordingly, only stockholders of record at the close of business on that date will receive this notice of, and be eligible to vote at, the special meeting and any adjournments of the special meeting.


 
 

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If Transgenomic is to complete the merger with Precipio, the conversion of secured debt and the private placement, then Transgenomic’s stockholders must approve Proposals No. 1, No. 2 and No. 3 relating to the issuance of common stock and senior convertible preferred stock. A vote against any of Proposals No. 1, No. 2 or No. 3 will be a vote against the merger and the related transactions.

The Transgenomic Board recommends that you vote“FOR”each of the above proposals.

Your vote is important.  Please read the proxy statement and the instructions on the enclosed proxy card and, whether or not you plan to attend the special meeting in person and no matter how many shares you own, please submit your proxy promptly by telephone or via the Internet in accordance with the instructions on the enclosed proxy card, or by completing, dating and returning your proxy card in the envelope provided. Returning your proxy by one of these three methods will not prevent you from voting in person at the special meeting. It will, however, help assure a quorum and to avoid added proxy solicitations.

You may revoke your proxy at any time before the vote is taken by delivering to the Secretary of Transgenomic a written revocation or a proxy with a later date (including a proxy by telephone or via the Internet) or by voting your shares in person at the special meeting, in which case your proxy would be disregarded.

By order of the Board of Directors
 
[INSERT SIGNATURE PICTURE]
 
Paul Kinnon
President and Chief Executive Officer
 
May [•], 2017


 
 

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TABLE OF CONTENTS

 
 Page
SUMMARY TERM SHEET FOR THE MERGER, CONVERSION OF SECURED DEBT AND RELATED PRIVATE PLACEMENT  1 
QUESTIONS AND ANSWERS  4 
SUMMARY  9 
The Merger  9 
Conversion of Secured Debt  10 
Private Placement  10 
Transgenomic’s Reasons for the Transaction  10 
Opinion of Craig-Hallum Capital Group LLC  11 
The Companies  11 
Board of Directors and Management of New Precipio Following the Transaction  12 
The Special Meeting of Transgenomic Stockholders  13 
The Merger Agreement  15 
The Voting Agreements  17 
Third Party Approvals Required for the Merger with Precipio  17 
Conversion of Outstanding Debt and Convertible Preferred Stock  17 
Regulatory Matters  17 
Nasdaq Listing  18 
Federal Securities Law Consequences; Resale Restrictions  18 
Material U.S. Federal Income Tax Consequences of the Merger  18 
Anticipated Accounting Treatment  18 
PER SHARE MARKET PRICE DATA  19 
RISK FACTORS  20 
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS  26 
THE SPECIAL MEETING  27 
Date, Time and Place  27 
Purpose of the Special Meeting  27 
Record Date; Shares Outstanding and Entitled to Vote  27 
How to Vote Your Shares  28 
How to Change Your Vote  28 
Proxies; Counting Your Vote  29 
Abstentions and Broker “Non-Votes”  29 
Quorum and Required Votes  30 
Solicitation of Proxies  32 
Recommendation of the Transgenomic Board  32 
THE TRANSACTION  33 
Background of the Transaction  33 
Transgenomic’s Reasons for the Transaction  41 

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 Page
Opinion of Craig-Hallum Capital Group LLC  44 
Certain Financial Information  59 
Board of Directors and Management of New Precipio Following the Transaction  60 
Interests of Transgenomic’s Executive Officers and Directors in the Transaction  61 
Conversion of Outstanding Debt  63 
Bridge Financing  66 
Third Party Approvals Required for the Merger and the Private Placement  67 
Regulatory Matters  67 
Nasdaq Listing  68 
Federal Securities Law Consequences; Resale Restrictions  68 
Anticipated Accounting Treatment  69 
Material U.S. Federal Income Tax Consequences of the Merger  69 
No Appraisal Rights  69 
Independent Registered Public Accounting Firm  69 
PROPOSAL NO. 1 APPROVAL OF THE ISSUANCE OF NEW PRECIPIO COMMON STOCK AND NEW PRECIPIO PREFERRED STOCK IN CONNECTION WITH THE MERGER  71 
Effect of the Proposed Issuance of Common Stock and Preferred Stock  72 
Vote Required and Board of Directors Recommendation  72 
THE MERGER AGREEMENT  73 
General; Structure of Transaction  73 
Closing of the Transaction  74 
Consideration for the Transaction  74 
Representations and Warranties  74 
Covenants  76 
Conditions to Closing the Transaction  81 
Termination  82 
Effect of Termination  83 
Expenses  84 
Amendments  84 
THE VOTING AGREEMENTS  85 
Transgenomic Voting Agreement  85 
Precipio Voting Agreement  87 
Lock Up Agreements  89 
PROPOSAL NO. 2 CONVERSION OF SECURED DEBT  90 
General  90 
Conversion of Outstanding Debt and Convertible Preferred Stock  90 
Effect of the Proposed Issuance of Preferred Stock and Common Stock  91 
Vote Required and Board of Directors Recommendation  91 

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 Page
PROPOSAL NO. 3 THE PRIVATE PLACEMENT  92 
General  92 
Summary of Terms of the New Precipio Preferred Stock  92 
Investor Rights Agreement  93 
Fees and Expenses  93 
Effect of the Proposed Issuance of Preferred Stock and Common Stock  93 
Vote Required and Board of Directors Recommendation  94 
PROPOSAL NO. 4 APPROVAL OF THE ISSUANCE OF TRANSGENOMIC, INC. COMMON STOCK UPON EXERCISE OR EXCHANGE OF THE WARRANTS  95 
Certain Terms of the Warrants  95 
Crede Warrants  97 
Third Security Investors Warrant  97 
Federal Securities Laws Issues  98 
Effect of the Proposed Issuance of Common Stock  98 
Vote Required and Board of Directors Recommendation  98 
PROPOSAL NO. 5 APPROVAL OF 2017 STOCK OPTION AND INCENTIVE PLAN  99 
Proposal  99 
Vote Required and Board of Directors Recommendation  99 
Summary of Material Features of the 2017 Plan  99 
Qualified Performance-Based Compensation under Section 162(m) of the Code  100 
Summary of the 2017 Plan  101 
Plan Benefits  104 
Tax Aspects under the Code  104 
2016 Executive Compensation  106 
Compensation Risk Analysis  110 
Director Compensation  110 
PROPOSAL NO. 6 APPROVAL OF ADVISORY COMPENSATION PROPOSAL  113 
Vote Required  113 
PROPOSAL NO. 7 APPROVAL OF POSSIBLE ADJOURNMENT OF THE SPECIAL MEETING  114 
Vote Required  114 
PRECIPIO BUSINESS DESCRIPTION  115 
PRECIPIO MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  116 
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF TRANSGENOMIC, INC  121 
DESCRIPTION OF TRANSGENOMIC CAPITAL STOCK  128 
General  128 
Common Stock  128 
Preferred Stock  128 

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SUMMARY TERM SHEET FOR THE MERGER, CONVERSION OF
SECURED DEBT AND RELATED PRIVATE PLACEMENT

The following is a summary of the proposed transaction between Transgenomic, Inc. (“Transgenomic”) and Precipio Diagnostics, LLC (“Precipio”) pursuant to which a wholly owned subsidiary of Transgenomic will merge with and into Precipio and holders of Precipio common units will receive shares of common stock of the combined company (the “New Precipio common stock”) and holders of Precipio preferred units will receive senior convertible preferred stock (the “New Precipio preferred stock”). At the effective time of the merger, Transgenomic will change its name to Precipio, Inc. The new combined company will be referred to in this proxy statement as “New Precipio.” In connection with the merger, New Precipio also will issue New Precipio preferred stock to certain Transgenomic secured debt holders in exchange for such indebtedness. In addition and as a condition to the merger and the conversion of the secured indebtedness, New Precipio will also issue New Precipio preferred stock to certain other investors in a related private placement. Transgenomic is seeking stockholder approval of the issuance of New Precipio common stock in connection with the merger, the conversion of secured indebtedness and the related private placement. This term sheet is a summary and does not contain all of the information that may be important to you. You should carefully read this entire document, including the annexes and the other documents to which this document refers you, for a more complete understanding of the matters being considered at this special meeting. See the section entitled “Where You Can Find Additional Information” beginning on page 136.

Merger Agreement (see page 73)

On October 12, 2016, Transgenomic entered into an Agreement and Plan of Merger, as amended on February 2, 2017, with New Haven Labs Inc. (“Merger Sub”), which is a wholly owned subsidiary of Transgenomic, and Precipio (as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, at the effective time of the merger, Merger Sub will merge with and into Precipio, with Precipio as the surviving entity. At the effective time of the merger, Transgenomic will change its name to Precipio, Inc.
When the merger is completed, (i) the outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of New Precipio common stock, together with cash in lieu of fractional units, which will result in Precipio common unit holders owning approximately 52% of the issued and outstanding shares of New Precipio common stock on a fully diluted basis, taking into account the issuance of shares New Precipio preferred stock in the merger and the private placement as discussed below (the “fully diluted New Precipio common stock”) and (ii) the outstanding preferred units of Precipio will be converted into the right to receive approximately 24.1 million shares of New Precipio preferred stock with an aggregate face amount equal to $3 million, which will result in the Precipio preferred unit holders owning approximately 8% of the fully diluted New Precipio common stock.
Upon completion of the merger, the conversion of secured debt and the private placement, the current holders of Transgenomic common stock will own approximately 9% of the fully diluted New Precipio common stock.

Conversion of Secured Debt (see page 90)

In connection with the merger, at the effective time, in addition to the New Precipio preferred stock to be issued to holders of preferred units of Precipio, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock to holders of certain secured indebtedness of Transgenomic, whereby such holders will receive in exchange for such indebtedness, approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million, which represents approximately 8% of the fully diluted New Precipio common stock, and approximately 10.4 million shares of New Precipio common stock, which represents approximately 3% of the fully diluted New Precipio common stock.

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Private Placement (see page 92)

In addition and as a condition to the merger and conversion of secured debt, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock in a related private placement, whereby New Precipio will issue for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to investors in a private placement, which represents approximately 18% of the fully diluted New Precipio common stock.
The New Precipio preferred stock issued in the merger and the private placement will be issued based on a $25 million pre-money equity valuation of New Precipio and will represent, in the aggregate, approximately 34% of the fully diluted New Precipio common stock.
In connection with the private placement, New Precipio will enter into an investor rights agreement with the holders of the New Precipio preferred stock. The investor rights agreement will grant rights to such parties, including with respect to the designation of nominees for election to the New Precipio board of directors upon the closing of the merger. The investor rights agreement also will contain transfer restrictions relating to shares of New Precipio preferred stock that will be issued to such parties in connection with the merger and the private placement. In addition, the investor rights agreement gives such parties rights with respect to the registration under the Securities Act of 1933, as amended (the “Securities Act”) of the shares of New Precipio common stock to be issued to such parties, including the shares that may be issued upon future conversion of the New Precipio preferred stock.

Voting Agreements (see page 85)

Certain of Transgenomic’s stockholders have entered into a voting agreement with Transgenomic and Precipio (the “Transgenomic Voting Agreement”), pursuant to which such holders have agreed to, among other things, (i) authorize and approve the Merger Agreement and the transactions contemplated thereby and (ii) vote against any Acquisition Proposal (as defined in the Merger Agreement). Collectively, the voting interests held by these holders represent approximately 31.84% of Transgenomic’s voting interests as of October 12, 2016.
In connection with the merger, certain of Precipio’s unit, warrant and note holders have entered into a voting agreement with Transgenomic and Precipio (the “Precipio Voting Agreement” and, together with the Transgenomic Voting Agreement, the “Voting Agreements”), pursuant to which such members and warrant holders have agreed to, among other things, (i) authorize and approve the Merger Agreement and the transactions contemplated thereby and (ii) vote against any Acquisition Proposal (as defined in the Merger Agreement). Collectively, the voting interests held by these holders represent approximately 71% of Precipio’s voting interests as of October 12, 2016. The Precipio board of managers approved the Merger Agreement on October 11, 2016.

Conversion of Convertible Preferred Stock (see page 90)

The holders of Series A-1 Convertible Preferred Stock have agreed to convert their shares into New Precipio common stock immediately prior to the effectiveness of the merger.

Bridge Financing (see page 66)

On February 2, 2017, Precipio agreed to offer a line of credit to Transgenomic up to $250,000 pursuant to an unsecured promissory note (the “Precipio Bridge Loan”). All outstanding amounts under the Precipio Bridge Loan accrue interest at a rate of 10% per annum and are due and payable upon the earlier to occur of (a) the date that is 90 days following the date of the Precipio Bridge Loan or (b) the closing of the merger. The proceeds of the Precipio Bridge Loan will be used by Transgenomic to finance certain general expenses until the effective date of the merger. Transgenomic did not borrow any funds pursuant to the Precipio Bridge Loan.

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On April 13, 2017, Transgenomic completed the sale of an aggregate of $1.15 million of promissory notes (the “Bridge Notes”) in a $1.25 million bridge financing pursuant to a securities purchase agreement. Transgenomic may receive additional investments of up to $100,000 in connection with the bridge financing. The financing is intended to help facilitate the completion of the merger. Transgenomic received net proceeds of $1,031,000 from the sale of the Bridge Notes. In connection with the issuance of the Bridge Notes, Transgenomic issued warrants (the “Bridge Warrants”) to acquire 1.15 million shares of Transgenomic common stock at an exercise price of $0.50 per share, subject to anti-dilution protection. As part of the bridge financing, Transgenomic agreed to loan 50% of the net proceeds from the sale of the Bridge Notes to Precipio pursuant to a promissory note (the “Precipio Note”) with an original principal amount of up to $561,500 upon substantially the same terms and conditions as the Bridge Notes. Aegis Capital Corp. acted as placement agent for the bridge financing and received a placement agent fee of $84,000 and warrants (the “Aegis Warrants”) to acquire 168,000 shares of Transgenomic common stock at an exercise price of $0.50 per share. The Aegis Warrants are identical to the Bridge Warrants except that the Aegis Warrants do not have anti-dilution protection.

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QUESTIONS AND ANSWERS

Q1:What is the merger transaction?
A1:Transgenomic has entered into a Merger Agreement with Merger Sub and Precipio. Pursuant to the Merger Agreement, at the effective time of the merger, Merger Sub will merge with and into Precipio, with Precipio as the surviving entity. At the effective time, Transgenomic will amend its certificate of incorporation to change its name to Precipio, Inc., which will be referred to in this proxy statement as “New Precipio.” In connection with the merger, New Precipio also will issue to holders of certain secured indebtedness of Transgenomic, approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million and approximately 10.4 million shares of New Precipio common stock. New Precipio will also issue to new investors in a private placement up to approximately 56.2 million shares of New Precipio preferred stock for up to $7 million in cash.
Q2:What am I being asked to vote on?
A2:You are being asked to approve the issuance of approximately 160.6 million shares of New Precipio common stock, as well as approximately 24.1 million shares of New Precipio preferred stock to be issued, pursuant to the Merger Agreement, the issuance of approximately 24.1 million shares of New Precipio common stock issuable upon conversion of such convertible preferred stock and the resulting “change of control” of Transgenomic. This approval of the issuance of New Precipio common stock and New Precipio preferred stock and the resulting “change of control” is required to complete the merger with Precipio.
 You are also being asked to approve the issuance of approximately 24.1 million shares of New Precipio preferred stock, approximately 24.1 million shares of New Precipio common stock issuable upon conversion of such convertible preferred stock and approximately 10.4 million shares of New Precipio common stock to be issued in exchange for certain secured indebtedness of Transgenomic. This approval of the issuance of New Precipio common stock and New Precipio preferred stock is required to complete the merger with Precipio and the related private placement.
 You are also being asked to approve the issuance of approximately 56.2 million shares of New Precipio preferred stock to be issued to investors in a related private placement and the issuance of approximately 56.2 million shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock. This approval of the issuance of New Precipio preferred stock is required to complete the merger with Precipio and the conversion of the secured debt.
 You are also being asked to approve the issuance of 2,999,836 million shares of Transgenomic common stock upon the exercise or exchange of certain warrants issued by Transgenomic in 2016. This approval of the issuance of shares of Transgenomic common stock upon the exercise or exchange of warrants is not a condition to completing the merger, the conversion of secured debt or the private placement.
 You are also being asked to approve the Transgenomic, Inc. 2017 Stock Option and Incentive Plan (the “2017 Stock Option and Incentive Plan”). The approval of the 2017 Stock Option and Incentive Plan is not a condition to completing the merger, the conversion of the secured debt or the private placement.
 You are also being asked to approve, on a non-binding, advisory basis, payment by Transgenomic of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger. This proposal, commonly known as the “say-on-golden-parachute” proposal, gives Transgenomic stockholders the opportunity to vote, on a non-binding, advisory basis, on the compensation that Transgenomic’s named executive officers may be entitled to receive that is based on or otherwise relates to the merger.
 In addition, you may be asked to vote to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the other proposals. The approval of the adjournment of the special meeting of stockholders is not a condition to completing the merger, the conversion of the secured debt, the private placement or the 2017 Stock Option and Incentive Plan.

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Q3:How does the Transgenomic board of directors recommend that I vote?
A3:The Transgenomic board of directors recommends that you vote “FOR” the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic, “FOR” the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock to holders of certain secured indebtedness of Transgenomic in exchange for such indebtedness and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, “FOR” the proposal to approve the issuance of New Precipio convertible preferred stock in connection with the merger in the related private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, “FOR” the approval of the issuance of Transgenomic common stock upon exercise of the Warrants, “FOR” the approval of the 2017 Stock Option and Incentive Plan, “FOR” the approval, on a non-binding, advisory basis, of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger and “FOR” the approval of an adjournment of the special meeting, if necessary, to enable Transgenomic to solicit additional proxies in favor of the other proposals. Your vote is important.
Q4:How will Transgenomic’s directors and executive officers vote their shares of Transgenomic common stock in connection with the proposals?
A4:Certain Transgenomic stockholders, directors and executive officers, including its president and chief executive officer, have entered into a voting agreement pursuant to which they have agreed to vote their voting interests of Transgenomic in favor of the proposals to issue New Precipio common stock and the proposal to adjourn the meeting, if necessary. As of October 12, 2016, these directors and executive officers collectively held shares representing approximately 31.84% of Transgenomic’s voting interests.
 The Transgenomic Voting Agreement does not address the proposal to issue Transgenomic common stock upon exercise of the Warrants, or to approve the 2017 Stock Option and Incentive Plan or to approve the merger-related compensation.
Q5:Why is stockholder approval necessary for the issuance of New Precipio common stock in connection with the merger, conversion of secured debt and the private placement and the issuance of Transgenomic common stock in connection with the Warrant exercise?
A5:Shares of Transgenomic common stock currently trade on the OTCQB. Prior to February 22, 2017 and at the time the parties entered into the Merger Agreement on October 12, 2016, shares of Transgenomic common stock were listed on Nasdaq. Additionally, Transgenomic has agreed to use commercially reasonable efforts to have shares of New Precipio common stock listed on Nasdaq following the merger. Nasdaq rules require stockholder approval before the issuance of common stock if the common stock to be issued will have voting power equal to or greater than 20% of the voting power outstanding before the issuance, or if the number of shares of common stock to be issued will be equal to or greater than 20% of the number of shares of common stock outstanding before the issuance or if the issuance will result in a “change of control” of the issuer.
 The shares of New Precipio common stock and New Precipio preferred stock that will be issued in connection with the merger, the conversion of secured debt and the private placement, including the shares of New Precipio common stock that may be issued upon future conversion of the New Precipio preferred stock, exceed the thresholds under Nasdaq rules. The shares of Transgenomic common stock issuable upon exercise or exchange of the Warrants also will exceed the threshold under Nasdaq rules. Therefore, the issuances require the approval of the Transgenomic stockholders.

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Q6:Why did Transgenomic enter into the merger transaction?
A6:Transgenomic’s board of directors believes that the merger with Precipio and the related private placement will provide substantial benefits to the combined company’s business and operations by, among other things, leveraging the complementary nature of Transgenomic’s and Precipio’s businesses and permitting the companies to benefit from an increased operating scale. For additional information regarding Transgenomic’s reasons for entering into the Merger Agreement, conversion of secured debt and the private placement, see the section entitled “The Transaction — Transgenomic’s Reasons for the Transaction” beginning on page 41.
Q7:When is the transaction expected to be completed?
A7:Transgenomic and Precipio are working toward completing the merger as soon as practicable. Transgenomic currently expects that the merger and the private placement will close on or before May 31, 2017. In addition to stockholder approval of the issuance of New Precipio common stock, there are a number of additional conditions, including, but not limited to, approval of the listing of the additional shares of New Precipio common stock on Nasdaq and other third party consents, that must be satisfied before the parties can complete the transaction. See the section entitled “The Merger Agreement — Conditions to Closing the Transaction” beginning on page 81 for a more detailed discussion.
Q8:Do I need to send in my stock certificates if the transaction is completed?
A8:No. You will not be required to exchange your certificates representing shares of Transgenomic common stock in connection with this transaction. You will not receive any cash or securities in connection with the merger. Instead, you will continue to hold your existing shares of Transgenomic common stock.
Q9:Who can vote at the special meeting?
A9:Transgenomic has fixed the close of business on April 12, 2017 as the record date for the special meeting or any adjournment thereof, and only the holders of Transgenomic’s common stock and Series A-1 Convertible Preferred Stock on the record date can vote at the special meeting. As of the record date, 26,868,062 shares of Transgenomic common stock were outstanding and each share is entitled to one vote. As of the record date 214,705 shares of Transgenomic Series A-1 Convertible Preferred Stock were outstanding and each share is entitled to 0.93 votes.
Q10:What do I need to do now?
A10:After carefully reading and considering the information contained in this proxy statement, please submit your proxy by telephone or via the Internet in accordance with the instructions set forth in the enclosed proxy card, or complete, sign, date and mail your proxy card in the enclosed prepaid envelope as soon as possible so that your shares may be voted at the special meeting. See the section entitled “The Special Meeting — How to Vote Your Shares” on page 28 and the section entitled “The Special Meeting — Proxies; Counting Your Vote” on page 29 for a more detailed discussion.
Q11:What vote is required to approve the proposals?
A11:The proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic, the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock in in exchange for certain secured indebtedness of Transgenomic and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, the proposal to approve the issuance of New Precipio preferred stock to investors in a related private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, the proposal to issue Transgenomic common stock in connection with the exercise or exchange of the Warrants, the proposal to approve the 2017 Stock Option and Incentive Plan and the proposal to approve payment by Transgenomic of certain compensation to Transgenomic’s named executive officers must each be approved by the affirmative vote of the holders of a majority of the shares of Transgenomic’s common stock and

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Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present.
 The proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of the other proposals must be approved by the affirmative vote of the holders of a majority of Transgenomic’s common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting, whether or not a quorum is present.
 Abstentions will count as a vote “against” the proposals. Broker non-votes will have no effect on the proposals.
Q12:Are there any federal or state regulatory requirements that must be complied with or federal or state regulatory approvals or clearances that must be obtained in connection with the merger?
A12:Neither Transgenomic nor Precipio is required to make any filings or to obtain any approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the transactions contemplated by the Merger Agreement. Transgenomic must comply with applicable federal and state securities laws and regulations, and is complying with Nasdaq rules and regulations, in connection with the issuance of the shares of New Precipio common stock in the transaction, including the filing with the SEC, of this proxy statement. Transgenomic has filed an initial listing application with Nasdaq. If such application is accepted, Transgenomic anticipates that shares of New Precipio common stock will be listed on Nasdaq following the closing of the merger under the trading symbol “PRPO.”
Q13:If my shares are held in “street name” by my broker, will my broker vote my shares for me?
A13:If your shares are held in the name of a bank or broker or other nominee, you will receive separate instructions from your bank, broker or other nominee describing how to vote your shares. The availability of telephonic or Internet voting will depend on the bank’s or broker’s voting process. Please check with your bank or broker and follow the voting procedures your bank or broker provides.
 You should instruct your bank, broker or other nominee how to vote your shares. The rules applicable to broker-dealers do not grant your broker discretionary authority to vote your shares for any of the proposals without receiving your instructions. As a result, if your broker does not receive voting instructions from you regarding the proposals, your shares will not be voted.
Q14:May I change my vote after I have submitted a proxy by telephone or via the Internet or mailed my signed proxy card?
A14:Yes. You may change your vote at any time before your proxy is voted at the special meeting. You can do this in several ways. You can send a written notice stating that you want to revoke your proxy, or you can complete and submit a new proxy card. If you choose either of these methods, you must submit your notice of revocation or your new proxy card to Transgenomic’s Secretary at Transgenomic, Attention: Corporate Secretary, 12325 Emmet Street, Omaha, Nebraska 68164.
 You also can change your vote by submitting a proxy at a later date by telephone or via the Internet, in which case your later-submitted proxy will be recorded and your earlier proxy revoked.
 You also can attend the special meeting and vote in person. Simply attending the special meeting, however, will not revoke your proxy. To revoke your earlier proxy, you must vote at the special meeting.
 If you have instructed a broker to vote your shares, the preceding instructions do not apply, and you must follow the voting procedures received from your broker to change your vote.

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Q15:If I want to attend the special meeting, what do I do?
A15:You should come to Troutman Sanders LLP’s offices at 1001 Haxall Point, Richmond, Virginia 23219 on May [•], 2017 at 10:00 a.m. local time. Stockholders of record as of the record date for the special meeting (April 12, 2017) can vote in person at the special meeting. A valid government issued identification card will be required for entry to the special meeting. If your shares are held in street name, then you are not the stockholder of record and you must ask your bank, broker or other nominee holder how you can vote at the special meeting.
Q16:Who will bear the cost of soliciting votes for the special meeting?
A16:The Transgenomic board of directors is making this solicitation and will pay the costs of soliciting proxies, including clerical work, printing and postage. Transgenomic officers and other employees may personally solicit proxies or solicit proxies by mail, telephone, facsimile or Internet, but it will not provide compensation for such solicitations. Transgenomic has engaged Innisfree M&A Incorporated to assist it in the solicitation of proxies for the special meeting, and has agreed to pay Innisfree M&A Incorporated a fee of approximately $10,000, plus reasonable expenses, for proxy solicitation services. We will also reimburse banks, brokers and other persons holding shares in their names or in the names of nominees for expenses incurred sending material to beneficial owners and obtaining proxies from beneficial owners.
Q17:Who can help answer my questions?
A17:If you have any questions or need assistance in voting your shares, please call the firm assisting in the solicitation of proxies:

Innisfree M&A Incorporated
501 Madison Avenue
New York, NY 10022
Stockholders May Call: (888) 750-5834 (toll-free from the U.S. and Canada)
Banks and brokers may call collect: (212) 750-5833

You may also contact:

Transgenomic, Inc.
12325 Emmet Street
Omaha, Nebraska 68164
Attention: Corporate Secretary
Telephone: (402) 452-5400

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SUMMARY

This summary highlights selected information from this proxy statement. It does not contain all of the information that may be important to you. You should carefully read this entire document, including the annexes and the other documents to which this document refers you, for a more complete understanding of the matters being considered at the special meeting. See the section entitled “Where You Can Find Additional Information” beginning on page 136. Additionally, some of the statements contained in, or incorporated by reference into, this proxy statement are forward-looking statements. See the section entitled “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 26. All references in this proxy statement to dollars or $are to U.S. dollars. In this proxy statement, unless otherwise indicated, accounting principles generally accepted in the United States are referred to as “GAAP.” Except as the context otherwise requires, references in this proxy statement to “Transgenomic” are to Transgenomic, Inc. All share numbers and per share amounts provided in this proxy statement do not take into account the proposed reverse stock split at a ratio of between one to ten and one to thirty approved by the Transgenomic stockholders on October 31, 2016. Once the reverse stock split has become effective, it will apply equally to all outstanding shares of Transgenomic common stock and preferred stock as well as all shares of New Precipio common stock and preferred stock to be issued in the merger, the conversion of the secured debt and the private placement such that it will have no effect on the relative ownership of such shares before or after the reverse stock split. The reverse stock split must be effective prior to the completion of the merger, the conversion of the secured debt and the private placement in order for New Precipio to have sufficient authorized shares to complete such issuances.

The Merger (see page 73)

On October 12, 2016, Transgenomic entered into the Merger Agreement with New Haven Labs Inc. (“Merger Sub”), which is a wholly owned subsidiary of Transgenomic, and Precipio. Precipio is a privately held company specializing in harnessing the advanced expertise of leading academic researchers to provide oncologists with a superior level of diagnostic accuracy for their cancer patients. Pursuant to the Merger Agreement, at the effective time of the merger, Merger Sub will merge with and into Precipio, with Precipio as the surviving entity. At the effective time of the merger, Transgenomic will change its name to Precipio, Inc. (“New Precipio”).

When the merger is completed, (i) the outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of New Precipio common stock, together with cash in lieu of fractional units, which will result in Precipio common unit holders owning approximately 52% of the issued and outstanding shares of New Precipio common stock on a fully diluted basis, taking into account the issuance of shares New Precipio preferred stock in the merger and the private placement as discussed below (the “fully diluted New Precipio common stock”) and (ii) the outstanding preferred units of Precipio will be converted into the right to receive approximately 24.1 million shares of New Precipio preferred stock with an aggregate face amount equal to $3 million, which will result in the Precipio preferred unit holders owning approximately 8% of the fully diluted New Precipio common stock.

As provided in the Merger Agreement, the New Precipio board of directors will increase its size to seven at the effective time of the merger, two of whom will be current directors, three of whom will be nominated by Precipio and two of whom will be nominated by the holders of the New Precipio preferred stock issued in the private placement.

On February 2, 2017, Transgenomic and Precipio entered into an amendment to the Merger Agreement which provided for the Precipio Bridge Loan, set a fixed number of shares of New Precipio common stock and New Precipio preferred stock to be issued in the merger and waived certain conditions to the closing of the merger. The exchange ratio set forth in the amendment to the Merger Agreement results in each fully diluted New Precipio common unit being converted into 24.4255 shares of New Precipio common stock.

Upon completion of the merger, the conversion of secured debt and the private placement, the current holders of Transgenomic common stock will own approximately 9% of the fully diluted New Precipio common stock.

See the section entitled “The Merger Agreement” for a more detailed discussion.

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Conversion of Secured Debt (see page 90)

In connection with the merger, at the effective time, in addition to the New Precipio preferred stock to be issued to holders of preferred units of Precipio, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock to holders of certain secured indebtedness of Transgenomic, whereby such holders will receive in exchange for such indebtedness, approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million, which represents approximately 8% of the fully diluted New Precipio common stock, and approximately 10.4 million shares of New Precipio common stock, which represents approximately 3% of the fully diluted New Precipio common stock.

Private Placement (see page 92)

In addition and as a condition to the merger and conversion of secured debt, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock in a related private placement, whereby New Precipio will issue for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to investors in a private placement, which represents approximately 18% of the fully diluted New Precipio common stock.

The New Precipio preferred stock issued in the merger, the conversion of secured debt and the private placement will be issued based on a $25 million pre-money equity valuation of New Precipio and will represent, in the aggregate, approximately 34% of the fully diluted New Precipio common stock.

The New Precipio preferred stock to be issued in the merger and the private placement will be new designations of preferred shares effectuated by a Certificate of Designation amending Transgenomic’s Certificate of Incorporation. The cash proceeds received from the private placement will be used to finance the merger, for working capital and growth capital to expand into new markets.

The shares of New Precipio preferred stock may be convertible into New Precipio common stock any time at an applicable conversion price. Certain material corporate events also will require the consent of a supermajority of holders of the New Precipio preferred stock. In the event of New Precipio’s liquidation, dissolution or winding up, holders of the New Precipio preferred stock will be entitled to receive assets or surplus funds of New Precipio in an amount equal to the greater of (i) 1.5 times the original purchase price of the New Precipio preferred stock,plus an amount equal to all unpaid and accrued dividends and dividend equivalents and (ii) the amount that would be payable on the New Precipio preferred stock if it were converted into New Precipio common stock (the “Liquidation Preference”). This Liquidation Preference also would be due in the event of a future merger or sale of New Precipio, unless a supermajority of holders of New Precipio preferred stock elect otherwise. The New Precipio preferred stock will be entitled to an annual 8% cumulative payment in lieu of interest or dividends, payable in-kind for the first two years and in cash or in-kind thereafter, at the option of the holder. The New Precipio preferred stock also will be entitled to share on any dividends paid on the New Precipio common stock.

In connection with the private placement, New Precipio will enter into an investor rights agreement with the holders of the New Precipio preferred stock. The investor rights agreement will grant rights to such parties, including with respect to the designation of nominees for election to the New Precipio board of directors upon the closing of the merger. The investor rights agreement also will contain transfer restrictions relating to shares of New Precipio common stock that will be issued to such parties in connection with the merger and the private placement. In addition, the investor rights agreement gives such parties rights with respect to the registration under the Securities Act of the shares of New Precipio common stock to be issued to such parties, including the shares that may be issued upon future conversion of the New Precipio preferred stock.

See the section entitled “Private Placement” for a more detailed discussion.

Transgenomic’s Reasons for the Transaction (see page 41)

Transgenomic’s board of directors (the “Transgenomic Board”) has approved the merger with Precipio and determined that the merger, the conversion of secured debt, the private placement and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of Transgenomic and its stockholders. Accordingly, the Transgenomic Board has recommended that you vote “FOR” the

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proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic, “FOR” the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock to holders of certain secured indebtedness of Transgenomic in exchange for such indebtedness and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, and “FOR” the proposal to approve the issuance of New Precipio convertible preferred stock in connection with the merger in the related private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, based on its belief, in consultation with Transgenomic’s senior management, its outside legal counsel and its financial advisor, that the merger with Precipio, the conversion of secured debt and the private placement will provide substantial benefits to the combined company’s business and operations by, among other things, leveraging the complementary nature of Transgenomic’s and Precipio’s businesses and permitting the combined company to benefit from an increased operating scale. The factors that the Transgenomic Board and senior management considered in connection with the merger are described in more detail under the section entitled “The Transaction — Transgenomic’s Reasons for the Transaction.”

Opinion of Craig-Hallum Capital Group LLC (see page 44)

Craig-Hallum Capital Group LLC (“Craig-Hallum”) was engaged to render an opinion to the Transgenomic Board as to whether the exchange ratio, as set forth in the Merger Agreement, was fair, from a financial point of view, to the holders of Transgenomic common stock. On October 12, 2016, Craig-Hallum delivered to the Transgenomic Board its oral opinion, which was subsequently confirmed in writing, that, as of the date of its opinion, based upon and subject to the assumptions, limitations, qualifications, and factors contained in its opinion, the exchange ratio was fair, from a financial point of view, to the holders of Transgenomic common stock. The full text of the Craig-Hallum’s written opinion, dated October 12, 2016, is attached as Annex B to this proxy statement.

Craig-Hallum’s opinion speaks only as of the date of the opinion. The opinion was directed to the Transgenomic Board in connection with its consideration of the Merger Agreement and is directed only to the fairness, from a financial point of view, of the exchange ratio to holders of Transgenomic common stock. Craig-Hallum’s opinion does not constitute a recommendation to any holder of Transgenomic common stock as to how such holder of Transgenomic common stock should vote at any meeting of stockholders called to consider and vote upon the Merger Agreement. It does not address the underlying business decision of Transgenomic to engage in the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for Transgenomic or the effect of any other transaction in which Transgenomic might engage. For a more detailed description of Craig-Hallum’s opinion, see the section entitled “The Transaction — Opinion of Craig-Hallum Capital Group LLC” and Annex B to this proxy statement.

The Companies

Transgenomic, Inc.

Transgenomic, Inc.
12325 Emmet Street
Omaha, Nebraska 68164

Transgenomic is a biotechnology company advancing personalized medicine for the detection and treatment of cancer and inherited diseases through our proprietary molecular technologies and clinical and research services. A key goal is to bring the Multiplexed ICE COLD-PCR (“MX-ICP”) product to the clinical market through strategic partnerships and licensing agreements, enabling the use of blood and other bodily fluids for more effective and patient-friendly diagnosis, monitoring and treatment of cancer.

MX-ICP is technology proprietary to Transgenomic. It is a reagent that improves the ability to detect genetic mutations by 100 – 400 fold over existing technologies. This technology has been validated internally on all currently available sequencing platforms, including Sanger, Next Gen Sequencing and Digital PCR. By enhancing the level of detection of genetic mutations and suppressing the normal, or wild-type DNA, several benefits are provided. It is generally understood that most current technologies are unable to consistently

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identify mutations that occur in less than approximately 5% of a sample. However, many mutations found at much lower levels, even as low as 0.01%, are known to be clinically relevant and can have significant consequences to a patient: both in terms of how they will respond to a given drug or treatment and how a given tumor is likely to change over time. More importantly, in Transgenomic’s view, is the ability to significantly improve the level of detection while using blood, saliva and even urine as a source for DNA, rather than depending on painful, expensive and potentially dangerous tumor biopsies.

Transgenomic believes that this is an important advancement in patient care with respect to cancer detection, treatment and monitoring and can result in significant cost savings for the healthcare system by replacing invasive procedures with the simple collection of blood or other bodily fluids. By broadening the types of samples that can be used for testing and allowing all sequencing platforms to provide improved identification of low level mutations, MX-ICP has the potential to make testing more readily available, more patient friendly, enable genetic monitoring of disease progression, effectively guide treatment protocols, and reduce the overall cost of diagnosis and monitoring while significantly improving patient outcomes.

Transgenomic’s laboratory in Omaha, Nebraska is focused on providing genetic analytical services related to oncology and pharmacogenomics research services supporting Phase II and Phase III clinical trials conducted by pharmaceutical and biotechnology companies. Transgenomic’s laboratory employs a variety of genomic testing service technologies, including our proprietary MX-ICP technology. ICE COLD-PCR is a proprietary ultra-high sensitivity platform technology with breakthrough potential to enable wide adoption of personalized, precision medicine in cancer and other diseases. It can be run in any laboratory that contains standard PCR systems. MX-ICP enables detection of multiple known and unknown mutations from virtually any sample type, including tissue biopsies, blood, urine, saliva, cell-free DNA and circulating tumor cells at levels greater than 1,000-fold higher than standard DNA sequencing techniques. It is easy to implement and use within existing workflows. Transgenomic’s laboratory in Omaha is certified under the Clinical Laboratory Improvement Amendments (“CLIA”) as a high complexity laboratory and is accredited by the College of American Pathologists.

Precipio Diagnostics, LLC

Precipio Diagnostics, LLC
4 Science Park
New Haven, Connecticut 06511

Precipio is a cancer diagnostics company providing diagnostic services to the oncology market. Precipio has partnered with a premier academic institution to capture the expertise, experience and technologies developed within academia, and utilize them to solve the growing problem of misdiagnosis. It has built a platform that successfully translates that expertise into a commercial setting, enabling Precipio to provide a superior level of diagnostic accuracy within clinical services to the oncology market. Precipio is building a nationwide sales team that offers its services to oncologists and hospitals around the country. Specimens are shipped to its laboratory in New Haven, Connecticut where they are processed and diagnosed by academic experts at Yale School of Medicine; the end product is a pathology report which guides its customers, oncologists, as to the nature of their patients’ disease and helps them determine how best to care for their patient.

Board of Directors and Management of New Precipio Following the Transaction (see page 60)

Following the transaction, the New Precipio board of directors will be expanded to seven directors from five directors and three of the existing directors will resign. The five vacancies created by the resignations and authorization of the increase in the board size will be filled by two directors designated by the holders of the New Precipio preferred stock (the “preferred holder designees”) and three directors designated by Precipio upon the closing of the merger. The holders of the New Precipio preferred stock will have the right to designate the preferred holder designees for as long as they hold 50% of the shares issued in the private placement.

The Merger Agreement provides that the officers of New Precipio will be agreed to by the parties prior to the effective time of the merger. It is currently anticipated that the following current Precipio officers will serve as officers of New Precipio: Ilan Danieli, Chief Executive Officer; Carl Iberger, Chief Financial Officer;

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Zaki Sabet, Vice President, Operations; and Ayman Mohamed, Vice President, Research & Development. Steve Miller, Vice President, Business Development of Transgenomic, is expected to continue in that role.

The Special Meeting of Transgenomic Stockholders (see page 27)

Time; Date; Place.  Transgenomic will hold a special meeting of stockholders at Troutman Sanders LLP’s offices located at 1001 Haxall Point, Richmond, VA 23219 on May [•], 2017 at 10:00 a.m. local time.

Purpose of the Meeting.  At the special meeting, you will be asked to vote on the proposals described below. In addition, at the special meeting, Transgenomic may transact such other business as may properly come before the special meeting or any properly reconvened special meeting following an adjournment of the special meeting.

The Issuance of Common Stock and Preferred Stock in Connection with the Merger Proposal (Proposal No. 1).  You will be asked to approve the issuance of approximately 160.6 million shares of New Precipio common stock, as well as approximately 24.1 million shares of New Precipio preferred stock to be issued, pursuant to the Merger Agreement, the issuance of approximately 24.1 million shares of New Precipio common stock issuable upon conversion of such convertible preferred stock and the resulting “change of control” of Transgenomic. This approval of the issuance of New Precipio common stock and New Precipio preferred stock and the resulting “change of control” is required to complete the merger with Precipio.
The Issuance of Common Stock and Preferred Stock in Connection with the Conversion of Secured Debt Proposal (Proposal No. 2).  You will be asked to approve the issuance of approximately 24.1 million shares of New Precipio preferred stock, approximately 24.1 million shares of New Precipio common stock issuable upon conversion of New Precipio preferred stock and approximately 10.4 million shares of New Precipio common stock to be issued in exchange for certain secured indebtedness of Transgenomic. This approval of the issuance of New Precipio common stock and New Precipio preferred stock is required to complete the merger with Precipio and the related private placement.
The Issuance of Preferred Stock to Investors in Connection with the Private Placement Proposal (Proposal No. 3).  You will be asked to approve the issuance of approximately 56.2 million shares of New Precipio preferred stock to be issued to investors in a related private placement and the issuance of approximately 56.2 million shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock. This approval of the issuance of New Precipio preferred stock is required to complete the merger with Precipio, the conversion of the secured debt and the private placement.
The Issuance of Common Stock in Connection with the Exercise or Exchange of the Warrants Proposal (Proposal No. 4).  You will be asked to approve the issuance of 2,999,836 shares of Transgenomic common stock upon exercise or exchange of the Warrants. The approval of the issuance upon exercise or exchange of the Warrants is not a condition to completion of the merger with Precipio or the private placement.
The 2017 Stock Option and Incentive Plan Proposal (Proposal No 5).  You will be asked to approve the Transgenomic, Inc. 2017 Stock Option and Incentive Plan. The approval of the 2017 Stock Option and Incentive Plan is not a condition to completion of the merger with Precipio or the private placement.
The Advisory Compensation Proposal (Proposal No. 6).  You will be asked to approve, on a non-binding, advisory basis, payment by Transgenomic of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger. The approval of the advisory compensation proposal is not a condition to completion of the merger with Precipio or the private placement.

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The Adjournment Proposal (Proposal No. 7).  You may be asked to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the other proposals. The approval of the adjournment of the special meeting is not a condition to completion of the merger with Precipio or the private placement.

Record Date; Shares Entitled to Vote.  Transgenomic has fixed the close of business on April 12, 2017 as the record date for the determination of holders of Transgenomic common stock and Series A-1 Convertible Preferred Stock entitled to receive notice of and to vote at the special meeting and any adjournment of the special meeting. No other shares of Transgenomic capital stock are entitled to notice of and to vote at the special meeting. At the close of business on the record date, Transgenomic had outstanding and entitled to vote 26,868,062 shares of Transgenomic common stock and 214,705 shares of Series A-1 Convertible Preferred Stock.

Required Votes.  Votes cast by proxy or in person at the special meeting will be tabulated by the inspector of elections of the special meeting. The inspector of elections also will determine whether or not a quorum is present. The presence, in person or by proxy, of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), issued and outstanding as of the record date for the special meeting is necessary to constitute a quorum at the special meeting. Shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock represented at the special meeting in person or by proxy but not voted will be counted for purposes of determining a quorum. Accordingly, abstentions and broker “non-votes” (shares as to which a broker or nominee has indicated that it does not have discretionary authority to vote) on a particular matter will be treated as shares that are present and entitled to vote at the special meeting for purposes of determining the presence of a quorum.

The proposals to approve the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic, to approve the issuance of New Precipio common stock and New Precipio preferred stock in in exchange for certain secured indebtedness of Transgenomic and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, to approve the issuance of New Precipio preferred stock to investors in a related private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, to approve the issuance of 2,999,836 shares of Transgenomic common stock upon exercise or exchange of the Warrants, to approve the 2017 Stock Option and Incentive Plan and to approve, on a non-binding, advisory basis, payment by Transgenomic of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger, must be approved by the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. The proposal to adjourn the special meeting, if necessary, to solicit additional proxies must be approved by the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting, whether or not a quorum is present.

The approvals of the issuance of New Precipio common stock and New Precipio preferred stock in accordance with the terms of the Merger Agreement and the resulting “change of control” of Transgenomic, the conversion of the secured debt and the private placement are a condition to the completion of the merger with Precipio, the conversion of the secured debt and the private placement. As a result, a vote against any of the proposals effectively will be a vote against the merger of Transgenomic with Precipio, the conversion of the secured debt and the related private placement. None of the other proposals are conditions to the completion of the merger with Precipio, the conversion of the secured debt or the private placement.

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Recommendation of the Transgenomic Board.  The Transgenomic Board has approved the merger with Precipio and determined that the merger, the conversion of secured debt, the private placement and the other transactions contemplated by the Merger Agreement, the issuance of Transgenomic common stock upon exercise or exchange of the Warrants, the 2017 Stock Option and Incentive Plan and the merger-related compensation are fair to and in the best interests of Transgenomic and its stockholders and has approved the issuance of New Precipio common stock and the New Precipio preferred stock in accordance with the Merger Agreement and the resulting “change of control” of Transgenomic, the issuance of New Precipio common stock and the New Precipio preferred stock upon conversion of the secured debt and the issuance of New Precipio preferred stock in the private placement, the issuance of Transgenomic common stock upon exercise or exchange of the Warrants, the 2017 Stock Option and Incentive Plan, the merger-related compensation and the adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposals.

The Transgenomic Board recommends that you vote “FOR” the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic, “FOR” the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock to holders of certain secured indebtedness of Transgenomic in exchange for such indebtedness and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, “FOR” the proposal to approve the issuance of New Precipio preferred stock in the related private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, “FOR” the approval of the issuance of Transgenomic common stock upon exercise or exchange of the Warrants, “FOR” the approval of the 2017 Stock Option and Incentive Plan, “FOR” the approval of the merger-related compensation and “FOR” the approval of the adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the common stock issuance proposals, the 2017 Stock Option and Incentive Plan proposal and the advisory compensation proposal.

The Merger Agreement (see page 73)

The Merger Agreement, which is attached to this proxy statement as Annex A, is described in more detail beginning on page 73. We urge you to read the Merger Agreement in its entirety because this document is the legal document governing the proposed merger with Precipio.

Completion of the Merger with Precipio is Subject to Conditions.  The obligations of Transgenomic to consummate the merger with Precipio are subject to the satisfaction or waiver of various conditions, including:

Precipio’s unit holders having approved the merger, Precipio’s execution of the Merger Agreement and the consummation of the transactions contemplated therein;
the representations and warranties of Precipio being true and correct as of the date of closing, or, to the extent they expressly relate to a specific date, then as of that specific date, with only those exceptions which would not reasonably be expected to have a material adverse effect;
the issuance of New Precipio preferred stock to holders of Precipio preferred units pursuant to the merger and to certain Transgenomic secured debt holders and other investors in a private placement;
prior to the effective time of the merger, the conversion of all outstanding warrants, membership interests, promissory notes of Precipio issued to members of Precipio into Precipio common units or preferred units, and the termination of all related warrants and promissory notes;
Precipio having delivered to Transgenomic a lock-up agreement executed by certain of its unitholders; and
Precipio having satisfied other customary closing conditions.

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The obligations of Precipio to effect the transactions contemplated by the Merger Agreement are conditioned on the satisfaction or waiver of various conditions, including:

Transgenomic’s stockholders having approved the proposal to issue New Precipio common stock and New Precipio preferred stock in connection with the Merger Agreement, the conversion of the secured debt and the related private placement;
the representations and warranties of Transgenomic and Merger Sub being true and correct in all material respects as of the date of closing, or, to the extent they expressly related to a specific date, then as of the specific date, with only those exceptions which would not reasonably be expected to have a material adverse effect;
the size of the Transgenomic Board being increased to seven and the appointment of certain designees to the Transgenomic Board;
the issuance of New Precipio preferred stock to holders of Precipio preferred units pursuant to the merger and to certain Transgenomic debt holders and other investors in a private placement;
the amendment of Transgenomic’s Certificate of Incorporation contemplating the issuance of the New Precipio preferred stock and changing the name to Precipio, Inc. at the effective time of the merger;
Transgenomic having delivered to Precipio a lock-up agreement executed by Transgenomic and certain of its stockholders;
there being no outstanding indebtedness of Transgenomic immediately prior to the effective time of the merger other than accounts payable to trade creditors, accrued expenses and certain indebtedness of Transgenomic, including indebtedness to its stockholders that will be converted into common stock and new preferred stock of New Precipio;
Transgenomic having terminated certain of its employees and all severance, retention, change of control, COBRA or other payments due to such employees being paid in full prior to the effective time of the merger or included as a liability of Transgenomic pursuant to the Merger Agreement;
at the effective time of the merger, the shares of Transgenomic common stock to be issued in connection with the merger shall have been approved for listing on Nasdaq; and
Transgenomic having satisfied other customary closing conditions.

The Merger Agreement May Be Terminated under Certain Circumstances.  The Merger Agreement may be terminated at any time prior to the closing, whether before or after approval by Transgenomic stockholders of the issuance of New Precipio common stock and New Precipio preferred stock in accordance with the terms of the Merger Agreement, in any of the following ways:

by mutual written consent of Transgenomic and Precipio; or
by either Transgenomic or Precipio if the closing date has not occurred by June 30, 2017, but only if the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement and such has been the cause of, or resulted in, the failure of a timely closing; or
by either Transgenomic or Precipio if any judgment, statute, law, ordinance, rule, regulation or other legal restraint or prohibition that restrains, enjoins or otherwise prohibits the consummation of the merger shall be in effect and shall have become final and non-appealable; or
by Precipio, if Transgenomic has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the Merger Agreement such that the conditions to closing set forth in Merger Agreement cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by Precipio to Transgenomic; or

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by Transgenomic, if Precipio has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the Merger Agreement such that the conditions to closing set forth in Merger Agreement cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by Transgenomic to Precipio; or
by Precipio, if Transgenomic has entered into any letter of intent or similar document or any contract relating to any alternate acquisition proposal; or
by Transgenomic, if Precipio has entered into any letter of intent or similar document or any contract relating to any alternate acquisition proposal; or
by Precipio, if Transgenomic enters into a definitive agreement to effect an unsolicited acquisition proposal made by a third party determined in good faith by the Transgenomic Board to be (1) more favorable from a financial point of view to the stockholders of Transgenomic than as provided under the Merger Agreement, and (2) reasonably capable of being completed on the terms proposed without unreasonable delay; or
by Transgenomic, if Precipio enters into a definitive agreement to effect an unsolicited acquisition proposal made by a third party determined in good faith by the board of managers of Precipio to be (1) more favorable from a financial point of view to the members of Precipio than as provided under the Merger Agreement, and (2) reasonably capable of being completed on the terms proposed without unreasonable delay.

The Voting Agreements (see page 85)

In connection with the merger, certain of Precipio’s unit, warrant and note holders have entered into the Precipio Voting Agreement with Transgenomic and Precipio, pursuant to which such members and warrant holders have agreed to, among other things, (i) authorize and approve the Merger Agreement and the transactions contemplated thereby and (ii) vote against any Acquisition Proposal (as defined in the Merger Agreement). Collectively, the voting interests held by these Precipio holders represent approximately 71% of Precipio’s voting interests as of October 12, 2016. The Precipio board of managers approved the Merger Agreement on October 11, 2016.

Certain of Transgenomic’s stockholders, directors and executive officers have also entered into the Transgenomic Voting Agreement with Transgenomic and Precipio, pursuant to which such holders have agreed to, among other things, (i) authorize and approve the Merger Agreement and the transactions contemplated thereby and (ii) vote against any Acquisition Proposal (as defined in the Merger Agreement). Collectively, the voting interests held by these holders represent approximately 31.84% of Transgenomic’s voting interests as of October 12, 2016.

Third Party Approvals Required for the Merger with Precipio (see page 67)

The Merger Agreement also provides that the consummation of the merger is conditioned on the receipt of consents from certain other third parties, including lenders.

Conversion of Outstanding Debt and Convertible Preferred Stock (see page 90)

Holders of Transgenomic’s outstanding secured debt have agreed to convert the outstanding principal and accrued interest into shares of New Precipio common stock and New Precipio preferred stock immediately prior to the effectiveness of the merger. Holders of Series A-1 Convertible Preferred Stock have agreed to convert their shares into 214,705 shares of New Precipio common stock immediately prior to effectiveness of the merger pursuant to the conversion provisions set forth in the Transgenomic Certificate of Incorporation.

Regulatory Matters (see page 67)

Neither Transgenomic nor Precipio is required to make any filings or to obtain any approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the transactions contemplated by the Merger Agreement. Transgenomic must comply with applicable federal and state securities laws and regulations, and is complying with Nasdaq and OTCQB rules in connection with the issuance of shares of New Precipio common stock and New Precipio preferred stock in the transaction, including the filing with the SEC of this proxy statement.

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Nasdaq Listing (see page 68)

Transgenomic has filed an initial listing application with Nasdaq. If such application is accepted, Transgenomic anticipates that the shares of New Precipio common stock will be listed on Nasdaq following the closing of the merger under the trading symbol “PRPO.”

Federal Securities Law Consequences; Resale Restrictions (see page 68)

The issuance of the shares of New Precipio common stock to be issued to unit holders of Precipio in connection with the merger, to holders of Transgenomic Series A-1 Convertible Preferred Stock upon conversion of such stock and to holders of Transgenomic outstanding secured debt upon conversion of such debt as well as the New Precipio preferred stock to be issued in the merger, and in the related private placement or pursuant to the conversion of outstanding debt of Transgenomic is exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D or Regulation S promulgated thereunder and such shares will be “restricted securities.” Those shares of New Precipio common stock and New Precipio preferred stock will not be registered under the Securities Act upon issuance and will not be freely transferable. Holders of such shares of New Precipio common stock and New Precipio preferred stock may not sell their respective shares unless the shares are registered under the Securities Act or an exemption is available under the Securities Act. In connection with the merger, as described in “The Merger Agreement — Covenants — Form S-3 Registration Statement,” Transgenomic has agreed to file promptly after the closing of the merger a resale “shelf” registration statement to register the shares of New Precipio common stock issued to common unit holders of New Precipio in the merger and shares of New Precipio common stock issuable upon conversion of New Precipio preferred stock issued to preferred unit holders of New Precipio in the merger. In addition, the investor rights agreement for the private placement of New Precipio preferred stock gives such parties rights with respect to the registration under the Securities Act of the shares of New Precipio common stock to be issued to such parties, including the shares that may be issued upon future conversion of the New Precipio preferred stock.

The issuance of the Warrants in 2016, and the subsequent issuance of Transgenomic common stock upon exercise or exchange of the Warrants thereafter, was exempt from registration under the Securities Act in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder. On January 24, 2016, Transgenomic filed a registration statement on Form S-3 under the Securities Act, which registration statement was declared effective, registering for resale the shares of Transgenomic common stock issuable upon exercise or exchange of the Warrants.

Material U.S. Federal Income Tax Consequences of the Merger (see page 69)

Each of Transgenomic and Precipio intend that the merger will be treated for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (“Code”). Precipio has elected to be treated as a corporation for U.S. federal income tax purposes. Regardless of whether the merger qualifies as a “reorganization”, no gain or loss will be recognized by Transgenomic, Precipio or the Transgenomic stockholders as a result of the merger. Additionally, if the merger qualifies as a “reorganization”, the Precipio unit holders generally will not recognize gain or loss provided that they receive only New Precipio common stock and/or preferred stock in the merger in exchange for their membership interests in Precipio. Transgenomic stockholders who are also stockholders of Precipio should consult their tax advisor as to the tax consequences to them of participating in the merger as a Precipio unitholder.

Anticipated Accounting Treatment (see page 69)

The merger will be treated by Transgenomic as a reverse acquisition under the acquisition method of accounting in accordance with GAAP. For accounting purposes, Precipio is considered to be acquiring Transgenomic in the merger.

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PER SHARE MARKET PRICE DATA

Until February 22, 2017, the Transgenomic common stock traded on Nasdaq under the symbol “TBIO.” Currently, and since February 22, 2017, the Transgenomic common stock trades on the OTCQB under the symbol “TBIO.” The following table shows the high and low sale prices for Transgenomic common stock for the periods indicated. For the periods prior to February 22, 2017, such sales prices are based on Nasdaq composite transactions. From February 22, 2017 through May [•], 2017, such sale prices are as reported on the OTCQB.

  
 High Low
Fiscal Year 2015
          
First Quarter $4.00  $1.23 
Second Quarter $3.75  $1.35 
Third Quarter $2.10  $0.84 
Fourth Quarter $1.48  $0.74 
Fiscal Year 2016
          
First Quarter $1.15  $0.49 
Second Quarter $0.85  $0.48 
Third Quarter $0.62  $0.25 
Fourth Quarter $0.56  $0.15 
Fiscal Year 2017
          
First Quarter $1.59  $0.25 
Second Quarter (through May [•], 2017) $[•]  $[•] 

The closing sale price of Transgenomic’s common stock as reported on Nasdaq on October 12, 2016, the last trading date before the public announcement of the proposed merger with Precipio, was $0.25 per share. The closing sale price of Transgenomic common stock as reported on the OTCQB on May [•], 2017, the latest practicable date before mailing of this proxy statement, was $[•] per share. As of the record date, there were 76 holders of record of Transgenomic common stock and four holders of record of Transgenomic Series A-1 Convertible Preferred Stock based on information provided by Transgenomic’s transfer agent. The number of stockholders of record does not reflect the actual number of individual or institutional stockholders that own Transgenomic common stock because most stock is held in the name of nominees. There are a substantially greater number of beneficial holders of Transgenomic common stock.

Transgenomic has never declared or paid any cash dividends on its capital stock. It intends to retain future earnings, if any, to finance the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be made at the discretion of the board of directors or any authorized committee thereof after considering Transgenomic’s financial condition, results of operations, capital requirements, business prospects and other factors the board of directors or such committee deems relevant, and will be subject to the restrictions contained in its current or future financing instruments.

Assuming successful application for initial listing with Nasdaq, following the completion of the merger, Transgenomic anticipates that New Precipio common stock will be listed on Nasdaq and will trade under New Precipio’s new name, “Precipio, Inc.,” and new trading symbol “PRPO.”

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RISK FACTORS

In addition to the other information included or incorporated by reference in this proxy statement, you should carefully consider the material risks described below in deciding whether to vote for approval of the proposals presented in this proxy statement. Additional risks and uncertainties not presently known to Transgenomic or that are not currently believed to be material, if they occur, also may adversely affect Transgenomic following the merger.

Although Transgenomic expects that the merger with Precipio will result in benefits to Transgenomic, it may not realize those benefits because of integration difficulties.

Integrating the operations of the businesses of Precipio successfully or otherwise realizing any of the anticipated benefits of the merger with Precipio, including anticipated cost savings and additional revenue opportunities, involves a number of potential challenges. The failure to meet these integration challenges could seriously harm New Precipio’s results of operations and the market price of New Precipio common stock may decline as a result.

Realizing the benefits of the merger will depend in part on the integration of information technology, operations and personnel. These integration activities are complex and time-consuming and the parties may encounter unexpected difficulties or incur unexpected costs, including:

the inability of New Precipio to achieve the cost savings and operating synergies anticipated in the merger, including synergies relating to increased purchasing efficiencies and a reduction in costs associated with the merger, which would prevent Transgenomic from achieving the positive earnings gains expected as a result of the merger;
diversion of management attention from ongoing business concerns to integration matters;
difficulties in consolidating and rationalizing information technology platforms and administrative infrastructures;
complexities associated with managing the geographic separation of the combined businesses and consolidating multiple physical locations where management may determine consolidation is desirable;
difficulties in integrating personnel from different corporate cultures while maintaining focus on providing consistent, high quality customer service;
challenges in demonstrating to customers of Transgenomic and to customers of Precipio that the merger will not result in adverse changes in customer service standards or business focus; and
possible cash flow interruption or loss of revenue as a result of change of ownership transitional matters.

The parties may not successfully integrate the operations of the businesses in a timely manner and may not realize the anticipated net reductions in costs and expenses and other benefits and synergies of the merger with Precipio to the extent, or in the timeframe, anticipated. In addition to the integration risks discussed above, New Precipio’s ability to realize these net reductions in costs and expenses and other benefits and synergies could be adversely impacted by practical or legal constraints on its ability to combine operations.

If the merger is completed and New Precipio is unable to manage its growth profitably, its business, financial results and stock price could suffer.

New Precipio’s future financial results will depend in part on its ability to profitably manage its growth on a combined basis. Management will need to maintain existing customers and attract new customers, recruit, retain and effectively manage employees, as well as expand operations and integrate customer support and financial control systems. New Precipio expects to incur between $500,000 and $1,200,000 of integration-related non-recurring expenses during the next 12-month period. If the integration-related expenses and capital expenditure requirements are greater than anticipated, or if New Precipio is unable to manage its growth profitably after the merger, the financial results and market price of New Precipio common stock may decline.

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The merger is subject to the completion of the related private placement, which is subject to its own certain conditions, and therefore may not be completed.

It is a condition to the completion of the merger that Transgenomic will have consummated the private placement described in “The Private Placement” beginning on page 92. The purchase agreement for the shares of New Precipio preferred stock has not yet been entered into and the private placement is subject to due diligence and legal review. There can be no assurance that all of these conditions will be satisfied or that Transgenomic will be able to consummate the private placement.

Failure to complete the merger, the conversion of the secured debt and the private placement could negatively impact the stock price and the future business and financial results of Transgenomic.

Although Transgenomic has agreed to use reasonable efforts to obtain stockholder approval of the proposal to issue shares of Transgenomic common stock and preferred stock, there is no assurance that these proposals will be approved. If these proposals are not approved, and as a result the merger is not completed:

the ongoing business of Transgenomic may be adversely affected; and
Transgenomic may be required, under certain circumstances, to pay Precipio a termination fee of up to $256,500.

Failure by the combined company upon the completion of the merger to comply with the initial listing standards of Nasdaq will prevent its stock from being listed on Nasdaq.

On February 17, 2017, Transgenomic received written notification from the staff of Nasdaq that, as a result of Transgenomic’s inability to maintain certain Nasdaq continued listing requirements, Nasdaq had determined to delist Transgenomic’s shares from Nasdaq. Accordingly, trading in Transgenomic’s shares was suspended, and on February 22, 2017, Transgenomic’s shares began trading on the OTCQB under the ticker “TBIO”.

Upon completion of the merger, New Precipio will be required to meet the initial listing requirements to maintain the listing and continued trading of its shares on Nasdaq. These initial listing requirements are more difficult to achieve than the continued listing requirements. Pursuant to the Merger Agreement, Transgenomic agreed to use its commercially reasonable efforts to cause the shares of Transgenomic common stock being issued in the merger to be approved for listing on Nasdaq at or prior to the effective time of the merger. Based on information currently available to Transgenomic, Transgenomic anticipates that its stock will be unable to meet the $4.00 (or, to the extent applicable, $3.00) minimum bid price initial listing requirement at the closing of the merger unless it effects a reverse stock split. On October 31, 2016, the stockholders of Transgenomic authorized the Transgenomic Board to effect a reverse stock split of the shares of Transgenomic common stock at a ratio of between one-for-ten to one-for-thirty. In addition, often times a reverse stock split will not result in a trading price for the affected common stock that is proportional to the ratio of the split. Following the merger, if New Precipio is unable to satisfy Nasdaq listing requirements, Nasdaq may notify Transgenomic, or New Precipio, that its shares of common stock will not be listed on Nasdaq.

Upon a potential delisting from Nasdaq, if the New Precipio common stock is not then eligible for quotation on another market or exchange, trading of the shares could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it is likely that there would be significantly less liquidity in the trading of New Precipio common stock; decreases in institutional and other investor demand for the shares, coverage by securities analysts, market making activity and information available concerning trading prices and volume; and fewer broker-dealers willing to execute trades in New Precipio common stock. Also, it may be difficult for New Precipio to raise additional capital if the New Precipio common stock is not listed on a major exchange. The occurrence of any of these events could result in a further decline in the market price of New Precipio common stock and could have a material adverse effect on New Precipio.

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The announcement and pendency of the merger may cause disruptions in the business of Transgenomic and Precipio, which could have an adverse effect on their respective businesses, financial conditions or results of operations and, post-closing, New Precipio’s business, financial condition or results of operations.

The announcement and pendency of the merger could cause disruptions in the business of Transgenomic and Precipio. Specifically:

current and prospective employees of Transgenomic and Precipio may experience uncertainty about their future roles with New Precipio, which might adversely affect the ability of Transgenomic and Precipio to retain key personnel and attract new personnel;
third parties may seek to terminate and/or renegotiate their relationships with Transgenomic as a result of the merger; and
management’s attention has been focused on the merger, which may divert management’s attention from the core business of Transgenomic and other opportunities that could have been beneficial to Transgenomic.

These disruptions could be exacerbated by a delay in the completion of the merger or termination of the Merger Agreement and could have an adverse effect on the business, financial condition or results of operations of Transgenomic and Precipio prior to the completion of the merger and on New Precipio if the merger is completed.

The merger with Precipio is subject to the receipt of consents and approvals that may not be received.

The Merger Agreement provides that the parties cannot complete the merger unless they receive various consents and approvals from Nasdaq and other third parties. While Transgenomic believes that it will receive the requisite approvals, there can be no assurance that such approvals will be received. See the sections entitled “The Transaction — Third Party Approvals Required for the Merger and the Private Placement” on page 67 and “The Merger Agreement — Conditions to Closing the Transaction” beginning on page 81 for a more detailed discussion.

Subject to certain limitations, certain stockholders may sell New Precipio common stock beginning six months following the closing of the merger, which could cause New Precipio’s stock price to decline.

The shares of New Precipio common stock to be issued to unit holders of Precipio in connection with the merger, to holders of Transgenomic Series A-1 Convertible Preferred Stock upon conversion of such stock and to holders of Transgenomic outstanding secured debt upon conversion of such debt as well as the New Precipio preferred stock to be issued in the merger and in the related private placement or pursuant to the conversion of outstanding debt of Transgenomic will be “restricted securities.” Those shares of New Precipio common stock and New Precipio preferred stock will not be registered under the Securities Act upon issuance and will not be freely transferable. Holders of such shares of common stock and preferred stock may not sell their respective shares unless the shares are registered under the Securities Act or an exemption is available under the Securities Act. In connection with the merger, as described in “The Merger Agreement —  Covenants —  Form S-3 Registration Statement,” Transgenomic has agreed to file promptly after the closing of the merger a resale “shelf” registration statement to register the shares of New Precipio common stock issued to unit holders of New Precipio in the merger.

In addition, at the effective time of the merger, New Precipio will enter into the investor rights agreement with certain holders of New Precipio common stock, which will give such parties registration rights beginning six months after the closing of the merger. Such parties also will have “piggyback” rights to sell their shares if New Precipio proposes to register its own shares for issuance. The sale of a substantial number of New Precipio shares by such parties or other stockholders within a short period of time could cause the stock price to decline, make it more difficult to raise funds through future offerings of New Precipio common stock or acquire other businesses using New Precipio common stock as consideration.

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You will experience a significant reduction in percentage ownership and voting power with respect to the Transgenomic common stock you currently own as a result of the merger with Precipio, the conversion of secured debt and the private placement and the exercise or exchange of the Warrants.

In connection with the merger with Precipio, New Precipio will issue approximately 160.6 million shares of New Precipio common stock, as well as approximately 24.1 million shares of New Precipio preferred stock, pursuant to the Merger Agreement, approximately 24.1 million shares of New Precipio preferred stock and approximately 10.4 million shares of New Precipio common stock in exchange for certain secured indebtedness of Transgenomic, approximately 56.2 million shares of New Precipio preferred stock to investors in a related private placement and approximately 104.4 million shares of New Precipio common stock issuable upon conversion of the New Precipio preferred stock. In addition, the exercise or exchange of the Warrants will result in the issuance of approximately 3.0 million shares of Transgenomic common stock that would not have otherwise been issuable without stockholder approval. Upon completion of the merger, the conversion of secured debt and the private placement, the current holders of Transgenomic common stock will own approximately 9% of the fully diluted New Precipio common stock. Therefore, following the completion of the merger, the conversion of secured debt and the private placement and the exercise or exchange of the Warrants, existing stockholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power relative to your respective percentage ownership interests in Transgenomic common stock and effective voting power prior to the merger. This reduction in ownership and voting power will decrease existing stockholders’ ability to influence the election of directors and other matters. In addition, the issuance of shares of Transgenomic common stock could have an adverse effect on the market price for Transgenomic securities or on its ability to obtain future public financing. If and to the extent the shares are issued, existing shareholders may experience dilution in their earnings.

While the merger is pending, Transgenomic will be subject to contractual limitations that could adversely affect its business.

The Merger Agreement restricts Transgenomic from taking certain specified actions while the merger is pending without Precipio’s consent, including incurring indebtedness, making capital expenditures in excess of $5,000, acquiring any assets or selling, leasing or otherwise transferring any assets, and increasing in any material manner the compensation, bonuses or benefits of any directors, officers, employees, former employees or consultants, subject to certain exceptions in the ordinary course of business. These restrictions may prevent Transgenomic from pursuing otherwise attractive business opportunities that may arise and making other changes to its business prior to the closing of the merger or termination of the Merger Agreement.

The Merger Agreement restricts Transgenomic’s ability to pursue certain alternatives to the merger and requires Transgenomic to pay a reverse termination fee to Precipio if it does.

The Merger Agreement contains non-solicitation provisions that, subject to limited exceptions, restrict Transgenomic’s ability to initiate, solicit or encourage or take any action to discuss or accept a competing third-party proposal. Although the Transgenomic Board is permitted to change its recommendation that stockholders approve the matters relating to the merger if it determines in good faith that this action is reasonably likely to be required to comply with its fiduciary duties and certain other conditions, doing so in certain situations would require Transgenomic to pay a termination fee to Precipio of $256,500. Additionally, these non-solicitation provisions could discourage a potential acquiror that might have an interest in acquiring all or a significant part of Transgenomic from considering or proposing that acquisition, or might result in a potential acquiror proposing to pay a lower per share price to acquire Transgenomic than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable to Precipio in certain circumstances.

Transgenomic has incurred and will continue to incur substantial expenses in connection with the merger.

Transgenomic has incurred and will incur additional substantial expenses in connection with the merger, whether or not the merger is completed. These costs include fees for financial advisors, attorneys and accountants, filing fees and financial printing costs. If the merger is not consummated, Transgenomic will be responsible for its own expenses, which are not reimbursable in the event the merger does not occur.

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Upon completion of the merger, the amount of transaction costs, including the amount of Precipio’s transaction costs, will, in effect, reduce the cash reserves available for the combined company to pursue its plan of business.

The merger and private placement will result in changes to New Precipio’s board of directors that may affect the combined company’s business strategy and operations.

If the merger is completed, the New Precipio board of directors will increase its size to seven at the effective time of the merger, two of whom will be current directors of Transgenomic, three of whom will be nominated by Precipio and two of whom will be nominated by the holders of the New Precipio preferred stock issued in the private placement. This newly composed board of directors of the combined company may effect business strategies and operating decisions with respect to the combined company that may have an adverse impact on the combined company’s business, financial condition and results of operations following the completion of the merger.

The opinion received by the Transgenomic Board from Craig-Hallum has not been, and is not expected to be, updated to reflect any changes in circumstances that may have occurred since the date of the opinion.

On October 12, 2016, Craig-Hallum delivered to the Transgenomic Board its oral opinion, subsequently confirmed by delivery of a written opinion as to the fairness, from a financial point of view, of the consideration to be paid in the merger. The opinion does not speak as of the time the merger will be completed or any date other than the date of such opinion. The opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of Transgenomic or Precipio, changes in general market and economic conditions or regulatory or other factors. Any such changes may materially alter or affect the relative values of Transgenomic and Precipio. Craig-Hallum does not have any obligation to update, revise or reaffirm its opinion to reflect subsequent developments and has not done so. See the section entitled “The Transaction — Opinion of Craig-Hallum Capital Group LLC” and Annex B to this proxy statement.

If the merger is completed, the future success of the combined company depends substantially on its ability to retain key members of its management team.

If the merger is completed, the combined company will be highly dependent on principal members of its management team, which will include Ilan Danieli, Carl Iberger, Zaki Sabet, Ayman Mohamed and Steve Miller, as described in more detail in the section of this proxy statement entitled “The Transaction — Board of Directors and Management of New Precipio Following the Transaction.” The inability to recruit or loss of the services of any executive or key employee may impede the progress of the combined company’s objectives.

The pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the completion of the merger.

The pro forma financial statements contained in this proxy statement are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger for several reasons. The pro forma financial statements have been derived from the historical financial statements of Transgenomic and Precipio and adjustments and assumptions have been made regarding the combined company after giving effect to the merger. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the merger. For example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the pro forma financial statements. As a result, the actual financial condition of the combined company following the merger may not be consistent with, or evident from, these pro forma financial statements. The assumptions used in preparing the pro forma financial statements may not prove to be accurate, and other factors may affect the combined company’s financial condition following the transaction. See “Unaudited Pro Forma Combined Financial Information of Transgenomic, Inc.” for more information.

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Precipio may have liabilities that are not known, probable or estimable at this time.

As a result of the merger, Precipio will become a wholly owned subsidiary of Transgenomic and Transgenomic will effectively assume all of Precipio’s liabilities, whether or not asserted. There could be unasserted claims or assessments that Transgenomic failed or was unable to discover or identify in the course of performing due diligence investigations of Precipio. In addition, there may be liabilities that are neither probable nor estimable at this time which may become probable and estimable in the future. Any such liabilities, individually or in the aggregate, could have a material adverse effect on Transgenomic’s business. Transgenomic may learn additional information about Precipio that adversely affects Transgenomic, such as unknown, unasserted or contingent liabilities and issues relating to compliance with applicable laws.

Transgenomic may not be able to complete the merger and may elect to pursue another strategic transaction similar to the merger or a financing, which may not occur on commercially reasonably terms or at all.

Transgenomic cannot assure you that it will complete the merger in a timely manner or at all. The Merger Agreement is subject to many closing conditions and termination rights. If Transgenomic does not complete the merger, the Transgenomic Board may elect to attempt to complete another strategic transaction similar to the merger or a financing. Such attempts will likely be costly and time consuming, and Transgenomic cannot make any assurances that a future strategic transaction or financing will occur on commercially reasonable terms or at all.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement contains “forward-looking statements”. Forward-looking statements relate to expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or that necessarily depend upon future events. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions. Without limiting the generality of the preceding sentence, statements contained in the sections “Summary,” “The Transaction — Transgenomic’s Reasons for the Transaction,” and “The Transaction — Opinion of Craig-Hallum Capital Group LLC” include forward-looking statements. Forward-looking statements contained in this proxy statement include projections of earnings, revenues, synergies, accretion or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of integration plans and the future management of New Precipio; approvals relating to, and the closing of, the merger with Precipio and the private placement; any statements regarding future economic conditions or performance; and statements of belief and any statement of assumptions underlying any of the foregoing.

The forward-looking statements contained in this proxy statement reflect Transgenomic’s current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to differ materially from any future results or achievements expressed in or implied by Transgenomic’s forward-looking statements, including the factors listed below. Many of the factors that will determine future events or achievements are beyond Transgenomic’s ability to control or predict. The following factors include, among others: the ability of the parties to satisfy the conditions precedent and consummate the proposed merger, the timing of consummation of the proposed merger, the ability of the parties to secure any required stockholder or other approvals in a timely manner or on the terms desired or anticipated, the ability to achieve anticipated benefits, risks related to disruption of management’s attention due to the pending merger, operating results and businesses generally, the outcome of any legal proceedings related to the proposed merger and the general risks associated with the respective businesses of Transgenomic and Precipio, including the general volatility of the capital markets, terms and deployment of capital, volatility of the Transgenomic share price, changes in the biotechnology industry, interest rates or the general economy, underperformance of Transgenomic’s and Precipio’s assets and investments and decreased ability to raise funds, the degree and nature of Transgenomic’s and Precipio’s competition and other risks as described in Transgenomic’s reports filed with the SEC.

The forward-looking statements contained in this proxy statement reflect Transgenomic’s views and assumptions only as of the date of this proxy statement. You should not place undue reliance on forward-looking statements. Except as required by law, Transgenomic assumes no responsibility for updating any forward-looking statements.

Transgenomic’s actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled “Risk Factors” beginning on page 20 and the section entitled “Risk Factors” included in Transgenomic’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and risk factors detailed in Transgenomic’s most recent quarterly reports on Form 10-Q. Transgenomic qualifies all of its forward-looking statements by these cautionary statements.

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THE SPECIAL MEETING

Date, Time and Place

A special meeting of Transgenomic stockholders will be held at 10:00 a.m. local time, on May [•], 2017 at Troutman Sanders LLP’s offices located at 1001 Haxall Point, Richmond, Virginia 23219.

Purpose of the Special Meeting

The purpose of the special meeting is to consider and vote on the following proposals:

 
Proposal No. 1: To approve the issuance of 160,585,422 shares of New Precipio common stock, as well as 24,087,813 shares of New Precipio preferred stock to be issued, pursuant to the Merger Agreement, and the issuance of 24,087,813 shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic.
Proposal No. 2: To approve the issuance of 24,087,813 shares of New Precipio preferred stock and approximately 10.4 million shares of New Precipio common stock to holders of certain secured indebtedness of Transgenomic in exchange for such indebtedness and the issuance of 24,087,813 shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock.
Proposal No. 3: To approve the issuance of 56,204,898 shares of New Precipio preferred stock to be issued to investors in a related private placement and the issuance of 56,204,898 shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock.
Proposal No. 4: To approve the issuance of 2,999,836 shares of Transgenomic common stock upon exercise or exchange of the Warrants.
Proposal No. 5: To approve the Transgenomic, Inc. 2017 Stock Option and Incentive Plan.
Proposal No. 6: To approve, on a non-binding, advisory basis, payment by Transgenomic of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger.
Proposal No. 7: To approve a proposal to adjourn the special meeting of Transgenomic stockholders, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting of Transgenomic stockholders to approve the other proposals.

The approval of Proposals No. 1, No. 2 and No. 3 is a condition to the completion of the merger with Precipio. Accordingly, if Transgenomic is to complete the merger with Precipio, the stockholders must approve Proposals No. 1, No. 2 and No. 3.

At the special meeting, Transgenomic stockholders also will be asked to consider and vote on any other matter that may properly come before the special meeting or any adjournment of the special meeting. At this time, the Transgenomic Board is unaware of any matters, other than those set forth above, that may properly come before the special meeting.

Record Date; Shares Outstanding and Entitled to Vote

Transgenomic has fixed the close of business on April 12, 2017 as the record date for the determination of holders of Transgenomic common stock and Series A-1 Convertible Preferred Stock entitled to notice of and to vote at the special meeting and any adjournment of the special meeting. No other shares of Transgenomic capital stock are entitled to notice of and to vote at the special meeting. At the close of business on the record date, Transgenomic had outstanding and entitled to vote 26,868,062 shares of Transgenomic common stock and 214,705 shares of Series A-1 Convertible Preferred Stock.

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How to Vote Your Shares

If you hold your shares in your own name,you may submit a proxy by telephone, via the Internet or by mail or vote by attending the special meeting and voting in person.

Submitting a Proxy by Telephone:  You can submit a proxy for your shares by telephone until 11:59 p.m. Eastern Time on May [•], 2017 by calling the toll-free telephone number on the enclosed proxy card.
Submitting a Proxy via the Internet:  You can submit a proxy via the Internet until 11:59 p.m. Eastern Time on May [•], 2017 by accessing the web site listed on your proxy card and following the instructions you will find on the web site.
Submitting a Proxy by Mail:  If you choose to submit a proxy by mail, simply mark the enclosed proxy card, date and sign it, and return it in the postage paid envelope provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood NY 11717.
By casting your vote in any of the three ways listed above, you are authorizing the individuals listed on the proxy to vote your shares in accordance with your instructions.

If your shares are held in the name of a bank, broker or other nominee,you will receive instructions from the holder of record that you must follow for your shares to be voted. Please follow their instructions carefully. Also, please note that if the holder of record of your shares is a broker, bank or other nominee and you wish to vote in person at the special meeting, you must request a legal proxy from your bank, broker or other nominee that holds your shares and present that proxy and proof of identification at the special meeting.

How to Change Your Vote

You will have the power to revoke your proxy at any time before it is exercised by:

Delivering a written notice of revocation to the Secretary of Transgenomic, dated later than the proxy, before the vote is taken at the special meeting;
Delivering a duly executed proxy to the Secretary of Transgenomic bearing a later date, before the vote is taken at the special meeting;
Submitting a proxy on a later date by telephone or via the Internet (only your last telephone or Internet proxy will be counted), before 11:59 p.m. Eastern Time on May [•], 2017; or
Attending the special meeting, withdrawing your proxy, and voting in person. Your attendance at the special meeting, in and of itself, will not revoke the proxy.

Any written notice of revocation, or later dated proxy, should be delivered to:

Transgenomic, Inc.
12325 Emmet Street
Omaha, Nebraska 68164
Attention: Corporate Secretary

Alternatively, you may hand deliver a written revocation notice, or a later dated proxy, to the Secretary at the special meeting before voting begins.

If your shares of Transgenomic capital stock are held by a bank, broker or other nominee, you must follow the instructions provided by the bank, broker or other nominee if you wish to change your vote.

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Proxies; Counting Your Vote

If you provide specific voting instructions, your shares will be voted at the special meeting in accordance with your instructions. If you hold shares in your name and sign and return a proxy card or submit a proxy by telephone or via the Internet without giving specific voting instructions, your shares will be voted as follows:

FOR” the issuance of 160,585,422 shares of New Precipio common stock and 24,087,813 shares of New Precipio preferred stock in connection with the merger, the issuance of 24,087,813 shares of New Precipio common stock upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic;
FOR” the issuance of approximately 10.4 million shares of New Precipio common stock and 24,087,813 shares of New Precipio preferred stock to holders of certain secured indebtedness of Transgenomic in exchange for such indebtedness and the issuance of 24,087,813 shares of New Precipio common stock upon conversion of such New Precipio preferred stock;
FOR” the issuance of 56,204,898 shares of New Precipio convertible preferred stock in connection with the merger in the related private placement and the issuance of 56,204,898 shares of New Precipio common stock upon conversion of such New Precipio preferred stock;
“FOR”the issuance of 2,999,836 shares of Transgenomic common stock upon exercise or exchange of the Warrants;
“FOR”the approval of the 2017 Stock Option and Incentive Plan;
“FOR”the approval, on a non-binding, advisory basis, of payment by Transgenomic of certain compensation to Transgenomic’s named executive officers based on or otherwise relating to the merger; and
“FOR”the approval of an adjournment of the special meeting of Transgenomic stockholders, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting of Transgenomic stockholders to approve the other proposals.

At this time, Transgenomic is unaware of any matters, other than those matters set forth above, that may properly come before the special meeting. If any other matters properly come before the special meeting, the persons named in the enclosed proxy, or their duly constituted substitutes acting at the special meeting or any adjournment of the special meeting, will be deemed authorized to vote or otherwise act on such matters in accordance with their judgment.

The persons named in the enclosed proxy, or their duly constituted substitutes acting at the special meeting or any adjournment of the special meeting, may propose and vote for one or more adjournments of the special meeting. Proxies solicited may be voted only at the special meeting and any adjournment of the special meeting and will not be used for any other Transgenomic meeting of stockholders.

Votes cast by proxy or in person at the special meeting will be tabulated by the inspector of elections of the special meeting. The inspector of elections also will determine whether or not a quorum is present.

Abstentions and Broker “Non-Votes”

An “abstention” occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular matter. Under rules that govern banks, brokers and others who have record ownership of company stock held in brokerage accounts for their clients who beneficially own the shares, these banks, brokers and other such holders who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain matters (“discretionary matters”) but do not have discretion to vote uninstructed shares as to certain other matters (“non-discretionary matters”). A broker may return a proxy card on behalf of a beneficial owner from whom the broker has not received voting instructions that casts a vote with regard to discretionary matters but expressly states that the broker is not voting as to non-discretionary matters. The broker’s inability to vote with respect to the non-discretionary matters with respect to which the broker has not received voting instructions from the beneficial owner is referred to as a “broker non-vote.” Under rules applicable to broker-dealers, all of the proposals to be considered at the special meeting are considered non-discretionary matters.

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Quorum and Required Votes

In deciding all matters that come before the special meeting, each holder of common stock as of the record date is entitled to one vote per share of common stock, and each holder of Series A-1 Convertible Preferred Stock as of the record date is entitled to 0.93 votes per share of Series A-1 Convertible Preferred Stock. As of April 12, 2017, the record date for the special meeting, there were 26,868,062 shares of Transgenomic common stock outstanding and 214,705 shares of Series A-1 Convertible Preferred Stock outstanding.

Votes cast by proxy or in person at the special meeting will be tabulated by the inspector of elections of the special meeting. The inspector of elections also will determine whether or not a quorum is present. The presence, in person or by proxy, of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), issued and outstanding as of the record date for the special meeting is necessary to constitute a quorum at the special meeting. Shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock represented at the special meeting in person or by proxy but not voted will be counted for purposes of determining a quorum. Accordingly, abstentions and broker “non-votes” (shares as to which a broker or nominee has indicated that it does not have discretionary authority to vote on a particular matter) will be treated as shares that are present and entitled to vote at the special meeting for purposes of determining the presence of a quorum.

Proposal No. 1:  Proposal No. 1 to approve the issuance of New Precipio common stock and New Precipio preferred stock in accordance with the terms of the Merger Agreement, the issuance of shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 1 is a condition to the completion of the merger with Precipio and thus a vote against this proposal effectively will be a vote against the merger with Precipio and the private placement.

Proposal No. 2:  Proposal No. 2 to approve the issuance of New Precipio common stock and New Precipio preferred stock to holders of certain secured indebtedness of Transgenomic in exchange for such indebtedness and the issuance of shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 2 is a condition to the completion of the merger with Precipio and thus a vote against this proposal effectively will be a vote against the merger with Precipio and the private placement.

Proposal No. 3:  Proposal No. 3 to approve the issuance of New Precipio preferred stock to be issued to investors in a related private placement and the issuance of shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 3 is a condition to the completion of the merger with Precipio and thus a vote against this proposal effectively will be a vote against the merger with Precipio and the conversion of the secured debt.

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Proposal No. 4:  Proposal No. 4 to approve the issuance of Transgenomic common stock upon exercise or exchange of the Warrants requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 4 is not a condition to the completion of the merger with Precipio, the conversion of the secured debt or the private placement.

Proposal No. 5:  Proposal No. 5 to approve the 2017 Stock Option and Incentive Plan requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 5 is not a condition to the completion of the merger with Precipio, the conversion of the secured debt or the private placement.

Proposal No. 6:  Proposal No. 6 to approve, on a non-binding, advisory basis, payment by Transgenomic of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 6 is not a condition to the completion of the merger with Precipio, the conversion of the secured debt or the private placement.

Proposal No. 7:  Proposal No. 7 to adjourn the special meeting, if necessary, to enable Transgenomic to solicit additional proxies in favor of the other proposals, requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting, whether or not a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 7 is not a condition to the completion of the merger with Precipio, the conversion of the secured debt or the private placement.

The directors and executive officers of Transgenomic collectively owned approximately 435,996 shares of Transgenomic common stock as of March 31, 2017 (inclusive of shares subject to stock options exercisable within 60 days following that date) and no shares of Series A-1 Convertible Preferred Stock. Such shares represented approximately 1.6% of Transgenomic’s outstanding voting interests (including shares subject to stock options exercisable within 60 days held by the directors and officers) as of such date. Each member of the Transgenomic Board has advised Transgenomic that such member intends to vote all of the shares of Transgenomic capital stock held, directly or indirectly, by such director in favor of each of the above proposals. Certain of Transgenomic’s stockholders (including all of Transgenomic’s executive officers and directors) have also entered into a Voting Agreement with Transgenomic and Precipio, pursuant to which such holders have agreed to, among other things, (i) authorize and approve the Merger Agreement and the transactions contemplated thereby and (ii) vote against any Acquisition Proposal (as defined in the Merger Agreement). Collectively, the voting interests held by these holders represent approximately 31.84% of Transgenomic’s voting interests as of October 12, 2016.

As of the close of business on the record date for the special meeting, Precipio and its affiliates did not beneficially own any shares of Transgenomic capital stock (other than shares of Transgenomic common stock that Precipio may be deemed to beneficially own in connection with the Transgenomic Voting Agreement) and, to the knowledge of Precipio, none of its directors or executive officers beneficially owned any shares of Transgenomic capital stock.

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Solicitation of Proxies

Transgenomic will bear the cost of soliciting proxies for the special meeting. To the extent necessary, proxies may be solicited by Transgenomic’s directors, officers and employees, but these persons will not receive any additional compensation for such solicitation. Transgenomic will reimburse brokerage firms, banks and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of Transgenomic’s capital stock. In addition to solicitation by mail, Transgenomic will supply banks, brokers, dealers and other custodian nominees and fiduciaries with proxy materials to enable them to send a copy of such materials by mail to each beneficial owner of Transgenomic capital stock that they hold of record and will, upon request, reimburse them for their reasonable expenses in so doing. Transgenomic has retained Innisfree M&A Incorporated to assist in the solicitation of proxies for the special meeting and expects to pay them approximately $10,000 in fees for such services.

Recommendation of the Transgenomic Board

The Transgenomic Board has determined that the merger with Precipio and the issuance of New Precipio common stock and New Precipio preferred stock in the merger, the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic, the issuance of New Precipio common stock and New Precipio preferred stock in exchange for certain secured indebtedness of Transgenomic and the issuance of shares of New Precipio common stock to be issued upon conversion of such New Precipio preferred stock, the issuance of New Precipio preferred stock in the related private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, the issuance of Transgenomic common stock upon exercise or exchange of the Warrants, the 2017 Stock Option and Incentive Plan and the merger-related compensation are fair to and in the best interests of Transgenomic and its stockholders and approved the issuance of New Precipio common stock and New Precipio preferred stock in accordance with the Merger Agreement, the conversion of certain secured indebtedness, and the related private placement and the resulting “change of control” of Transgenomic, the issuance of Transgenomic common stock upon exercise or exchange of the Warrants and the 2017 Stock Option and Incentive Plan. See the sections entitled “The Transaction — Transgenomic’s Reasons for the Transaction” beginning on page 41, “Proposal No. 4 — Approval of the Issuance of Transgenomic, Inc. Common Stock upon Exercise or Exchange of the Warrants” beginning on page 95, “Proposal No. 5 — Approval of 2017 Stock Option and Incentive Plan” beginning on page 99 and “Proposal No. 6 — Approval of Advisory Compensation Proposal” beginning on page 113 for a more detailed discussion.

The Transgenomic Board recommends that you vote “FOR” the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic, “FOR” the proposal to approve the issuance of New Precipio common stock and New Precipio preferred stock to holders of certain secured indebtedness of Transgenomic in exchange for such indebtedness and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock, “FOR” the proposal to approve the issuance of New Precipio preferred stock in the related private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock,“FOR” approval of the issuance of Transgenomic common stock upon exercise or exchange of the Warrants,“FOR”approval of the 2017 Stock Option and Incentive Plan,“FOR” approval of certain merger-related compensation and“FOR”approval of an adjournment of the special meeting, if necessary, to enable Transgenomic to solicit additional proxies in favor of the other proposals.

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THE TRANSACTION

Background of the Transaction

The Transgenomic Board from time to time reviews with senior management Transgenomic’s strategic direction and the opportunities available for growth in the context of developments in the diagnostics industry. These reviews include periodic internal discussions of projected financial performance and potential acquisitions, dispositions and business combinations with third parties that would add stockholder value and further Transgenomic’s strategic objectives, as well as the potential benefits and risks of those potential transactions.

On July 10, 2014, Transgenomic executed an engagement letter with MTS Health Partners, L.P., a healthcare investment banking firm (“MTS”), to review strategic opportunities for Transgenomic’s Genetic Assays and Platforms (“GAP”) business unit and prepare a confidential information memorandum and due diligence data room in connection with a potential sale of the GAP business. During the next several months, MTS contacted potential buyers of the GAP business.

On January 15 and 22, 2015, Paul Kinnon, President and Chief Executive Officer of Transgenomic, apprised the Transgenomic Board on the status of the potential sale of the GAP business to StoneCalibre, LLC, a private investment firm (“StoneCalibre”).

On March 23, 2015, the Transgenomic Board met and, among other matters, discussed strategic alternatives for the company. The Transgenomic Board considered separating the company into three separate parts — the GAP business, the Patient Testing (“PT”) business unit and the Multiplexed ICE-COLD PCR (“ICE-COLD”) business unit. The Transgenomic Board instructed senior management to engage MTS to explore various strategic alternatives for the GAP business.

On April 27, 2015, the Transgenomic Board met and, among other matters, discussed management’s proposed engagement of the Maxim Group, an investment banking firm, to act as a financial advisor to the company in connection with a possible sale of the company or certain business segments.

On May 11, 2015, Transgenomic executed an engagement letter with the Maxim Group to review strategic opportunities. On May 12, 2015, the Transgenomic Board met and, among other matters, discussed potential strategic opportunities for the company on a standalone basis and on a business unit basis. On May 15, 2015, Transgenomic executed an additional engagement letter with MTS to review strategic opportunities.

At meetings held on May 15, 2015, June 4, 2015, June 18, 2015 and July 2, 2015, the Transgenomic Board discussed, among other matters, potential strategic transaction options including the potential sale of the GAP business and the possibility of selling the PT business. During this time, members of senior management of Transgenomic, MTS and Maxim Group met with or sent materials to over 50 potential buyers of the GAP and PT businesses.

On July 13, 2015, Transgenomic executed a letter of intent with StoneCalibre to purchase part of the GAP business.

On July 16, 2015, the Transgenomic Board met and, among other matters, discussed the sale of the GAP business to StoneCalibre and the possibility of selling the remaining part of the GAP business to ADSTEC Corporation, a Japanese instruments manufacturer (“ADSTEC”). Mr. Kinnon also informed the Transgenomic Board that the company had made eight presentations to potential buyers regarding the sale of the PT business.

On July 30, 2015, Transgenomic received a letter of intent with respect to the sale of the PT business from a strategic party.

At meetings held on July 30, 2015, August 11, 2015, August 20, 2015 and September 3, 2015, Mr. Kinnon updated the Transgenomic Board as to the status of the potential sale of the GAP business as well as efforts to find a potential buyer for the PT business. Also on September 3, 2015, the Transgenomic Board approved the sale of part of the GAP business to StoneCalibre.

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On August 12, 2015, Transgenomic received a letter of intent with respect to the sale of the PT business to another strategic buyer.

On September 10, 2015, Transgenomic completed the sale of part of the GAP business to StoneCalibre.

On September 15, 2015, the Transgenomic Board met and, among other matters, discussed the proposed terms of the sale of the remaining GAP business to ADSTEC as well as a potential buyer for the PT business.

On September 25, 2015, Transgenomic executed a letter of intent to sell the remaining portion of the GAP business to ADSTEC.

At meetings held on September 29, 2015, October 8, 2015 and October 21, 2015, Mr. Kinnon updated the Transgenomic Board regarding the status of the sale of the remaining GAP business to ADSTEC as well as efforts to find a potential buyer for the PT business.

At meetings held on November 10, 2015, November 19, 2015 and November 30, 2015, the Transgenomic Board discussed, among other matters, the company’s corporate mission and strategy and various strategic opportunities and alternatives for the company. The Transgenomic Board authorized senior management to engage Craig-Hallum to explore strategic alternatives for the company.

On December 1, 2015, Transgenomic executed an engagement letter with Craig-Hallum to conduct a strategic review of Transgenomic’s remaining businesses. Also on December 1, 2015, Transgenomic completed the sale of the remaining portion of the GAP business to ADSTEC.

On December 8, 2015, Transgenomic received an updated letter of intent with respect to the sale of the PT business from the original strategic party.

At a meeting of the Transgenomic Board on December 8, 2015, Robert M. Patzig, Chairman of the Transgenomic Board, and Mr. Kinnon updated the Transgenomic Board on detailed discussions with Craig-Hallum regarding potential financings. On December 9, 2015, Mr. Patzig informed the Transgenomic Board that Third Security, LLC (“Third Security”) and its affiliates had agreed to provide bridge financing and, on December 10, 2015, that Crede Capital Group, LLC was willing to invest additional money in Transgenomic.

At meetings held on December 11, 2015, December 14, 2015 and December 17, 2015 the Transgenomic Board discussed, among other matters, the proposed private financing.

On December 17, 2015, a representative of BV Partners, a strategic advisory and merchant banking firm, introduced senior management of Transgenomic to senior management of Precipio.

On January 5, 2016, Transgenomic received an updated letter of intent with respect to the sale of the PT business from the original strategic buyer.

On January 7, 2016, the Transgenomic Board met and approved the terms of a private placement and recapitalization of its existing preferred stock. This financing closed on January 11, 2016 and provided the company with approximately $2.2 million of working capital for the operation of its business.

During February of 2016, members of senior management of Transgenomic met with representatives of Craig-Hallum to develop a confidential information memorandum, a data room and related materials relating to a potential transaction involving the remaining businesses of Transgenomic. During February, March and April 2016, representatives of Craig-Hallum and Transgenomic contacted strategic investors regarding a potential transaction with Transgenomic.

On March 1, 2016, the potential buyer of the PT business decided not to consummate a transaction. The Transgenomic Board then determined to wind down the PT business and sell parts of the PT business to different buyers.

On March 7, 2016, representatives of Aegis Capital Corp., a financial services company (“Aegis”), met with Transgenomic to discuss a potential public offering of Transgenomic common stock.

On March 15, 2016, representatives of BV Partners contacted Transgenomic regarding a potential acquisition of the PT business.

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On March 24, 2016, the Transgenomic Board authorized senior management to meet directly with potential purchasers of the PT business.

At meetings held on March 24, 2016, April 22, 2105 and May 19, 2016, Mr. Kinnon updated the Transgenomic Board regarding the status of potential strategic transactions.

On April 4, 2016, a representative of Craig-Hallum reported to senior management of Transgenomic that Craig-Hallum had contacted 88 strategic investors, 24 of whom did not respond, 35 expressed no interest, 28 executed non-disclosure agreements, received the confidential information memorandum and had access to the data room but decided not to move forward and one made an offer.

On May 17, 2016, representatives of Aegis and Transgenomic met to discuss the potential public offering.

On May 20, 2016, representatives of Transgenomic contacted a representative of BV Partners regarding a potential meeting with senior management of Precipio.

On June 10, 2016, Mr. Patzig and Ilan Danieli, Chief Executive Officer of Precipio, along with a representative of BV Partners met in New York City to discuss a potential strategic transaction between Transgenomic and Precipio.

On June 20, 2016, members of senior management of Precipio met telephonically with members of senior management of Transgenomic to discuss next steps and the terms of a possible merger between the companies.

At a meeting of the Transgenomic Board on June 28, 2016, Mr. Kinnon provided the Transgenomic Board an update regarding potential strategic transactions, including a potential strategic acquisition.

In June 2016, after having contacted over 20 potential buyers and making 15 presentations, Transgenomic sold the assets of the PT business to a strategic buyer.

On June 30, 2016, Transgenomic delivered to Precipio a proposed non-binding term sheet regarding a potential transaction between Precipio and Transgenomic. The term sheet provided for the acquisition of the assets of Precipio by Transgenomic in exchange for 25% of the post-closing fully diluted shares of Transgenomic common stock. The initial structure of the transaction was proposed as a fixed ratio based on the then current market capitalization of Transgenomic, the private market value of Precipio, and the sales targets and projections of both companies. The initial rationale for the transaction was based on the perceived benefits of a combination of two diagnostic companies with similar therapeutic target areas (cancer and blood), revenues, infrastructure requirements, and goals.

On July 9, 2016, representatives of Precipio and Transgenomic discussed valuations in connection with a potential transaction. The parties discussed the market capitalization of Transgenomic and the private market value of Precipio, the investments to date in each company, short and long term debt, long term projections, market risks, technology and service, target markets and the relative likelihood of success of each company.

On July 14, 2016, representatives of Precipio, including Mr. Danieli and Mark Rimer, a partner at Kuzari Group, a boutique private investment group and an investor in Precipio, met telephonically with representatives of Transgenomic, including Mr. Patzig and Mr. Kinnon, to discuss further the terms of a potential transaction. Representatives of Third Security, Transgenomic’s largest stockholder and the holder of its outstanding secured debt, and BV Partners, the leader of the investor group, were also present at the meeting.

On July 14, 2016, the Transgenomic Board met and discussed, among other things Transgenomic’s potential strategic transactions and funding options. Transgenomic continued to review and evaluate other financial opportunities and alternatives during this time.

At a meeting of the Transgenomic Board held on July 21, 2016, Mr. Kinnon and Mr. Patzig updated the Transgenomic Board regarding the potential transaction with Precipio and summarized the proposed transaction terms and economics.

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On July 26, 2016, representatives of Precipio, including Mr. Danieli and Mr. Rimer, Transgenomic, including Mr. Patzig (by telephone) and Mr. Kinnon, Third Security and BV Partners met at Precipio’s offices in New Haven, Connecticut to conduct preliminary due diligence and discuss the process for a potential transaction between the companies.

On August 5, 2016, representatives of Precipio, including Mr. Danieli and Mr. Rimer, Transgenomic, including Mr. Patzig and Mr. Kinnon, Third Security and BV Partners met telephonically to discuss the proposed timeline and due diligence for the proposed transaction.

After an initial period of due diligence by both parties, Precipio and the investor group recognized the full extent of Transgenomic’s liabilities, including accounts payable, and the overhang or dilution represented by existing options and warrants. Precipio was unwilling to move forward based on the terms of the original term sheet. As a result, further discussions took place and a revised term sheet was developed utilizing a calculation to weigh the relative levels of indebtedness of the two organizations.

On August 11, 2016, the parties exchanged a transaction overview for a revised structure that took into account the relative outstanding liabilities of Transgenomic and Precipio, the overhang or dilution represented by existing options and warrants of Transgenomic, the prospects for both companies and the likelihood that each company would be able to achieve its strategic objectives. The revised structure provided that Transgenomic would acquire all of the outstanding membership interests of Precipio in exchange for between 50% and 64% of the post-closing fully diluted shares of Transgenomic common stock based on the relative outstanding excess payables of the companies as of the closing and the issuance of $3 million of a new preferred stock to debt holders of Precipio. The proposal required that all outstanding secured and unsecured debt of Transgenomic convert to shares of Transgenomic common stock except that $3 million of secured debt would convert into shares of a new preferred stock. As a condition to the transaction, the combined companies would issue for cash $5 million of new preferred stock to a new investor group. The terms of the new preferred stock would be the same for Precipio debt holders, Transgenomic secured debt holders and the new investors. The proposed terms required that Precipio have no more than $1.25 million in excess payables as of the closing and that Transgenomic would have no more than $4.0 million of excess payables as of the closing. The new preferred stock would be issued based on a $21 million pre-money equity valuation of New Precipio.

On August 17, 2016, representatives of Precipio, including Mr. Danieli and Mr. Rimer, Transgenomic, including Mr. Patzig and Mr. Kinnon, Third Security and BV Partners met telephonically to continue due diligence and negotiations regarding the revised terms of the proposed transaction.

On August 18, 2016, the Transgenomic Board met and discussed, among other things the engagement of Aegis to act as a potential financial advisor to the company.

On August 19, 2016, representatives of Precipio, including Mr. Danieli and Mr. Rimer, Transgenomic, including Mr. Patzig and Mr. Kinnon, Third Security and BV Partners met telephonically to discuss the terms of the proposed non-binding term sheet and negotiate the principal terms and Precipio sent a revised non-binding term sheet to Transgenomic.

On August 22, 2016, the Transgenomic Board met and discussed, among other things the company’s potential strategic transactions and funding options, including the latest version of a non-binding term sheet with Precipio. The Transgenomic Board also authorized senior management to engage Aegis to act as the sole book runner for a potential underwritten public offering.

On August 24, 2016, Transgenomic sent a revised draft of the proposed non-binding term sheet to Precipio.

On August 25, 2016, Mr. Patzig, Mr. Rimer and a representative of Third Security met to discuss the proposed terms of a preferred stock financing in connection with the transaction with Precipio, and Precipio sent a revised draft of the proposed non-binding term sheet to Transgenomic. The revised non-binding term sheet included the material terms included in the transaction overview exchanged on August 11, 2016 and provided for the issuance of between 50% and 65% of the post-closing fully diluted shares of Transgenomic common stock in exchange for the outstanding membership interests of Precipio. The proposed terms required that Precipio have no more than $1.2 million in excess payables as of the closing and that Transgenomic

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would have no more than $4.0 million of excess payables as of the closing. In the event that Precipio had the maximum excess payables and Transgenomic had no excess payables, then Precipio common unit holders would own 50% of the post-closing fully diluted shares of Transgenomic common stock, and in the event that Precipio had no excess payables and Transgenomic had the maximum excess payables then Precipio common unit holders would own 65% of the post-closing fully diluted shares of Transgenomic common stock.

On August 25, 2016, the Transgenomic Board met and approved the terms of the proposed non-binding term sheet with Precipio. The Transgenomic Board believed that the ratio calculation included in the term sheet provided Transgenomic with the incentive to reduce its short term debt to provide the Transgenomic stockholders with the opportunity to retain a larger share of the combined company and to allow the combined company to be in a stronger position post-closing. During this time, Transgenomic continued to review and evaluate other financial opportunities and alternatives. However, the Transgenomic Board considered the relative probabilities of success of all other opportunities more doubtful than the likely completion of a merger with Precipio paired with new investment capital. The Transgenomic Board also recognized that any potential expected return to the Transgenomic stockholders under all other opportunities was less than that contemplated in the merger with Precipio.

On August 26, 2016, Transgenomic and Precipio each executed and delivered the non-binding term sheet for the proposed transaction.

On August 26, 2016, Transgenomic and Aegis executed an engagement letter with respect to a potential public offering of Transgenomic common stock.

On August 31, 2016, representatives of Precipio, including Mr. Danieli and Mr. Rimer, Transgenomic, including Mr. Patzig and Mr. Kinnon, Third Security, BV Partners, Goodwin Procter LLP (“Goodwin”), Precipio’s outside legal counsel, and Paul Hastings LLP, Transgenomic’s outside legal counsel, met telephonically to discuss the timing and process for the proposed transaction and the drafting of the definitive agreements.

On August 31, 2016, members of Precipio’s management team, including Mr. Danieli, Zaki Sabet, Vice President of Operations and Ayma Mohamed, Lab Manager, conducted a site visit to Transgenomic’s offices in Omaha to meet with members of the team and visit the laboratory to learn about the company operations. Transgenomic’s team provided a presentation of the company’s technology, its operations, and the current projects the company is undertaking. Transgenomic’s lab managers provided an in-depth review of the CLIA and R&D operations of the company. The visit was concluded on Thursday September 1, 2016 in the afternoon.

On September 7, 2016, representatives of Aegis and Transgenomic met to begin the process of a proposed registered public offering of Transgenomic common stock. During September 2016, representatives of Aegis and Transgenomic continued drafting a registration statement with respect to a public offering of Transgenomic common stock.

On September 16, 2016, Goodwin distributed a first draft of the proposed Merger Agreement to Transgenomic and its advisors and representatives reflecting the terms agreed in the executed non-binding term sheet.

On September 20, 2016, representatives of Precipio, including Mr. Danieli and Mr. Rimer, Transgenomic, including Mr. Patzig and Mr. Kinnon, Third Security, BV Partners and Goodwin met telephonically to discuss the draft Merger Agreement.

On September 21, 2016, Transgenomic engaged Troutman Sanders LLP (“Troutman”) to act as the company’s outside legal counsel in connection the proposed transaction with Precipio.

On September 29, 2016, Mr. Patzig, Mr. Kinnon and representatives of Troutman met telephonically to discuss process and the terms of the draft Merger Agreement.

On September 29, 2016, Transgenomic suspended the public offering process to pursue the potential transaction with Precipio, because Transgenomic was concerned that the offering would not be successful.

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On September 30, 2016, representatives of Precipio, including Mr. Danieli and Mr. Rimer, Transgenomic, including Mr. Patzig and Mr. Kinnon, Third Security, BV Partners, Goodwin and Troutman met telephonically to discuss preliminary comments to the draft Merger Agreement, timing and process.

On September 30, 2016, Troutman distributed a revised draft of the Merger Agreement to Precipio and its advisors and representatives. The revised agreement contained a substantially lower termination fee as well as a requirement that certain members of Precipio agree to vote in favor of the merger. From October 1st to October 12th, 2016, Transgenomic and Precipio had multiple meetings and discussions to negotiate and finalize the Merger Agreement and the related schedules, exhibits and other transaction documents.

On October 3, 2016, representatives of Goodwin and Troutman had a call in which they discussed the significant open issues, including the calculation of the termination fee and voting agreements.

On October 5, 2016, BV Partners distributed a draft term sheet for the New Precipio preferred stock to Transgenomic, Precipio, Third Security and their respective advisors and representatives. The draft term sheet contained the terms of the preferred stock that had been previously discussed by the parties, but increased the pre-money equity valuation of New Precipio from $21 million to $25 million such that the New Precipio preferred stock would represent, in the aggregate, approximately 34% of the fully diluted New Precipio common stock assuming the new investors invested $7 million in the private placement. The new investors would own in the aggregate approximately 18% of the fully diluted New Precipio common stock. At the time, the market capitalization of Transgenomic was approximately $7 million so Transgenomic believed that the pre-money equity valuation of New Precipio was favorable to the Transgenomic common stockholders.

On October 5, 2016, representatives of Goodwin and Troutman continued to discuss the open issues with respect to the merger. Later that day, Goodwin distributed a revised draft of the Merger Agreement to Transgenomic and its advisors and representatives. The revised draft included reciprocal voting agreement provisions. Later on October 5, 2016, Troutman distributed a revised draft of the Merger Agreement to Precipio and its advisors and representatives.

On October 6, 2016, Troutman distributed a draft of the Transgenomic Voting Agreement to Precipio and its advisors and representatives. Representatives of Transgenomic, including Mr. Patzig and Mr. Kinnon, Third Security and BV Partners met telephonically to discuss preliminary comments to the terms of the New Precipio preferred stock. Later that day, Goodwin provided comments to the Transgenomic Voting Agreement and provided a draft of the Precipio Voting Agreement to Transgenomic and its advisors and representatives.

On October 6, 2016, the Transgenomic Board met and, among other matters, discussed the current status of the Precipio transaction and the terms of the Merger Agreement and the term sheet for the New Precipio preferred stock. Representatives of Troutman also attended the meeting. Troutman provided the Transgenomic Board a presentation on fiduciary duties under Delaware law and each of the Transgenomic Board members had an opportunity to ask questions. Troutman then provided a summary of the material terms of the Merger Agreement, including the size of the termination fee, and the proposed terms of the New Precipio preferred stock set forth in the draft term sheet. Mr. Patzig and Mr. Kinnon updated the Transgenomic Board on the status of the negotiations and the main business issues. After a lengthy discussion, the Transgenomic Board authorized Mr. Patzig and Mr. Kinnon to continue to negotiate with Precipio along the terms discussed at the meeting, including with respect to the termination fee.

On October 7, 2016, Troutman distributed a revised draft of the Merger Agreement to Precipio and its advisors and representatives. Also, representatives of Precipio, including Mr. Danieli and Mr. Rimer, Transgenomic, including Mr. Patzig and Mr. Kinnon, Third Security, Goodwin and Troutman met telephonically to discuss the draft term sheet for the New Precipio preferred stock. Precipio also distributed a revised draft of the New Precipio preferred stock term sheet to BV Partners.

On October 8, 2016, Goodwin distributed a revised draft of the Merger Agreement to Transgenomic and its advisors and representatives. During October 8 and 9, 2016, Precipio, Transgenomic, Third Security and BV Partners negotiated the terms of the New Precipio preferred stock term sheet. On October 9, 2016, Precipio distributed a revised draft of the New Precipio preferred stock term sheet reflecting the terms that had been agreed.

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On October 10, 2016, Troutman distributed a revised draft of the Merger Agreement to Precipio and its advisors and representatives. Later that day, Goodwin distributed a revised draft of the Merger Agreement to Transgenomic and its advisors and representatives. Representatives of Goodwin and Troutman continued to negotiate the open issues.

On October 11, 2016, Mr. Patzig and Mr. Danieli discussed the working capital adjustment in the Merger Agreement and agreed to increase the working capital deficit maximum for Precipio to $1.8 million and for Transgenomic to $6.0 million and eliminate the termination right if the working capital deficit exceeded the maximum for both companies. Transgenomic felt the changes were in its best interest as it expected its liabilities as of the closing of the merger to be in excess of $6.0 million and it provided greater certainty of closing. Transgenomic expected that based on the formula set forth in the revised Merger Agreement that Precipio would own between 62% and 80% of the post-closing fully diluted shares of Transgenomic common stock (not taking into account the issuance of New Precipio common stock upon conversion of the New Precipio preferred stock to be issued in the merger, upon conversion of secured debt or in the private placement) based on the relative working capital deficits of the companies as of the closing. Following the agreement, Troutman distributed a revised draft of the Merger Agreement to Precipio and its advisors and representatives. Later that evening, Goodwin distributed a revised draft of the Merger Agreement to Transgenomic and its advisors and representatives.

On October 11, 2016, the Transgenomic Board met to discuss the current status of the Precipio transaction and the terms of the Merger Agreement and the term sheet for the New Precipio preferred stock. Representatives of Troutman also attended the meeting. Troutman provided the Transgenomic Board a summary of its prior presentation on fiduciary duties under Delaware law and each of the Transgenomic Board members had an opportunity to ask questions. Troutman then provided a summary of the material terms of the Merger Agreement and the proposed terms of the New Precipio preferred stock set forth in the revised draft term sheet. Mr. Patzig and Mr. Kinnon updated the Transgenomic Board on the status of the negotiations and the main business issues.

On October 12, 2016, representatives of Precipio, including Mr. Danieli and Mr. Rimer, Transgenomic, including Mr. Patzig and Mr. Kinnon, Third Security, BV Partners and Goodwin met telephonically to finalize the Merger Agreement. Later that day, Troutman distributed the execution draft of the Merger Agreement to Precipio and its advisors and representatives, including the termination fee that Transgenomic was willing to accept.

On October 12, 2016, the Transgenomic Board met to discuss the current status of the Precipio transaction and the terms of the Merger Agreement and the term sheet for the New Precipio preferred stock. Representatives of Troutman and Craig-Hallum also attended the meeting. Troutman provided the Transgenomic Board an update of its fiduciary duties under Delaware law and each of the Transgenomic Board members had an opportunity to ask questions. Troutman then provided a summary of the material terms of the Merger Agreement and the terms of the New Precipio preferred stock set forth in the final term sheet. Mr. Patzig and Mr. Kinnon updated the Transgenomic Board on the status of the negotiations and the main business issues. Craig-Hallum delivered to the Transgenomic Board a written report regarding its financial analysis of the proposed transaction and its oral opinion, confirmed by delivery of its written opinion dated October 12, 2016, that, as of that date, and based upon and subject to the assumptions contained the fairness opinion, the exchange ratio determined in accordance with the Merger Agreement of 25.7505 was fair, from a financial point of view, to the holders of Transgenomic common stock. The Transgenomic Board members all had an opportunity to ask questions to the representatives of Craig-Hallum. After Craig-Hallum left the meeting, the Transgenomic Board had a detailed discussion regarding the proposed transaction with Precipio. Mr. Patzig reminded the Transgenomic Board of the efforts over the past two years to find financing or to sell the business which had not been successful except for the current transaction. The Transgenomic Board discussed the alternatives including continuing independent or trying to pursue a public offering, a different merger or related transaction or alternative financing. Doit L. Koppler, II, a member of the Transgenomic Board and affiliated with Third Security and certain of its affiliates recused himself from the meeting. In addition, the Transgenomic Board was aware that Mr. Patzig has an interest in the funds managed by Third Security that own Transgenomic common stock, preferred stock and secured debt (the “Transgenomic Securities”) and determined such investments in Transgenomic Securities held by the Third Security managed

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funds was immaterial to Mr. Patzig. The remaining members of the Transgenomic Board voted to approve the Merger Agreement and the other transaction agreements and to recommend that the stockholders of Transgenomic vote to approve the proposals set forth in the proxy statement to be sent to Transgenomic stockholders.

On October 12, 2016, Transgenomic and Precipio entered into the Merger Agreement, exchanged executed versions of the Voting Agreements and the New Precipio preferred stock term sheet and issued a press release announcing their execution of the Merger Agreement.

During November 2016, Transgenomic and Third Security negotiated the terms of the conversion of Third Security’s secured debt into shares of New Precipio common stock as contemplated by the Merger Agreement in addition to the $3.0 million to be converted into New Precipio preferred stock as provided in the Merger Agreement. As the secured creditor, Third Security did not have an incentive to convert its secured debt into equity. The parties agreed to use the same general approach to conversion as set forth in the terms of the unsecured notes that were held by unaffiliated holders. Transgenomic and Third Security agreed that the secured debt would convert using the same basic formula included in the conversion terms for the Transgenomic unsecured notes.

On December 13, 2016, the Transgenomic Board met and approved, among other items, the conversion of the Third Security secured debt into $3.0 million of New Precipio preferred stock and the remaining secured debt at a conversion price equal to 85% of the average closing price of the Transgenomic common stock on Nasdaq for the 15 consecutive trading days prior to the date of conversion.

On January 31, 2017, the Transgenomic Board met to discuss the current status of the Precipio transaction and the terms of the Merger Agreement in connection with filing the Proxy Statement and closing the merger. The Transgenomic Board reviewed the proposed terms for an amendment to the Merger Agreement, the proposed Precipio Bridge Loan and the conversion of the outstanding secured debt of Transgenomic. The Board authorized Mr. Patzig and Mr. Kinnon to negotiate the final terms of the proposals in accordance with the terms presented at the meeting. Transgenomic and Third Security agreed to set the conversion price at $0.50 per share which was an 18% discount to the 20-day average closing price of the Transgenomic common stock on Nasdaq through January 31, 2017 as opposed to setting the conversion price to be determined as of the conversion date. Transgenomic was concerned that if its stock price declined then Third Security would be getting a significantly higher number of shares of Transgenomic common stock upon conversion and Third Security would not agree to a floor if the conversion price could go higher prior to the date of conversion.

On February 2, 2017, the audit committee of the Transgenomic Board, in accordance with the Transgenomic Corporate Governance Guidelines, approved the conversion of secured indebtedness of Transgenomic held by the lenders into shares of New Precipio preferred stock and New Precipio common stock. Also on February 2, 2017, the Transgenomic Board met and approved the final terms of the Precipio Bridge Loan, the First Amendment to the Agreement and Plan of Merger and the conversion of secured indebtedness of Transgenomic held by the lenders into shares of New Precipio preferred stock and New Precipio common stock pursuant to an amendment to the loan agreement.

On February 2, 2017, Transgenomic and Precipio entered into the First Amendment to the Merger Agreement (the “First Amendment”) which provided for the following: (a) the Precipio Bridge Loan to Transgenomic was authorized; (b) the exchange ratio set forth in the Merger Agreement was revised to provide that outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of New Precipio common stock representing approximately 79% of the fully diluted New Precipio common stock (not taking into account the issuance of New Precipio common stock upon conversion of the New Precipio preferred stock to be issued in the merger, upon conversion of secured debt or in the private placement) and resulting in an implied exchange ratio of 24.4255 for the Precipio common units; (c) the continual listing of the existing shares of Transgenomic’s common stock on Nasdaq was waived as a condition to the closing of the merger; (d) the deadline pursuant to which a “shelf” registration statement on Form S-3 or other appropriate form is required to be filed by New Precipio with the SEC was extended to June 1, 2017; (e) certain indebtedness of Transgenomic was permitted to remain outstanding as of the effective date of the merger; (f) certain actions taken by each of Transgenomic and Precipio since the date the

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Merger Agreement were authorized and (g) certain additional conditions to the closing of the merger were removed from the Merger Agreement. In determining the number of shares of New Precipio common stock to be issued pursuant to the First Amendment, the parties applied the formula set forth in the Merger Agreement based on the relative expected liabilities of Transgenomic and Precipio as of the closing of the merger. Since the number of shares of New Precipio common stock and the resulting implied exchange ratio of 24.4255 were lower than the amounts and the exchange ratio of 25.7505 included in Craig-Hallum’s fairness opinion, the Board did not deem it necessary for Craig-Hallum to update its fairness opinion with respect to the First Amendment.

As a result of the First Amendment, (i) in connection with the merger, (a) Precipio common unit holders will own approximately 52% of the issued and outstanding shares of New Precipio common stock on a fully diluted basis, taking into account the issuance of New Precipio preferred stock in the merger, in connection with the conversion of the secured debt and in the private placement (the “fully diluted New Precipio common stock”) through their receipt of approximately 160.6 million shares of New Precipio common stock, (b) Precipio preferred unit holders will own approximately 8% of the fully diluted New Precipio common stock through their receipt of approximately 24.1 million shares of New Precipio preferred stock, (ii) in connection with the conversion of the secured indebtedness of Transgenomic, the holders of such debt will own (a) approximately 8% of the fully diluted New Precipio common stock through their receipt of approximately 24.1 million shares of New Precipio preferred stock and (b) approximately 3% of the fully diluted New Precipio common stock though their receipt of approximately 10.4 million shares of New Precipio common stock and (iii) in connection with the private placement, the investors in such private placement will own approximately 18% of the fully diluted New Precipio common stock through their receipt of approximately 56.2 million shares of New Precipio preferred stock.

Transgenomic’s Reasons for the Transaction

The Transgenomic Board, after considering various reasons described herein and below, determined that the Merger Agreement, the conversion of secured debt, the related private placement, and the transactions contemplated thereby, are advisable, fair to and in the best interests of Transgenomic and its stockholders, and approved, adopted and declared advisable the Merger Agreement, the conversion of secured debt, the private placement, and the transactions contemplated thereby. If the issuance of shares of New Precipio common stock is approved, then in accordance with the Merger Agreement, Merger Sub will merge with and into Precipio, with Precipio as the surviving entity. The approval of the issuance of New Precipio common stock and New Precipio preferred stock in the merger is a condition to the completion of the merger with Precipio, the conversion of the secured debt and the private placement. Therefore, the Transgenomic Board recommends that you vote “FOR” the issuance of approximately 160.6 million shares of New Precipio common stock, as well as approximately 24.1 million shares of New Precipio preferred stock to be issued, pursuant to the Merger Agreement, the issuance of approximately 24.1 million shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock and the approval of the resulting “change of control” of Transgenomic, and “FOR” the proposal to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve Proposal No. 1. The approval of the adjournment of the special meeting is not a condition to completion of the merger with Precipio, the conversion of the secured debt or the private placement.

The Transgenomic Board believes that the merger will provide substantial benefits to Transgenomic’s business and operations by, among other things, enhancing the ability of the combined company to be a leading platform for accurate diagnosis. In evaluating the transaction, the Transgenomic Board consulted with members of Transgenomic management and legal and financial advisors, and in reaching its decision to approve the transactions and recommend the issuance of shares by Transgenomic’s stockholders, the Transgenomic Board considered a substantial amount of information and a number of reasons that it believes support its decision to enter into the transactions, including, but not limited to, the following material reasons (not necessarily in order of relative importance):

that no material ICE-COLD PCR licenses have been signed, and Transgenomic management believes that raising additional capital to continue operations as a stand-alone business would not be possible given Transgenomic’s current capital structure and lack of commercial progress to date with ICE-COLD PCR;

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previous processes to pursue strategic alternatives by Transgenomic to liquidate unutilized assets, sell the company, merge or enter into commercial licensing arrangements were unsuccessful, including the failure to sell Transgenomic’s PT business which resulted in a wind-down of that business;
as of September 30, 2016, Transgenomic had just short of $0.1 million in cash, $9.2 million in accounts payable and accrued expenses and $7.8 million in debt and management believes it has exhausted all of its alternatives in terms of raising capital outside of the merger and private placement and, as of December 31, 2016, Transgenomic had approximately $12 million in accounts payable and accrued expenses;
that Transgenomic stockholders will have the opportunity to participate in the future performance of New Precipio, rather than face potential bankruptcy with Transgenomic;
the oral opinion of Craig-Hallum delivered to the Transgenomic Board on October 12, 2016, which was subsequently confirmed by delivery of a written opinion, to the effect that, that, as of the date of its opinion, based upon and subject to the assumptions, limitations, qualifications, and factors contained in its opinion, the exchange ratio 25.7505 provided for in the Merger Agreement was fair, from a financial point of view, to the holders of Transgenomic common stock, as more fully described below under the caption “— Opinion of Craig-Hallum Capital Group LLC” beginning on page 44; the full text of the written opinion of Craig-Hallum, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken in rendering the opinion, is attached as Annex B to this proxy statement and the fact that the implied exchange ratio set forth in the First Amendment was 24.4255, which was lower than the exchange ratio in Craig-Hallum’s fairness opinion;
knowledge of Transgenomic’s business, operations, financial condition and prospects, as well as an assessment of Precipio’s business and financial condition, taking into account the results of Transgenomic’s due diligence review of Precipio;
belief, with input from Transgenomic management, that the value offered to Transgenomic stockholders in the proposed transaction with Precipio is more favorable to Transgenomic stockholders than the potential value of remaining an independent public company;
the long-term and recent historical trading price ranges with respect to shares of Transgenomic common stock;
the complementary nature of Transgenomic’s business and operations and Precipio’s business and operations, including the significant value creation opportunity in leveraging the combination of Precipio’s unique scalable scientific platform and Transgenomic’s powerful proprietary technology;
that New Precipio would be a larger, more diversified company than either Transgenomic or Precipio on its own;
the expectation that the private placement transaction would create a better capitalized organization with a lower cost of capital than a standalone Transgenomic, as the debt holders of Transgenomic will convert outstanding debt into approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million and approximately 10.4 million shares of New Precipio common stock, which will, among other things, allow New Precipio to pursue business development opportunities not otherwise available to Precipio or Transgenomic as standalone entities;
that the issuance of New Precipio preferred stock to investors in the private placement of up to $7 million in connection with the merger satisfies Transgenomic’s immediate need for working capital financing on terms more favorable to Transgenomic than were otherwise available to the company, and that such proceeds will not be otherwise available;
that certain of Precipio’s unit, warrant and note holders have entered into the Precipio Voting Agreement with Transgenomic and Precipio, pursuant to which they agreed to support the transactions contemplated by the Merger Agreement;

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that the Merger Agreement provided sufficient flexibility for the Transgenomic Board to change its recommendation regarding the Merger Agreement in the case of a superior proposal or material unforeseen intervening event;
the merger and related private placement are key components of Transgenomic’s plan to regain compliance with Nasdaq listing standards;
the depth of experience of the management team of Precipio; and
the terms and conditions of the Merger Agreement, including the parties’ representations, warranties and covenants.

The Transgenomic Board weighed the foregoing against a number of risks and potentially negative reasons, including, but not limited to, the following reasons:

the restrictions on the conduct of Transgenomic’s business during the period between execution of the Merger Agreement and the completion of the merger;
the dilution to the existing Transgenomic stockholders;
the risk that the anticipated benefits of the merger may not be realized;
the risk that changes in the regulatory or competitive landscape may adversely affect the benefits anticipated to result from the merger;
the challenges inherent in combining the businesses, operations and workforces of two companies, including the potential for (i) unforeseen difficulties in integrating operations and systems, (ii) the possible distraction of management attention for an extended period of time and (iii) difficulties in assimilating employees;
the potential effect of the merger and subsequent integration and/or market factors on Transgenomic’s and/or Precipio’s historical business, including their respective relationships with employees, customers, suppliers, and other business partners;
the risk that the transaction, and subsequent integration of the two businesses, may preclude other business development opportunities;
the substantial costs that Transgenomic has incurred and will continue to incur in connection with the merger, including the costs of integrating the businesses of Transgenomic and Precipio and the transaction expenses arising from the merger;
the risk that Transgenomic or Precipio may lose key personnel prior to the completion of the merger;
the risk that the merger may not be completed despite the combined efforts of Transgenomic and Precipio or that completion may be delayed, even if the requisite approvals are obtained from Transgenomic stockholders and owners of the outstanding membership interests of Precipio;
the possibility of stockholder litigation and the attendant costs, delays and diversion of management attention and resources;
that the non-solicitation covenant in the Merger Agreement imposes restrictions on Transgenomic’s ability to solicit other potential strategic transaction partners after signing;
the fact that Transgenomic may be obligated to pay Precipio a termination fee of $256,500 in certain circumstances as summarized under “The Merger Agreement — Effect of Termination”;
that the market price of Transgenomic common stock could be affected by many factors, including:
ºif the Merger Agreement is terminated, the reason or reasons for such termination and whether such termination resulted from factors adversely affecting Transgenomic;

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ºthe possibility that, in the event of the termination of the Merger Agreement, possible acquirers or other strategic transaction partners may consider Transgenomic to be a less attractive acquisition candidate; and
ºthe possible sale of Transgenomic common stock by short-term investors and material fluctuation in the market price of its common stock in response to an announcement of the merger or in the event that the Merger Agreement is terminated;
the risk of changes in circumstances between the date of the signing of the Merger Agreement and the completion of the merger transactions, which will not be reflected in the opinion delivered by Craig-Hallum to the Transgenomic Board on October 12, 2016; and
the risks of the type and nature described under the heading “Risk Factors” beginning on page 20 and the matters described above under the heading “Cautionary Statement Concerning Forward-Looking Statements.”

This discussion of the reasons considered by the Transgenomic Board in reaching its conclusions and recommendation summarizes the material reasons considered by the Transgenomic Board, but is not intended to be exhaustive. The Transgenomic Board based its recommendation on the totality of the information presented.

The Transgenomic Board believes that, overall, the potential benefits of the merger, the conversion of the secured debt and the private placement to Transgenomic’s stockholders outweigh the risks and uncertainties of the transactions. In view of the wide variety of reasons considered in connection with its evaluation of the transactions and the complexity of these matters, the Transgenomic Board did not find it useful and did not attempt to assign any relative or specific weights to the various reasons that it considered in reaching its determination to recommend that Transgenomic stockholders vote “FOR” the proposal to approve the issuance of approximately 160.6 million shares of New Precipio common stock, as well as approximately 24.1 million shares of New Precipio preferred stock to be issued, pursuant to the Merger Agreement, the issuance of approximately 24.1 million shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock and the resulting “change of control” of Transgenomic, “FOR” the proposal to approve the issuance of approximately 24.1 million shares of New Precipio preferred stock and approximately 10.4 million shares of New Precipio common stock to be issued in exchange for certain secured indebtedness of Transgenomic and the issuance of approximately 24.1 million shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock, “FOR” the proposal to approve the issuance of approximately 56.2 million shares of New Precipio preferred stock to be issued to investors in a related private placement and the issuance of approximately 56.2 million shares of New Precipio common stock issuable upon conversion of such New Precipio preferred stock and “FOR” the proposal to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting. Additionally, in considering the matters described above, each member of the Transgenomic Board applied his or her own business judgment to the process and may have assigned varying weights to different reasons supporting the decision to approve the transactions.

The foregoing discussion of the information and reasons considered by the Transgenomic Board is forward-looking in nature.This information should be read in light of the risks described above under “Cautionary Statement Concerning Forward-Looking Statements”.

Opinion of Craig-Hallum Capital Group LLC

The Transgenomic Board retained Craig-Hallum to act as a financial advisor to the Transgenomic Board in connection with its consideration of strategic alternatives, including a possible business combination transaction, and, if requested, to render to the Transgenomic Board an opinion as to the fairness, from a financial point of view, of the consideration to be paid in a business combination transaction. On October 12, 2016, at a meeting of the Transgenomic Board held to evaluate the proposed transaction, Craig-Hallum delivered to the Transgenomic Board an oral opinion, subsequently confirmed by delivery of a written opinion, to the effect that, as of that date and based upon and subject to the factors and assumptions set forth therein,

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the exchange ratio of 25.7505, as set forth in the Merger Agreement, was fair, from a financial point of view, to the holders of Transgenomic common stock.

The full text of the written opinion of Craig-Hallum, dated October 12, 2016, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. The following summary of Craig-Hallum’s opinion in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Craig-Hallum provided its opinion for the information and assistance of the Transgenomic Board in connection with its consideration of the merger. Craig-Hallum’s opinion was not intended to and does not constitute a recommendation as to how any holder of Transgenomic common stock should vote or take any action with respect to the merger or any other matter.

In arriving at its opinion, Craig-Hallum, among other things:

reviewed the financial terms of a draft of the Merger Agreement dated as of October 12, 2016;
reviewed certain business, financial and other information and data with respect to Transgenomic publicly available or made available to Craig-Hallum from internal records of Transgenomic;
reviewed certain business, financial and other information and data with respect to Precipio made available to Craig-Hallum from internal records of Precipio;
reviewed certain internal financial projections for Transgenomic and Precipio on a stand-alone basis prepared for financial planning purposes and furnished to Craig-Hallum by management of Transgenomic and Precipio, respectively;
reviewed and analyzed certain forecasted pro forma financial information relating to the operating performance of Transgenomic following completion of the merger that were furnished to Craig-Hallum by management of Precipio;
conducted discussions with members of the senior management of Transgenomic and Precipio with respect to the business and prospects of Transgenomic and Precipio, respectively, on a stand-alone basis and on a combined basis;
reviewed the reported prices and trading activity of Transgenomic common stock and similar information for certain other companies deemed by Craig-Hallum to be comparable to Transgenomic;
compared the financial performance of Transgenomic and Precipio with that of certain other publicly traded companies deemed by Craig-Hallum to be comparable to Transgenomic and Precipio, respectively;
reviewed the financial terms, to the extent publicly available, of certain comparable merger transactions that Craig-Hallum deemed relevant; and
performed a discounted cash flows analysis for Transgenomic and Precipio, each on a stand-alone basis and on a pro forma combined basis.

In addition, Craig-Hallum conducted such other analyses, examinations and inquiries and considered such other financial, economic and market criteria as Craig-Hallum deemed necessary and appropriate in arriving at its opinion.

Summary of Financial Analyses

In accordance with customary investment banking practice, Craig-Hallum employed generally accepted valuation methods in reaching its fairness opinion. The following is a summary of the material financial analyses performed by Craig-Hallum in connection with the preparation of its fairness opinion, which was reviewed with, and formally delivered to, the Transgenomic Board at a meeting held on October 12, 2016. The preparation of analyses and a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of

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those methods to the particular circumstances. Therefore, this summary does not purport to be a complete description of the analyses performed by Craig-Hallum or of its presentation to the Transgenomic Board on October 12, 2016.

This summary includes information presented in tabular format, which tables must be read together with the text of each analysis summary and considered as a whole in order to fully understand the financial analyses presented by Craig-Hallum. The tables alone do not constitute a complete summary of the financial analyses. The order in which these analyses are presented below, and the results of those analyses, should not be taken as an indication of the relative importance or weight given to these analyses by Craig-Hallum or the Transgenomic Board. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before October 12, 2016, and is not necessarily indicative of current market conditions. All analyses conducted by Craig-Hallum were going concern analyses and Craig-Hallum expressed no opinion regarding the liquidation value of any entity.

The exchange ratio was determined through arm’s-length negotiations between Transgenomic and Precipio and was approved by the Transgenomic Board. Craig-Hallum did not provide advice to the Transgenomic Board during these negotiations nor recommend any specific consideration to Transgenomic or the Transgenomic Board or suggest that any specific consideration constituted the only appropriate consideration for the merger, including but not limited to the exchange ratio. In addition, Craig-Hallum’s opinion and its presentation to the Transgenomic Board were one of many factors taken into consideration by the Transgenomic Board in deciding to approve the merger.

For purposes of its stand-alone analyses performed on Transgenomic, Craig-Hallum utilized Transgenomic’s internal financial projections for the fiscal years ending December 31, 2016 through December 31, 2020, prepared by and furnished to Craig-Hallum by the management of Transgenomic. For purposes of its stand-alone analyses performed on Precipio, Craig-Hallum utilized Precipio’s internal financial projections for the fiscal years ending December 31, 2016 through December 31, 2020, prepared by and furnished to Craig-Hallum by the management of Precipio. For purposes of its pro forma combined analyses performed on the combined company assuming completion of the merger, Craig-Hallum utilized the combined company’s internal financial projections for the fiscal years ending December 31, 2016 through December 31, 2020, prepared by and furnished to Craig-Hallum by the management of Precipio.

Transgenomic Historical Trading Analyses

Craig-Hallum reviewed the historical closing price for Transgenomic common stock over the one-year period ended October 11, 2016, in order to provide background information on the prices at which Transgenomic common stock has historically traded. The tables below summarize some of these historical closing prices, as well as the performance of Transgenomic common stock over the one-year period ended October 11, 2016, as compared to stock market indices. For purposes of these analyses, “Molecular Diagnostics Comparable Companies” is an equal-weight composite index comprised of the public companies listed below deemed by Craig-Hallum in its professional judgment to be appropriate to compare to Transgenomic and the broader stock market indices for stock sentiment purposes:

Cancer Genetics, Inc.
Enzo Biochem Inc.
Foundation Medicine, Inc.
Genomic Health, Inc.
NeoGenomics, Inc.
OpGen, Inc.
Qiagen NV

Craig-Hallum also noted that shares of Transgenomic common stock were thinly traded relative to the common stock of most publicly traded companies. This analysis shows that Transgenomic common stock has performed significantly below the relevant market indices over the one-year period analyzed.

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Closing Trading Price on or Prior to October 11, 2016 Price
October 11, 2016 Closing Price $0.24 
52 Week High $1.36 
52 Week Low $0.24 

 
One-Year Stock Performance as of October 11, 2016 Percentage
Increase
(Decrease)
Transgenomic common stock  (73.9)% 
Molecular Diagnostics Comparable Companies  (0.21)% 
Nasdaq Composite Index  7.01
Russell 2000 Index  10.73

Comparable Public Company Analyses

Craig-Hallum reviewed, among other things, selected historical financial data and estimated financial data of each of Transgenomic and Precipio based on projections provided by its respective management, and compared them to corresponding financial data, where applicable, for U.S. listed public companies that Craig-Hallum deemed comparable to each of Transgenomic and Precipio. Craig-Hallum also derived multiples for each of the comparable companies, Transgenomic and Precipio based on such financial data and market trading prices, as applicable, and compared them. Craig-Hallum selected these companies based on characteristics described below using the most recently available public information obtained by searching SEC filings, public company disclosures, press releases, equity research reports, industry and popular press reports, databases and other sources.

Although Craig-Hallum selected the companies reviewed in these analyses because, among other things, their businesses are reasonably similar to that of Transgenomic and Precipio, no selected company is identical to Transgenomic or Precipio. Accordingly, Craig-Hallum’s comparison of selected companies to Transgenomic and Precipio and analysis of the results of such comparisons was not purely quantitative, but instead necessarily involved qualitative considerations and professional judgments concerning differences in financial and operating characteristics and other factors that could affect the relative value of Transgenomic and Precipio.

Comparable Public Company Analysis of Transgenomic

For Transgenomic, the comparable group consisted of six U.S. publicly traded companies in the diagnostic testing sector that have financial profiles deemed comparable to Transgenomic for valuation purposes and have business models focused on technologies designed to improve diagnostic testing effectiveness (the “Transgenomic Comparable Group”). Based on these criteria, Craig-Hallum identified and analyzed the following selected companies:

Bio-Rad Laboratories, Inc.
Cancer Genetics, Inc.
Enzo Biochem Inc.
Fluidigm Corporation
OpGen, Inc.
Qiagen NV

This group of companies is different from the Molecular Diagnostics Comparable Companies group in the Transgenomic Historical Trading Analyses section above because this group was selected by Craig-Hallum to be a very focused list of companies deemed comparable for valuation purposes while the Molecular Diagnostics Comparable Companies group was selected by Craig-Hallum to have a broader business scope that Craig-Hallum deemed appropriate to compare to Transgenomic and the broader stock market indices for stock sentiment purposes.

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In all instances, multiples were based on closing stock prices on October 11, 2016. With respect to the Transgenomic Comparable Group table below, the information Craig-Hallum presented included the following valuation and operating data:

multiple of EV to revenue for the last twelve months, or EV/LTM Revenue
multiple of EV to EBITDA for the last twelve months, or EV/LTM EBITDA
multiple of EV to projected revenue for the fiscal year ending December 31, 2017, or EV/2017E Revenue
multiple of EV to projected EBITDA for the fiscal year ending December 31, 2017, or EV/2017E EBITDA
multiple of EV to projected revenue for the fiscal year ending December 31, 2018, or EV/2018E Revenue
multiple of EV to projected EBITDA for the fiscal year ending December 31, 2018, or EV/2018E EBITDA

 ��    
 Transgenomic Comparable Group
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
EV/LTM Revenue(1)  1.2 x   2.1 x   2.5 x   3.5 x   5.0 x   6.7 x 
EV/LTM EBITDA(1)(2)  15.2 x   16.0 x   16.9 x   16.9 x   17.7 x   18.6 x 
EV/2017E Revenue(3)  0.7 x   2.2 x   2.2 x   3.0 x   4.9 x   5.2 x 
EV/2017E EBITDA(2)(3)  15.6 x   15.7 x   15.9 x   15.9 x   16.0 x   16.2 x 
EV/2018E Revenue(3)  0.4 x   1.5 x   2.0 x   2.3 x   2.8 x   4.9 x 
EV/2018E EBITDA(2)(3)  15.3 x   15.3 x   15.3 x   15.3 x   15.3 x   15.3 x 

(1)LTM for the selected public company analysis is based on latest publicly reported financial results. For Transgenomic, LTM is as of June 30, 2016.
(2)EBITDA is defined as earnings before interest, taxes, depreciation and amortization.
(3)Projected fiscal year 2017 and 2018 revenue and EBITDA for Transgenomic were based on projections by Transgenomic’s management. Projected fiscal year 2017 and 2018 revenue and EBITDA for the selected public companies were based on equity research analyst consensus estimates.

Based on the analysis above, Craig-Hallum then applied the range of Transgenomic Comparable Group trading multiples to the applicable revenue metrics of Transgenomic. The analysis indicated the following implied enterprise value of Transgenomic as compared to Transgenomic’s stand-alone statistic:

       
 Transgenomic
Only
(millions)
 Implied Enterprise Value of Transgenomic (millions)
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
LTM Revenue $1.2  $1.5  $2.6  $3.1  $4.2  $6.1  $8.1 
2017E Revenue $2.4  $1.7  $5.2  $5.3  $7.3  $11.9  $12.6 
2018E Revenue $6.7  $2.8  $10.1  $13.3  $15.5  $18.7  $32.8 

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The implied enterprise values in the table above were adjusted for Transgenomic’s outstanding net debt of $7.7 million (estimated by Transgenomic to be outstanding at closing as of the date of Craig-Hallum’s opinion) and indicated the following implied equity value of Transgenomic as compared to Transgenomic’s stand-alone statistic:

       
 Transgenomic
Only
(millions)
 Implied Equity Value of Transgenomic (millions)
   Minimum 25th Percentile Median Mean 75th Percentile Maximum
LTM Revenue $1.2  $(6.2 $(5.1 $(4.6 $(3.5 $(1.6 $0.4 
2017E Revenue $2.4  $(6.0 $(2.5 $(2.4 $(0.4 $4.2  $4.9 
2018E Revenue $6.7  $(4.9 $2.4  $5.6  $7.8  $11.0  $25.1 
Comparable Public Company Analysis of Precipio

For Precipio, the comparable group consisted of five U.S. publicly traded companies in the diagnostic testing sector that have financial profiles deemed comparable to Precipio and have a focus on services or technologies designed to improve diagnostic testing efficiency and effectiveness (the “Precipio Comparable Group”). Based on these criteria, Craig-Hallum identified and analyzed the following selected companies:

Cancer Genetics, Inc.
Enzo Biochem Inc.
Genomic Health Inc.
Neogenomics Inc.
OpGen, Inc.

In all instances, multiples were based on closing stock prices on October 11, 2016. With respect to the Precipio Comparable Group table below, the information Craig-Hallum presented included the following valuation and operating data:

EV/LTM Revenue
EV/LTM EBITDA
EV/2017E Revenue
EV/2017E EBITDA
EV/2018E Revenue
EV/2018E EBITDA

      
 Precipio Comparable Group
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
EV/LTM Revenue(1)  1.3 x   2.1 x   3.1 x   3.5 x   4.3 x   6.7 x 
EV/LTM EBITDA(1)(2)  27.4 x   27.4 x   27.4 x   27.4 x   27.4 x   27.4 x 
EV/2017E Revenue(3)  0.7 x   2.2 x   2.7 x   2.7 x   3.2 x   5.0 x 
EV/2017E EBITDA(2)(3)  14.3 x   25.8 x   37.4 x   37.4 x   49.0 x   60.6 x 
EV/2018E Revenue(3)  0.4 x   1.4 x   2.3 x   1.7 x   2.3 x   2.3 x 
EV/2018E EBITDA(2)(3)  11.1 x   16.0 x   21.0 x   21.0 x   25.9 x   30.9 x 

(1)LTM for the selected public company analysis is based on latest publicly reported financial results. For Precipio, LTM is as of June 30, 2016.
(2)EBITDA is defined as earnings before interest, taxes, depreciation and amortization.
(3)Projected fiscal year 2017 and 2018 revenue and EBITDA for Precipio were based on projections by Precipio’s management. Projected fiscal year 2017 and 2018 revenue and EBITDA for the selected public companies were based on equity research analyst consensus estimates.

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Based on the analysis above, Craig-Hallum then applied the range of Precipio Comparable Group trading multiples to the applicable revenue metrics of Precipio. The analysis indicated the following implied enterprise value of Precipio as compared to Precipio’s stand-alone statistic:

       
 Precipio
Only
(millions)
 Implied Enterprise Value of Precipio (millions)
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
LTM Revenue $2.6  $3.3  $5.5  $8.2  $9.2  $11.2  $17.7 
2017E Revenue $5.5  $3.8  $11.9  $14.7  $15.1  $17.9  $27.4 
2018E Revenue $11.4  $4.7  $15.7  $26.6  $19.4  $26.7  $26.7 

The implied enterprise values in the table above were adjusted for Precipio’s outstanding net debt of $1.1 million (estimated by Precipio to be outstanding at closing as of the date of Craig-Hallum’s opinion) and indicated the following implied equity value of Precipio as compared to Precipio’s stand-alone statistic:

       
 Precipio
Only
(millions)
 Implied Equity Value of Precipio (millions)
   Minimum 25th Percentile Median Mean 75th Percentile Maximum
LTM Revenue $2.6  $2.2  $4.4  $7.1  $8.0  $10.0  $16.5 
2017E Revenue $5.5  $2.7  $10.8  $13.5  $14.0  $16.7  $26.3 
2018E Revenue $11.4  $3.6  $14.6  $25.5  $18.2  $25.5  $25.6 

Comparable M&A Transaction Analysis

Craig-Hallum performed a comparable M&A transaction analysis, which is designed to imply a value for a company based on publicly available financial terms of the selected transactions that share some characteristics with the merger. Craig-Hallum selected these transactions based on information obtained by searching SEC filings, public company disclosures, press releases, equity research reports, industry and popular press reports, databases and other sources. Craig-Hallum selected these transactions based on the following criteria:

transactions with a target company in the diagnostic testing sector with a focus on services and technologies that improve the diagnostic testing efficiency and effectiveness;
transactions announced since January 1, 2010;
transactions with an implied enterprise value less than $1.5 billion at the time of announcement; and
transactions with publicly available information regarding terms of the transaction.

The group was comprised of the following transactions and is referred to in this proxy statement as the “Precedent Transaction Group:”

 
Buyer Target
Myriad Genetics, Inc.
Luminex Corporation
NeoGenomics Laboratories, Inc.
OpGen, Inc.
Opko Health, Inc.
Neogenomics Inc.
Myriad Genetics, Inc.
bioMérieux S.A.
Luminex Corporation
GE Healthcare Limited
 AssureRx Health, Inc.
Nanosphere, Inc.
Clarient, Inc.
AdvanDx, Inc.
Bio-Reference Laboratories Inc.
Path Logic, Inc.
Crescendo Bioscience, Inc.
Argene SA
EraGen Biosciences, Inc.
Clarient, Inc.

With respect to the Precedent Transaction Group, Craig-Hallum calculated the ratio of implied enterprise value to historical revenue for the LTM. Craig-Hallum then compared the results of these calculations with similar calculations for each of Transgenomic and Precipio.

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The selected transactions analysis showed that, based on the estimates and assumptions used in the analysis, the implied valuation multiples of Transgenomic and Precipio were within the range of valuation multiples of the Precedent Transaction Group when comparing the ratio of the implied enterprise value to the historical revenue for the LTM.

Results of Craig-Hallum’s analysis were presented for the Precedent Transaction Group, as shown in the following table:

      
 Precedent Transaction Group
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
Implied Enterprise Value (millions) $1.0  $41.0  $176.0  $308.0  $374.0  $1,445.0 
Implied Enterprise Value to LTM Revenue(1)  0.3 x   1.8 x   4.1 x   3.8 x   4.5 x   9.5 x 

(1)LTM for the Precedent Transaction Group is based on latest publicly reported financial results. Based on the analysis above, Craig-Hallum then applied the range of the Precedent Transaction Group trading multiples to the applicable financial metrics of each of Transgenomic and Precipio. The analysis indicated the following implied enterprise value of each of Transgenomic and Precipio, respectively, as compared to such company’s stand-alone statistic:

       
 Stand-Alone
Value
(millions)
 Implied Enterprise Value (millions)
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
Transgenomic
                                   
LTM Revenue $1.2  $0.4  $2.1  $5.0  $4.6  $5.4  $11.4 
Precipio
                                   
LTM Revenue $2.6  $0.8  $4.6  $10.8  $10.0  $11.8  $24.8 

The Transgenomic and Precipio implied enterprise values in the table above were adjusted for Transgenomic’s outstanding net debt of $7.7 million and Precipio’s outstanding net debt of $1.1 million, respectively, and indicated the following implied equity value of Transgenomic and Precipio as compared to their respective stand-alone statistic:

       
 Stand-Alone
Value
(millions)
 Implied Equity Value (millions)
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
Transgenomic
                                   
LTM Revenue $1.2  $(7.3 $(5.6 $(2.7 $(3.1 $(2.3 $3.7 
Precipio
                                   
LTM Revenue $2.6  $(0.3 $3.5  $9.7  $8.9  $10.7  $23.7 

No target company or transaction utilized in the comparable M&A transaction analysis is identical to Precipio or the merger. In evaluating the precedent transactions, Craig-Hallum made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Precipio, such as the impact of competition on the business of Precipio or the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of Precipio or the industry or in the financial markets in general.

Discounted Cash Flow Analyses

The discounted cash flow analysis is a widely used valuation methodology that relies upon numerous assumptions, including asset growth rates, earnings growth rates, discount rates, and terminal multiples, and the results of such methodology are highly dependent on these assumptions. The analysis does not purport to be indicative of the actual or expected implied enterprise values of each of Transgenomic and Precipio on a stand-alone or a pro forma combined basis. In addition, the analyses are based on internal financial projections of management of Transgenomic or Precipio, as applicable.

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Discounted Cash Flow Analysis of Transgenomic

Craig-Hallum conducted an illustrative discounted cash flow analysis for Transgenomic on a stand-alone basis, which is designed to estimate the implied enterprise value of a company by calculating the present value of the estimated future unlevered free cash flows of the company. Craig-Hallum calculated a range of implied enterprise values for Transgenomic by estimating the present value of hypothetical projected cash flows through fiscal year 2020 using an assumed tax rate of 40.0%. The free cash flows for each year were calculated as follows: operating income less taxes plus depreciation and amortization, plus equity-based compensation, less capital expenditures, plus/less change in net working capital. The unlevered free cash flows of Transgenomic for fiscal year 2017 through fiscal year 2020 used by Craig-Hallum in its analysis were $(9.1 million), $(5.1 million), $(1.6 million) and $(0.5 million), respectively. The free cash flows were then discounted to present values as of January 1, 2017, using a range of terminal value multiples of 2.1x to 2.9x and a range of discount rates of 18.0% to 22.0% (such range was derived from an analysis of the estimated weighted average cost of capital using Transgenomic and the Transgenomic Comparable Group data, which was adjusted upward in Craig-Hallum’s professional judgment to account for inherent business risk relative to Transgenomic) to calculate a range of implied total enterprise values for Transgenomic. From this analysis, Craig-Hallum derived the following implied enterprise values of Transgenomic:

      
 Transgenomic
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
Implied Enterprise Value (millions) $(0.1 $1.4  $2.9  $2.9  $4.5  $6.2 

The implied enterprise values in the table above were adjusted for Transgenomic’s outstanding net debt of $7.7 million and indicated the following implied equity value of Transgenomic:

      
 Transgenomic
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
Implied Equity Value (millions) $(7.8 $(6.3 $(4.8 $(4.8 $(3.2 $(1.5
Discounted Cash Flow Analysis of Precipio

Craig-Hallum also conducted an illustrative discounted cash flow analysis for Precipio on a stand-alone basis. Craig-Hallum calculated a range of implied enterprise values for Precipio by estimating the present value of hypothetical projected cash flows through fiscal year 2020 using an assumed tax rate of 40.0%. The free cash flows for each year were calculated as follows: operating income less taxes plus depreciation and amortization, plus equity-based compensation, less capital expenditures, plus/less change in net working capital. The unlevered free cash flows of Precipio for fiscal year 2017 through fiscal year 2020 used by Craig-Hallum in its analysis were $(0.4 million), $0.7 million, $4.4 million and $15.8 million, respectively. The free cash flows were then discounted to present values as of January 1, 2017, using a range of terminal value multiples of 2.7x to 3.5x and a range of discount rates of 17.0% to 21.0% (such range was derived from an analysis of the estimated weighted average cost of capital using Precipio and the Precipio Comparable Group data, which was adjusted upward in Craig-Hallum’s professional judgment to account for inherent business risk relative to Precipio) to calculate a range of implied total enterprise values for Precipio. From this analysis, Craig-Hallum derived the following implied enterprise values of Precipio:

      
 Precipio
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
Implied Enterprise Value (millions) $90.3  $102.2  $109.2  $109.3  $116.8  $130.4 

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The implied enterprise values in the table above were adjusted for Precipio’s outstanding net debt of $1.1 million and indicated the following implied equity value of Precipio:

      
 Precipio
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
Implied Equity Value (millions) $89.2  $101.1  $108.1  $108.2  $115.7  $129.3 
Discounted Cash Flow Analysis of Combined Company

Finally, Craig-Hallum conducted an illustrative discounted cash flow analysis for Transgenomic and Precipio on a pro forma combined basis assuming completion of the merger (for purposes of this section of the proxy statement, the “Combined Company”) based on pro forma financials provided by Precipio management.

    
 Pro-Forma Financials (millions)
   2017E 2018E 2019E 2020E
Services Revenue $5.5  $11.4  $29.3  $63.7 
COGS $1.4  $3.1  $7.1  $14.4 
Gross Profit $4.1  $8.3  $22.3  $49.3 
Technology Revenue $4.8  $5.7  $6.9  $8.2 
COGS $2.6  $3.1  $3.6  $4.3 
Gross Profit $2.2  $2.6  $3.2  $3.9 
Consolidated Results
                    
Revenue $10.3  $17.1  $36.2  $72.0 
COGS $4.0  $6.2  $10.7  $18.8 
Gross Profit $6.3  $10.9  $25.5  $53.2 
SG&A $6.4  $8.2  $12.3  $18.2 
EBITDA $0.3  $3.0  $13.3  $35.1 

Craig-Hallum calculated a range of implied enterprise values for the Combined Company by estimating the present value of hypothetical projected cash flows through fiscal year 2020 using an assumed tax rate of 40.0%. The free cash flows for each year were calculated as follows: operating income less taxes plus depreciation and amortization, plus equity-based compensation, less capital expenditures, plus/less change in net working capital. The unlevered free cash flows of the Combined Company for fiscal year 2017 through fiscal year 2020 used by Craig-Hallum in its analysis were $(4.1 million), $(1.0 million), $3.7 million and $15.5 million, respectively. The free cash flows were then discounted to present values as of January 1, 2017, using a range of terminal value multiples of 2.5x to 3.3x (such range was derived from the weighted average terminal value multiples of each of Transgenomic and Precipio based on the exchange ratio) and a range of discount rates of 17.0% to 21.0% (such range was derived from the weighted average of the weighted average cost of capital of each of Transgenomic and Precipio based on the exchange ratio, which was adjusted upward in Craig-Hallum’s professional judgment to account for inherent business risk relative to each of Transgenomic and Precipio) to calculate a range of implied total enterprise values for the Combined Company. From this analysis, Craig-Hallum derived the following implied enterprise values of the Combined Company:

      
 Combined Company
   Minimum 25th
Percentile
 Median Mean 75th
Percentile
 Maximum
Implied Enterprise Value (millions) $89.3  $99.3  $110.0  $121.2  $116.8  $133.2 

The implied enterprise values in the table above were adjusted for Transgenomic’s outstanding net debt of $7.7 million and Precipio’s outstanding net debt of $1.1 million, and indicated the following implied equity value of the Combined Company:

      
 Combined Company
   Minimum 25th Percentile Median Mean 75th Percentile Maximum
Implied Equity Value (millions) $80.5  $90.5  $101.2  $112.4  $108.0  $124.4 

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Relative Contribution Analysis — Financial Forecasted Data

Craig-Hallum performed a relative contribution analysis of revenue and gross profit for each of Transgenomic and Precipio based on the forecasted financial data provided by Transgenomic management and their outside financial advisors and Precipio management, respectively. Craig-Hallum calculated the relative contribution percentage to the total combined revenue and gross profit. From this analysis, Craig-Hallum derived the following percentages:

      
 Relative Contribution
   2017E 2018E 2019E 2020E Median Mean
Total Revenues
                              
Precipio  69.6  63.0  73.0  83.6  71.3  72.3
Transgenomic  30.4  37.0  27.0  16.4  28.7  27.7
Gross Profit
                              
Precipio  74.6  65.2  74.2  84.1  74.4  74.5
Transgenomic  25.4  34.8  25.8  15.9  25.6  25.5

Relative Contribution Analysis — Valuation Methodologies

Craig-Hallum performed a relative contribution analysis for Transgenomic and Precipio based on the valuation methodologies described above. In performing the relative contribution analysis, Craig-Hallum compared the range of stand-alone implied equity values for each company derived from the minimum, 25th percentile, median, 75th percentile and maximum values calculated for each of the comparable public company, comparable M&A transaction and discounted cash flow analyses. Craig-Hallum then compared these ranges to generate the implied relative contribution for each company for each analysis. Craig-Hallum then compared the implied relative contribution ranges to the ownership percentages of the transaction consideration implied by the exchange ratio.

In the table below, the minimum implied relative contribution percentages for Transgenomic were calculated by dividing the Transgenomic minimum implied equity value from the applicable methodology table above by the aggregate minimum implied equity value for Transgenomic and Precipio for that same analysis. When the implied equity value for either Transgenomic or Precipio is negative, the implied relative contribution percentage for such company with a negative implied equity value is set to 0% and the other company’s corresponding implied relative contribution percentage is set to 100%. The 25th percentile implied relative contribution percentages for Transgenomic were calculated by dividing the Transgenomic 25th percentile implied equity value from the applicable methodology table above by the aggregate 25th percentile implied equity value for Transgenomic and Precipio for that same analysis. The median implied relative contribution percentages for Transgenomic were calculated by dividing the Transgenomic median implied equity value from the applicable methodology table above by the aggregate median implied equity value for Transgenomic and Precipio for that same analysis. The 75th percentile implied relative contribution percentages for Transgenomic were calculated by dividing the Transgenomic 75th percentile implied equity value from the applicable methodology table above by the aggregate 75th percentile implied equity value for Transgenomic and Precipio for that same analysis. The maximum implied relative contribution percentages for Transgenomic were calculated by dividing the Transgenomic maximum implied equity value from the applicable methodology table above by the aggregate maximum implied equity value for Transgenomic and Precipio for that same analysis. The implied relative contribution percentage calculations for Precipio were similarly calculated in the same manner as Transgenomic, except that the applicable Precipio implied equity value was divided by the aggregate corresponding implied equity value for Transgenomic and Precipio for each analysis.

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 Implied Relative Contribution (Equity Value)
   Transgenomic  Precipio
Methodology Minimum(1) 25th
Percentile(2)
 Median(3) 75th
Percentile(4)
 Maximum(5)  Minimum(1) 25th
Percentile(2)
 Median(3) 75th
Percentile(4)
 Maximum(5)
Comparable Public Company (LTM)  0.0  0.0  0.0  0.0  2.1       100.0  100.0  100.0  100.0  97.9
Comparable Public Company (2017E)  0.0  0.0  0.0  20.1  15.7       100.0  100.0  100.0  79.9  84.3
Comparable Public Company (2018E)  0.0  14.4  18.0  30.0  49.5       100.0  85.6  82.0  70.0  50.5
Comparable M&A Transaction  NMF   0.0  0.0  0.0  13.5       NMF   100.0  100.0  100.0  86.5
Discounted Cash Flow  0.0  0.0  0.0  0.0  0.0       100.0  100.0  100.0  100.0  100.0
Table Median  0.0  0.0  0.0  0.0  13.5       100.0  100.0  100.0  100.0  86.5
Table Mean  0.0  2.9  3.6  10.0  16.2       100.0  97.1  96.4  90.0  83.8
Ownership% Implied by Exchange Ratio            28.1                           71.9          

(1)Based on the minimum implied equity value for Transgenomic relative to the minimum implied equity value for Precipio.
(2)Based on the 25th percentile implied equity value for Transgenomic relative to the 25th percentile implied equity value for Precipio.
(3)Based on the median implied equity value for Transgenomic relative to the median implied equity value for Precipio
(4)Based on the 75th percentile implied equity value for Transgenomic relative to the 75th percentile implied equity value for Precipio
(5)Based on the maximum implied equity value for Transgenomic relative to the maximum implied equity value for Precipio.

Support of the Opinion

The analyses described above supported the opinion that the exchange ratio is fair, from a financial point of view, to the holders of Transgenomic common stock for reasons including the following:

Comparable Public Company Analyses

The ownership percentage implied by the exchange ratio for Transgenomic of 28.1% was greater than the minimum, 25th percentile, median, 75th percentile, and maximum implied relative contribution equity value for LTM revenue of 0.0%, 0.0%, 0.0%, 0.0% and 2.1%, respectively for Transgenomic indicated by the comparable public company analysis.

The ownership percentage implied by the exchange ratio for Transgenomic of 28.1% was greater than the minimum, 25th percentile, median, 75th percentile, and maximum implied relative contribution equity value for 2017E revenue of 0.0%, 0.0%, 0.0%, 20.1% and 15.7%, respectively, for Transgenomic indicated by the comparable public company analysis.

The ownership percentage implied by the exchange ratio for Transgenomic of 28.1% was greater than the minimum, 25th percentile, and median implied relative contribution equity value for 2018E revenue of 0.0%, 14.4% and 18.0%, respectively, for Transgenomic indicated by the comparable public company analysis.

Comparable M&A Transaction Analysis

The ownership percentage implied by the exchange ratio for Transgenomic of 28.1% was greater than the 25th percentile, median, 75th percentile, and maximum implied relative contribution equity value of 0.0%, 0.0%, 0.0% and 13.5%, respectively, for Transgenomic indicated by the comparable M&A transaction analysis.

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Discounted Cash Flow Analyses

The ownership percentage implied by the exchange ratio for Transgenomic of 28.1% was greater than the minimum, 25th percentile, median, 75th percentile, and maximum implied relative contribution equity value of 0.0%, 0.0%, 0.0%, 0.0% and 0.0%, respectively, for Transgenomic indicated by the discounted cash flow analysis.

The ownership percentage implied by the exchange ratio for Transgenomic of 28.1% was greater than the implied relative contribution equity value of 0.0% which was calculated by dividing the median implied equity value of Transgenomic standalone of ($4.8) million indicated by the Transgenomic discounted cash flow analysis by the median implied equity value of the combined company of $101.2 million indicated by the combined company discounted cash flow analysis. Since the standalone equity value was negative, the implied relative contribution equity value was set to 0.0%.

Relative Contribution Analysis

The ownership percentage implied by the exchange ratio for Transgenomic of 28.1% is greater than the Table Median of 0.0%, 0.0%, 0.0%, 0.0% and 13.5% and the Table Mean of 0.0%, 2.9%, 3.6%, 10.0% and 16.2%, respectively, for the minimum, 25th percentile, median, 75th percentile and maximum implied relative contribution equity values.

Miscellaneous

The summary set forth above does not contain a complete description of the analyses performed by Craig-Hallum, but does summarize the material analyses performed by Craig-Hallum in rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Craig-Hallum believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses or of the summary, without considering the analyses as a whole or all of the factors included in its analyses, would create an incomplete view of the processes underlying the analyses set forth in the Craig-Hallum opinion. In arriving at its opinion, Craig-Hallum considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Instead, Craig-Hallum made its determination as to fairness on the basis of its experience and financial judgment after considering the results of all of its analyses. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that this analysis was given greater weight than any other analysis. In addition, the ranges of valuations resulting from any particular analysis described above should not be taken to be Craig-Hallum’s view of the actual value of Transgenomic, Precipio or the Combined Company.

No company or transaction used in the above analyses as a comparison is directly comparable to Transgenomic, Precipio, the merger or the other transactions contemplated by the Merger Agreement. Accordingly, an analysis of the results of the comparisons is not mathematical; rather, it involves complex considerations and judgments about differences in the companies and transactions to which Transgenomic, Precipio and the merger were compared and other factors that could affect the public trading value or transaction value of the companies involved.

Craig-Hallum performed its analyses solely for purposes of providing its opinion to the Transgenomic Board. In performing its analyses, Craig-Hallum made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Certain of the analyses performed by Craig-Hallum are based upon forecasts of future results furnished to Craig-Hallum by the management of Transgenomic and Precipio, which are not necessarily indicative of actual future results and may be significantly more or less favorable than actual future results. These forecasts are inherently subject to uncertainty because, among other things, they are based upon numerous factors or events beyond the control of the parties or their respective advisors. Craig-Hallum does not assume responsibility if future results are materially different from forecasted results.

Craig-Hallum relied upon and assumed, without assuming liability or responsibility for independent verification, the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available, to Craig-Hallum or discussed with or reviewed by Craig-Hallum. Craig-Hallum further relied upon the assurances of management of Transgenomic and Precipio that the financial information

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provided to Craig-Hallum was prepared on a reasonable basis in accordance with industry practice, and that management of each of Transgenomic and Precipio was not aware of any information or facts that would make any information provided to Craig-Hallum incomplete or misleading. Without limiting the generality of the foregoing, for the purpose of Craig-Hallum’s opinion, Craig-Hallum assumed that with respect to financial forecasts, estimates of net operating loss tax benefits or other estimates and other forward-looking information reviewed by Craig-Hallum, that such information was reasonably prepared based on assumptions reflecting the best currently available estimates and judgments of management of Transgenomic and Precipio as to the expected future results of operations and financial condition of Transgenomic, Precipio and the Combined Company. Craig-Hallum expressed no opinion as to any such financial forecasts, net operating loss or other estimates or forward-looking information or the assumptions on which they were based. For purposes of the aforementioned analyses, Craig-Hallum assumed that Liabilities (as such term is defined in the Merger Agreement) of Transgenomic are equal to $8.0 million and that Liabilities of Precipio are equal to $1.2 million. Craig-Hallum relied, with Transgenomic’s consent, on advice of the outside counsel and Transgenomic’s independent registered public accounting firm, and on the assumptions of management of Transgenomic and Precipio, as to all accounting, legal, regulatory, tax and financial reporting matters with respect to Transgenomic, Precipio and the merger. Craig-Hallum’s opinion does not address any accounting, legal, regulatory, tax and financial reporting matters. Without limiting the foregoing, Craig-Hallum also assumed that the merger qualifies as a “reorganization” described in Section 368(a) of the Code, that the Merger Agreement constitutes a “plan of reorganization” within the meaning of Section 1.368-2(g) of the regulations promulgated under the Code and that the parties to the Merger Agreement each are a “party to the reorganization” within the meaning of Section 368(a) of the Code.

In arriving at its opinion, Craig-Hallum assumed that the executed Merger Agreement was in all material respects identical to the last draft reviewed by Craig-Hallum. Craig-Hallum relied upon and assumed, without independent verification, that (i) the representations and warranties of all parties to the Asset Purchase Agreement and all other related documents and instruments that are referred to therein were true and correct, (ii) each party to such agreements would fully and timely perform all of the covenants and agreements required to be performed by such party, (iii) the merger would be consummated pursuant to the terms of the Merger Agreement without amendments thereto and (iv) all conditions to the consummation of the merger would be satisfied without waiver by any party of any conditions or obligations thereunder. Additionally, Craig-Hallum assumed that all the necessary regulatory approvals and consents required for the merger would be obtained in a manner that would not adversely affect Transgenomic, Precipio or the contemplated benefits of the merger.

In arriving at its opinion, Craig-Hallum did not perform any appraisals, valuations or other independent analyses of any specific assets or liabilities (fixed, contingent or other) of Transgenomic or Precipio, and was not furnished or provided with any such appraisals or valuations, nor did Craig-Hallum evaluate the solvency of Transgenomic or Precipio under any state or federal law relating to bankruptcy, insolvency or similar matters. The analyses performed by Craig-Hallum in connection with its opinion were going concern analyses. Craig-Hallum expressed no opinion regarding the liquidation value of Transgenomic, Precipio or any other entity. Without limiting the generality of the foregoing, Craig-Hallum undertook no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Transgenomic, Precipio or any of its affiliates was a party or may be subject, and at the direction of Transgenomic and with its consent, Craig-Hallum’s opinion made no assumption concerning, and therefore did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters. Craig-Hallum also assumed that neither Transgenomic nor Precipio is a party to any material pending transaction, including without limitation any financing, recapitalization, acquisition or merger, other than the merger.

Craig-Hallum’s opinion was necessarily based upon the information available to it and facts and circumstances as they existed and were subject to evaluation on the date of its opinion. Events occurring after the date of its opinion could materially affect the assumptions used in preparing its opinion. Craig-Hallum did not express any opinion as to the price at which shares of capital stock of Transgenomic have traded or may trade following announcement of the merger or at any future time. Craig-Hallum did not undertake to reaffirm

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or revise its opinion or otherwise comment upon any events occurring after the date of its opinion and does not have any obligation to update, revise or reaffirm its opinion.

Craig-Hallum’s opinion addressed solely the fairness, from a financial point of view, to the holders of Transgenomic common stock of the exchange ratio of 25.7505, as set forth in the Merger Agreement, and did not address any other terms or agreement relating to the merger or related transactions. Craig-Hallum was not requested to opine as to, and its opinion does not address, the basic business decision to proceed with or effect and the merger, the merits of the merger relative to any alternative transaction or business strategy that may be available to Transgenomic or any other terms contemplated by the Merger Agreement. Furthermore, Craig-Hallum expressed no opinion with respect to the amount or nature of the compensation to any officer, director or employee, or any class of such persons, relative to the compensation to be received by the holders of any class of securities, creditors, or other constituencies of Transgenomic or Precipio in the merger, or relative to or in comparison with the exchange ratio.

Craig-Hallum is a nationally recognized investment banking firm and is regularly engaged as financial advisor in connection with mergers and acquisitions, underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. The Transgenomic Board selected Craig-Hallum to render its fairness opinion in connection with the merger contemplated by the Merger Agreement on the basis of its experience and reputation in acting as financial advisor in connection with mergers and acquisitions.

Craig-Hallum rendered to the Transgenomic Board a fairness opinion in connection with the merger and upon delivery of the opinion will receive a fee of $125,000 from Transgenomic (the “Opinion Fee”). The Opinion Fee was not contingent upon the consummation of the merger or the conclusions reached in Craig-Hallum’s opinion. Pursuant to the terms of the engagement letter dated December 1, 2015, as amended August 29, 2016 and October 10, 2016, Craig-Hallum agreed to serve a financial advisor to the Transgenomic Board in connection with its consideration of strategic alternatives, including a possible business combination transaction. Under the engagement letter, Craig-Hallum will also receive a fee of $175,000 from Transgenomic, all of which is contingent upon the consummation of the merger. Transgenomic has agreed to indemnify Craig-Hallum against certain liabilities and reimburse Craig-Hallum for certain expenses in connection with its services. In the ordinary course of its business, Craig-Hallum and its affiliates may actively trade securities of Transgenomic for its own account or the account of its customers and, accordingly, may at any time hold a long or short position in such securities. As of October 12, 2016, Craig-Hallum held an unsecured convertible note of Transgenomic with a principal value of approximately $46,250, warrants to acquire 107,033 shares of Transgenomic common stock with an exercise price of $1.66 per share and warrants to acquire 107,527 shares of Transgenomic common stock with an exercise price of $1.21 per share. On January 13, 2017, the $46,250 convertible note held by Craig-Hallum was converted into 43,129 shares of Transgenomic common stock at an exercise price of $1.21 per share. In addition, one of Craig-Hallum’s investment banking professionals (who is not a member of Craig-Hallum’s Fairness Opinion Committee) holds unsecured debt of Transgenomic with a principal value of approximately $100,000, 77,770 shares of Transgenomic common stock, warrants to acquire 15,385 shares of Transgenomic common stock with an exercise price of $4.00 per share and warrants to acquire 15,400 shares of Transgenomic common stock with an exercise price of $1.66 per share. On January 13, 2017, the $100,000 convertible note was converted into 93,252 shares of Transgenomic common stock at an exercise price of $1.21 per share. As of October 12, 2016, other professionals and affiliates of Craig-Hallum, individually and through retirement accounts, held 126,432 shares of Transgenomic common stock, warrants to acquire 95,947 shares of Transgenomic common stock with an exercise price of $4.23 per share, which warrants expired in February 2017, warrants to acquire 107,695 shares of Transgenomic common stock with an exercise price of $4.00 per share and warrants to acquire 54,780 shares of Transgenomic common stock with an exercise price of $2.24 per share. None of the warrants held by Craig-Hallum or its professionals or affiliates are subject to the approval of the Transgenomic stockholders pursuant to “Proposal No. 4 — Approval of the Issuance of Transgenomic, Inc. Common Stock upon Exercise or Exchange of the Warrants” contained in this proxy statement. Except as noted in the succeeding sentence, Craig-Hallum had not received fees or other compensation from Transgenomic or Precipio in the past two years prior to the issuance of its opinion. Since 2014, Craig-Hallum has received $903,028 in additional fees and reimbursable expenses related to general

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investment banking and advisory work performed for Transgenomic, including acting as underwriter for Transgenomic’s February 2015 public offering of securities, for which Craig-Hallum received an underwriting discount of approximately $488,000. Craig-Hallum and its affiliates may from time to time perform various investment banking and financial advisory services for Transgenomic and for other clients and customers that may have conflicting interests with Transgenomic, for which Craig-Hallum would expect to receive compensation.

Consistent with applicable legal and regulatory requirements, Craig-Hallum has adopted policies and procedures to establish and maintain the independence of Craig-Hallum’s research department and personnel. As a result, Craig-Hallum’s research analysts may hold opinions, make statements or investment recommendations and/or publish research reports with respect to the merger and other participants in the transaction that differ from the opinions of Craig-Hallum’s investment banking personnel.

Certain Financial Information

In the course of the discussions described under “— Background of the Transaction,” the management of Transgenomic prepared and provided to Precipio internal financial projections for the fiscal years ending December 31, 2016 through December 31, 2020, and the management of Precipio prepared and provided to Transgenomic internal financial projections for the fiscal years ending December 31, 2016 through December 31, 2020. Such projections were also furnished to the Transgenomic Board and Craig-Hallum, in connection with the Transgenomic Board’s consideration of the merger and Craig-Hallum’s opinion analysis.

Transgenomic and Precipio do not usually publicly disclose internal financial projections of the type referenced above, and even though such internal financial projections are being disclosed in this section, they were not prepared with a view toward public disclosure. Such internal financial projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in the internal financial projections reproduced in this section below. See “Cautionary Statement Concerning Forward-Looking Statements” on page 26.

The internal financial projections were prepared by the management of Transgenomic and Precipio in good faith and on a reasonable basis based on the best information available to them at the time of their preparation. The internal financial projections, however, are not actual results and should not be relied upon as being necessarily indicative of actual future results, and readers of this proxy statement are cautioned not to place undue reliance on this information. Neither Transgenomic’s nor Precipio’s independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the financial projections set forth below, nor have they expressed any opinion or any other form of assurance with respect thereto. The internal financial projections were not prepared in compliance with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Except as required by law, neither Transgenomic nor Precipio intends to update these financial projections or to make other projections public in the future.

In addition, because the internal financial projections cover multiple years, they will necessarily become less predictive with each successive year and become subject to increasing uncertainty in the years beyond 2016. Though the internal financial projections are being presented with numeric specificity, the assumptions upon which the internal financial projections were based necessarily involve judgments with respect to, among other things, future economic and competitive conditions, many of which are difficult to predict accurately and are beyond the control of Transgenomic’s and Precipio’s management. Also, the economic and business environments can and do change quickly, which add a significant level of unpredictability and execution risk. It is expected that differences between actual and projected results will occur, and actual results may be materially greater or less than those contained in the internal financial projections. There can be no assurance that the internal financial projections, or the assumptions underlying the internal financial projections, will be realized. Accordingly, readers of this proxy statement are cautioned not to place undue reliance on the internal financial projections included in this section.

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Transgenomic’s internal financial projections included the following:

     
 2016E 2017E 2018E 2019E 2020E
Revenues $1,792  $2,411  $6,692  $10,835  $12,547 
COGS $2,124  $1,020  $2,270  $3,105  $3,205 
Gross Profit $(332 $1,391  $4,422  $7,730  $9,342 
SG&A & R&D $7,479  $7,551  $7,929  $8,325  $8,742 
Operating Profit $(7,811 $(6,160 $(3,507 $(596 $601 

Precipio’s internal financial projections included the following:

Revenue distribution

     
 2016E 2017E 2018E 2019E 2020E
Services $2.62  $5.51  $11.38  $29.32  $63.74 
Technology $  $4.78  $5.71  $6.86  $8.24 
Total  2.62   10.29   17.09   36.18   71.98 
Services  100  54  67  81  89
Technology  0  46  33  19  11

You should not regard the inclusion of these projections in this proxy statement as an indication that Transgenomic, Precipio or any of their respective affiliates, advisors or other representatives considered or consider the projections to be necessarily predictive of actual future events. None of Transgenomic, Precipio or any of their respective affiliates, advisors or other representatives has made or makes any representations regarding the ultimate performance of Transgenomic or Precipio compared to the information contained in the projections. Transgenomic and Precipio made no representations in the Merger Agreement or otherwise concerning such financial projections.

Board of Directors and Management of New Precipio Following the Transaction

In connection with the merger, the New Precipio board of directors will be expanded to seven directors from five directors and three of the existing directors will resign. The five vacancies created by the resignations and the authorization of the increase in the board size will be filled by two directors designated by the holders of the New Precipio preferred stock (the “preferred holder designees”) and three directors designated by Precipio upon the closing of the merger. The holders of the New Precipio preferred stock will have the right to designate the preferred holder designees for as long as they hold 50% of the shares issued in the private placement.

The following table sets forth information regarding the current directors of Transgenomic who will continue to serve as directors on the New Precipio board of directors and their positions after completion of the transaction:

    
Name Age Position with Transgenomic Year First
Became
Director
 Term as
Director Will
Expire(1)
Robert M. Patzig 48 Chairman of the Board of Directors 2010 2019
Michael A. Luther 59 Director 2014 2018

(1)Directors’ terms of office are scheduled to expire at the annual meeting of stockholders to be held in the year indicated.

The Merger Agreement provides that the officers of New Precipio will be agreed to by the parties prior to the effective time of the merger. It is currently anticipated that the following current Precipio officers will serve as officers of New Precipio: Ilan Danieli, Chief Executive Officer; Carl Iberger, Chief Financial Officer; Zaki Sabet, Vice President, Operations; and Ayman Mohamed, Vice President, Research & Development. Steve Miller, Vice President, Business Development of Transgenomic, is expected to continue in that role.

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Interests of Transgenomic’s Executive Officers and Directors in the Transaction

Except as described below with respect to Paul Kinnon, Transgenomic’s President and Chief Executive Officer and a member of the Transgenomic Board, and Doit L. Koppler, II, a member of Transgenomic Board, none of the Transgenomic directors or executive officers have any interests in the merger, the conversion of secured debt and the related private placement that may be different from, or in addition to the interests of the Transgenomic stockholders generally. Mr. Patzig has an interest in funds managed by Third Security that own Transgenomic common stock, preferred stock and secured debt. The Transgenomic Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the merger, the conversion of secured debt and the private placement and to recommend that you approve the issuance of New Precipio common stock and New Precipio preferred stock in connection with the merger, the conversion of secured debt and the private placement. Neither Transgenomic nor Precipio have any arrangements with any executive officer of Precipio that are based on or otherwise relate to the merger, and Precipio does not have any arrangements with any executive officer of Transgenomic that are based on or otherwise relate to the merger.

Interests of Paul Kinnon

The employment agreement, dated September 27, 2013, between Transgenomic and Paul Kinnon (the “Kinnon Employment Agreement”) provides for a severance payment to Mr. Kinnon equal to 12 months of Mr. Kinnon’s then-current base salary if he is discharged other than for “Cause” (as defined in the Kinnon Employment Agreement), other than due to Mr. Kinnon’s disability, or if Mr. Kinnon resigns for “Good Reason” (as defined in the Kinnon Employment Agreement), regardless of whether or not the termination follows a change in control, in each case, provided that Mr. Kinnon executes a severance agreement and general release in favor of Transgenomic. The Kinnon Employment Agreement further provides that the vesting of the equity awards granted by Transgenomic to Mr. Kinnon will accelerate in full and become fully vested upon a Change in Control, as defined in the Transgenomic, Inc. 2006 Equity Incentive Plan. It is currently anticipated that Mr. Kinnon will be terminated at or prior to the effective time of the merger and that Mr. Danieli will serve as Chief Executive Officer of New Precipio. Further, the consummation of the merger would trigger a Change in Control as defined under the Kinnon Employment Agreement with regard to the equity awards granted by Transgenomic to Mr. Kinnon. Therefore, pursuant to the terms of the Kinnon Employment Agreement, it is anticipated that the equity awards granted to Mr. Kinnon will accelerate in full and become fully vested, and Mr. Kinnon will be entitled to receive a severance payment equal to 12 months of Mr. Kinnon’s then-current base salary. As of February 1, 2017, Mr. Kinnon holds 56,666 unvested stock options under the 2006 Equity Incentive Plan for which vesting is expected to accelerate in connection with the merger. As described below in the section entitled “Payments and Benefits to Transgenomic’s Named Executive Officers” on page 62, using an assumed stock price of $0.206, the average closing price per share of Transgenomic common stock over the first five business days following the announcement of the merger, all unvested equity awards for Mr. Kinnon are out of the money, and therefore no value is included in connection with the acceleration. In addition, such unvested equity awards for Mr. Kinnon are out of the money as of February 1, 2017. During the period in which the stock options may be exercised following the merger, the market price of the common stock may be higher or lower than the assumed stock price disclosed above. The severance payments will be made over 12 months in accordance with Transgenomic’s payroll practices, provided that payment of these amounts is subject to the provisions of Section 409A of the Code which may require that payments be delayed for six months (with interest) following termination of employment. If Mr. Kinnon breaches any of the covenants in the Kinnon Employment Agreement related to the protection of Transgenomic’s interests, including non-solicitation of employees for six months following termination of employment and confidentiality and non-disparagement following termination of employment, he is not entitled to further severance payments. See the section entitled “2016 Executive Compensation” on page 106 for a more detailed discussion.

Transgenomic previously granted 124,886 incentive stock options and 149,280 non-qualified stock options to Mr. Kinnon under the Transgenomic, Inc. 2006 Equity Incentive Plan. On December 13, 2016, the Board agreed to extend the period during which these stock options may be exercised following Mr. Kinnon’s termination of employment (i) by Transgenomic without “Cause” or (ii) by Mr. Kinnon for “Good Reason” (each of the foregoing capitalized terms as defined in the Kinnon Employment Agreement) to 24 months after

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such termination, but in no event shall such period extend beyond the Term of Options as defined in the applicable award agreements, and for purposes of any incentive stock option, such extension shall be considered the grant of a new award on the same terms except that the exercise price shall be the greater of (i) the exercise price set forth in the original grant or (ii) the fair market value on the date of the extension.

The Kinnon Employment Agreement includes a modified cutback provision, such that if payments or benefits received or to be received by Mr. Kinnon pursuant to the Kinnon Employment Agreement or any other agreement, contract, award or arrangement would constitute a “parachute payment” as described in Section 280G of the Code and would subject Mr. Kinnon and Transgenomic to golden parachute penalties under Section 280G of the Code and related provisions, the aggregate payments or benefits will either be paid to Mr. Kinnon in full or reduced to an amount that would not result in golden parachute penalties, whichever results in the receipt by Mr. Kinnon of the greatest amount of aggregate payments or benefits, after taking into account all taxes, including the excise tax imposed under Section 4999 of the Code on excess parachute payments (the “Modified Cutback Provision”). The determinations regarding Section 280G parachute payments and the application of the Modified Cutback Provision are to be made in good faith by Transgenomic’s independent auditors. For purposes of this disclosure, Transgenomic does not expect that the aggregate payments and benefits to Mr. Kinnon following termination of his employment in connection with the merger will exceed the maximum amount that may be paid to Mr. Kinnon without triggering golden parachute penalties under Section 280G of the Code.

Payments and Benefits to Transgenomic’s Named Executive Officers

The following table sets forth the information required by Item 402(t) of Regulation S-K promulgated by the SEC regarding certain compensation which Transgenomic’s named executive officers may receive that is based on or that otherwise relates to the merger. The amounts are calculated assuming that the effective date of the merger and a qualifying termination of employment for Mr. Kinnon occurred on April 1, 2017. The amounts below were determined using a per share price of Transgenomic common stock of $0.206, the average closing price per share of Transgenomic common stock over the first five business days following the announcement of the merger agreement, and are based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described in the footnotes to the table. As a result of the foregoing assumptions, the actual amounts, if any, to be received may materially differ from the amounts set forth below.

The merger-related compensation payable to Transgenomic’s named executive officers is the subject of a non-binding, advisory vote of Transgenomic stockholders, as described under “Proposal No. 6 — Approval of Advisory Compensation Proposal” beginning on page 113.

Golden Parachute Compensation*

       
Name Cash Equity Pension/
NQDC
 Perquisites/
Benefits
 Tax
Reimbursement
 Other Total
Paul Kinnon $350,000(1)   (2)              $350,000 

*This table assumes the merger was completed and Mr. Kinnon’s employment was terminated on April 1, 2017, and that all required conditions to the payment of these amounts have been satisfied. Mr. Leon Richards, former Chief Accounting Officer, resigned effective September 30, 2016 and, therefore, no payments will be made to Mr. Richards in connection with the merger.
(1)The cash payment to Mr. Kinnon consists of severance payments equal to 12 months of Mr. Kinnon’s then-current base salary upon a qualifying termination, regardless of whether or not the termination follows a change in control, provided that Mr. Kinnon executes a severance agreement and general release in favor of Transgenomic. The severance payments will be made over 12 months in accordance with Transgenomic’s payroll practices, provided that payment of these amounts is subject to the provisions of Section 409A of the Code which may require that payments be delayed for six months following termination of employment. Any severance payments required to be delayed will be paid in a lump sum to Mr. Kinnon six months and one day following termination of employment, and the remaining severance payments will be paid in accordance with Transgenomic’s payroll practices for the remainder of the 12 months. Any delayed severance payments will accrue interest at the Wall Street Journal prime rate in effect on a date chosen by Transgenomic, which accrued interest is not reflected in

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this amount. If Mr. Kinnon breaches any of the covenants in the Kinnon Employment Agreement related to the protection of Transgenomic’s interests, including non-solicitation of employees for six months following termination of employment and confidentiality and non-disparagement following termination of employment, he is not entitled to further severance payments.
(2)As described above, Mr. Kinnon’s unvested stock options under the 2006 Equity Incentive Plan will accelerate upon a change in control as defined in the 2006 Equity Incentive Plan as follows: 6,666 stock options granted on February 18, 2014 with an exercise price of $5.54 and 50,000 stock options granted on April 1, 2015 with an exercise price of $1.44. Based on a per share price of Transgenomic common stock of $0.206, the average closing price per share of Transgenomic common stock over the first five business days following the announcement of the merger agreement, all unvested equity awards for Mr. Kinnon are out of the money (i.e., the exercise price is above the assumed stock price), and therefore no value is included in connection with the acceleration. On December 13, 2016, the Transgenomic Board extended the period during which Mr. Kinnon’s stock options may be exercised to 24 months following a qualifying termination (but not beyond the term of options set forth in the applicable award agreements).

As described above, the Kinnon Employment Agreement includes a Modified Cutback Provision. The determinations regarding Section 280G parachute payments and the application of the Modified Cutback Provision are to be made in good faith by Transgenomic’s independent auditors. For purposes of this disclosure, Transgenomic does not expect that the aggregate payments and benefits to Mr. Kinnon following termination of his employment in connection with the merger will exceed the maximum amount that may be paid to Mr. Kinnon without triggering golden parachute penalties under Section 280G of the Code.

Third Security Participation in Private Placement and Conversion of Debt and Convertible Preferred Stock into Common Stock

Doit L. Koppler, II is employed by Third Security and is affiliated with certain of its affiliates, which collectively hold more than 10% of Transgenomic’s voting interests. Certain affiliates of Third Security (the “Lenders”) hold the secured indebtedness of Transgenomic, $3 million of which is being converted into approximately 24.1 million shares of New Precipio preferred stock in connection with the private placement that will represent approximately 8% of fully diluted New Precipio common stock. The remainder of the secured indebtedness and all accrued interest held by the Lenders will convert into approximately 10.4 million shares of New Precipio common stock immediately prior to effectiveness of the merger at a price equal to $0.50 per share, representing approximately 3% of the fully diluted New Precipio common stock. See “— Conversion of Outstanding Debt — Conversion of the Revolving Line and Term Loan.” Third Security and its affiliates own 214,705 shares of Transgenomic Series A-1 Convertible Preferred Stock which will convert into 214,705 shares of Transgenomic common stock immediately prior to the effectiveness of the merger pursuant to the conversion provisions set forth in the Transgenomic Certificate of Incorporation. See “Description of Transgenomic Capital Stock — Preferred Stock.”

Conversion of Outstanding Debt

As a condition to closing, the Merger Agreement requires that Transgenomic will not have any indebtedness as of the closing other than trade payables and accrued expenses and certain outstanding debt, including secured debt that converts upon the effectiveness of the merger into approximately 10.4 million shares of New Precipio common stock and approximately 24.1 million shares of New Precipio preferred stock. On December 13, 2016 and February 2, 2017, the audit committee of the Transgenomic Board, in accordance with the Transgenomic Corporate Governance Guidelines, approved the conversion of secured indebtedness of Transgenomic held by the Lenders into shares of New Precipio preferred stock and New Precipio common stock. See “— Conversion of Revolving Line and Term Loan.”

Conversion of Revolving Line and Term Loan

On March 13, 2013 (the “Effective Date”), Transgenomic entered into a Loan and Security Agreement with the Lenders for (a) a revolving line of credit (the “Revolving Line”) with borrowing availability of up to $4.0 million, subject to reduction based on our eligible accounts receivable, and (b) a term loan (the “Term Loan” and, together with the Revolving Line, the “Loan Agreement”) of $4.0 million. Proceeds were used to pay off a three-year senior secured promissory note payable to PGxHealth, LLC, which was entered into on

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December 29, 2010 in conjunction with Transgenomic’s acquisition of the FAMILION family of genetic tests, and for general corporate and working capital purposes.

On August 2, 2013, Transgenomic entered into an amendment to the Loan Agreement (the “Amendment”). The Amendment, which became effective as of June 30, 2013, reduced Transgenomic’s future minimum revenue covenants under the Loan Agreement and modified the interest rates applicable to the amounts advanced under the Revolving Line.

On November 14, 2013, Transgenomic entered into a second amendment to the Loan Agreement (the “Second Amendment”). The Second Amendment, which became effective as of October 31, 2013, reduced Transgenomic’s future minimum revenue covenants under the Loan Agreement.

On January 27, 2014, Transgenomic entered into a third amendment to the Loan Agreement (the “Third Amendment”). Pursuant to the Third Amendment, the Lenders agreed to waive certain events of default under the Loan Agreement, and the parties amended certain provisions of the Loan Agreement, including the minimum liquidity ratio that Transgenomic must maintain during the term of the Loan Agreement.

On March 3, 2014, Transgenomic entered into a fourth amendment to the Loan Agreement (the “Fourth Amendment”). Pursuant to the terms of the Fourth Amendment, Transgenomic was not required to make any principal or interest payments under the Term Loan for the period from March 1, 2014 through March 31, 2015. The interest on the debt that was deferred and not paid was capitalized as part of the Term Loan. The amount of interest that was capitalized from March 1, 2014 to March 31, 2015 was $0.4 million.

On October 22, 2014, Transgenomic entered into a fifth amendment to the Loan Agreement (the “Fifth Amendment”). Pursuant to the Fifth Amendment, the parties amended certain provisions of the Loan Agreement, including reducing the minimum liquidity and revenue covenants under the Loan Agreement. The Fifth Amendment also reduced the aggregate amount that Transgenomic may borrow under the Revolving Line from $4.0 million to $3.0 million.

On April 1, 2015, Transgenomic entered into a sixth amendment to the Loan Agreement (the “Sixth Amendment”). Pursuant to the Sixth Amendment, among other things, (a) the Lenders waived specified events of default under the terms of the Loan Agreement, (b) commencing April 1, 2015, Transgenomic began making monthly interest payments with respect to the Term Loan to the Lenders, (c) Transgenomic was not obligated to make monthly payments of principal under the Term Loan to the Lenders until April 1, 2016, (d) Transgenomic made an initial prepayment of a portion of the Term Loan balance in the amount of approximately $148,000 on April 1, 2015 and is required to make one or more additional prepayments to the Lenders under the Loan Agreement upon the occurrence of certain events, as defined in the Loan Agreement, and (e) Transgenomic was not required to comply with the minimum liquidity ratio under the terms of the Loan Agreement until the earliest to occur of a specified event, as defined in the Loan Agreement, or March 31, 2016. The Sixth Amendment also extended the time period in which Transgenomic must provide certain reports and statements to the Lenders and amends the circumstances pursuant to which Transgenomic may engage in certain sales or transfers of Transgenomic’s business or property without the consent of the Lenders.

As of June 30, 2015, Transgenomic was in compliance with all financial covenants of the Loan Agreement, but was not in compliance with the restrictions limiting the amount that Transgenomic may borrow under the Revolving Line. Accordingly, on August 10, 2015, Transgenomic received a waiver from the Lenders relating to this non-compliance and paid the Lenders an aggregate of $0.7 million, which brought Transgenomic back into compliance with the terms of the Revolving Line.

On September 4, 2015, Transgenomic entered into a seventh amendment to the Loan Agreement (the “Seventh Amendment”). The Seventh Amendment, among other things, (a) provided that the Lenders waived specified events of default under the terms of the Loan Agreement, (b) reduced Transgenomic’s future minimum revenue covenants under the Loan Agreement, (c) reduced Transgenomic’s borrowing availability under the Revolving Line to approximately $2.3 million, and (d) limited Transgenomic’s borrowing base under the Loan Agreement to the amount of the Revolving Line.

On January 6, 2016, Transgenomic entered into an eighth amendment to the Loan Agreement (the “Eighth Amendment”). The Eighth Amendment, among other things, (a) provided that the Lenders waived

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specified events of default under the terms of the Loan Agreement, (b) reduced Transgenomic’s future minimum revenue covenants under the Loan Agreement, (c) extended the maturity date of the Loan Agreement until November 1, 2017, and (d) provided for the repayment of an overadvance of $750,000 previously provided by the Lenders to Transgenomic pursuant to the Loan Agreement.

On June 6, 2016, Transgenomic entered into a ninth amendment to the Loan Agreement (the “Ninth Amendment”). The Ninth Amendment, among other things, (a) provided that the Lenders waived specified events of default under the terms of the Loan Agreement, (b) amended the prepayment terms of the Loan Agreement, (c) provided for the reduction of amounts available under the Revolving Line upon the prepayment or repayment of certain amounts by Transgenomic, (d) removed the minimum liquidity ratio and minimum net revenue financial covenants applicable to Transgenomic under the Loan Agreement, (e) amended the circumstances pursuant to which Transgenomic may engage in certain sales or transfers of Transgenomic’s business or property without the consent of the Lenders, and (f) capitalized certain amounts owed by Transgenomic to the Lenders and added such overdue amounts to the outstanding principal amount of the Revolving Line.

As a result of the Ninth Amendment, the overadvance that existed at March 31, 2016 was added to the outstanding principal amount of the Revolving Line and no overadvance existed as of September 30, 2016.

The independent members of the Transgenomic Board determined in good faith that it was in the best interests of Transgenomic and its stockholders to provide an incentive for the Lenders to convert the outstanding principal and accrued interest under the Revolving Line and Term Loan and agreed with the Lenders that such conversions would be on the same terms as the conversion provisions of the outstanding unsecured convertible promissory notes. See “— Unsecured Convertible Promissory Notes”.

On February 2, 2017, Transgenomic entered into a tenth amendment to the Loan Agreement (the “Tenth Amendment”). The Tenth Amendment, among other things, (i) provides that the Lenders will waive specified events of default under the terms of the Loan Agreement until the effective time of the Merger (or the termination of the Merger Agreement in accordance with its terms), (ii) provides for the conversion of all outstanding indebtedness owed to the Lenders under the Loan Agreement (the “Outstanding Indebtedness”) into shares of Transgenomic common stock and preferred stock (collectively, the “Conversion Shares”) effective as of the closing date of the Merger and (iii) the termination of the Loan Documents (as defined in the Loan Agreement) and the termination and release of all security interests and liens of the Lenders in the Collateral (as defined in the Loan Agreement) in each case immediately following the conversion of the Outstanding Indebtedness into Conversion Shares. In connection with the Tenth Amendment, the Lenders have agreed to convert the outstanding principal and accrued interest under the Revolving Line and the Term Loan into (i) approximately 10.4 million shares of New Precipio common stock immediately prior to the effectiveness of the merger at a price equal to $0.50 per share and (ii) 24.1 million shares of New Precipio preferred stock. As of December 31, 2016, the outstanding amount owed under the Revolving Line and the Term Loan was $7.243 million of principal and $556,642 of accrued interest. The issuance of the Conversion Shares is subject to the approval of the Transgenomic stockholders in accordance with Nasdaq Capital Market listing rules.

Certain affiliates of Third Security, LLC, including the Lenders, have agreed to enter into two call option agreements pursuant to which (i) the Lenders have granted an option to purchase an aggregate of approximately 7.9 million shares of New Precipio Common Stock for an aggregate exercise price of $1.00 for all such shares to Kuzven Precipio Investor LLC, a principal investor of Precipio, and (ii) the Lenders have granted an option to purchase an aggregate of approximately 7.9 million shares of New Precipio Common Stock for an aggregate exercise price of $1.00 for all such shares to an affiliate of BV Partners.

Unsecured Convertible Promissory Notes

On December 31, 2014, Transgenomic entered into an Unsecured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”) with an accredited investor (the “Investor”), pursuant to which Transgenomic agreed to issue and sell to the Investor in a private placement an unsecured convertible promissory note (the “Initial Note”). Transgenomic issued the Initial Note in the aggregate principal amount of $750,000 to the Investor on December 31, 2014. Pursuant to the terms of the Initial Note, interest accrued at a rate of 6% per year and the Initial Note was set to mature on December 31, 2016 (the “Maturity Date”).

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Under the Initial Note, the outstanding principal and unpaid interest accrued was convertible into shares of Transgenomic common stock as follows: (i) commencing upon the date of issuance of the Initial Note (but no earlier than January 1, 2015), the Investor was entitled to convert, on a one-time basis, up to 50% of the outstanding principal and unpaid interest accrued under the Initial Note, into shares of Transgenomic common stock at a conversion price equal to the lesser of (a) the average closing price of the common stock on the principal securities exchange or securities market on which Transgenomic common stock is then traded (the “Market”) for the 20 consecutive trading days immediately preceding the date of conversion, and (b) $2.20 (subject to adjustment for stock splits, stock dividends, other distributions, recapitalizations and the like); and (ii) commencing February 15, 2015, the Investor was entitled to convert, on a one-time basis, any or all of the remaining outstanding principal and unpaid interest accrued under the Initial Note, into shares of Transgenomic common stock at a conversion price equal to 85% of the average closing price of Transgenomic common stock on the Market for the 15 consecutive trading days immediately preceding the date of conversion. The Initial Note has been converted in full into 502,786 shares of Transgenomic common stock, in accordance with the terms of the Initial Note.

On January 15, 2015, Transgenomic entered into the Note Purchase Agreement with seven accredited investors (the “Additional Investors”) and, on January 20, 2015, issued and sold to the Additional Investors, in a private placement, notes (the “Additional Notes”) in an aggregate principal amount of $925,000. The Additional Notes have the same terms and conditions as the Initial Note (except with respect to the Remaining Note as described below). As of January 19, 2017, $800,000 of the aggregate principal amount of the Additional Notes, and accrued interest thereon, has been converted into an aggregate of 654,029 shares of Transgenomic common stock. Craig-Hallum acted as the sole placement agent for the Additional Notes and Transgenomic issued to Craig-Hallum a convertible promissory note, upon the same terms and conditions as the Additional Notes, in an aggregate principal amount equal to 5% of the proceeds received by Transgenomic, or $46,250. On January 19, 2017, Craig-Hallum converted the principal amount and accrued interest on its convertible promissory note into an aggregate of 43,129 shares of Transgenomic common stock.

As of January 17, 2017, one Additional Note remains outstanding with an aggregate amount due on such Note of $139,876 ($125,000 in principal amount and $14,876 of accrued interest) (the “Remaining Note”). The Additional Investor holding the Remaining Note (the “Remaining Investor”) agreed to extend the Maturity Date of the Remaining Note pursuant to a January 17, 2017 amendment to the Remaining Note between Transgenomic and the Remaining Investor (the “Amendment”). The Amendment provides that two-thirds of the outstanding principal amount of the Remaining Note must be paid upon the earlier to occur of the closing of the merger between Merger Sub and Precipio as contemplated by the Merger Agreement or June 16, 2017 (such applicable date, the “Deferred Maturity Date”). The remaining one-third of the principal amount outstanding on the Remaining Note must be paid on the six month anniversary of the Deferred Maturity Date (the “Extended Maturity Date”). On the applicable Deferred Maturity Date, all accrued and unpaid interest on the Remaining Note as of the Deferred Maturity Date will be converted into shares of Transgenomic’s common stock at a conversion price based on the average closing price of Transgenomic common stock on the Market for the 20 consecutive trading days immediately preceding the date of conversion, but in no event will the conversion price be less than $0.25 per share. Interest that accrues on the remaining principal amount of the Remaining Note from the Deferred Maturity Date will be payable on the Extended Maturity Date, unless the Remaining Note is converted in which case such interest will be payable in shares of Transgenomic’s common stock as part of the conversion.

In exchange for extending the Maturity Date of the Remaining Note, Transgenomic will issue to the Remaining Investor on the applicable Deferred Maturity Date a warrant to purchase shares of Transgenomic’s common stock having an aggregate value of $6,250 with an exercise price to be determined as of the date of issuance of the warrant based on the average closing price of Transgenomic common stock on the Market for the 20 consecutive trading days immediately preceding the date of issuance of the warrant, subject to the approval of the Market if necessary. The warrant will expire two years from the date of issuance.

Bridge Financing

On February 2, 2017, Precipio agreed to offer a line of credit to Transgenomic up to $250,000 pursuant to an unsecured promissory note (the “Precipio Bridge Loan”). All outstanding amounts under the Precipio Bridge Loan accrue interest at a rate of 10% per annum and are due and payable upon the earlier to occur of

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(a) the date that is 90 days following the date of the Precipio Bridge Loan or (b) the closing of the merger. The proceeds of the Precipio Bridge Loan will be used by Transgenomic to finance certain general expenses until the effective date of the merger. Transgenomic did not borrow any funds pursuant to the Precipio Bridge Loan.

On April 13, 2017, Transgenomic completed the sale of an aggregate of $1.15 million of promissory notes (the “Bridge Notes”) in a $1.25 million bridge financing pursuant to a securities purchase agreement (the “Bridge Purchase Agreement”). Transgenomic may receive additional investments of up to $100,000 in connection with the bridge financing. The financing is intended to help facilitate the completion of the merger. Transgenomic received net proceeds of $1,031,000 from the sale of the Bridge Notes.

The Bridge Notes have an annual interest rate of 4% and a 90-day maturity. Transgenomic may repay the Bridge Notes at any time in cash upon payment of a 20% premium. In connection with the issuance of the Bridge Notes, Transgenomic issued the Bridge Warrants. The Purchase Agreement provides certain piggyback registration rights for the holders of the Bridge Warrants for a period of six months after the closing of the bridge financing.

As part of the bridge financing, Transgenomic agreed to loan 50% of the net proceeds from the sale of the Bridge Notes to Precipio pursuant to the Precipio Note. The payment of the Precipio Note is subordinated to the payment by Precipio of its secured $500,000 bank debt pursuant to a subordination agreement.

Aegis acted as placement agent for the bridge financing and received a placement agent fee of $84,000 and the Aegis Warrants. The Aegis Warrants are identical to the Bridge Warrants except that the Aegis Warrants do not have anti-dilution protection.

The shares of Transgenomic common stock issuable upon conversion of the Bridge Warrants and the Aegis Warrants represents less than 1% of the fully diluted New Precipio common stock. The issuance of the Bridge Notes, the Bridge Warrants, the Aegis Warrants, and the subsequent issuance of Transgenomic common stock upon exercise of the Bridge Warrants and Aegis Warrants thereafter, is exempt from registration under the Securities Act in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

Third Party Approvals Required for the Merger and the Private Placement

The Merger Agreement also provides that the consummation of the merger is conditioned on the receipt of consents from certain other third parties, including lenders.

Regulatory Matters

Neither Transgenomic nor Precipio is required to make any filings or to obtain any approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the transactions contemplated by the Merger Agreement. Transgenomic must comply with applicable federal and state securities laws and regulations and Nasdaq rules in connection with the issuance of shares of New Precipio common stock in the transaction, including the filing with the SEC of this proxy statement.

Shares of Transgenomic common stock currently trade on the OTCQB. Prior to February 22, 2017 and at the time the parties entered into the Merger Agreement on October 12, 2016, shares of Transgenomic common stock were listed on Nasdaq. Additionally, as a condition to the merger, Transgenomic has agreed to use commercially reasonable efforts to have shares of New Precipio common stock listed on Nasdaq following the merger. The NASDAQ Stock Market Listing Rule 5635(a) requires stockholder approval with respect to issuances of Transgenomic common stock, among other instances, when the shares to be issued are being issued in connection with the acquisition of the stock or assets of another company and are equal to 20% or more of the outstanding shares of Transgenomic common stock before the issuance. The Nasdaq Stock Market Listing Rule 5635(b) requires stockholder approval when any issuance or potential issuance will result in a “change of control” of the issuer. Although Nasdaq has not adopted any rule on what constitutes a “change of control” for purposes of Rule 5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the common stock (or securities convertible into or exercisable for common stock) or voting power of an issuer could constitute a change of control. In addition, Rule 5635(d) of The NASDAQ Stock Market Listing Rules requires stockholder approval if a listed company issues common stock or securities convertible into or exercisable for common stock in a

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private placement equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

Nasdaq Listing

Transgenomic has filed an initial listing application with Nasdaq with respect to the New Precipio common stock. If such application is accepted, Transgenomic anticipates that the shares of New Precipio common stock will be listed on Nasdaq following the closing of the merger under the trading symbol “PRPO.”

On February 17, 2017, Transgenomic received written notification from the staff of Nasdaq that, as a result of Transgenomic’s inability to maintain certain Nasdaq continued listing requirements, Nasdaq had determined to delist Transgenomic’s shares from Nasdaq. Accordingly, trading in Transgenomic’s shares was suspended, and on February 22, 2017, Transgenomic’s shares began trading on the OTCQB under the ticker “TBIO”.

Upon completion of the merger, New Precipio will be required to meet the initial listing requirements to maintain the listing and continued trading of its shares on Nasdaq. These initial listing requirements are more difficult to achieve than the continued listing requirements. Pursuant to the Merger Agreement, Transgenomic agreed to use its commercially reasonable efforts to cause the shares of Transgenomic common stock being issued in the merger to be approved for listing on Nasdaq at or prior to the effective time of the merger. Based on information currently available to Transgenomic, Transgenomic anticipates that its stock will be unable to meet the $4.00 (or, to the extent applicable, $3.00) minimum bid price initial listing requirement at the closing of the merger unless it effects a reverse stock split. On October 31, 2016, the stockholders of Transgenomic authorized the Transgenomic Board to effect a reverse stock split of the shares of Transgenomic common stock at a ratio of between one-for-ten to one-for-thirty. In addition, often times a reverse stock split will not result in a trading price for the affected common stock that is proportional to the ratio of the split. If New Precipio is unable to satisfy Nasdaq listing requirements, Nasdaq may notify Transgenomic, or New Precipio, that its shares of common stock will not be listed on Nasdaq.

Upon a potential delisting from Nasdaq, if the New Precipio common stock is not then eligible for quotation on another market or exchange, trading of the shares could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it is likely that there would be significantly less liquidity in the trading of New Precipio common stock; decreases in institutional and other investor demand for the shares, coverage by securities analysts, market making activity and information available concerning trading prices and volume; and fewer broker-dealers willing to execute trades in New Precipio common stock. Also, it may be difficult for New Precipio to raise additional capital if the New Precipio common stock is not listed on a major exchange. The occurrence of any of these events could result in a further decline in the market price of New Precipio common stock and could have a material adverse effect on New Precipio.

Federal Securities Law Consequences; Resale Restrictions

The issuance of the shares of New Precipio common stock to be issued to unit holders of Precipio in connection with the merger, to holders of Transgenomic Series A-1 Convertible Preferred Stock upon conversion of such stock and to holders of Transgenomic outstanding secured debt upon conversion of such debt as well as the New Precipio preferred stock to be issued in the merger, and in the related private placement or pursuant to the conversion of outstanding debt of Transgenomic is exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (“Section 4(a)(2)”) and Rule 506 of Regulation D (“Rule 506”) or Regulation S promulgated thereunder and such shares will be “restricted securities.” Those shares of New Precipio common stock and New Precipio preferred stock will not be registered under the Securities Act upon issuance and will not be freely transferable. Holders of such shares of New Precipio common stock and New Precipio preferred stock may not sell their respective shares unless the shares are registered under the Securities Act or an exemption is available under the Securities Act. In connection with the merger, as described in “The Merger Agreement — Covenants — Form S-3 Registration Statement,” Transgenomic has agreed to file promptly after the closing of the merger a resale “shelf” registration statement to register the shares of New Precipio common stock issued to common unit holders of New Precipio in the merger and shares of New Precipio common stock issuable upon conversion of New

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Precipio preferred stock issued to preferred unit holders of New Precipio in the merger. In addition, the investor rights agreement for the private placement of New Precipio preferred stock gives such parties rights with respect to the registration under the Securities Act of the shares of New Precipio common stock to be issued to such parties, including the shares that may be issued upon future conversion of the New Precipio preferred stock.

Anticipated Accounting Treatment

The merger will be treated by Transgenomic as a reverse acquisition under the acquisition method of accounting in accordance with GAAP. For accounting purposes, Precipio is considered to be acquiring Transgenomic in the merger. Management of Transgenomic and Precipio have made a preliminary estimate of the purchase price calculated as described in Note 2 to the section entitled “Unaudited Pro Forma Combined Financial Information of Transgenomic, Inc.” beginning on page 121 of this proxy statement. The net tangible and intangible assets acquired and liabilities assumed in connection with the merger are recorded at their estimated transaction date fair values. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated fair values, which cannot be made prior to the completion of the merger, will be based on the actual net tangible and intangible assets of Transgenomic that exist as of the date of completion of the merger.

Material U.S. Federal Income Tax Consequences of the Merger

The following discussion summarizes certain material U.S. federal income tax consequences of the merger. This discussion does not address any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction, or under any U.S. federal laws other than those pertaining to income tax. This discussion is based upon the Code, the Treasury regulations promulgated under the Code and court and administrative rulings and decisions, all as in effect on the date hereof. These laws may change, possibly retroactively, and any change could affect the accuracy of the statements and conclusions set forth in this discussion.

Transgenomic and Precipio intend the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Precipio has made an election to be taxed as a corporation for U.S. federal income tax purposes. In addition, if the merger were for any reason to not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, the merger, together with any contemporaneous contributions of cash and debt to Transgenomic may constitute a tax-deferred transaction under Section 351 of the Code.

No gain or loss will be recognized by Transgenomic, or Precipio or the Transgenomic stockholders as a result of the Merger, regardless of whether it qualifies as a reorganization. Additionally, as a “reorganization” within the meaning of Section 368(a) or a transaction qualifying under Section 351(a) of the Code, no gain or loss will be recognized by the Precipio unit holders as they will receive only New Precipio common stock and/or New Precipio preferred stock, as applicable, in the merger in exchange for their membership interests in Precipio. Transgenomic stockholders who are also unit holders of Precipio should consult their tax advisor as to the tax consequences to them of participating in the merger as a Precipio unit holder.

This is a summary of the material U.S. federal income tax consequences of the merger and is not tax advice.

No Appraisal Rights

Under applicable law, Transgenomic stockholders do not have the right to an appraisal of the value of their shares in connection with the merger with Precipio.

Independent Registered Public Accounting Firm

Representatives of Marcum LLP (“Marcum”) are not expected to be present at the special meeting but will be otherwise available to respond to appropriate questions.

On January 12, 2017, the Audit Committee (the “Audit Committee”) of the Board of Directors of Transgenomic approved the dismissal of Ernst & Young LLP (“Ernst & Young”) as Transgenomic’s independent registered public accounting firm and accordingly Transgenomic notified Ernst & Young of such action effective as of January 12, 2017.

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The dismissal of Ernst & Young as Transgenomic’s independent registered public accounting firm did not result from any dissatisfaction with the quality of professional services rendered by Ernst & Young.

The audit reports of Ernst & Young on Transgenomic’s consolidated financial statements as of and for the two most recent fiscal years did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles other than reference to substantial doubt about the Company’s ability to continue as a going concern.

During Transgenomic’s two most recent fiscal years, and any subsequent interim period prior to termination of the client-auditor relationship with Ernst & Young on January 12, 2017, there were no “disagreements” (as that term is described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between Transgenomic and Ernst & Young on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of Ernst & Young, would have caused Ernst & Young to make reference to the subject matter of such disagreements in their reports on Transgenomic’s consolidated financial statements with respect to such periods.

During Transgenomic’s two most recent fiscal years, and any subsequent interim period prior to termination of the client-auditor relationship with Ernst & Young on January 12, 2017, there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K and the related instructions, except for the material weaknesses in Transgenomic’s internal control over financial reporting disclosed in its Form 10-K for the fiscal year ended December 31, 2014 (filed April 15, 2015), related to the design of controls over proper timing and recognition of revenue and over the elements used in Transgenomic’s analysis and evaluation of the allowance for doubtful accounts to ensure that the allowance for doubtful accounts was reasonably stated. The ineffectiveness of these controls did not result in an adjustment to the financial statements or a restatement of prior year financial statements. In response to the material weaknesses, Transgenomic’s management developed remediation plans to address the control deficiencies identified in 2014. These remediation actions were implemented during 2015 and included enhancements that included (i) with respect to revenue recognition, (a) a reconciliation of proof of delivery (fax confirmation) for invoiced and unbilled reports and (b) a review of error processing queues, among other steps, and (ii) with respect to allowances for doubtful accounts, (a) a review of the payor and client accounts receivable aging (b) review of write offs, (c) a review of current and historical payment trends and (d) a review of actual cash collections and a hindsight analysis, among other steps. Transgenomic’s management determined that these remediation actions were effectively designed and demonstrated effective operation for a sufficient period of time to enable Transgenomic’s management to conclude that the 2014 material weaknesses were remediated as of December 31, 2015.

Effective as of February 24, 2017, Transgenomic, as approved by the Audit Committee, engaged Marcum as Transgenomic’s independent registered public accounting firm to audit Transgenomic’s consolidated financial statements for its fiscal year ended December 31, 2016.

During Transgenomic’s two most recent fiscal years ended December 31, 2014 and December 31, 2015 and in the subsequent interim period through February 24, 2017, neither Transgenomic nor anyone on its behalf consulted Marcum regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on Transgenomic’s financial statements, in connection with which either a written report or oral advice was provided to Transgenomic that Marcum concluded was an important factor considered by Transgenomic in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v), respectively.

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PROPOSAL NO. 1
APPROVAL OF THE ISSUANCE OF NEW PRECIPIO COMMON STOCK AND NEW PRECIPIO PREFERRED STOCK IN CONNECTION WITH THE MERGER

Under the terms of the Merger Agreement, Merger Sub will merge with and into Precipio, with Precipio as the surviving entity. As a result Precipio will become a wholly owned subsidiary of Transgenomic. Precipio is a privately held company specializing in harnessing the advanced expertise of leading academic researchers to provide oncologists with a superior level of diagnostic accuracy for their cancer patients.

When the merger is completed, (i) the outstanding common units of Precipio will be converted into the right to receive 160,585,422 shares of New Precipio common stock, together with cash in lieu of fractional units, which will result in Precipio common unit holders owning approximately 52% of the issued and outstanding shares of New Precipio common stock on a fully diluted basis, taking into account the issuance of shares of New Precipio preferred stock in the merger, in connection with the conversion of secured debt and in the private placement as discussed below (the “fully diluted New Precipio common stock”) and (ii) the outstanding preferred units of Precipio will be converted into the right to receive 24,087,813 shares of New Precipio preferred stock with an aggregate face amount equal to $3 million, which will result in the Precipio preferred unit holders owning approximately 8% of the fully diluted New Precipio common stock.

Upon completion of the merger, the conversion of secured debt and the private placement, the current holders of Transgenomic common stock will own approximately 9% of the fully diluted New Precipio common stock.

In connection with the merger, at the effective time, in addition to the New Precipio preferred stock to be issued to holders of preferred units of Precipio, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock, whereby:

Holders of certain secured indebtedness of Transgenomic will receive in exchange for such indebtedness approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million, which represents approximately 8% of the fully diluted New Precipio common stock, and approximately 10.4 million shares of New Precipio common stock, which represents approximately 3% of the fully diluted New Precipio common stock; and
New Precipio will issue for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to investors in a private placement, which represents approximately 18% of the fully diluted New Precipio common stock.
New Precipio preferred stock will be issued based on a $25 million pre-money equity valuation of New Precipio and will represent, in the aggregate, approximately 34% of the outstanding shares of New Precipio common stock on an as-converted basis, including New Precipio preferred stock issued in the merger, in connection with the conversion of secured debt and in the private placement.
Pursuant to the rules of Nasdaq, the securities exchange on which Transgenomic’s common stock was listed prior to February 22, 2017, the issuance of New Precipio common stock in connection with the merger, including the shares that may be issued upon future conversion of the New Precipio preferred stock, requires approval of Transgenomic’s stockholders because the issuance exceeds 20% of the number of shares of Transgenomic common stock outstanding prior to the issuance and the issuance may result in a “change of control” of Transgenomic.

Third Security owns 214,705 shares of Transgenomic Series A-1 Convertible Preferred Stock which will convert into 214,705 shares of Transgenomic common stock immediately prior to the closing of the merger pursuant to the conversion provisions set forth in the Transgenomic Certificate of Incorporation. See “Description of Transgenomic Capital Stock — Preferred Stock — Series A-1 Convertible Preferred Stock”.

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The Lenders have agreed to convert the outstanding principal and accrued interest under the Revolving Line and the Term Loan into (i) approximately 10.4 million shares of New Precipio common stock immediately prior to the effectiveness of the merger at a price equal to $0.50 per share and (ii) approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million. As of December 31, 2016, the outstanding amount owed under the Revolving Line and the Term Loan was $7.243 million of principal and $556,642 of accrued interest. See “The Transaction — Conversion of Outstanding Debt —  Conversion of the Revolving Line and Term Loan.”

Effect of the Proposed Issuance of Common Stock and Preferred Stock

The shares of New Precipio common stock to be issued pursuant to Proposal No. 1 in connection with the merger, including the shares of New Precipio common stock that may be issued upon future conversion of the New Precipio preferred stock, would be identical to the shares of Transgenomic common stock now issued and outstanding. However, the stock issuance will dilute the ownership and voting interests of our existing stockholders. When the merger is completed, (i) the outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of New Precipio common stock, together with cash in lieu of fractional units, which will result in Precipio common unit holders owning approximately 52% of the fully diluted New Precipio common stock and (ii) the outstanding preferred units of Precipio will be converted into the right to receive approximately 24.1 million shares of New Precipio preferred stock with an aggregate face amount equal to $3 million, which will result in the Precipio preferred unit holders owning approximately 8% of the fully diluted New Precipio common stock. In connection with the merger, at the effective time, in addition to the New Precipio preferred stock to be issued to holders of preferred units of Precipio, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock upon conversion of the secured debt and in a related private placement, whereby (a) the Lenders will receive in exchange for certain indebtedness approximately 24.1 million shares of New Precipio preferred stock with an aggregate face amount equal to $3 million, which represents approximately 8% of the fully diluted New Precipio common stock, and approximately 10.4 million shares of New Precipio common stock, which represents approximately 3% of the fully diluted New Precipio common stock, and (b) New Precipio will issue for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to investors in a private placement, which represents approximately 18% of the fully diluted New Precipio common stock. When and if the shares of New Precipio preferred stock are converted, such conversion will result in further dilution of your shares. Upon completion of the merger, the conversion of secured debt and the private placement, the current holders of Transgenomic common stock will own approximately 9% of the fully diluted New Precipio common stock.

Vote Required and Board of Directors Recommendation

Approval of the proposal to issue shares of New Precipio common stock and New Precipio preferred stock in connection with the merger, the issuance of New Precipio common stock upon conversion of New Precipio preferred stock and the resulting “change of control” of Transgenomic requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 1 is a condition to the completion of the merger with Precipio, and thus a vote against this proposal effectively will be a vote against the merger with Precipio.

The Transgenomic Board has determined that the merger with Precipio and the issuance of New Precipio common stock and New Precipio preferred stock pursuant to the merger, the issuance of New Precipio common stock upon conversion of the New Precipio preferred stock and the resulting “change of control” of Transgenomic is fair to and in the best interests of Transgenomic and its stockholders and has approved the issuance of New Precipio common stock and New Precipio preferred stock in accordance with the Merger Agreement and recommends that you vote “FOR” approval of the stock issuances.

For a more detailed description of the Merger Agreement and the transactions contemplated by the Merger Agreement, see the sections below entitled “The Merger Agreement” and “The Voting Agreements.”

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THE MERGER AGREEMENT

The following is a summary of the material provisions of the Merger Agreement and is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Annex A and which we incorporate by reference into this document. This summary may not contain all of the information about the Merger Agreement that is important to you. We urge you to read the entire Merger Agreement carefully because it is the legal document governing the proposed merger with Precipio.

The description of the Merger Agreement in this proxy statement has been included to provide you with information regarding its terms, and we recommend that you read carefully the Merger Agreement in its entirety. Except for its status as the contractual document that establishes and governs the legal relations among the parties with respect to the transaction, we do not intend for its text to be a source of business or operational information about Transgenomic or Precipio. That kind of information can be found elsewhere in this proxy statement and in the documents incorporated herein by reference. The Merger Agreement contains representations and warranties of the parties as of specific dates and may have been used for the purposes of allocating risk between the parties other than establishing matters as facts. Those representations and warranties are qualified in several important respects, which you should consider as you read them in the Merger Agreement, including qualification by the disclosure schedules to the Merger Agreement (any qualification contained in such disclosure schedules that is material has been disclosed herein or if such a qualification becomes material after the date hereof, will be disclosed in a supplement to this proxy statement) and contractual standards of materiality that may be different from what may be viewed as material to stockholders. Only the parties themselves may enforce and rely on the terms of the Merger Agreement. As stockholders, you are not third party beneficiaries of the Merger Agreement and therefore may not directly enforce or rely upon its terms and conditions and you should not rely on its representations, warranties or covenants as characterizations of the actual state of facts or condition of Transgenomic or Precipio or any of their respective affiliates. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the Merger Agreement and subsequently developed or new information qualifying a representation or warranty may not be fully reflected in Transgenomic’s public disclosures if such updates are not required by law or are not necessary to provide Transgenomic’s stockholders with a materially complete understanding of the Merger Agreement and transactions contemplated thereby.

General; Structure of Transaction

On October 12, 2016, Transgenomic entered into the Merger Agreement with Merger Sub and Precipio. Pursuant to the Merger Agreement, Merger Sub will merge with and into Precipio, with Precipio as the surviving entity.

On February 2, 2017, Transgenomic and Precipio entered into the First Amendment to the Merger Agreement (the “First Amendment”) which provided for the following: (a) the Precipio Bridge Loan to Transgenomic was authorized; (b) the exchange ratio set forth in the Merger Agreement was revised to provide that outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of New Precipio common stock resulting in an implied exchange ratio of 24.4255 for the Precipio common units; (c) the continual listing of the existing shares of Transgenomic’s common stock on Nasdaq was waived as a condition to the closing of the merger; (d) the deadline pursuant to which a “shelf” registration statement on Form S-3 or other appropriate form is required to be filed by New Precipio with the SEC was extended to June 1, 2017; (e) certain indebtedness of Transgenomic was permitted to remain outstanding as of the effective date of the merger; (f) certain actions taken by each of Transgenomic and Precipio since the date the Merger Agreement were authorized and (g) certain additional conditions to the closing of the merger were removed from the Merger Agreement. In determining the number of shares of New Precipio common stock to be issued pursuant to the First Amendment, the parties applied the formula set forth in the Merger Agreement based on the relative expected liabilities of Transgenomic and Precipio as of the closing of the merger. Since the number of shares of New Precipio common stock and the resulting implied exchange ratio of 24.4255 were lower than the amounts and exchange ratio of 25.7505 included in Craig-Hallum’s fairness opinion, the Board did not deem it necessary for Craig-Hallum to update its fairness opinion.

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Closing of the Transaction

Unless the parties agree otherwise, the closing of the merger with Precipio will take place remotely via the exchange of final documents and signature pages thereto no later than the second business day following the satisfaction or waiver of all closing conditions, except for those conditions that, by their nature, have to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions. See the section below entitled “— Conditions to Closing the Transaction” beginning on page 81 for a more detailed discussion of the conditions. The merger is expected to be consummated promptly after the special meeting of Transgenomic’s stockholders described in this proxy statement.

Consideration for the Transaction

If the merger is completed, (i) the outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of New Precipio common stock, together with cash in lieu of fractional units, which will result in Precipio common unit holders owning approximately 52% of the fully diluted New Precipio common stock and (ii) the outstanding preferred units of Precipio will be converted into the right to receive approximately 24.1 million shares of New Precipio preferred stock with an aggregate face amount equal to $3 million, which will result in the Precipio preferred unit holders owning approximately 8% of the fully diluted New Precipio common stock.

If the merger is completed, at the effective time, in addition to the New Precipio preferred stock to be issued to holders of preferred units of Precipio, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock, whereby:

Holders of certain secured indebtedness of Transgenomic will receive in exchange for such indebtedness, approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million, which represents approximately 8% of the fully diluted New Precipio common stock, and approximately 10.4 million shares of New Precipio common stock, which represents approximately 3% of the fully diluted New Precipio common stock;
New Precipio will issue for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to investors in a private placement, which represents approximately 18% of the fully diluted New Precipio common stock; and
New Precipio preferred stock will be issued based on a $25 million pre-money equity valuation of New Precipio and will represent, in the aggregate, approximately 34% of the outstanding shares of New Precipio common stock on an as-converted basis, including New Precipio preferred stock issued in the merger and the private placement.

Representations and Warranties

The Merger Agreement contains representations and warranties of each of Transgenomic, Merger Sub and Precipio. These representations are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement or in the information provided pursuant to disclosure obligations set forth in the Merger Agreement. Some of the representations and warranties are qualified as to “materiality” or “material adverse effect.” For the purpose of the Merger Agreement, a “material adverse effect” with respect to either Precipio or Transgenomic, as applicable, means a material adverse effect on the business, results of operations, properties or assets of Precipio or Transgenomic and its subsidiaries, as applicable, taken as a whole, with certain exclusions.

Representations and Warranties of Precipio

The Merger Agreement contains representations and warranties of Precipio relating to, among other things:

proper corporate organization and existence;
the capitalization of Precipio;
corporate records;
subsidiaries of Precipio;

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enforceability of the Merger Agreement;
due authorization, execution and delivery of the Merger Agreement;
authorizations and approvals;
permits and licenses;
financial statements and undisclosed liabilities;
litigation;
compliance with laws;
environmental matters;
regulatory matters;
material contracts, agreements and instruments of Precipio;
intellectual property;
real property;
assets other than real property;
employee benefit plans;
labor and employment matters;
transactions with affiliates;
absence of certain changes or events;
taxes;
insurance;
brokers and intermediaries; and
required approval of Precipio’s members.

Representations and Warranties of Transgenomic and Merger Sub

The Merger Agreement contains representations and warranties of Transgenomic and Merger Sub relating to, among other things:

proper corporate organization and existence;
capitalization of Transgenomic;
enforceability of the Merger Agreement;
due authorization, execution and delivery of the Merger Agreement;
authorizations and consents;
permits and licenses;
SEC filings;
financial statements and undisclosed liabilities;
absence of certain changes or events;
litigation;
compliance with laws;
regulatory matters;
real property;

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assets other than real property;
transactions with affiliates;
insurance;
brokers and intermediaries;
controls and procedures;
material contracts, agreements and instruments of Transgenomic;
intellectual property;
employee benefit plans;
labor and employment matters;
environmental matters;
taxes;
the filing of this proxy statement;
corporate records; and
required stockholder vote.

Covenants

The parties to the Merger Agreement have various obligations and responsibilities under the Merger Agreement, including, but not limited to, the following covenants:

Conduct of the Business of Precipio.  Subject to certain exceptions, Precipio has agreed to (i) conduct its business and operations in the ordinary course consistent with past practices, and (ii) use commercially reasonable efforts to (A) preserve intact its business organization, (B) maintain in effect all of its material foreign, federal, state and local permits, (C) retain the services of its executive officers and key employees, and (D) preserve the goodwill of its material customers and suppliers. In addition, Precipio will not take any of the following actions without the prior written consent of Transgenomic:

issue, sell or grant, or authorize or propose the issuance, sale or grant of units, or securities convertible into or exchangeable for units, rights, warrants or options to acquire units or convertible securities;
redeem, purchase or otherwise acquire any outstanding units;
declare, pay or otherwise make any dividend or distribution in respect of units, or adjust, split, combine, subdivide or reclassify any of its units;
incur any indebtedness;
make any loans, advances, capital contributions or investments;
sell, lease, license or otherwise transfer, abandon or permit to lapse, or create or incur any encumbrance on any intellectual property or assets Precipio except (1) as required to be effected prior to the effective time of the merger, pursuant to Precipio’s contracts in force on the date of the Merger Agreement, or (2) dispositions of inventory, equipment or other assets that are no longer used or useful in the conduct of the business of Precipio;
make any capital expenditures in excess or incur any obligations or liabilities in the amount of $5,000 in the aggregate;
acquire any business, by merger or consolidation, purchase of substantial assets or equity interests, or by any other manner;

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except as required by applicable law or to comply with the terms of any employee benefit plan, increase in any material manner the compensation, bonuses or benefits of any directors, officers, employees, former employees or consultants except, in the case of employees that are not officers or members of board of managers of Precipio, increases in salaries, wages and benefits of employees made in the ordinary course of business;
except as required by applicable law or as contemplated by the terms of the Merger Agreement, adopt, enter into, terminate or amend any employee benefit plan;
grant any severance, change of control, retention or termination benefits to any director, officer, employee, former employee or consultant, except in the ordinary course of business with respect to an employee or independent contractor who is not a member of the board of managers of Precipio or an executive officer of Precipio;
take any action to accelerate the vesting or payment of any compensation or benefit under any employee benefit plan, except as provided in the Merger Agreement;
hire any officer or other employee, except to replace existing officers or employees in the ordinary course of business;
terminate the employment of any director, officer, employee or consultant of Precipio, except in the ordinary course of business;
make any change in any method of accounting other than those required by GAAP;
make or change any material tax election that is inconsistent with past practice, change any material annual tax accounting period, adopt or change any material method of tax accounting, enter into any closing agreement with respect to a material tax, or settle any material tax claim, audit or assessment;
settle, or propose to settle, any legal proceeding;
other than in the ordinary course of business consistent with past practice, amend or modify certain material contracts;
other than in the ordinary course of business consistent with past practice, enter into any material contract;
amend the organizational documents of Precipio;
form any subsidiary;
adopt a plan or agreement of complete or partial liquidation or dissolution or resolutions providing for a complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of Precipio;
take any action that would reasonably be expected to prevent or materially impede, interfere with, hinder or delay the consummation by Transgenomic the transactions contemplated by the Merger Agreement;
conduct any research or development activities, including the conduct of any clinical trial or study, except for research and development activities related to the goods and services of Precipio in the ordinary course of business; and
engage in any action that could reasonably be expected to cause the merger to fail to qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

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Conduct of the Business of Transgenomic.  Subject to certain exceptions, Transgenomic has agreed, and has agreed to cause its subsidiaries to agree, to (i) conduct its business and operations in the ordinary course consistent with past practices, (ii) use commercially reasonable efforts to preserve intact its business organization, (iii) maintain in effect all of its material foreign, federal, state and local permits and (iv) use commercially reasonable efforts to retain the services of its executive officers and key employees, and to preserve the goodwill of its material customers and suppliers. In addition, Transgenomic and its subsidiaries will not take any of the following actions without the prior written consent of Precipio:

issue, sell or grant, or authorize or propose the issuance, sale or grant of additional shares of capital stock of any class, or securities convertible into or exchangeable for shares, rights, warrants or options to acquire shares or convertible securities;
redeem, purchase or otherwise acquire any outstanding shares of capital stock of Transgenomic and its subsidiaries;
incur any indebtedness;
except as contemplated by the Merger Agreement, amend the organizational documents of Transgenomic in a manner that would result in a material adverse effect;
form any subsidiary;
adopt a plan or agreement of complete or partial liquidation or dissolution or resolutions providing for a complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of Transgenomic or any of its subsidiaries;
take any action that would reasonably be expected to prevent or materially impede, interfere with, hinder or delay the consummation by Transgenomic the transactions contemplated by the Merger Agreement;
conduct any research or development activities, including the conduct of any clinical trial or study, except for research and development activities related to the goods and services of Transgenomic in the ordinary course of business;
make any loans, advances, capital contributions or investments;
sell, lease, license or otherwise transfer, abandon or permit to lapse, or create or incur any encumbrance on any intellectual property or assets of Transgenomic except (1) as required to be effected prior to the effective time of the merger, pursuant to Transgenomic’s contracts in force on the date of the Merger Agreement, or (2) dispositions of inventory, equipment or other assets that are no longer used or useful in the conduct of the business of Transgenomic;
make any capital expenditures in excess or incur any obligations or liabilities in the amount of $5,000 in the aggregate;
acquire any business, by merger or consolidation, purchase of substantial assets or equity interests, or by any other manner;
except as required by applicable law or to comply with the terms of any employee benefit plan, increase in any material manner the compensation, bonuses or benefits of any directors, officers, employees, former employees or consultants except, in the case of employees that are not officers or members of the Transgenomic Board, increases in salaries, wages and benefits of employees made in the ordinary course of business;
except as required by applicable law or as contemplated by the terms of the Merger Agreement, adopt, enter into, terminate or amend any employee benefit plan;
grant any severance, change of control, retention or termination benefits to any director, officer, employee, former employee or consultant, except in the ordinary course of business with respect to an employee or independent contractor who is not a member of the Transgenomic Board or an executive officer of Transgenomic;

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take any action to accelerate the vesting or payment of any compensation or benefit under any employee benefit plan, except as provided in the Merger Agreement;
hire any officer or other employee, except to replace existing officers or employees in the ordinary course of business;
terminate the employment of any director, officer, employee or consultant of Transgenomic, except in the ordinary course of business;
adopt, enter into, terminate or amend any stock plan, except as required by law;
grant any awards under any stock plan;
make any change in any method of accounting other than those required by GAAP;
make or change any material tax election that is inconsistent with past practice, change any material annual tax accounting period, adopt or change any material method of tax accounting, enter into any closing agreement with respect to a material tax, or settle any material tax claim, audit or assessment;
settle, or propose to settle, any legal proceeding;
other than in the ordinary course of business consistent with past practice, amend or modify certain material contracts;
other than in the ordinary course of business consistent with past practice, enter into any material contract;
engage in any action that could reasonably be expected to cause the merger to fail to qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Access to Information.  Precipio and Transgenomic each have agreed to give the other party and its authorized representatives reasonable access during normal business hours to its books, contracts, records, offices, employees, agents, facilities, properties and other assets as Precipio or Transgenomic, as the case may be, may from time to time reasonably request. Any such access must be conducted in a manner that does not materially interfere with the businesses or operations of Precipio or Transgenomic, as the case may be. In addition, all information accessed by Precipio or Transgenomic or their respective representatives will be treated as confidential by the party accessing such information.

Public Announcements.  No party to the Merger Agreement will issue or cause to be published a press release or other public announcement regarding the transaction without the prior written consent of Precipio and Transgenomic. If, upon advice of counsel, any party is required by law to issue a press release or other public announcement, then such party will use reasonable efforts to allow Transgenomic reasonable time to comment on such release or announcement in advance of its issuance.

Private Placement.  Precipio and its members will provide all certifications and documentation, including investor questionnaires, reasonably requested by Transgenomic to allow Transgenomic to issue the shares of New Precipio common stock and New Precipio preferred stock to such holders in a manner that satisfies the requirements of Rule 506 of Regulation D under the Securities Act, including certifications to Transgenomic that the shares of New Precipio are being acquired by each member of Precipio for investment only and not with a view towards, or with any intention of, a distribution or resale thereof for at least a period of six months following the closing of the merger.

Proxy Statement; Special Meeting.  The Merger Agreement requires Transgenomic to call and hold a special meeting of stockholders as promptly as practicable to approve the issuance of New Precipio common stock, including the shares issuable upon conversion of the New Precipio preferred stock, in connection with the Merger Agreement and the related private placement. Transgenomic agreed, as promptly as practicable, to file with the SEC a proxy statement, containing the recommendation of the Transgenomic Board that its stockholders vote in favor of the Transgenomic stock issuance proposal, respond promptly to any SEC comments with respect to the preliminary proxy statement, mail a definitive proxy statement to Transgenomic stockholders and solicit proxies from its stockholders for approval of the Transgenomic stock issuance

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proposal. Precipio has agreed to cooperate with Transgenomic in connection with the preparation and filing of this proxy statement, including providing Transgenomic promptly upon request with the information concerning Precipio required to be included in this proxy statement.

Mutual Non-Solicitation.  Under the Merger Agreement, Precipio and Transgenomic are subject to customary “no shop” provisions that limit their respective abilities to solicit alternative acquisition proposals from third parties or to provide confidential information to third parties, subject to a “fiduciary out” provision that allows Precipio and Transgenomic to provide information and participate in discussions with respect to certain unsolicited written proposals and to terminate the Merger Agreement and enter into an acquisition agreement with respect to a superior proposal in compliance with the terms of the Merger Agreement. Precipio and Transgenomic shall notify the other as promptly as practicable, and in no event later than twenty-four hours after receipt of any inquiries, discussions, negotiations, proposals or expressions of interest with respect to an alternate acquisition proposal received by Transgenomic or Precipio, as applicable. Both Precipio and Transgenomic shall keep the other fully informed, on a current basis, of the status and material developments (including any changes to the terms) of such alternate acquisition proposal.

Employment Arrangements.  Precipio has agreed to cause certain employment agreements to be terminated at or prior to the effective time of the merger. Prior to the effective time of the merger, Transgenomic has agreed to terminate certain of its employees, and will require any employees that will not continue with New Precipio to execute a separation agreement.

Listing.  Transgenomic will use commercially reasonable efforts to cause the shares of New Precipio common stock to be approved for listing on Nasdaq within a reasonable period of time following the effective time of the merger. Precipio agreed to waive the breach by Transgenomic of this Nasdaq listing condition pursuant to the First Amendment. Notwithstanding such waiver, Transgenomic will continue to use commercially reasonable efforts to cause the shares of New Precipio common stock to be approved for listing on Nasdaq on or about the effective time of the merger.

Board Designation and Resignations.  The Merger Agreement provides that Transgenomic will cause the number of members of its board of directors to be fixed at seven. Subject to certain adjustments in the Merger Agreement, three directors of New Precipio will be designated by Precipio, two directors of New Precipio will be designated by Transgenomic, and two directors of New Precipio will be designated by the holders of New Precipio preferred stock immediately following the private placement. Transgenomic will obtain the necessary resignations of the directors of Transgenomic serving immediately prior to the effective time of the merger who are not among the directors designated to serve on the board of directors of New Precipio.

Indemnification of Officers and Directors.  The organizational documents of New Precipio will continue to contain provisions no less favorable with respect to indemnification than are set forth in such organizational documents as of the date of the Merger Agreement. From the effective time of the merger through the sixth anniversary thereof, New Precipio will, (i) to the fullest extent permitted by law, indemnify and hold harmless each present and former director, manager and officer of Precipio or Transgenomic or any of its subsidiaries against all costs and expenses, judgments, fines, fees, losses, claims, damages, liabilities and settlement amounts paid in connection with any claim, action, suit, proceeding or investigation (whether arising before or after the closing), arising out of or pertaining to the fact of his or her capacity as an officer, director, employee, fiduciary or agent, occurring on or before the closing and (ii) subject to certain conditions, advance the expenses incurred by any indemnified party in connection with any such matter to the fullest extent permitted by law. In addition, Precipio will obtain and pay for “tail” insurance coverage for the managers and officers of Precipio. Such “tail” insurance coverage will be in an amount and scope at least as favorable as Precipio’s existing policies with respect to claims arising out of or relating to events which occurred before or at the effective time of the merger.

Tax Matters.  Under the terms of the Merger Agreement, the holders of Precipio’s securities will prepare and timely file all required tax returns of Precipio, and pay all taxes due and owing, relating to periods of Precipio ending on or prior to the closing of the merger. Unless the parties agree that the merger does not qualify as a reorganization under Section 368(a) of the Code, each of Precipio and Transgenomic agree to use reasonable best efforts to cause the merger to qualify as a “reorganization” within the meaning of

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Section 368(a) of the Code, and agree that they will not take any actions (or fail to take any action) which would prevent the merger with from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code. From the date of the Merger Agreement through and after the closing of the merger, the holders of Precipio’s securities, Transgenomic, Precipio, and New Precipio shall reasonably cooperate and shall provide such assistance to the other party, and make available to the other party, as reasonably requested, the books and records, documents, information or data, in each case relating to taxes of Precipio or Transgenomic, as applicable, for taxable periods ending on or prior to the closing of the merger for purposes of preparing or reviewing tax returns, for complying with or representing Precipio’s, New Precipio’s, or Transgenomic’s interests in any tax controversy or other investigative demand, for reporting purposes, or for any other legitimate tax-related reason not injurious to the other party.

Form S-3 Registration Statement.  Under the Merger Agreement, Transgenomic has agreed to file promptly after the closing of the merger with the SEC a “shelf” registration statement on Form S-3 or other appropriate form no later than June 1, 2017.

Further Assurances.  Each party to the Merger Agreement agrees that the officers of New Precipio will be authorized to execute such documents and perform such further acts as may be reasonably required to perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in New Precipio or to carry out the provisions of the Merger Agreement and the transactions contemplated thereby.

Conditions to Closing the Transaction

The parties obligations to consummate the merger is conditioned on (i) Precipio’s members approval of the merger, the execution of the Merger Agreement and the consummation of the transactions contemplated therein; (ii) Transgenomic’s stockholders adopting and approving the proposal to issue New Precipio common stock, including the shares issuable upon conversion of the New Precipio preferred stock, in connection with the merger and the private placement at the special meeting of stockholders called for this purpose; (iii) no governmental order or any other law shall have been adopted, issued, enacted, promulgated, enforced or entered that remains in effect and restrains, enjoins or otherwise prohibits the consummation of the merger; (iv) no legal proceeding, pending or threatened, challenging the merger, seeking to restrain the merger, relating to the merger and seeking to obtain from Transgenomic, Precipio or Merger Sub any material damages or other relief, or seeking to prohibit or limit in any material or adverse respect a party’s ability to vote, transfer or receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of Transgenomic; (v) consummation of the private placement; and (vi) the approval of the listing of the shares of Transgenomic’s common stock to be offered in connection with the merger for listing on Nasdaq, which, pursuant to the First Amendment, Precipio agreed to waive as a closing condition. Notwithstanding such waiver, Transgenomic will continue to use commercially reasonable efforts to cause the shares of New Precipio common stock to be approved for listing on Nasdaq on or about the effective time of the merger.

In addition, the obligation of Transgenomic to effect the transactions contemplated by the Merger Agreement is conditioned on the satisfaction or waiver of various other conditions, including:

Precipio unit holders having approved the merger and Precipio’s execution of the Merger Agreement and the consummation of the transactions contemplated therein;
the representations and warranties of Precipio being true and correct as of the date of closing, or, to the extent they expressly relate to a specific date, then as of that specific date, with only those exceptions which would not reasonably be expected to have a material adverse effect;
prior to the effective time of the merger, the conversion of all outstanding warrants, membership interests, promissory notes of Precipio issued to members of Precipio into Precipio common units or preferred units, and the termination of all related warrants and promissory notes;
Precipio having delivered to Transgenomic a lock-up agreement executed by certain of its stockholders; and
Precipio having satisfied other customary closing conditions.

The obligation of Precipio to effect the transactions contemplated by the Merger Agreement is conditioned on the satisfaction or waiver of various conditions, including:

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Transgenomic’s stockholders having approved the proposal to issue New Precipio common stock, including shares issuable upon conversion of the New Precipio preferred stock, in connection with the Merger Agreement and the related private placement;
the representations and warranties of Transgenomic and Merger Sub being true and correct in all material respects as of the date of closing, or, to the extent they expressly related to a specific date, then as of the specific date, with only those exceptions which would not reasonably be expected to have a material adverse effect;
the size of the Transgenomic Board being increased to seven and the appointment of certain designees to the Transgenomic Board;
the amendment of Transgenomic’s Certificate of Incorporation contemplating the issuance of the New Precipio preferred stock and changing the name to Precipio, Inc. at the effective time of the merger;
Transgenomic having delivered to Precipio a lock-up agreement executed by Transgenomic and certain of its stockholders;
there being no outstanding indebtedness of Transgenomic immediately prior to the effective time of the merger other than accounts payable to trade creditors, accrued expenses and certain indebtedness of Transgenomic, including indebtedness, to its stockholders that will be converted into common stock and new preferred stock of New Precipio;
Transgenomic having terminated certain of its employees and all severance, retention, change of control, COBRA or other payments due to such employees being paid in full prior to the effective time of the merger or included as a liability of Transgenomic in pursuant to the Merger Agreement; and
Transgenomic having satisfied other customary closing conditions.

Termination

The Merger Agreement may be terminated on or prior to the date of closing of the merger as follows:

by mutual written consent of Transgenomic and Precipio; or
by either Transgenomic or Precipio if the closing date has not occurred by June 30, 2017, but only if the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement and such has been the cause of, or resulted in, the failure of a timely closing; or
by either Transgenomic or Precipio if any judgment, statute, law, ordinance, rule, regulation or other legal restraint or prohibition that restrains, enjoins or otherwise prohibits the consummation of the merger shall be in effect and shall have become final and non-appealable; or
by Precipio, if Transgenomic has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the Merger Agreement such that the conditions to closing set forth in Merger Agreement cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by Precipio to Transgenomic; or
by Transgenomic, if Precipio has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the Merger Agreement such that the conditions to closing set forth in Merger Agreement cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by Transgenomic to Precipio; or
by Precipio, if Transgenomic has entered into any letter of intent or similar document or any contract relating to any alternate acquisition proposal; or

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by Transgenomic, if Precipio has entered into any letter of intent or similar document or any contract relating to any alternate acquisition proposal; or
by Precipio, if Transgenomic enters into a definitive agreement to effect an unsolicited acquisition proposal made by a third party determined in good faith by the Transgenomic Board to be (1) more favorable from a financial point of view to the stockholders of Transgenomic than as provided under the Merger Agreement, and (2) reasonably capable of being completed on the terms proposed without unreasonable delay; or
by Transgenomic, if Precipio enters into a definitive agreement to effect an unsolicited acquisition proposal made by a third party determined in good faith by the board of managers of Precipio to be (1) more favorable from a financial point of view to the members of Precipio than as provided under the Merger Agreement, and (2) reasonably capable of being completed on the terms proposed without unreasonable delay.

Effect of Termination

In the event of termination of the Merger Agreement by the parties in accordance with the provisions described above under the heading “— Termination,” the Merger Agreement will become void and of no further force and effect, and none of the parties to the Merger Agreement will have any liability in respect of such termination, except that nothing in the Merger Agreement will relieve any party from liability for any intentional or willful breach of the provisions of the Merger Agreement prior to the termination of the Merger Agreement. Certain provisions, including the treatment of confidential information, will survive the termination of the Merger Agreement.

If the Merger Agreement is terminated by Precipio or Transgenomic pursuant to (i) the Transgenomic Board failing to recommend that Transgenomic’s stockholders vote to approve the issuance of New Precipio common stock in connection with the merger; (ii) Transgenomic failing to include in this proxy statement a recommendation by the Transgenomic Board to vote in favor of the each of the proposals in this proxy statement; (iii) the Transgenomic Board failing to make, withholding, withdrawing, amending, changing, qualifying or publicly proposing to withhold, withdraw, amend, change or qualify in a manner adverse to Precipio, its recommendation that the stockholders of Transgenomic vote in favor and adopt each of the proposals in this proxy statement, knowingly making any public statement inconsistent with such recommendation, failing to recommend against acceptance of any alternate acquisition proposal within ten business days after the public announcement of any such alternate acquisition proposal, approving, adopting, recommending or proposing publicly to approve, adopt or recommend any alternate acquisition proposal, or making any public statement inconsistent with its recommendation; (iv) Transgenomic entering into any letter of intent or similar document or any contract relating to any alternate acquisition proposal or (v) Transgenomic entering into a definitive agreement to effect an alternate acquisition proposal, then Transgenomic shall pay to Precipio, by wire transfer of immediately available funds within three business days after termination of the Merger Agreement, a nonrefundable fee in an amount equal to $256,500.

If the Merger Agreement is terminated by Transgenomic or Precipio pursuant to (i) Precipio’s board of managers failing to recommend that its members vote or act by written consent to approve the merger; (ii) Precipio’s board of managers failing to make, withholding, withdrawing, amending, changing, qualifying or publicly proposing to withhold, withdraw, amend, change or qualify in a manner adverse to Transgenomic, its recommendation that the members of Precipio vote in favor of each of the merger, the execution of the Merger Agreement and the consummation of the transaction contemplated therein, knowingly making any public statement inconsistent with such recommendation, failing to recommend against acceptance of any alternate acquisition proposal within ten business days after the public announcement of any such alternate acquisition proposal, approving, adopting, recommending or proposing publicly to approve, adopt or recommend any alternate acquisition proposal, or making any public statement inconsistent with its recommendation; (iii) Precipio entering into any letter of intent or similar document or any contract relating to any alternate acquisition proposal; or (iv) Precipio entering into a definitive agreement to effect an alternate acquisition proposal, Precipio shall pay to Transgenomic, by wire transfer of immediately available funds within three business days after termination of the Merger Agreement, a nonrefundable fee in an amount equal to $256,500.

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Expenses

Except as expressly provided in the Merger Agreement, all costs and expenses incurred in connection with Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring such costs and expenses.

Amendments

The Merger Agreement may not be amended except in writing signed on behalf of each of the parties thereto.

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THE VOTING AGREEMENTS

In connection with entering into the Merger Agreement, Transgenomic, Precipio and certain Transgenomic security holders entered into a Voting Agreement (the “Transgenomic Voting Agreement”), and Transgenomic, Precipio and certain unit, warrant and note holders of Precipio also entered into a Voting Agreement (the “Precipio Voting Agreement” and, together with the Transgenomic Voting Agreement, the “Voting Agreements”). A copy of the Transgenomic Voting Agreement is attached hereto as Annex C. A copy of the Precipio Voting Agreement is attached hereto as Annex D. This summary may not contain all of the information about the Voting Agreements that is important to you. We urge you to read the Transgenomic Voting Agreement carefully because it is the legal document relating to how certain directors, executive officers and significant stockholders of Transgenomic will vote their stock, options and other rights to acquire stock in connection with the proposals described in this proxy statement. Additionally, we urge you to read the Precipio Voting Agreement carefully because it is the legal document relating to how certain directors, executive officers and significant unit holders of Precipio will vote in connection with the transactions with Transgenomic described in this proxy statement.

Transgenomic Voting Agreement

General

On October 12, 2016, Transgenomic, Precipio, all of the executive officers and directors of Transgenomic and certain affiliates of Third Security, LLC (“Third Security Investors”) entered into the Transgenomic Voting Agreement. Collectively, the voting interests held by these holders represent approximately 31.84% of Transgenomic’s voting interests as of October 12, 2016. Third Security Investors owned approximately 30% of Transgenomic’s voting interests as of October 12, 2016 and also held all of the outstanding secured debt. As such, Precipio required that Third Security Investors execute the Transgenomic Voting Agreement and support the merger. Third Security Investors were involved in the negotiation of the merger and the related transactions. In this description, these individuals and entities are referred to collectively as the “Supporting Stockholders” and to each individually as a “Supporting Stockholder.”

Agreement of Supporting Stockholders to Vote

Pursuant to the Transgenomic Voting Agreement, each of the Supporting Stockholders has agreed to take the following actions at any meeting of the stockholders of Transgenomic or any adjournment or postponement thereof, or in connection with any written consent of such stockholders, with respect to the merger, the Merger Agreement or Acquisition Proposal (as defined in the Merger Agreement):

appear at such meeting or otherwise cause the all shares owned by the Supporting Stockholder to be counted as present thereat for purposes of calculating a quorum;
vote (or cause to be voted), or deliver a written consent (or cause a written consent to be delivered) covering all of the shares owned by the Supporting Stockholder: (i) in favor of adoption and approval of all matters contemplated by the Merger Agreement as to which stockholders of Transgenomic are called upon to vote as necessary for consummation of the merger and the other transactions contemplated by the Merger Agreement; and (ii) against any Acquisition Proposal; and
vote (or cause to be voted), or deliver a written consent (or cause a written consent to be delivered) covering all of the shares owned by the Supporting Stockholder against any of the following actions (other than those actions that relate to the merger and any other transactions contemplated by the Merger Agreement): (i) any merger, consolidation, business combination, sale of assets or reorganization of Transgenomic or any subsidiary thereof, (ii) any sale, lease or transfer of all or substantially all of the assets of Transgenomic or any subsidiary thereof, (iii) any reorganization, recapitalization, dissolution, liquidation or winding up of Transgenomic or any subsidiary thereof, (iv) any material change in the capitalization of Transgenomic or any subsidiary thereof, or the corporate structure of Transgenomic or any subsidiary thereof or (v) any other action that is intended, or would reasonably be expected to, impede, interfere with, delay, postpone or materially and adversely affect the merger or any other transactions contemplated by the Merger Agreement.

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Covenants

The Supporting Stockholders have various obligations and responsibilities under the Transgenomic Voting Agreement, including, but not limited to, the following covenants:

Agreement to Retain Shares.  Each Supporting Stockholder has agreed that he, she or it shall not, directly or indirectly:

sell, pledge, encumber, assign, grant an option with respect to, transfer or dispose of any share or any interest in a share or enter into an agreement to do any of the foregoing (each, a “Transfer”) any of the shares owned by such Supporting Stockholder (i) unless the transferee has executed a counterpart to the Transgenomic Voting Agreement and agreed in writing to hold such shares (or interest in such shares) subject to all of the terms and provisions of the Transgenomic Voting Agreement, (ii) except by will or operation of law or (iii) as contemplated by the Merger Agreement,
grant any proxies or powers of attorney that are not consistent with the terms of the Transgenomic Voting Agreement, or deposit any shares into a voting trust or enter into a voting agreement with respect to any shares or
take any action that would make any representation or warranty of any Supporting Stockholder contained in the Transgenomic Voting Agreement untrue or incorrect in any material respect or have the effect of preventing or disabling such Supporting Stockholder from performing such Supporting Stockholder’s material obligations under the Transgenomic Voting Agreement.

No Solicitation.  Each Supporting Stockholder (on behalf of itself and any subsidiaries or affiliates) has agreed in his capacity as a stockholder not to (i) initiate, solicit, seek or knowingly encourage or support any inquiries, proposals or offers that constitute or may reasonably be expected to lead to, any Acquisition Proposal, (ii) engage or participate in, or facilitate, any discussions or negotiations regarding, or furnish any nonpublic information to any person in connection with, any inquiries, proposals or offers that constitute, or may reasonably be expected to lead to, any Acquisition Proposal, (iii) enter into any letter of intent, agreement in principle or other similar type of agreement relating to any Acquisition Proposal, or enter into any agreement or agreement in principle requiring Transgenomic to abandon, terminate or fail to consummate the transactions contemplated by the Transgenomic Voting Agreement, (iv) initiate a stockholders’ vote or action by consent of Transgenomic’s stockholders with respect to any Acquisition Proposal, (v) become a member of a “group” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with respect to any voting securities of Transgenomic that takes any action in support of any Acquisition Proposal or (vi) propose or agree to do any of the foregoing.

Further Assurances.  Each Supporting Stockholder has agreed to execute and deliver, or cause to be executed and delivered, such additional or further consents, documents and other instruments as Transgenomic or Precipio may reasonably request for the purpose of carrying out the transactions contemplated by the Transgenomic Voting Agreement and the Merger Agreement.

Irrevocable Proxy

Each Supporting Stockholder has given Transgenomic an irrevocable proxy to vote such Supporting Stockholder’s shares if such Supporting Stockholder is unable to perform his, her or its obligations under the Transgenomic Voting Agreement. Such irrevocable proxy automatically terminates upon the termination of the Transgenomic Voting Agreement.

Waiver of Appraisal Rights

Pursuant to the Transgenomic Voting Agreement, each Supporting Stockholder has agreed to waive any and all rights he, she or it may have as to appraisal, dissent or any similar or related matter with respect to any of such Stockholder’s shares of Transgenomic that may arise with respect to the merger or any of the transactions contemplated by the Merger Agreement.

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Termination

The Transgenomic Voting Agreement will terminate upon the earlier to occur of (i) the effective time of the merger, (ii) such date and time as the Merger Agreement shall be terminated pursuant to the terms thereof or otherwise, (iii) such time as there is a Parent Change of Recommendation (as such term is defined in the Merger Agreement) or (iv) upon mutual written agreement of the parties to terminate the Transgenomic Voting Agreement.

Specific Performance

Each of the parties to the Transgenomic Voting Agreement has agreed that irreparable damage would occur in the event any provision of the Transgenomic Voting Agreement was not performed in accordance with the terms thereof or was otherwise breached. Accordingly, the Supporting Stockholders agreed that the parties to the Transgenomic Voting Agreement shall be entitled to seek specific relief thereunder, including, without limitation, an injunction or injunctions to prevent and enjoin breaches of the provisions of the Transgenomic Voting Agreement and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which they may be entitled at law or in equity. Additionally, the parties agreed to waive any requirements for the securing or posting of any bond with respect to any such remedies.

Amendment

The Transgenomic Voting Agreement may not be amended, supplemented or modified, and no provisions may be modified or waived, except by an instrument in writing signed on behalf of each of the parties thereto.

Precipio Voting Agreement

General

On October 12, 2016, Transgenomic, Precipio, certain Precipio executive officers, directors and significant security holders entered into the Precipio Voting Agreement. Collectively, the voting interests held by these holders represent approximately 71% of Precipio’s voting interests as of October 12, 2016. In this description, these individuals and entities are referred to collectively as the “Holders” and to each individually as a “Holder.”

Agreement of Holders to Vote

Pursuant to the Precipio Voting Agreement, each of the Holders has agreed to take the following actions at any meeting of the unit holders of Precipio or any adjournment or postponement thereof, or in connection with any written consent of such unit holders, with respect to the merger, the Merger Agreement or any Acquisition Proposal (as defined in the Merger Agreement):

appear at such meeting or otherwise cause the all units owned by the Holder to be counted as present thereat for purposes of calculating a quorum;
vote (or cause to be voted), or deliver a written consent (or cause a written consent to be delivered) covering all of the units owned by the Holder: (i) in favor of adoption and approval of all matters contemplated by the Merger Agreement as to which unit holders of Precipio are called upon to vote as necessary for consummation of the merger and the other transactions contemplated by the Merger Agreement; and (ii) against any Acquisition Proposal; and
vote (or cause to be voted), or deliver a written consent (or cause a written consent to be delivered) covering all of the units owned by the Holder against any of the following actions (other than those actions that relate to the merger and any other transactions contemplated by the Merger Agreement): (i) any merger, consolidation, business combination, sale of assets or reorganization of Precipio or any subsidiary thereof, (ii) any sale, lease or transfer of all or substantially all of the assets of Precipio or any subsidiary thereof, (iii) any reorganization, recapitalization, dissolution, liquidation or winding up of Precipio or any subsidiary thereof, (iv) any material change in the capitalization of Precipio or any subsidiary thereof, or the corporate structure of Precipio or any subsidiary thereof or (v) any other action that is intended, or would reasonably be expected to, impede, interfere with, delay, postpone or materially and adversely affect the merger or any other transactions contemplated by the Merger Agreement.

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Covenants

The Holders have various obligations and responsibilities under the Precipio Voting Agreement, including, but not limited to, the following covenants:

Agreement to Retain Units.  Each Holder has agreed that he, she or it shall not, directly or indirectly:

Transfer any of the units owned by such Holder (i) unless the transferee has executed a counterpart to the Precipio Voting Agreement and agreed in writing to hold such units (or interest in such units) subject to all of the terms and provisions of the Precipio Voting Agreement, (ii) except by will or operation of law or (iii) as contemplated by the Merger Agreement,
grant any proxies or powers of attorney that are not consistent with the terms of the Precipio Voting Agreement, or deposit any units into a voting trust or enter into a voting agreement with respect to any units or
take any action that would make any representation or warranty of any Holder contained in the Precipio Voting Agreement untrue or incorrect in any material respect or have the effect of preventing or disabling such Holder from performing such Holder’s material obligations under the Precipio Voting Agreement.

No Solicitation.  Each Holder (on behalf of itself and any subsidiaries or affiliates) has agreed in his capacity as a unit holder not to (i) initiate, solicit, seek or knowingly encourage or support any inquiries, proposals or offers that constitute or may reasonably be expected to lead to, any Acquisition Proposal, (ii) engage or participate in, or facilitate, any discussions or negotiations regarding, or furnish any nonpublic information to any person in connection with, any inquiries, proposals or offers that constitute, or may reasonably be expected to lead to, any Acquisition Proposal, (iii) enter into any letter of intent, agreement in principle or other similar type of agreement relating to any Acquisition Proposal, or enter into any agreement or agreement in principle requiring Precipio to abandon, terminate or fail to consummate the transactions contemplated by the Precipio Voting Agreement, (iv) initiate a unit holders’ vote or action by consent of Precipio’s unit holders with respect to any Acquisition Proposal, (v) become a member of a “group” (within the meaning of Section 13(d) of the Exchange Act) with respect to any voting securities of Precipio that takes any action in support of any Acquisition Proposal or (vi) propose or agree to do any of the foregoing.

Further Assurances.  Each Holder has agreed to execute and deliver, or cause to be executed and delivered, such additional or further consents, documents and other instruments as Transgenomic or Precipio may reasonably request for the purpose of carrying out the transactions contemplated by the Precipio Voting Agreement and the Merger Agreement.

Irrevocable Proxy

Each Holder has given Precipio an irrevocable proxy to vote such Holder’s units if such Holder is unable to perform his, her or its obligations under the Precipio Voting Agreement. Such irrevocable proxy automatically terminates upon the termination of the Precipio Voting Agreement.

Waiver of Appraisal Rights

Pursuant to the Precipio Voting Agreement, each Holder has agreed to waive any and all rights he, she or it may have as to appraisal, dissent or any similar or related matter with respect to any of such Holder’s units of Precipio that may arise with respect to the merger or any of the transactions contemplated by the Merger Agreement.

Termination

The Precipio Voting Agreement will terminate upon the earlier to occur of (i) the effective time of the merger, (ii) such date and time as the Merger Agreement shall be terminated pursuant to the terms thereof or otherwise, (iii) such time as there is a Company Change of Recommendation (as such term is defined in the Merger Agreement) or (iv) upon mutual written agreement of the parties to terminate the Precipio Voting Agreement.

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Specific Performance

Each of the parties to the Precipio Voting Agreement has agreed that irreparable damage would occur in the event any provision of the Precipio Voting Agreement was not performed in accordance with the terms thereof or was otherwise breached. Accordingly, the Holders agreed that the parties to the Precipio Voting Agreement shall be entitled to seek specific relief thereunder, including, without limitation, an injunction or injunctions to prevent and enjoin breaches of the provisions of the Precipio Voting Agreement and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which they may be entitled at law or in equity. Additionally, the parties agreed to waive any requirements for the securing or posting of any bond with respect to any such remedies.

Amendment

The Precipio Voting Agreement may not be amended, supplemented or modified, and no provisions may be modified or waived, except by an instrument in writing signed on behalf of each of the parties thereto.

Lock Up Agreements

The parties to the Voting Agreements have agreed to execute lock up agreements with New Precipio pursuant to which such parties will agree not to sell any shares of New Precipio common stock that such parties hold after the merger for a period of six months following the effectiveness of the merger. Approximately 131.8 million shares of New Precipio common stock and 48.2 million shares of New Precipio preferred stock will be subject to the lock-up agreements.

* * *

THE BOARD OF DIRECTORS HAS APPROVED
THE ISSUANCE OF NEW PRECIPIO COMMON STOCK AND NEW PRECIPIO PREFERRED STOCK IN THE MERGER, THE ISSUANCE OF NEW PRECIPIO COMMON STOCK UPON CONVERSION OF THE NEW PRECIPIO PREFERRED STOCK AND THE RESULTING “CHANGE OF CONTROL” OF TRANSGENOMIC AND RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” PROPOSAL NO 1.

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PROPOSAL NO. 2
CONVERSION OF SECURED DEBT

In connection with entering into the Merger Agreement, the Lenders agreed to convert the outstanding secured debt of Transgenomic into shares of New Precipio common stock and New Precipio preferred stock and such conversion is a condition to the merger.

General

In connection with the merger, at the effective time, New Precipio will issue to certain affiliates of Third Security, LLC (the “Lenders”) who hold the outstanding secured indebtedness of Transgenomic in exchange for such indebtedness 24,087,813 shares of New Precipio preferred stock in an amount equal to $3 million, which represents approximately 8% of the fully diluted New Precipio common stock, and approximately 10.4 million shares of New Precipio common stock, which represents approximately 3% of the fully diluted New Precipio common stock.

The New Precipio preferred stock issued in the merger, upon conversion of the secured debt and in the private placement will be issued based on a $25 million pre-money equity valuation of New Precipio and will represent, in the aggregate, approximately 34% of the outstanding shares of New Precipio common stock on an as-converted basis, including New Precipio preferred stock issued in the merger, upon conversion of the secured debt and the private placement.

Conversion of Outstanding Debt and Convertible Preferred Stock

As a condition to closing, the Merger Agreement requires that Transgenomic will not have any indebtedness as of the closing other than trade payables and accrued expenses and certain outstanding. On December 13, 2016 and February 2, 2017, the audit committee of the Transgenomic Board, in accordance with the Transgenomic Corporate Governance Guidelines, approved the conversion of secured indebtedness of Transgenomic held by the Lenders into shares of New Precipio preferred stock and New Precipio common stock.

The independent members of the Transgenomic Board determined in good faith that it was in the best interests of Transgenomic and its stockholders to provide an incentive for the Lenders to convert the outstanding principal and accrued interest under the Revolving Line and Term Loan and agreed with the Lenders that such conversions would be on the same terms as the conversion provisions of the outstanding unsecured convertible promissory notes. See “— Unsecured Convertible Promissory Notes.”

On February 2, 2017, Transgenomic entered into a tenth amendment to the Loan Agreement (the “Tenth Amendment”). The Tenth Amendment, among other things, (i) provides that the Lenders will waive specified events of default under the terms of the Loan Agreement until the effective time of the Merger (or the termination of the Merger Agreement in accordance with its terms), (ii) provides for the conversion of all outstanding indebtedness owed to the Lenders under the Loan Agreement (the “Outstanding Indebtedness”) into shares of Transgenomic common stock and preferred stock (collectively, the “Conversion Shares”) effective as of the closing date of the Merger and (iii) the termination of the Loan Documents (as defined in the Loan Agreement) and the termination and release of all security interests and liens of the Lenders in the Collateral (as defined in the Loan Agreement) in each case immediately following the conversion of the Outstanding Indebtedness into Conversion Shares.

In connection with the Tenth Amendment, the Lenders have agreed to convert the outstanding principal and accrued interest under the Revolving Line and the Term Loan into (i) approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million and (ii) approximately 10.4 million shares of New Precipio common stock at a price equal to $0.50 per share. As of December 31, 2016, the outstanding amount owed under the Revolving Line and the Term Loan was $7.243 million of principal and $556,642 of accrued interest. Transgenomic estimates that the accrued interest as of the closing of the merger will be approximately $954,000. The number of shares of New Precipio common stock to be issued upon conversion of the secured debt will change based on the amount of accrued interest at the time of conversion. However, any such change in the amount of accrued interest will not be material to the number of shares to be issued to the Lenders and will not have any material dilution to the current holders of Transgenomic common stock. In addition, the holders of Series A-1 Convertible Preferred Stock have agreed to convert their shares into

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214,705 shares of New Precipio common stock immediately prior to the effectiveness of the merger in accordance with the terms of Transgenomic’s Certificate of Incorporation. See “Description of Transgenomic Capital Stock — Preferred Stock — Series A-1 Convertible Preferred Stock.”

Effect of the Proposed Issuance of Preferred Stock and Common Stock

The shares of New Precipio common stock to be issued upon conversion of the secured debt and upon conversion of the New Precipio preferred stock issued pursuant to Proposal No. 2 in connection with the conversion of the secured debt would be identical to the shares of Transgenomic common stock now issued and outstanding. In connection with the merger, at the effective time, in addition to the New Precipio preferred stock and New Precipio common stock to be issued to holders of units of Precipio, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock upon conversion of the secured debt and in a related private placement, whereby (a) the Lenders will receive in exchange for certain indebtedness approximately 24.1 million shares of New Precipio preferred stock with an aggregate face amount equal to $3 million, which represents approximately 8% of the fully diluted New Precipio common stock, and approximately 10.4 million shares of New Precipio common stock, which represents approximately 3% of the fully diluted New Precipio common stock, and (b) New Precipio will issue for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to investors in a private placement, which represents approximately 18% of the fully diluted New Precipio common stock. When and if the shares of New Precipio preferred stock are converted, such conversion will result in further dilution of your shares. Upon completion of the merger, the conversion of secured debt and the private placement, the current holders of Transgenomic common stock will own approximately 9% of the fully diluted New Precipio common stock.

Vote Required and Board of Directors Recommendation

Approval of the proposal to issue shares of New Precipio common stock and New Precipio preferred stock upon conversion of the secured debt and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 2 is a condition to the completion of the merger with Precipio, and thus a vote against this proposal effectively will be a vote against the merger with Precipio.

The Transgenomic Board has determined that the issuance of New Precipio common stock and New Precipio preferred stock upon conversion of the secured debt and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock is fair to and in the best interests of Transgenomic and its stockholders and has approved the issuance of New Precipio common stock and New Precipio preferred stock in accordance with the Tenth Amendment and recommends that you vote “FOR” approval of the stock issuances.

* * *

THE BOARD OF DIRECTORS HAS APPROVED
THE ISSUANCE OF NEW PRECIPIO COMMON STOCK AND NEW PRECIPIO PREFERRED
STOCK UPON CONVERSION OF THE SECURED DEBT OF TRASNGENOMIC AND THE
ISSUANCE OF NEW PRECIPIO COMMON STOCK UPON CONVERSION OF SUCH NEW
PRECIPIO PREFERRED STOCK AND RECOMMENDS THAT STOCKHOLDERS VOTE “FOR”
PROPOSAL NO 2.

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PROPOSAL NO. 3
THE PRIVATE PLACEMENT

In connection with entering into the Merger Agreement, Transgenomic, Precipio and BV Partners entered into a non-binding term sheet (the “Term Sheet”) for the private placement whereby New Precipio will issue up to $7 million in a new Senior Convertible Preferred Stock (the “New Precipio preferred stock”). The proceeds received from this offering of New Precipio preferred stock will be used to finance the merger, for working capital and growth capital to expand into new markets. This summary is based upon the Term Sheet, which may not reflect the final terms of the New Precipio preferred stock or the private placement.

General

Subject to the approval of the matters set forth in this proxy statement by the Transgenomic stockholders, the Transgenomic Board will approve and file a Certificate of Designation with Secretary of State of the State of Delaware amending Transgenomic’s Certificate of Incorporation to designate the New Precipio preferred stock. In connection with the merger, at the effective time, New Precipio will issue shares of New Precipio preferred stock and New Precipio common stock in a related private placement, for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to new investors who will invest individually or through a special purpose vehicle, which represents approximately 18% of the fully diluted New Precipio common stock.

The number of shares of New Precipio preferred stock that will be issued in connection with the private placement is 56,204,898 shares. The New Precipio preferred stock issued in the merger, upon conversion of the secured debt and in the private placement will be issued based on a $25 million pre-money equity valuation of New Precipio and will represent, in the aggregate, approximately 34% of the fully diluted New Precipio common stock.

Summary of Terms of the New Precipio Preferred Stock

Convertibility

The New Precipio preferred stock will be convertible into New Precipio common stock at any time at the then applicable conversion price. The initial conversion price will equal the purchase price for the New Precipio preferred stock, but will be subject to anti-dilution protections including adjustments for stock splits, stock dividends, other distributions, recapitalizations and the like. Additionally, each holder of the New Precipio preferred stock will have a right to convert his, her or its New Precipio preferred stock into securities issued in any future private offering of New Precipio stock at a 15% discount to the proposed price in such private offering.

Dividends

The New Precipio preferred stock will be entitled to an annual 8% cumulative payment in lieu of interest or dividends, payable in-kind for the first two years and in cash or in-kind thereafter, at the option of the holder. The New Precipio preferred stock also will be entitled to share in any dividends paid on the New Precipio common stock.

Liquidation Preference

In the event of New Precipio’s liquidation, dissolution or winding up, holders of the New Precipio preferred stock will be entitled to receive assets or surplus funds of New Precipio in an amount equal to the greater of (i) 1.5 times the original purchase price of the New Precipio preferred stock,plus an amount equal to all unpaid and accrued dividends and dividend equivalents and (ii) the amount that would be payable on the New Precipio preferred stock if it were converted into New Precipio common stock (the “Liquidation Preference”). This Liquidation Preference also would be due in the event of a future merger or sale of New Precipio, unless a supermajority of holders of New Precipio preferred stock elect otherwise.

Board Representation

In connection with the private placement, and as provided in the Merger Agreement, the New Precipio board of directors will increase its size to seven at the effective time of the merger. Two members of the New Precipio board of directors will be current directors, three will be nominated by Precipio and two will be nominated by the holders of the New Precipio preferred stock.

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Protective Provisions

Certain material corporate events will require the consent of a supermajority of holders of the New Precipio preferred stock or approval of at least one of the members of the Transgenomic Board appointed by the holders of New Precipio preferred stock.

Investor Rights Agreement

In connection with the private placement, New Precipio will enter into an investor rights agreement with the holders of the New Precipio preferred stock. Since the shares of New Precipio preferred stock will not be registered under the Securities Act in reliance on Section 4(a)(2) and Rule 506, the investor rights agreement will contain customary private placement transfer restrictions relating to the approximately 104 million shares of New Precipio preferred stock and New Precipio common stock issuable upon conversion of the New Precipio preferred stock that will be issued to such parties in connection with the merger, the conversion of secured debt and the private placement. Such shares of New Precipio preferred stock and shares of New Precipio common stock issuable upon conversion of the New Precipio preferred stock may not be sold or transferred unless such shares are registered under the Securities Act or an exemption under the Securities Act is available. In addition, the holders of New Precipio preferred stock will have a right of first refusal with respect to any sales of New Precipio preferred stock by other holders, except for transfers to family members or affiliates. In addition, the investor rights agreement will give such parties rights with respect to the registration under the Securities Act of the shares of New Precipio common stock to be issued to such parties, including the shares that may be issued upon future conversion of the New Precipio preferred stock.

The investor rights agreement also will provide each holder of New Precipio preferred stock with (i)pro rata preemptive rights with respect to any new issuance of preferred stock and (ii)pro rata rights of first refusal on any transfers of New Precipio preferred stock.

Fees and Expenses

Pursuant to that certain engagement letter by and between Precipio and BV Partners, dated as of September 17, 2015 (as amended, the “BV Letter”), and that certain term sheet by and between Precipio and BV Partners, dated as of October 12, 2016 (the “BV Term Sheet” and together with the BV Letter, the “BV Agreements”), Precipio engaged BV Partners to serve as its strategic advisor in connection with a merger or alternative transaction and BV Partners agreed to purchase shares of New Precipio preferred stock. New Precipio will be required to pay certain fees and expenses (out-of-pocket costs, such as travel) under the BV Term Sheet, including (i) a monthly consulting fee for monitoring day-to-day business needs and rendering professional advice to include business development activities and to help with strategic partnerships, product licensing and joint ventures for growth opportunities in domestic and international markets, of $10,000 per month for the first six months after the closing of the merger and thereafter any time the New Precipio preferred stock is in default, and (ii) a break-up fee equal to 50% of the closing fee, which is equal to 2% of the purchase price of the New Precipio preferred stock, paid in four equal installments over six months in the event the merger is not consummated. In addition, pursuant to the BV Letter, in the event BV Partners is prepared to invest in New Precipio preferred stock and New Precipio decides not to take BV Partner’s investment, BV Partners is also entitled to a transaction fee equal to 4.15% of the funding amount, in addition to a closing fee equal to 2% of the purchase price of the New Precipio preferred stock for fees and expenses in connection with the transaction. For the avoidance of doubt, BV Partners is receiving certain fees under the BV Agreements solely in relationship to strategic advisory, business development and consulting services work in accordance with the proposed Transaction, and no such fees are being paid in connection with any capital raises or securities offerings of Transgenomic.

Effect of the Proposed Issuance of Preferred Stock and Common Stock

The shares of New Precipio common stock to be issued upon conversion of the New Precipio preferred stock issued pursuant to Proposal No. 3 in connection with the private placement would be identical to the shares of Transgenomic common stock now issued and outstanding. In connection with the merger, at the effective time, in addition to the New Precipio preferred stock and New Precipio common stock to be issued to holders of units of Precipio, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock upon conversion of the secured debt and in a related private placement, whereby

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(a) the Lenders will receive in exchange for certain indebtedness approximately 24.1 million shares of New Precipio preferred stock with an aggregate face amount equal to $3 million, which represents approximately 8% of the fully diluted New Precipio common stock, and approximately 10.4 million shares of New Precipio common stock, which represents approximately 3% of the fully diluted New Precipio common stock, and (b) New Precipio will issue for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to investors in a private placement, which represents approximately 18% of the fully diluted New Precipio common stock. When and if the shares of New Precipio preferred stock are converted, such conversion will result in further dilution of your shares. Upon completion of the merger, the conversion of secured debt and the private placement, the current holders of Transgenomic common stock will own approximately 9% of the fully diluted New Precipio common stock.

The issuance of New Precipio common stock and New Precipio preferred stock upon conversion of the secured debt is exempt from registration under the Securities Act pursuant to Section 4(a)(2) and Rule 506.

Vote Required and Board of Directors Recommendation

Approval of the proposal to issue shares of New Precipio preferred stock to investors in the private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal.The approval of Proposal No. 3 is a condition to the completion of the merger with Precipio, and thus a vote against this proposal effectively will be a vote against the merger with Precipio.

The Transgenomic Board has determined that the issuance of New Precipio preferred stock in the private placement and the issuance of New Precipio common stock upon conversion of such New Precipio preferred stock is fair to and in the best interests of Transgenomic and its stockholders and has approved the issuance of New Precipio preferred stock and recommends that you vote “FOR” approval of the stock issuances.

* * *

THE BOARD OF DIRECTORS HAS APPROVED
THE ISSUANCE OF NEW PRECIPIO PREFERRED STOCK IN THE PRIVATE PLACEMENT AND
THE ISSUANCE OF NEW PRECIPIO COMMON STOCK UPON CONVERSION OF SUCH
NEW PRECIPIO PREFERRED STOCK
AND RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” PROPOSAL NO 3.

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PROPOSAL NO. 4
APPROVAL OF THE ISSUANCE OF TRANSGENOMIC, INC. COMMON STOCK
UPON EXERCISE OR EXCHANGE OF THE WARRANTS

In 2016, Transgenomic issued certain warrants (“Warrants”) to Third Security Investors and Crede Capital Group, LLC or its affiliates (“Crede”). At the time of issuance, these Warrants included a maximum aggregate amount of 4,773,765 shares of Transgenomic common stock (the “Maximum Warrant Shares”) that were issuable to Third Security Investors and Crede, as applicable, upon the exercise or exchange thereof.

Pursuant to the rules of Nasdaq, the securities exchange on which Transgenomic’s common stock was listed prior to February 22, 2017, the issuance of 2,999,836 of the Maximum Warrant Shares pursuant to the exercise and/or exchange provisions in the Warrants requires approval of Transgenomic’s stockholders because the issuance exceeds 20% of the number of shares of Transgenomic common stock outstanding as of the date of the Warrants. Accordingly, the terms of the Warrants require Transgenomic’s stockholders to approve certain further issuances of common stock pursuant to the Warrants.

Certain Terms of the Warrants

Placement Warrants

On January 6, 2016, Transgenomic entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Crede and Third Security Investors, pursuant to which, on January 8, 2016, Transgenomic sold an aggregate of approximately $2.2 million of units (the “Units”) consisting of (1) an aggregate of 2,365,243 shares of Transgenomic’s Series A-1 Convertible Preferred Stock, and (2) warrants to purchase up to an aggregate of 1,773,929 shares of Transgenomic common stock (the “Placement Warrants”). Each Unit was sold at a purchase price of $0.93 per Unit. The shares of Series A-1 Convertible Preferred Stock are convertible into shares of Transgenomic common stock at an initial rate of 1-for-1, which conversion rate is subject to further adjustment. The holders of the Series A-1 Convertible Preferred Stock are generally entitled to that number of votes as is equal to the product obtained by multiplying: (a) the number of whole shares of Transgenomic common stock into which the shares of Series A-1 Convertible Preferred Stock may be converted as of the record date of such vote or consent, by (b) 0.93, rounded down to the nearest whole number. Therefore, every 1.075269 shares of Series A-1 Convertible Preferred Stock will generally initially be entitled to one vote.

On January 8, 2016, Transgenomic issued Placement Warrants to Crede to purchase an aggregate of 1,612,903 shares of Transgenomic common stock and Third Security Investors to purchase an aggregate of 161,026 shares of Transgenomic common stock. The Placement Warrants were immediately exercisable upon issuance, have a term of five years and have an exercise price of $1.21 per share of Transgenomic common stock. Each Placement Warrant includes both cash and “cashless exercise” features and an exchange feature whereby the holder of the Placement Warrant may exchange (the “Exchange Right”) all or any portion of the Placement Warrant for a number of shares of Transgenomic common stock equal to the quotient obtained by dividing the “Exchange Amount” by the closing bid price of Transgenomic common stock on the second trading day prior to the date the Placement Warrant is exchanged, with a minimum price of $0.50 per share (the “Exchange Price”). Under the Placement Warrants, the “Exchange Amount” is based upon a Black Scholes option pricing model. Each Placement Warrant provides that the number of shares that may be issued upon exercise of the Exchange Right is limited to the number of shares that may be purchased pursuant to the terms of the Placement Warrant, unless Transgenomic has previously obtained stockholder approval or approval from The Nasdaq Stock Market LLC to issue any additional shares of Transgenomic common stock (the “Additional Shares”) pursuant to the Exchange Right (the “Required Approvals”). For any Exchange Right exercised more than 90 days following the issuance of the Placement Warrants, if Transgenomic has not obtained either of the Required Approvals, Transgenomic will be required to pay the Placement Warrant holder an amount in cash for any Additional Shares that Transgenomic cannot issue without the Required Approvals based on the Exchange Amount.

The current Exchange Amount for the Crede Placement Warrants is approximately $500,000 based on the current Black-Scholes calculation. Using the minimum Exchange Price of $0.50 per share, Crede would be entitled to an additional 1,000,000 shares of Transgenomic common stock upon exchange of the Crede Placement Warrants for an aggregate of 2,612,903 shares of Transgenomic common stock. Based on the same

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calculations, the current Exchange Amount for the Third Security Investors Placement Warrants is approximately $200,000. Using the minimum Exchange Price of $0.50 per share, Third Security Investors would be entitled to an additional 99,836 shares of Transgenomic common stock upon exchange of the Crede Placement Warrants for an aggregate of 260,862 shares of Transgenomic common stock. In the event that the Required Approvals have not been obtained at the time of the exchange of the Placement Warrants, then Transgenomic would be required to pay to Crede $500,000 and Third Security Investors approximately $200,000.

The Placement Warrants further provide that, to the extent the closing bid price of Transgenomic common stock on the second trading day prior to the date the Placement Warrant is exchanged is less than $0.50, the Exchange Price will be deemed to be equal to $0.50, and, in addition to issuing shares of Transgenomic common stock based on this Exchange Price, Transgenomic will be required to pay to the Placement Warrant holder an amount in cash equal to the product obtained by multiplying (a) $0.50 minus the closing bid price of Transgenomic common stock on the second trading day prior to the date the Placement Warrant is exchanged, by (b) the aggregate number of shares of Transgenomic common stock issued to the Placement Warrant holder by Transgenomic in such exchange at an Exchange Price equal to $0.50. For example, the closing bid price on May 5, 2017 was $0.40, so Transgenomic would be required to pay $0.10 per share of Transgenomic common stock issued to the Placement Warrant holders or approximately $161,000 to Crede and approximately $26,000 to Third Security. If such closing bid price was $0.25 on the second trading day prior to the date the Placement Warrant is exercised then Transgenomic would be required to pay $0.25 per share of Transgenomic common stock issued to the Placement Warrant holders or approximately $400,000 to Crede and approximately $65,000 to Third Security. As long as the closing bid price of Transgenomic common stock on the second trading day prior to the date the Placement Warrants are exchanged is equal to or higher than $0.50 per share, then Transgenomic would not be required to pay any additional cash upon exchange of the Placement Warrants.

Amended Warrant

On June 30, 2015, Transgenomic entered into a purchase agreement with Crede pursuant to which, on July 7, 2015, Transgenomic sold (i) an aggregate of approximately 1.5 million shares of Transgenomic common stock at a price per share of $1.42, (ii) a warrant to purchase up to an aggregate of 0.7 million shares of Transgenomic common stock with an exercise price of $0.01 per share, and (iii) a warrant to purchase up to an aggregate of 1,161,972 shares of Transgenomic common stock, with an exercise price of $1.66 per share. The aggregate gross proceeds to Transgenomic from the offering were approximately $3.0 million.

On January 8, 2016, in accordance with the Securities Purchase Agreement, Transgenomic also issued a warrant (the “Amended Warrant”) that amended an outstanding warrant previously issued to Crede on July 7, 2015 to purchase up to 1,161,972 shares of Transgenomic common stock (the “Original Warrant”).

The Amended Warrant amended the Original Warrant to provide that the Amended Warrant is subject to the same terms and conditions as the Placement Warrants and, therefore, includes both cash and “cashless exercise” features and an Exchange Right whereby the number of shares issuable pursuant to the Exchange Right is equal to the “Amended Warrant Exchange Amount”, which is based on a Black Scholes option pricing model. The Amended Warrant is exercisable for up to 1,161,972 shares of Transgenomic common stock in the event Transgenomic has obtained either of the Required Approvals with respect to the Amended Warrant. In the event Crede exercises the Amended Warrant more than 90 days following the issuance of the Amended Warrant, if Transgenomic has not obtained either of the Required Approvals, Transgenomic will be required to pay Crede an amount in cash for the shares of Transgenomic common stock that Transgenomic cannot issue under the Amended Warrant pursuant to such exercise without the Required Approvals based on the Amended Warrant Exchange Amount.

The current Exchange Amount for the Amended Warrant is approximately $950,000 based on the current Black-Scholes calculation. Using the minimum Exchange Price of $0.50 per share, Crede would be entitled to an additional 738,028 shares of Transgenomic common stock upon exchange of the Amended Warrant for an

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aggregate of 1,900,000 shares of Transgenomic common stock. In the event that the Required Approvals have not been obtained at the time of the exchange of the Amended Warrant, then Transgenomic would be required to pay to Crede $950,000.

The Amended Warrant also provides that, to the extent the closing bid price of Transgenomic common stock on the second trading day prior to the date the Amended Warrant is exchanged is less than $0.50, the Exchange Price will be deemed to be equal to $0.50, and, in addition to issuing shares of Transgenomic common stock based on this Exchange Price (assuming receipt of the Required Approvals), Transgenomic will be required to pay to Crede an amount in cash equal to the product obtained by multiplying (a) $0.50 minus the closing bid price of Transgenomic common stock on the second trading day prior to the date the Amended Warrant is exchanged, by (b) the aggregate number of shares of Transgenomic common stock issued to Crede by us in such exchange at an Exchange Price equal to $0.50. For example, the closing bid price on May 5, 2017 was $0.40, so Transgenomic would be required to pay $0.10 per share of Transgenomic common stock issued to the Amended Warrant holder or approximately $190,000 to Crede. If such closing bid price was $0.25 on the second trading day prior to the date the Amended Warrant is exercised then Transgenomic would be required to pay $0.25 per share of Transgenomic common stock issued to the Amended Warrant holder or approximately $475,000 to Crede. As long as the closing bid price of Transgenomic common stock on the second trading day prior to the date the Amended Warrant is exchanged is equal to or higher than $0.50 per share, then Transgenomic would not be required to pay any additional cash upon exchange of the Amended Warrant.

Crede Warrants

An aggregate maximum amount of 4,512,903 shares of Transgenomic common stock are issuable to Crede under the Warrants. The Placement Warrants issued to Crede provide for the issuance of up to 1,612,903 shares of Transgenomic common stock issuable upon the exercise or the exchange of the warrant, with a maximum amount of up to 2,612,903 shares of Transgenomic common stock issuable upon any exchange of such Placement Warrant in accordance with the Exchange Right (the “Crede Placement Warrant”). The Amended Warrant issued to Crede provides for the issuance of up to 1,161,972 shares of Transgenomic common stock issuable upon the exercise or the exchange of the Amended Warrant, with a maximum amount of up to 1,900,000 shares of Transgenomic common stock issuable upon the exchange of the warrant in accordance with the Exchange Right.

As of April 12, 2017, 606,484 of the original 1,612,903 shares of Transgenomic common stock subject to the Crede Placement Warrant remain to be issued under the warrant. Pursuant to the terms of the Crede Placement Warrant, 1,000,000 Additional Shares of the 2,612,903 maximum number of shares of Transgenomic common stock issuable upon the exchange of the Crede Placement Warrant are subject to the approval of Transgenomic stockholders before such Additional Shares may be issued in connection with any exchange of the Crede Placement Warrant pursuant to the Exchange Right.

As of April 12, 2017, all 1,161,972 shares of Transgenomic common stock subject to the Amended Warrant remain to be issued under the warrant. Pursuant to the terms of the Amended Warrant, no shares of Transgenomic common stock may be issued, whether pursuant to an exercise or exchange, without the approval of Transgenomic stockholders.

Third Security Investors Warrant

An aggregate maximum amount of 260,862 shares of Transgenomic common stock are issuable to Third Security Investors under the Placement Warrants. The Placement Warrants issued to Third Security Investors provide for the issuance of up to 161,026 shares of Transgenomic common stock issuable upon the exercise or exchange of the warrant, with a maximum amount of up to 260,862 shares of Transgenomic common stock issuable upon the exchange of the warrant in accordance with the Exchange Right (the “Third Security Investors Warrant”).

As of April 12, 2017, all 161,026 shares of Transgenomic common stock subject to the Third Security Investors Warrant remain to be issued under the warrant. Pursuant to the terms of the Third Security Investors Warrant, 99,836 Additional Shares of the 260,862 maximum number of shares of Transgenomic common stock issuable upon the exchange of the Third Security Investors Warrant are subject to the approval of

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Transgenomic stockholders before such Additional Shares may be issued in connection with any exchange of the Third Security Investors Warrant pursuant to the Exchange Right.

Federal Securities Laws Issues

The issuance of the Warrants in 2016, and the subsequent issuance of Transgenomic common stock upon exercise or exchange of the Warrants thereafter, was exempt from registration under the Securities Act in reliance on Section 4(a)(2) and Rule 506. On January 24, 2016, Transgenomic filed a registration statement on Form S-3 under the Securities Act, which registration statement was declared effective, registering for resale the shares of Transgenomic common stock issuable upon exercise or exchange of the Warrants.

Effect of the Proposed Issuance of Common Stock

The shares of Transgenomic common stock to be issued pursuant to Proposal No. 4 in connection with the exercise and/or exchange of the Warrants would be identical to the shares of Transgenomic common stock now issued and outstanding. However, the stock issuance will dilute the ownership and voting interests of our existing stockholders.

Vote Required and Board of Directors Recommendation

Approval of the proposal to issue 2,999,836 shares of Transgenomic common stock upon exercise of the Warrants requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal. The approval of Proposal No. 4 is not a condition to the completion of the merger with Precipio.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR”
PROPOSAL NO 4.

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PROPOSAL NO. 5
APPROVAL OF 2017 STOCK OPTION AND INCENTIVE PLAN

Proposal

The Transgenomic Board believes that stock options, restricted stock units, restricted stock awards and other stock-based incentive awards can play an important role in the success of the Transgenomic (and, after the merger, New Precipio) (Transgenomic or New Precipio, as applicable, is referred to in this proposal as the “Company”) by encouraging and enabling the employees, officers, non-employee directors and other key persons of the Company and its subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. The Transgenomic Board anticipates that providing these people with a direct ownership stake will assure a closer identification of the interests of these individuals with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company. All share numbers set forth below do not take into account the proposed reverse stock split at a ratio of between one to ten and one to thirty approved by the Transgenomic stockholders on October 31, 2016.

Vote Required and Board of Directors Recommendation

Approval of the 2017 Stock Option and Incentive Plan (the “2017 Plan”) which is attached to this proxy statement as Annex E, requires the affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Broker non-votes will have no effect on the proposal. The approval of Proposal No. 5 is not a condition to the completion of the merger with Precipio.

The 2017 Plan is intended to serve as a successor to and replacement for the Transgenomic, Inc. 2006 Equity Incentive Plan, as amended (the “Amended 2006 Plan”), which expired pursuant to its terms on July 12, 2016. If approved, the 2017 Plan will take effect on May [•], 2017, the day of the Special Meeting, and will expire on May [•], 2027. If the Transgenomic stockholders do not approve the 2017 Plan, then Transgenomic will not be able to make additional awards under the Amended 2006 Plan and Transgenomic does not expect to be able to offer competitive equity packages to retain our current employees or hire new employees.

Transgenomic executive officers and members of the Transgenomic Board will be eligible to receive awards under the 2017 Plan and therefore have an interest in this proposal. Effective December 13, 2016, the Board approved the issuance of options to acquire 5,000 shares of Transgenomic common stock to Mya Thomae, Doit Koppler II, Michael A. Luther, and Robert M. Patzig, as well as an additional grant of an option to acquire 100,000 shares of Transgenomic common stock to Robert M. Patzig, Chairman of the Transgenomic Board, in connection with his role in negotiating the Merger Agreement and related transactions, all of which options are subject to the approval of the 2017 Plan by the Transgenomic stockholders. Upon such approval by the Transgenomic stockholders, these options will be effective as of December 13, 2016.

Summary of Material Features of the 2017 Plan

The material features of the 2017 Plan are:

20,000,000 shares of common stock have been reserved for the issuance under the 2017 Plan;provided, however, in the event the merger with Precipio is not consummated, the Company will reduce the number of shares reserved under the 2017 Plan to 2,000,000;
Until the merger with Precipio is completed, awards with respect to no more than 2,000,000 shares may be granted under the 2017 Plan;
Shares of common stock that are forfeited, cancelled, held back upon the exercise or settlement of an award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of common stock or otherwise terminated (other than by exercise) under the 2017 Plan are added back to the shares of common stock available for issuance under the 2017 Plan;

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Shares of common stock reacquired by the Company on the open market will not be added to the reserved pool under the 2017 Plan;
The award of stock options (both incentive and non-qualified options), stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, cash-based awards, performance share awards and dividend equivalent rights is permitted under the 2017 Plan;
No dividends or dividend equivalents may be paid on full value awards (restricted stock, restricted stock units and performance share awards) subject to performance vesting until such shares are actually earned upon satisfaction of the performance criteria;
The value of all equity awards made under the 2017 Plan and all other cash compensation paid by the Company to any non-employee director in any calendar year may not exceed $500,000.
Any material amendment to the 2017 Plan is subject to approval by the Company’s stockholders; and
The term of the 2017 Plan will expire on May [•], 2027.

The maximum aggregate market value of the common stock that could potentially be issued under the 2017 Plan assuming the merger with Precipio is completed will be based on the closing price of Transgenomic’s common stock on the date the 2017 Plan is approved and the number of shares to be reserved under the 2017 Plan, which is 20,000,000. For example, assuming the 2017 Plan was approved on May [•], 2017, the most recent date prior to the date of this proxy statement, based on the closing price of Transgenomic’s common stock as reported on such date, the maximum aggregate market value of the common stock that could potentially be issued under the 2017 Plan would be $[•]. The shares the Company issues under the 2017 Plan will be authorized but unissued shares or shares that the Company reacquires.

Qualified Performance-Based Compensation under Section 162(m) of the Code

To ensure that certain awards granted under the 2017 Plan to “covered employees” (as defined in the 2017 Plan) qualify as “performance-based compensation” under Section 162(m) of the Code, the 2017 Plan provides that the administrator of the 2017 Plan may require that the vesting of such awards be conditioned on the satisfaction of performance criteria that may include any or all of the following: (1) total stockholder return, (2) earnings before interest, taxes, depreciation and amortization, (3) net income (loss) (either before or after interest, taxes, depreciation and/or amortization), (4) changes in the market price of the common stock, (5) economic value-added, (6) funds from operations or similar measure, (7) sales or revenue, (8) acquisitions or strategic transactions, (9) operating income (loss), (10) cash flow (including, but not limited to, operating cash flow and free cash flow), (11) return on capital, assets, equity or investment, (12) return on sales, (13) gross or net profit levels, (14) productivity, (15) expense, (16) margins, (17) operating efficiency, (18) customer satisfaction, (19) working capital, (20) earnings (loss) per share of common stock, (21) sales or market shares and (22) number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The administrator of the 2017 Plan will select the particular performance criteria within 90 days following the commencement of a performance cycle. Subject to adjustments for stock splits and similar events, the maximum award granted to any one individual that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code will not exceed 3,000,000 shares of common stock (provided, however, that if the merger with Precipio is not consummated, the Company will reduce such number to 300,000 shares of common stock) for any performance cycle and options or stock appreciation rights with respect to no more than 2,000,000 shares of common stock (provided, however,that if the merger with Precipio is not consummated, the Company will reduce such number to 200,000 shares of common stock) may be granted to any one individual during any calendar year period. If a performance-based award is payable in cash, it cannot exceed $1,000,000 for any performance cycle.

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Summary of the 2017 Plan

The following description of certain features of the 2017 Plan is intended to be a summary only. The summary is qualified in its entirety by the full text of the 2017 Plan, which is attached hereto as Annex E.

Plan Administration.  The 2017 Plan will be administered by the Transgenomic Compensation Committee. The administrator has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2017 Plan. The administrator may delegate to the Company’s Chief Executive Officer the authority to grant awards to employees who are not subject to the reporting and other provisions of Section 16 of the Exchange Act, and not subject to Section 162(m) of the Code, subject to certain limitations and guidelines.

Eligibility.  Persons eligible to participate in the 2017 Plan will be those full or part-time officers, employees, non-employee directors and other key persons (including consultants) of the Company and its subsidiaries as selected from time to time by the administrator in its discretion. Approximately 23 individuals would be currently eligible to participate in the 2017 Plan, which includes one officer, 18 employees who are not officers, and four non-employee directors.

Plan Limits.  A total of 20,000,000 shares of common stock have been reserved under the 2017 Plan. In the event the merger with Precipio is not consummated, the Company will reduce such number to 2,000,000 shares of common stock. Awards with respect to no more than 2,000,000 shares may be granted under the 2017 Plan after the merger with Precipio is completed. The maximum award of stock options or stock appreciation rights granted to any one individual will not exceed 2,000,000 shares of common stock (provided, however, that if the merger with Precipio is not consummated, the Company will reduce such number to 200,000 shares of common stock) (in each case, subject to adjustment for stock splits and similar events) for any calendar year period. If any award of restricted stock, restricted stock units or performance shares granted to an individual is intended to qualify as “performance-based compensation” under Section 162(m) of the Code, then the maximum award shall not exceed 1,000,000 shares of common stock (provided, however, that if the merger with Precipio is not consummated, the company will reduce such number to 100,000 shares of common stock) (in each case, subject to adjustment for stock splits and similar events) to any one such individual in any performance cycle. If any cash-based award is intended to qualify as “performance-based compensation” under Section 162(m) of the Code, then the maximum award to be paid in cash in any performance cycle may not exceed $1,000,000. In addition, no more than 20,000,000 shares of common stock (provided, however, that if the merger with Precipio is not consummated, the Company will reduce such number to 200,000 shares of common stock) (in each case, subject to adjustment for stock splits and similar events) may be issued in the form of incentive stock options.

Stock Options.  The 2017 Plan permits the granting of (1) options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and (2) options that do not so qualify. Options granted under the 2017 Plan will be non-qualified options if they fail to qualify as incentive options or exceed the annual limit on incentive stock options. Incentive stock options may only be granted to employees of the Company and its subsidiaries. Non-qualified options may be granted to any persons eligible to receive incentive options and to non-employee directors and consultants of the Company. The option exercise price of each option will be determined by the administrator but may not be less than 100% of the fair market value of the common stock on the date of grant. In the case of an incentive stock option granted to a 10% owner of the Company, the exercise price may not be less than 110% of the fair market value on the date of grant. Fair market value for this purpose will be the last reported sale price of the shares of common stock on Nasdaq on the date of grant. The administrator has discretion to reduce the exercise price of outstanding stock options or to effect the repricing of stock options through cancellation and re-grants.

The term of each option will be fixed by the administrator and may not exceed ten years from the date of grant. The administrator will determine at what time or times each option may be exercised. Options may be made exercisable in installments and the exercisability of options may be accelerated by the administrator. In general, unless otherwise permitted by the administrator, no option granted under the 2017 Plan is transferable

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by the optionee other than by will or by the laws of descent and distribution, and options may be exercised during the optionee’s lifetime only by the optionee, or by the optionee’s legal representative or guardian in the case of the optionee’s incapacity.

Upon exercise of options, the option exercise price must be paid in full either in cash, by certified or bank check or other instrument acceptable to the administrator or by delivery (or attestation to the ownership) of shares of common stock that are not then subject to any restrictions under any Company plan. Subject to applicable law, the exercise price may also be delivered to us by a broker pursuant to irrevocable instructions to the broker from the optionee. In addition, the administrator may permit non-qualified options to be exercised using a net exercise feature, which reduces the number of shares issued to the optionee by the number of shares with a fair market value equal to the exercise price.

To qualify as incentive options, options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options that first become exercisable by a participant in any one calendar year.

Stock Appreciation Rights.  The administrator may award stock appreciation rights subject to such conditions and restrictions as the administrator may determine. Stock appreciation rights entitle the recipient to shares of common stock equal to the value of the appreciation in the stock price over the exercise price. The exercise price may not be less than the fair market value of the common stock on the date of grant. The administrator has discretion to reduce the exercise price of outstanding stock appreciation rights or to effect the repricing of stock appreciation rights through cancellation and re-grants. The maximum term of a stock appreciation right is ten years.

Restricted Stock Awards.  The administrator may award shares of common stock to participants subject to such conditions and restrictions as the administrator may determine. These conditions and restrictions may include the achievement of certain performance goals (as summarized above) and/or continued employment with the Company through a specified restricted period.

Restricted Stock Units.  The administrator may award restricted stock units to any participants. Restricted stock units are ultimately payable in the form of shares of common stock and may be subject to such conditions and restrictions as the administrator may determine. These conditions and restrictions may include the achievement of certain performance goals (as summarized above) and/or continued employment with the Company through a specified vesting period. In the administrator’s sole discretion, it may permit a participant to make an advance election to receive a portion of his or her future cash compensation otherwise due in the form of restricted stock units, subject to the participant’s compliance with the procedures established by the administrator and requirements of Section 409A of the Code. During the deferral period, the restricted stock units may be credited with dividend equivalent rights.

Unrestricted Stock Awards.  The administrator may also grant shares of common stock that are free from any restrictions under the 2017 Plan. Unrestricted stock may be granted to any participant in recognition of past services or other valid consideration and may be issued in lieu of cash compensation due to such participant.

Cash-Based Awards.  The administrator may grant cash bonuses under the 2017 Plan to participants. The cash bonuses may be subject to the achievement of certain performance goals (as summarized above).

Performance Share Awards.  The administrator may grant performance share awards to any participant that entitle the recipient to receive shares of common stock upon the achievement of certain performance goals (as summarized above) and such other conditions as the administrator shall determine.

Dividend Equivalent Rights.  The administrator may grant dividend equivalent rights to participants, which entitle the recipient to receive credits for dividends that would be paid if the recipient had held specified shares of common stock. Dividend equivalent rights may be granted as a component of another award (other than a stock option or stock appreciation right) or as a freestanding award. Dividend equivalent rights may be settled in cash, shares of common stock or a combination thereof, in a single installment or installments, as specified in the award.

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Sale Event Provisions.  The 2017 Plan provides that upon the effectiveness of a “sale event,” as defined in the 2017 Plan, all awards under the 2017 Plan will automatically terminate unless the parties to the sale event agree that such awards will be assumed, continued or substituted by the successor entity. In the event of such termination, except as otherwise provided in the relevant award certificate, all stock options and stock appreciation rights will automatically become fully exercisable and the restrictions and conditions on all other awards with time-based conditions will become fully vested and nonforfeitable as of the effective time of the sale event. All awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in the administrator’s discretion or to the extent specified in the relevant award agreement. In the event of such termination, (i) the Company may make or provide for a cash payment to participants holding options and stock appreciation rights, in exchange for the cancellation thereof, equal to the difference between the per share cash consideration in the sale event and the exercise price of the options or stock appreciation rights or (ii) each participant shall be permitted, within a specified period of time prior to the consummation of the sale event, as determined by the administrator, to exercise all outstanding options and stock appreciation rights held by such participant. The Company shall also have the option to make or provide for payment, in cash or in kind, to grantees holding other awards in an amount equal to the sale price multiplied by the number of vested shares underlying such awards.

Adjustments for Stock Dividends, Stock Splits, Etc.  The 2017 Plan requires the administrator to make appropriate adjustments to the number of shares of common stock that are subject to the 2017 Plan, to certain limits in the 2017 Plan, and to any outstanding awards to reflect stock dividends, stock splits, extraordinary cash dividends and similar events.

Tax Withholding.  Participants in the 2017 Plan are responsible for the payment of any federal, state or local taxes that the Company required by law to withhold upon the exercise of options or stock appreciation rights or vesting of other awards. Subject to approval by the administrator, participants may elect to have the minimum tax withholding obligations satisfied by authorizing the Company to withhold shares of common stock to be issued pursuant to exercise or vesting.

Amendments and Termination.  The Transgenomic Board may at any time amend or discontinue the 2017 Plan and the administrator may at any time amend or cancel any outstanding award for the purpose of satisfying changes in the law or for any other lawful purpose. However, no such action may adversely affect any rights under any outstanding award without the holder’s consent. To the extent required under Nasdaq rules, any amendments that materially change the terms of the 2017 Plan will be subject to approval by the Company’s stockholders. Amendments shall also be subject to approval by the Company’s stockholders if and to the extent determined by the administrator to be required by the Code to preserve the qualified status of incentive options or to ensure that compensation earned under the 2017 Plan qualifies as performance-based compensation under Section 162(m) of the Code.

Effective Date of 2017 Plan.  The Transgenomic Board initially adopted the 2017 Plan on December 13, 2016 and it will become effective on May [•], 2017, subject to stockholder approval. Awards of incentive options may be granted under the 2017 Plan until May [•], 2027. No other awards may be granted under the 2017 Plan after May [•], 2027.

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Plan Benefits

Because the grant of awards under the 2017 Plan is within the discretion of the administrator, Transgenomic cannot determine the dollar value or number of shares of common stock that will in the future be received by or allocated to any participant in the 2017 Plan. Accordingly, in lieu of providing information regarding benefits that will be received under the 2017 Plan, the following table provides information concerning the benefits that were received by the following persons and groups for all past grants up to and including December 31, 2016: each named executive officer; all current executive officers, as a group; all current directors who are not executive officers, as a group; and all employees who are not executive officers, as a group.

    
 Options Other Awards
Name and Position Average
Exercise Price
($)
 Number
(#)
 Dollar
Value
($)
 Number
(#)
Paul Kinnon President and Chief Executive Officer  3.62   274,166   284,882   83,333 
Leon Richards Former Chief Accounting Officer(1)  2.14   108,624   29,304   15,000 
All current executive officers, as a group  3.62   274,166   284,882   83,333 
All current directors who are not executive officers, as a group(2)  1.69   215,998       
All current employees who are not executive officers, as a group  6.45   350,522       

(1)Mr. Richards resigned from Transgenomic effective September 30, 2016, and the unvested option awards included in this table were terminated as of that date in accordance with their terms.
(2)Includes the issuance of options to acquire 5,000 shares of Transgenomic common stock to Mya Thomae, Doit Koppler II, Michael A. Luther, and Robert M. Patzig, as well as an additional grant of an option to acquire 100,000 shares of Transgenomic common stock to Robert M. Patzig, Chairman of the Transgenomic Board, in connection with his role in negotiating the Merger Agreement and related transactions, all of which options were approved by the Board on December 13, 2016 and are subject to approval of the 2017 Plan by the Transgenomic stockholders. Upon the approval of the 2017 Plan by Transgenomic stockholders, these options will be effective as of December 13, 2016.

Tax Aspects under the Code

The following is a summary of the principal federal income tax consequences of certain transactions under the 2017 Plan. It does not describe all federal tax consequences under the 2017 Plan, nor does it describe state or local tax consequences.

Incentive Options.  No taxable income is generally realized by the optionee upon the grant or exercise of an incentive option. If shares of common stock issued to an optionee pursuant to the exercise of an incentive option are sold or transferred after two years from the date of grant and after one year from the date of exercise, then (i) upon sale of such shares, any amount realized in excess of the option price (the amount paid for the shares) will be taxed to the optionee as a long-term capital gain, and any loss sustained will be a long-term capital loss, and (ii) the company will not be entitled to any deduction for federal income tax purposes. The exercise of an incentive option will give rise to an item of tax preference that may result in alternative minimum tax liability for the optionee.

If shares of common stock acquired upon the exercise of an incentive option are disposed of prior to the expiration of the two-year and one-year holding periods described above (a “disqualifying disposition”), generally (i) the optionee will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares of common stock at exercise (or, if less, the amount realized on a sale of such shares of common stock) over the option price thereof and (ii) the company will be entitled to deduct such amount. Special rules apply where all or a portion of the exercise price of the incentive option is paid by tendering shares of common stock.

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If an incentive option is exercised at a time when it no longer qualifies for the tax treatment described above, the option is treated as a non-qualified option. Generally, an incentive option will not be eligible for the tax treatment described above if it is exercised more than three months following termination of employment (or one year in the case of termination of employment by reason of disability). In the case of termination of employment by reason of death, the three-month rule does not apply.

Non-Qualified Options.  No income is realized by the optionee at the time the option is granted. Generally (i) at exercise, ordinary income is realized by the optionee in an amount equal to the difference between the option price and the fair market value of the shares of common stock on the date of exercise, and the Company receives a tax deduction for the same amount and (ii) at disposition, appreciation or depreciation after the date of exercise is treated as either short-term or long-term capital gain or loss depending on how long the shares of common stock have been held. Special rules apply where all or a portion of the exercise price of the non-qualified option is paid by tendering shares of common stock. Upon exercise, the optionee will also be subject to Social Security taxes on the excess of the fair market value over the exercise price of the option.

Other Awards.  The Company generally will be entitled to a tax deduction in connection with an award under the 2017 Plan in an amount equal to the ordinary income realized by the participant at the time the participant recognizes such income. Participants typically are subject to income tax and recognize such tax at the time that an award is exercised, vests or becomes non-forfeitable, unless the award provides for a further deferral.

Parachute Payments.  The vesting of any portion of an option or other award that is accelerated due to the occurrence of a change in control (such as a sale event) may cause a portion of the payments with respect to such accelerated awards to be treated as “parachute payments,” as defined in the Code. Any such parachute payments may be non-deductible to the company, in whole or in part, and may subject the recipient to a non-deductible 20% federal excise tax on all or a portion of such payment (in addition to other taxes ordinarily payable).

Limitation on Deductions.  Under Section 162(m) of the Code, the company’s deduction for certain awards under the 2017 Plan may be limited to the extent that the chief executive officer or other executive officer whose compensation is required to be reported in the summary compensation table (other than the principal financial officer) receives compensation in excess of $1 million a year (other than performance-based compensation that otherwise meets the requirements of Section 162(m) of the Code). The 2017 Plan is structured to allow certain awards to qualify as performance-based compensation.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR”
PROPOSAL NO 5.

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2016 Executive Compensation

Summary Compensation Table

The following table sets forth compensation awarded to, paid to or earned by Transgenomic’s “named executive officers” for services rendered during fiscal years 2016 and 2015.

     
Name and Principal Position Year Salary
($)
 SARs and Option Awards(1)
($)
 All Other Compensation
($)
 Total
($)
Paul Kinnon(2)  2016   350,000      11,075(3)   361,075 
President, Chief Executive Officer and Interim Chief Financial Officer  2015   350,000   68,925   11,075(3)   430,000 
Leon Richards(4)  2016   150,000      21,669(5)   171,669 
Former Chief Accounting Officer  2015   200,000   73,520   8,380(6)   281,900 

(1)The amounts in this column reflect the aggregate grant date fair value of the stock appreciation rights (“SARs”) and stock option awards granted during the respective fiscal year as computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, excluding the effect of estimated forfeitures. The amounts shown for 2015 do not correspond to the actual value that will be recognized by the named executive officer. The assumptions used in the calculation of these amounts are included in Note 11 “Equity Incentive Plan” to the consolidated financial statements contained in Transgenomic’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April 13, 2017. See the table entitled “2016 Grants of Plan-Based Awards” for information on SARs and stock options granted in 2015. On December 13, 2016, the Board agreed to extend the period during which these stock options may be exercised following Mr. Kinnon’s termination of employment (i) by Transgenomic without “Cause” or (ii) by Mr. Kinnon for “Good Reason” (each of the foregoing capitalized terms as defined in the Kinnon Employment Agreement) to 24 months after such termination, but in no event shall such period extend beyond the Term of Options as defined in the applicable award agreements, and for purposes of any incentive stock option, such extension shall be considered the grant of a new award on the same terms except that the exercise price shall be the greater of (1) the exercise price set forth in the original grant or (2) the fair market value on the date of the extension. Since the exercise price was not lowered and the Term of Options was not extended, Mr. Kinnon did not receive any incremental value as a result of such modification of these stock options.
(2)See “Agreements with Transgenomic’s Named Executive Officers — Paul Kinnon Employment Agreement” for a description of the Kinnon Employment Agreement with Transgenomic. Mr. Kinnon was appointed as Transgenomic’s President and Chief Executive Officer effective as of September 30, 2013 and Transgenomic’s Interim Chief Financial Officer effective as of October 31, 2014.
(3)Amounts paid to Mr. Kinnon in 2016 and 2015 consisted of $10,600 in 401(k) matching contributions and $475 in long term disability insurance.
(4)Mr. Richards resigned from Transgenomic effective September 30, 2016.
(5)Amounts paid to Mr. Richards in 2016 consisted of $6,000 in 401(k) matching contributions, accrued vacation pay of $15,384 and $285 in long term disability insurance.
(6)Amounts paid to Mr. Richards in 2015 consisted of $8,000 in 401(k) matching contributions and $380 in long term disability insurance.

2016 Grants of Plan-Based Awards

There were no grants of plan-based awards in fiscal year 2016 to Transgenomic’s named executive officers.

Outstanding Equity Awards at Fiscal 2016 Year-End

The following table provides certain information concerning outstanding option awards and SARs held by Transgenomic’s named executive officers as of December 31, 2016. As of December 31, 2016, no other equity awards granted to Transgenomic’s named executive officers were outstanding.

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Stock Appreciation Rights and Option Awards

     
Name SARs and
Option
Award Grant
Date
 Number of
Securities
Underlying
Unexercised
SARs
and Options
(#)
(Exercisable)
 Number of
Securities
Underlying
Unexercised
SARs and
Options
(#)
(Unexercisable)
 SARs and
Option
Exercise
Price
($)
 SARS and
Option
Expiration
Date
Paul Kinnon                         
Stock options  9/30/2013   179,166      4.32   9/30/2023 
SARs  9/30/2013   83,333      4.32   9/30/2023 
Stock options  2/18/2014   13,333   6,667(1)   5.54   2/18/2024 
Stock options  4/1/2015   25,000   50,000(1)   1.44   4/1/2025 
Leon Richards(2)                         

(1)The award vests over three years, with one-third of the shares subject to the award vesting on each anniversary of the grant date.
(2)Mr. Richards resigned from Transgenomic effective September 30, 2016, and all unvested option and SARs awards were terminated as of that date in accordance with their terms.

Fiscal Year 2016 SARs and Option Exercises and Stock Vested

No SARs or stock options were exercised by either of Transgenomic’s named executive officers during fiscal year 2016.

Agreements with Transgenomic’s Named Executive Officers

Paul Kinnon Employment Agreement

Transgenomic has entered into the Kinnon Employment Agreement with Paul Kinnon, its President and Chief Executive Officer. The Kinnon Employment Agreement provides that Mr. Kinnon will be employed by Transgenomic for a period of one year, subject to automatic renewal for additional one-year periods, unless terminated by either party upon written notice to the other at least three months prior to the expiration of the then-current term. Under the terms of the Kinnon Employment Agreement, Mr. Kinnon is paid an initial base salary of $350,000 per year. His base salary will be reviewed by the Compensation Committee of the Transgenomic Board for an increase on at least an annual basis and may be adjusted at any time in the Compensation Committee’s sole and absolute discretion, provided that any decrease in base salary must either be with Mr. Kinnon’s written permission, or be part of an across-the-board reduction that affects all senior executives of Transgenomic by the same percentage. Commencing January 1, 2014, Mr. Kinnon became eligible to receive an annual bonus based on his performance under agreed-upon goals, objectives and formulas, provided that his target bonus for any year may not be less than 40% of his then-current base salary. The Kinnon Employment Agreement provides for a severance payment to Mr. Kinnon equal to 12 months of Mr. Kinnon’s then-current base salary if he is discharged other than for “Cause” (as defined in the Kinnon Employment Agreement), other than due to Mr. Kinnon’s disability, or if Mr. Kinnon resigns for “Good Reason” (as defined in the Kinnon Employment Agreement), regardless of whether or not the termination follows a change in control, in each case provided that Mr. Kinnon executes a severance agreement and general release in favor of Transgenomic. The severance payments will be made over 12 months in accordance with Transgenomic’s payroll practices, provided that payment of these amounts is subject to the provisions of Section 409A of the Code which may require that payments be delayed for six months (with interest) following termination of employment. If Mr. Kinnon breaches any of the covenants in the Kinnon Employment Agreement related to the protection of Transgenomic’s interests, including non-solicitation of employees for six months following termination of employment and confidentiality and non-disparagement following termination of employment, he is not entitled to further severance payments. The Kinnon Employment Agreement also provides that Transgenomic will reimburse Mr. Kinnon for certain expenses associated with commuting from Solana Beach, California to Transgenomic’s offices in Omaha, Nebraska and New Haven, Connecticut. The Kinnon Employment Agreement further provides that the vesting of the equity

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awards granted by Transgenomic to Mr. Kinnon described below, as well as all future equity awards granted to Mr. Kinnon by Transgenomic, will accelerate in full and become fully vested upon a Change in Control, as defined in the Amended 2006 Plan.

Pursuant to the terms of the Kinnon Employment Agreement, Mr. Kinnon was granted an option to purchase 179,166 shares of Transgenomic common stock with a per share exercise price equal to the fair market value of one share of Transgenomic common stock on the date of grant, which was September 30, 2013. One-third of the shares subject to the option vested on the first anniversary of the date of grant, and the remaining shares vested in 24 substantially equal installments thereafter.

Mr. Kinnon was also granted stock appreciation rights (“SARs”) pursuant to the terms of the Kinnon Employment Agreement with respect to 83,333 shares of common stock with a per share exercise price equal to the fair market value of one share of Transgenomic common stock on the date of grant, which was September 30, 2013. 34% of the SARs vested on the first anniversary of the date of grant, and the remaining SARs vested ratably over the remaining 24 months. The SARs were granted pursuant to the Amended 2006 Plan and a SARs agreement. Upon exercise of the SARs, Mr. Kinnon will be entitled to receive shares of Transgenomic common stock or cash, subject to the terms of the SARs agreement.

On May 3, 2013, in connection with Mr. Kinnon’s services to Transgenomic and pursuant to the terms of a Consulting Agreement between Transgenomic and Mr. Kinnon, Mr. Kinnon was granted an option to purchase 12,500 shares of common stock. Pursuant to the terms of the Kinnon Employment Agreement, the option was rescinded and terminated on September 30, 2013.

On February 18, 2014, Mr. Kinnon was granted an option to purchase 20,000 shares of common stock. The option vests over a three-year period, with one-third of the shares subject to the option vesting on each of the first three anniversaries of the date of grant, subject to Mr. Kinnon’s continued employment with (or providing continuous service to) Transgenomic on each such date. Additionally, on April 1, 2015, Mr. Kinnon was granted an option to purchase 75,000 shares of common stock. The option vests over a three-year period, with one-third of the shares subject to the option vesting on each of the first three anniversaries of the date of grant, subject to Mr. Kinnon’s continued employment with (or providing continuous service to) Transgenomic on each such date.

Transgenomic previously granted 124,886 incentive stock options and 149,280 non-qualified stock options to Mr. Kinnon under the Transgenomic, Inc. 2006 Equity Incentive Plan. On December 13, 2016, the Board agreed to extend the period during which these stock options may be exercised following Mr. Kinnon’s termination of employment (i) by Transgenomic without “Cause” or (ii) by Mr. Kinnon for “Good Reason” (each of the foregoing capitalized terms as defined in the Kinnon Employment Agreement) to 24 months after such termination, but in no event shall such period extend beyond the Term of Options as defined in the applicable award agreements, and for purposes of any incentive stock option, such extension shall be considered the grant of a new award on the same terms except that the exercise price shall be the greater of (i) the exercise price set forth in the original grant or (ii) the fair market value on the date of the extension.

The Kinnon Employment Agreement includes a modified cutback provision, such that if payments or benefits received or to be received by Mr. Kinnon pursuant to the Kinnon Employment Agreement or any other agreement, contract, award or arrangement would constitute a “parachute payment” as described in Section 280G of the Code and would subject Mr. Kinnon and Transgenomic to golden parachute penalties under Section 280G of the Code and related provisions, the aggregate payments or benefits will either be paid to Mr. Kinnon in full or reduced to an amount that would not result in golden parachute penalties, whichever results in the receipt by Mr. Kinnon of the greatest amount of aggregate payments or benefits, after taking into account all taxes, including the excise tax imposed under Section 4999 of the Code on excess parachute payments. The determinations regarding Section 280G parachute payments and the application of the Modified Cutback Provision are to be made in good faith by Transgenomic’s independent auditors. For purposes of this disclosure, Transgenomic does not expect that the aggregate payments and benefits to Mr. Kinnon following termination of his employment in connection with the merger will exceed the maximum amount that may be paid to Mr. Kinnon without triggering golden parachute penalties under Section 280G of the Code.

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Leon Richards Offer Letter

Transgenomic has entered into an Offer Letter dated November 6, 2012 with Leon Richards, its Chief Accounting Officer (the “Richards Offer Letter”). Under the terms of the Richards Offer Letter, Mr. Richards agreed to serve as Transgenomic’s Corporate Controller and is paid a base salary of $7,291.67 per semi-monthly pay period. Mr. Richards is entitled to a bonus opportunity equal to 25% of his salary for meeting the corporate objectives as defined by the Transgenomic Board. Mr. Richards resigned from Transgenomic effective September 30, 2016.

On June 2, 2015, Transgenomic entered into an amendment (the “Richards Offer Letter Amendment”) to the Richards Offer Letter, which provides that, in the event Mr. Richards’ employment with Transgenomic is terminated without “Cause” (as defined in the Richards Offer Letter Amendment) prior to or within 12 months following a “Change in Control” (as defined in the Richards Offer Letter Amendment) of Transgenomic, he shall be entitled to receive an amount equal to nine months of his base salary at the time of his termination, subject to Mr. Richards signing and delivering a release of claims to Transgenomic. The Richards Offer Letter Amendment further provides that in the event Mr. Richards is employed with Transgenomic upon a Change in Control, any stock options that are outstanding and unvested as of immediately prior to such Change in Control shall vest in their entirety, and become fully exercisable, as of immediately prior to, and contingent upon, such Change in Control. The Richards Offer Letter Amendment also provides that unless Mr. Richards’ employment is terminated by Transgenomic for Cause, he will have until the earlier of the following dates to exercise any then-vested and outstanding stock options: (i) 180 days after the termination of his employment, or (ii) the date on which the stock options otherwise would become unexercisable, ignoring the fact that his employment terminated.

Pursuant to the terms of the Richards Offer Letter, Mr. Richards was granted an option to purchase 4,166 shares of common stock with a per share exercise price equal to the fair market value of one share of Transgenomic common stock on the date of grant, which was January 1, 2013. The option vested over a three-year period, with one-third of the shares subject to the option vesting on each of the first three anniversaries of the date of grant.

On May 3, 2013, Mr. Richards was granted an option to purchase 1,458 shares of common stock. The option vests over a three-year period, with one-third of the shares subject to the option vesting on each of the first three anniversaries of the date of grant, subject to Mr. Richards’ continued employment with Transgenomic on each such date. Mr. Richards was also granted an option to purchase 3,000 shares of common stock on February 18, 2014. The option vests over a three-year period, with one-third of the shares subject to the option vesting on each of the first three anniversaries of the date of grant, subject to Mr. Richards’ continued employment with Transgenomic on each such date.

On November 4, 2014, Mr. Richards was granted an option to purchase 20,000 shares of common stock. The option vests over a three-year period, with one-third of the shares subject to the option vesting on each of the first three anniversaries of the date of grant, subject to Mr. Richards’ continued employment with Transgenomic on each such date. Mr. Richards was also granted SARs on November 4, 2014 with respect to 15,000 shares of common stock with a per share exercise price equal to the fair market value of one share of common stock on the date of grant. The SARs vest over a three-year period, with 34% of the SARs vesting on the first anniversary of the date of grant and the balance vesting ratably over the remaining 24 months, subject to Mr. Richards’ continued employment with Transgenomic on each such date.

On April 1, 2015, Mr. Richards was granted an option to purchase 80,000 shares of common stock. The option vests over a three-year period, with one-third of the shares subject to the option vesting on each of the first three anniversaries of the date of grant, subject to Mr. Richards’ continued employment with (or providing continuous service to) Transgenomic on each such date.

Potential Payments Upon Termination or Change of Control

Transgenomic has entered into the Kinnon Employment Agreement. The Kinnon Employment Agreement provides for a severance payment to Mr. Kinnon equal to 12 months of Mr. Kinnon’s then-current base salary if he is discharged without “Cause” (as defined in the Kinnon Employment Agreement), other than due to Mr. Kinnon’s disability, or if Mr. Kinnon resigns for “Good Reason” (as defined in the Kinnon Employment

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Agreement), regardless of whether or not the termination follows a change in control, in each case provided that Mr. Kinnon executes a severance agreement and general release in favor of Transgenomic. The Kinnon Employment Agreement further provides that the vesting of the equity awards granted by Transgenomic to Mr. Kinnon will accelerate in full and become fully vested upon a Change in Control, as defined in the Transgenomic, Inc. 2006 Equity Incentive Plan. It is currently anticipated that Mr. Kinnon will be terminated at or prior to the effective time of the merger and that Mr. Danieli will serve as Chief Executive Officer of New Precipio. Further, the consummation of the merger would trigger a Change in Control as defined under the Kinnon Employment Agreement with regard to the equity awards granted by Transgenomic to Mr. Kinnon. Therefore, pursuant to the terms of the Kinnon Employment Agreement, it is anticipated that the equity awards granted to Mr. Kinnon will accelerate in full and become fully vested, and Mr. Kinnon will be entitled to receive a severance payment equal to 12 months of Mr. Kinnon’s then-current base salary. As of February 1, 2017, Mr. Kinnon holds 56,666 unvested stock options under the 2006 Equity Incentive Plan for which vesting is expected to accelerate in connection with the merger. As described in “The Transaction — Interests of Transgenomic’s Executive Officers and Directors in the Transaction — Payments and Benefits to Transgenomic’s Named Executive Officers” on page 62, using an assumed stock price of $0.206, the average closing price per share of Transgenomic common stock over the first five business days following the announcement of the merger, all unvested equity awards for Mr. Kinnon are out of the money, and therefore no value is included in connection with the acceleration. In addition, such unvested equity awards for Mr. Kinnon are out of the money as of February 1, 2017. During the period in which the stock options may be exercised following the merger, the market price of the common stock may be higher or lower than the assumed stock price disclosed above. The severance payments will be made over 12 months in accordance with Transgenomic’s payroll practices, provided that payment of these amounts is subject to the provisions of Section 409A of the Code which may require that payments be delayed for six months following termination of employment. If Mr. Kinnon breaches any of the covenants in the Kinnon Employment Agreement related to the protection of Transgenomic’s interests, including non-solicitation of employees for six months (with interest) following termination of employment and confidentiality and non-disparagement following termination of employment, he is not entitled to further severance payments.

Additionally, pursuant to the terms of the Richards Offer Letter, as amended by the Richards Offer Letter Amendment, in the event Mr. Richards’ employment with Transgenomic is terminated without “Cause” (as defined in the Richards Offer Letter Amendment) prior to or within 12 months following a “Change in Control” (as defined in the Richards Offer Letter Amendment) of Transgenomic, he will be entitled to receive an amount equal to nine months of his base salary at the time of his termination, subject to Mr. Richards signing and delivering a release of claims to Transgenomic. Mr. Richards resigned effective September 30, 2016 and, therefore, no payments will be made to Mr. Richards in connection with a change of control transaction.

Compensation Risk Analysis

Transgenomic has reviewed its material compensation policies and practices for all employees and has concluded that these policies and practices are not reasonably likely to have a material adverse effect on Transgenomic. While risk-taking is a necessary part of growing a business, Transgenomic’s compensation philosophy is focused on aligning compensation with the long-term interests of its stockholders as opposed to rewarding short-term management decisions that could pose long-term risks.

Director Compensation

It is the Transgenomic Board’s general policy that compensation for independent directors should be a mix of cash and equity-based compensation. As part of a director’s total compensation, and to create a direct linkage between corporate performance and stockholder interests, the Transgenomic Board believes that a meaningful portion of a director’s compensation should be provided in, or otherwise based on, the value of appreciation in Transgenomic’s common stock.

The Transgenomic Board has the authority to approve all compensation payable to Transgenomic’s directors, although Transgenomic’s Compensation Committee is responsible for making recommendations to the Transgenomic Board regarding this compensation. Additionally, Transgenomic’s Chief Executive Officer may also make recommendations or assist Transgenomic’s Compensation Committee in making

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recommendations regarding director compensation. The Transgenomic Board and Compensation Committee annually review Transgenomic’s director compensation. In connection with director compensation decisions in 2016, the Transgenomic Board and the Compensation Committee reviewed in 2012 the market director compensation data paid by companies in the life sciences industry as reported by Top 5 Data Services, Inc. (the “2011 Director Competitive Analysis”). The 2011 Director Competitive Analysis contained data for 217 publicly traded medical device companies and 331 biopharmaceutical companies, with 65 companies assigned to both sectors based on their mix of products. Based on its review of the 2011 Director Competitive Analysis, the Transgenomic Board did not make any changes to Transgenomic’s director compensation program in 2016 and continued with the program adopted in 2011 and used in 2012, 2013, 2014 and 2015, which is further discussed below.

Cash Compensation

Directors who are also one of Transgenomic’s employees are not separately compensated for serving on the board of directors other than reimbursement for out-of-pocket expenses related to attendance at board of directors meetings and committee meetings. Independent directors are paid an annual retainer of $20,000 and receive reimbursement for out-of-pocket expenses related to attendance at board of directors and committee meetings. Independent directors serving on any committee of the board of directors are paid an additional annual retainer of $2,500 unless they are also a chairperson of a committee. The chairperson of the Audit Committee receives an additional annual retainer of $8,000 and the chairperson of any other committee receives an additional annual retainer of $4,000. All directors’ fees paid annually or quarterly were prorated for partial periods. In addition, any independent director who attends more than four meetings per quarter, which includes committee meetings, receives $500 for each meeting attended over the four.

Equity-Based Compensation

From 2011 through 2013, Transgenomic’s director compensation policy was to grant annually to each continuing independent director an option to purchase 2,083 shares of Transgenomic common stock. In 2014, the amount of that grant was 3,000 shares and in 2015 it was 5,000 shares. In 2016, the amount of that grant was 5,000 shares. These options vest in full after one year, subject to the director’s continued service with Transgenomic through the vesting date. Under Transgenomic’s policy, additional annual grants of options may be made each year by the Transgenomic Compensation Committee in its sole discretion. Upon initial appointment to the Transgenomic Board, Transgenomic’s independent directors are also entitled to receive an option to purchase shares of Transgenomic’s common stock under the Amended 2006 Plan, with the number of shares as determined by the Transgenomic Board or the Compensation Committee, which option vests in full after one year, subject to the director’s continued service with Transgenomic through the vesting date. All options granted to independent directors have exercise prices equal to the fair market value of Transgenomic’s common stock on the grant date, as determined in accordance with the Amended 2006 Plan.

Effective December 13, 2016, the Board approved the issuance of options to acquire 5,000 shares of Transgenomic common stock to Mya Thomae, Doit Koppler II, Michael A. Luther, and Robert M. Patzig, as well as an additional grant of an option to acquire 100,000 shares of Transgenomic common stock to Robert M. Patzig, Chairman of the Transgenomic Board, in connection with his role in negotiating the Merger Agreement and related transactions, all of which options are subject to the approval of the 2017 Plan by the Transgenomic stockholders. Upon such approval by the Transgenomic stockholders, these options will be effective as of December 13, 2016. Other than these options, no options were granted to Transgenomic’s independent directors during 2016.

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Director Summary Compensation Table

The following table provides information regarding Transgenomic’s compensation for non-employee directors during the year ended December 31, 2016. Directors who are Transgenomic’s employees did not receive compensation for serving on the Transgenomic Board or its committees in fiscal 2016.

   
Name Fees Earned
or Paid
in Cash
($)
 Option
Awards
($)(1)
 Total
($)
Doit L. Koppler, II  30,000   1,225   31,225 
Robert M. Patzig  42,000   25,725   67,725 
Michael A. Luther, Ph.D.  35,000   1,225   36,225 
Mya Thomae  28,000   1,225   29,225 
John D. Thompson(2)         

(1)Includes the issuance of options to acquire 5,000 shares of Transgenomic common stock to Mya Thomae, Doit Koppler II, Michael A. Luther, and Robert M. Patzig, as well as an additional grant of an option to acquire 100,000 shares of Transgenomic common stock to Robert M. Patzig, Chairman of the Transgenomic Board, in connection with his role in negotiating the Merger Agreement and related transactions, all of which options were approved by the Board on December 13, 2016 and are subject to approval of the 2017 Plan by the Transgenomic stockholders. Upon the approval of the 2017 Plan by Transgenomic stockholders, these options will be effective as of December 13, 2016. Other than these options, there were no grants of plan-based awards in fiscal year 2016 to Transgenomic Directors.
(2)Mr. Thompson resigned from the board of directors effective January 14, 2016.

The following table sets forth each independent director’s aggregate number of option awards outstanding as of December 31, 2016:

   
Name Vested Stock
Option
Awards(1)
 Unvested
Stock Option
Awards(1)
 Aggregate
Stock Option
Awards(1)
Doit L. Koppler, II  15,499   5,000   20,499 
Robert M. Patzig  65,499   105,000   170,499 
Michael A. Luther, Ph.D.  10,000   5,000   15,000 
Mya Thomae  5,000   5,000   10,000 
John D. Thompson(2)         

(1)Includes the issuance of options to acquire 5,000 shares of Transgenomic common stock to Mya Thomae, Doit Koppler II, Michael A. Luther, and Robert M. Patzig, as well as an additional grant of an option to acquire 100,000 shares of Transgenomic common stock to Robert M. Patzig, Chairman of the Transgenomic Board, in connection with his role in negotiating the Merger Agreement and related transactions, all of which options were approved by the Board on December 13, 2016 and are subject to approval of the 2017 Plan by the Transgenomic stockholders. Upon the approval of the 2017 Plan by Transgenomic stockholders, these options will be effective as of December 13, 2016.
(2)Mr. Thompson resigned from the Board effective January 14, 2016 and all unvested option awards were terminated as of that date in accordance with their terms.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE
PROPOSAL NO 5.

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PROPOSAL NO. 6
APPROVAL OF ADVISORY COMPENSATION PROPOSAL

As required by Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, Transgenomic is required to submit a proposal to Transgenomic stockholders for a non-binding, advisory vote to approve payment by Transgenomic of certain compensation to Transgenomic’s named executive officers that is based on or otherwise relates to the merger. This proposal, commonly known as the “say-on-golden-parachute” proposal, gives Transgenomic stockholders the opportunity to vote, on a non-binding, advisory basis, on the compensation that Transgenomic’s named executive officers may be entitled to receive that is based on or otherwise relates to the merger.

This compensation is summarized and included in the section entitled “Interests of Transgenomic’s Executive Officers and Directors in the Transaction,” including the Golden Parachute Compensation table and the footnotes to the table, beginning on page 61. That summary includes all compensation and benefits that may be paid or become payable to Transgenomic’s named executive officers that are based on or otherwise relate to the merger.

The Transgenomic Board encourages you to review carefully the named executive officer merger-related compensation information disclosed in this proxy statement.

The Transgenomic Board unanimously recommends that Transgenomic’s stockholders approve the following resolution:

“RESOLVED, that the stockholders of Transgenomic approve, on a non-binding, advisory basis, the compensation that will or may become payable to Transgenomic’s named executive officers that is based on or otherwise relates to the merger as disclosed pursuant to Item 402(t) of Regulation S-K in the section entitled “Interests of Transgenomic’s Executive Officers and Directors in the Transaction,” including the Golden Parachute Compensation table and the footnotes to that table.”

Because the vote on this proposal is advisory only, it will not be binding on Transgenomic. Accordingly, if the merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the non-binding, advisory vote of Transgenomic’s stockholders.

Vote Required

The affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting, whether or not a quorum is present, is required to approve the non-binding, advisory compensation proposal. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Failures to vote and broker “non-votes” will have no effect on this proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE
ADVISORY COMPENSATION PROPOSAL NO 6.

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PROPOSAL NO. 7
APPROVAL OF POSSIBLE ADJOURNMENT OF THE SPECIAL MEETING

You may be asked to vote to approve a proposal to adjourn the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approval the other proposals. Transgenomic currently does not intend to propose adjournment of the special meeting of stockholders if there are sufficient votes to approve each of the other proposals.

Vote Required

The affirmative vote of the holders of a majority of the shares of Transgenomic common stock and Series A-1 Convertible Preferred Stock, voting together as a single class (with each one share of Series A-1 Convertible Preferred Stock being entitled to 0.93 votes), present in person or represented by proxy at the special meeting, whether or not a quorum is present, is required to approve the adjournment of the special meeting of stockholders. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Failures to vote and broker “non-votes” will have no effect on this proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE
PROPOSAL TO ADJOURN THE SPECIAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL
PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF THE OTHER PROPOSALS.

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PRECIPIO BUSINESS DESCRIPTION

Precipio is a cancer diagnostics company providing diagnostic services to the oncology market. Precipio operates a cancer diagnostic laboratory located in New Haven, Connecticut and collaborates with Yale School of Medicine which we believe provides a better standard of cancer diagnostics that is delivered to patients. It has built and continues to develop a web-based virtual software platform that successfully translates its expertise into a commercial setting. The platform is intended to connect patients, physicians, and diagnostic experts residing within academic institutions. Expected to launch in 2017, the platform will facilitate the following relationships:

Patients:  Patients may search for physicians in their area and consult directly with academic experts that are on the platform, The platform may also allow for patient-to-patient communications and allow individuals to shares stories and provide support for one another.
Physicians:  Physicians can connect with academic experts to seek consultations on behalf of their patients, and may also provide consultations for patients in their area seeking medical expertise in that physician’s relevant specialty. Physicians will likely also be able to consult with their peers to discuss and share challenges and solutions.
Academic Experts:  Academic experts on the platform can make themselves available for patients or physicians to seek access to their expertise. These experts may also be able to interact with others in academia on the platform to discuss their research and cross-collaborate.

Precipio has partnered with Yale School of Medicine to capture the expertise, experience and technologies developed within academia, and utilizes such institution to solve the growing problem of cancer misdiagnosis. Under its agreement with Yale, Precipio pays to Yale a fee per case ranging from $500 to $1,000 that is based upon the tests ordered. By obtaining over 3,000 patient specimens, all of which have been diagnosed by academic pathologists, Precipio believes, based upon confirmation of its diagnoses by second opinions, that it has been able to achieve an improved level of diagnostic accuracy within clinical services to the oncology market, though there are no third-party studies supporting such belief.

Precipio is building an international sales team that offers its services to oncologists and hospitals in several countries. Specimens are shipped to its laboratory in New Haven, Connecticut where they are processed and diagnosed by academic experts at Yale School of Medicine that act as consultants to the company; the end product is a pathology report which guides its customers, oncologists, as to the nature of their patients’ disease and helps them determine how best to care for their patients.

Precipio has not sought patent protection for its platform but instead relies on agreements and trade secret policies and practices to protect its intellectual property. Although the platform is not regulated by the FDA, the laboratory is certified under the Clinical Laboratories Improvement Act of 1988 with specific certifications in the area of immunology, hematology, histopathology and cytogenetics.

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‘PRECIPIO MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Information

Precipio’s Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. These statements are based on management’s current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this section should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, income (loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, insurance reimbursements, product pricing, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, future interest costs, future economic circumstances, business strategy, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, actions of governments and regulatory factors affecting our business, retaining key employees and other risks. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or the negative versions of these terms and other similar expressions.

You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements in this report we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that Precipio makes. Precipio and Transgenomic expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The following discussion should be read together with Precipio’s financial statements and related notes contained in this proxy statement. Results for the year ended December 31, 2016 are not necessarily indicative of results that may be attained in the future.

Precipio Business Description

Precipio is a cancer diagnostics company providing diagnostic services to the oncology market. Precipio operates a cancer diagnostic laboratory located in New Haven, Connecticut and collaborates with Yale School of Medicine which we believe provides a better standard of cancer diagnostics that is delivered to patients. It has built and continues to develop a web-based virtual software platform that successfully translates its expertise into a commercial setting. The platform is intended to connect patients, physicians, and diagnostic experts residing within academic institutions. Expected to launch in 2017, the platform will facilitate the following relationships:

Patients:  Patients may search for physicians in their area and consult directly with academic experts that are on the platform. The platform may also allow for patient-to-patient communications and allow individuals to shares stories and provide support for one another.

Physicians:  Physicians can connect with academic experts to seek consultations on behalf of their patients, and may also provide consultations for patients in their area seeking medical expertise in that physician’s relevant specialty. Physicians will likely also be able to consult with their peers to discuss and share challenges and solutions.

Academic Experts:  Academic experts on the platform can make themselves available for patients or physicians to seek access to their expertise. These experts may also be able to interact with others in academia on the platform to discuss their research and cross-collaborate.

Precipio has partnered with Yale School of Medicine to capture the expertise, experience and technologies developed within academia, and utilizes such institution to solve the growing problem of misdiagnosis. Under its agreement with Yale, Precipio pays to Yale a fee per case ranging from $500 to $1,000 that is based upon the tests ordered. By obtaining over 3,000 patient specimens, all of which have

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been diagnosed by academic pathologists, Precipio believes, based upon confirmation of its diagnoses by second opinions, that it has been able to achieve an improved level of diagnostic accuracy within clinical services to the oncology market, though there are no third-party studies supporting such belief.

Precipio is building a nationwide an international sales team that offers its services to oncologists in several countries. Specimens are shipped to its laboratory in New Haven, Connecticut where they are processed and diagnosed by academic experts at Yale School of Medicine that act as consultants to Precipio; the end product is a pathology report which guides its customers, oncologists, as to the nature of their patients’ disease and helps them determine how best to care for their patients.

Precipio has not sought patent protection for its platform but instead relies on agreements and trade secret policies and practices to protect its intellectual property. Although the platform is not regulated by the FDA, the laboratory is certifed under the Clinical Laboratories Improvement Act of 1988 with specific certifications in the area of immunology, hematology, histopathology and cytogenetics.

2016 Overview and Recent Highlights

During 2016, Precipio has continued to grow our business and build our sales force nationwide. Our revenue has grown as compared to the prior year, with most of it coming from recurring revenue from long-term physician customers. The key drivers of our growth include the ability to build a strong direct-to-the-physician sales team; deliver a clear message that differentiates us from our competition; and duplicate the customer adoption and retention success that we have seen in the market place. We believe that the avenue to grow the business as rapidly as possible and maximize shareholder values will require several changes including a capital infusion. We recently hired Carl R. Iberger as Chief Financial Officer of Precipio. This is a key addition to our management team as we move forward with our growth plans. In October 2016, we entered into the Merger Agreement with Transgenomic which we feel provides Precipio with additional market opportunities to expand our service offerings, grow revenues and leverage existing infrastructure and capacity. See Note 12 — “Merger Agreement” in the Notes to Precipio Diagnostics, LLC Financial Statements for more discussion on the merger.

Results of Operations

Years Ended December 31, 2016 and 2015

Net Revenue.  Net revenue is as follows:

    
 2016 2015 $ %
Total Net Revenue $1,722,808  $1,479,959  $242,849   16.4

Net revenue increased by $243,000, or 16%, during the year ended December 31, 2016 as compared to the same period in 2015. The increase is entirely due to the increase in cases processed during the year ended December 31, 2016 as compared to the same period of 2015. Precipio processed 1,252 cases during 2016 as compared to 1,039 cases during 2015 or a 20% increase in cases.

Cost of Diagnostic Services.  Cost of diagnostic services includes material and supply costs for the patient tests performed and other direct costs (primarily personnel costs and rent) associated with the operations of our laboratory. Cost of diagnostic services increased by $155,000 to $970,000 for the year ended December 31, 2016 as compared to the same period in 2015. The increase is due to increased personnel costs and reagent supplies as a result of the increased revenues in the current year period.

Gross Profit.  Gross profit was as follows:

    
   Profit %
   2016 2015 % %
Gross Profit $753,3054  $665,299   44.0  45.0

Gross profit was $753,000, or 44% of total net sales, during the year ended December 31, 2016, compared to $665,000, or 45% of total net sales, during the same period of 2015. The increase in gross profit in the current year is a result of increased sales during the year ended December 31, 2016 as compared to the same period ended in 2015. Our cost of diagnostic services includes a number of fixed costs and our

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laboratory is operating below capacity for the current cost structure. As such, we believe that our gross profit as a percent of sales will grow as our sales increase.

Operating Expenses.  Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs and depreciation. Our operating expenses of $2,465,000 during the year ended December 31, 2016 an increase of $297,000, or 13% as compared to the same period in 2015. The increase in operating expenses reflects the increase in administrative salaries and legal expense attributed to Precipio’s effort to raise investment capital and the pending merger agreement. See Note 12 — “Merger Agreement” in the Notes to Precipio Diagnostics, LLC Financial Statements for further discussion on the merger.

Other Income (Expense).  Other expense for the year ended December 31, 2016 and 2015 includes interest expense related to our debt and equity instruments of $518,000 and $188,000, respectively. The increase in the current year is due to increased interest bearing instruments outstanding during the year ended December 31, 2016 as compared to the same period in 2015.

Liquidity and Capital Resources

Uncertainties

We have suffered recurring losses from operations. At December 31, 2016, we had cash and cash equivalents of $52,000. We have incurred substantial operating losses and have used cash in our operating activities for the past several years. As of December 31, 2016, we had negative working capital of $2,459,000 due to the fact that our accounts payable and accrued expenses were double the amount of our current assets as of the balance sheet date, along with the significant amount of debt we have coming due within the next twelve months. Our ability to continue as a going concern is dependent upon a combination of achieving our business plan, including generating additional revenue, and raising additional financing to meet our debt obligations and pay our liabilities arising from normal business operations when they come due. Precipio is currently in discussions with certain investors to raise additional capital as part of a proposed merger, see Note 12 — “Merger Agreement” in the Notes to Precipio Diagnostics, LLC Financial Statements for further discussion on the merger. There can be no assurance such capital is available at terms favorable or agreeable to Precipio management, if at all, or that Precipio will successfully complete the proposed merger. Since the outcome of these matters cannot be predicted with any certainty at this time, there is substantial doubt that we will be able to continue as a going concern.

Precipio was in default under the forbearance agreement with Connecticut Innovations, Incorporated (“Connecticut Innovations”) because we were unable to continue to repay the principal payments on the loan as they came due. Precipio has secured a revision to its Connecticut Innovations debt repayment schedule effective July 14, 2016 that approves interest only payments through October 1, 2017, interest and principal payments through August 1, 2018 and on the remainder of the outstanding loan due on October 1, 2018. Further, Precipio is in default on its Webster Bank loan due to Precipio’s cash balance falling below the required minimum balance of a cash runway of three months, based on trailing six months average cash burn as stipulated in the agreement.

Precipio and Webster Bank, in a Default and Reservation of Rights letter dated January 29, 2016, agreed that while Precipio remains in default, Webster Bank will preserve their rights but take no action at this time against Precipio and shall refrain from calling the loan. Further Webster Bank has considered to maintain its senior credit facility in a letter dated January 4, 2017 subject to their re-approval process. During this period Webster Reservation of Rights letter discussed above will remain in effect until the process is completed. Precipio management cannot assure that they will be able to extend the credit facility on terms reasonably acceptable to Precipio if at all. If management is unable to extend the credit facilities, obtain waivers, or both, the financial institutions could request payment on demand which could impair Precipio’s ability to conduct business in the near future.

The aforementioned circumstances raise substantial doubt about Precipio’s ability to continue as a going concern. There can be no assurance that Precipio will be able to successfully achieve its initiatives summarized above in order to continue as a going concern. The accompanying financial statements have been prepared assuming Precipio will continue as a going concern and do not include any adjustments that might result should Precipio be unable to continue as a going concern as a result of the outcome of this uncertainty.

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Our working capital positions at December 31, 2016 and 2015 were as follows:

   
 December 31 2016 December 31 2015 Change
Current assets (including cash and cash equivalents of $51,573 and $234,688, respectively) $552,169  $778,753  $(226,584
Current Liabilities $3,011,368  $2,853,882  $157,486 
Working Capital $(2,459,199 $(2,075,129 $(69,098

During 2016, Precipio raised $980,000 from members through the issuance of $525,000 in senior notes and $455,000 through the issuance of additional unsecured convertible bridge notes.

The senior notes accrue interest at a rate of 12% and are payable at the closing of a qualified public offering, as outlined in the note agreement, or five years from date of issuance. The unsecured convertible bridge notes accrue interest at a rate of 14% and the holders of the notes agreed to waive the maturity date and all convertible bridge notes are payable on demand and accrue interest until paid.

Also during 2016, Precipio restructured equity through a redemption and exchange agreement by exchanging Member Equity comprised of Series A and Series B Convertible Preferred Units in the amount of $1,715,000, plus declared dividends on these preferred units of $432,716, and Convertible Bridge Notes of $1,120,000 plus accrued interest of $61,073 for new Senior Notes of $2,744,968 and new junior notes of $583,821. The senior and junior notes accrue interest at a rate of 12% and 15%, respectively, and have maturity dates ranging from March 2021 to September 2021, or earlier based on certain qualifying events as outlined in the note agreements.

As of December 31, 2016, the outstanding balance of senior and junior notes was $3,269,968 and $583,821, respectively, with accrued interest included within accrued expenses on the accompanying balance sheet of $279,740 and $71,258, respectively and the outstanding balance of Convertible Bridge Notes was $695,000, with accrued interest within accrued expenses on the accompanying balance sheet of $143,981. See Note 4 — “Notes Payable” and Note 5 — “Convertible Bridge Notes Payable” in the Notes to Precipio Diagnostics, LLC Financial Statements for additional information regarding Precipio’s outstanding debt and debt servicing obligations and related defaults on the Webster Bank debt agreement.

Analysis of Cash Flows — Year Ended December 31, 2016 and 2015

Net Change in Cash and Cash Equivalents.  Cash and cash equivalents decreased by $183,000 during the year ended December 31, 2016, compared to a decrease of $339,000 during the same period ended 2015.

Cash Flows Used in Operating Activities.  The cash flows used in operating activities of $958,000 during the year ended December 31, 2016 included a net loss of $2,227,000, a decrease in net accounts receivable of $68,000 and other working capital uses of $24,000, less non-cash adjustments of $213,000. These were partially offset by an increase in accrued expenses and accounts payable of $920,000 and an increase in deferred revenue of $92,000. The cash flows used in operating activities in year ended 2015 included the net loss of $1,680,000 and an increase in accounts receivable of $258,000, less non-cash adjustments of $221,000. These were partially offset by an increase in accounts payable and accrued expenses of $234,000 and other working capital uses of $4,000.

Cash Flows Used in Investing Activities.  There were no cash flows used in investing activities for the year ended December 31, 2016 and $11,000 in capital expenditure purchases for the same period ended 2015.

Cash Flows Provided by Financing Activities.  Cash flows provided by financing activities totaled $775,000 for the year ended December 31, 2016, which included proceeds of $455,000 from the issuance of convertible bridge notes and $525,000 from the issuance of senior notes. These proceeds were partially offset by payments on our debt, capital lease obligations and for deferred financing costs of $205,000. Cash flows provided by financing activities during the year ended December 31, 2015 included proceeds of $1,263,000 from the issuance of convertible bridge notes partially offset by $112,000 of payments on our debt, capital lease obligations and for deferred financing costs.

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Off-Balance Sheet Arrangements

At each of December 31, 2016 and 2015, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations and Commitments

We have entered into certain operating leases and purchase commitments as part of our normal course of business. Our contractual obligations and commitments are discussed in Note 7 — “Commitments and Contingencies” in the Notes to Precipio Diagnostics, LLC Financial Statements.

Critical Accounting Policies and Estimates

Accounting policies used in the preparation of our financial statements may involve the use of management judgments and estimates. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial statements and require significant or complex judgments on the part of management. Our judgments 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 judgments or estimates may vary under different assumptions or circumstances. Our critical accounting policies are discussed in Note 1 — “Nature of Business and Significant Accounting Policies” in the Notes to Precipio Diagnostics, LLC Financial Statements.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 — “Nature of Business and Significant Accounting Policies” in the Notes to Precipio Diagnostics, LLC Financial Statements.

Income Taxes

Precipio, which is organized as a limited liability company, operated under the default classification as a partnership until July 31, 2016. Effective August 1, 2016, Precipio elected to be treated as a corporation for tax purposes and as such, calculated an income tax provision for the remainder of the year. Prior to August 1, 2016, income tax expense or benefits were calculated at the members’ level.

For the period from August 1, 2016 through December 31, 2016, deferred income taxes are provided on net operating loss carryovers and on the future income tax considerations associated with temporary differences between the carrying amounts of assets and liabilities for tax and financial reporting purposes. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not that they will not be realized. Precipio’s policy is to record interest and penalties directly related to income taxes as income tax expense in the statements of operations. At December 31, 2016 and August 1, 2016, Precipio had net deferred tax assets in the amounts of $665,617 and $258,395, respectively, for which a full valuation allowance has been recorded against these amounts. See Note 13 — “Income Taxes” in the Notes to Precipio Diagnostics, LLC Financial Statements for additional tax related disclosure.

Impact of Inflation

We do not believe that price inflation or deflation had a material adverse effect on our financial condition or results of operations during the periods presented.

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF TRANSGENOMIC, INC.

The following unaudited pro forma combined financial information has been prepared to assist you in your analysis of the financial effects of the merger of Merger Sub, a wholly owned subsidiary of Transgenomic, with Precipio. The unaudited pro forma combined financial information was prepared using the historical consolidated financial statements of Transgenomic and Precipio. This information should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and accompanying notes of Transgenomic and Precipio included in or incorporated by reference into this proxy statement. All Transgenomic historical financial statement information can be derived from the Transgenomic’s Form 10-K and 10-Q filings.

The merger will be accounted for as a reverse acquisition under the acquisition method of accounting in accordance with GAAP. The accompanying unaudited pro forma combined financial information gives effect to the merger, assuming the issuance of New Precipio common stock and preferred stock. The pro forma adjustments related to the merger are preliminary and based on management’s best estimates of fair value. Such adjustments do not reflect the final purchase price or final allocation of the excess of the purchase price over the fair value of the assets and liabilities assumed in connection with the merger. A final determination of these estimated fair values, which cannot be made prior to the completion of the merger, will be based on the actual fair values of acquired assets and liabilities assumed of Transgenomic that exist as of the date of completion of the merger. Accordingly, the pro forma adjustments, including the allocations of purchase price, are preliminary and have been made solely for the purpose of providing unaudited pro forma consolidated financial information. Final adjustments will result in modifications to the final purchase price and allocation of the purchase price, which will affect the fair value assigned to the acquired assets and liabilities assumed. The effect of the changes to the statements of operations could be material. The unaudited pro forma combined financial information is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the dates or periods indicated, nor is it necessarily indicative of the results of operations or financial position that may occur in the future.

The historical consolidated financial information has been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma combined financial information does not reflect revenue opportunities and cost savings that New Precipio expects to realize after the merger. No assurance can be given with respect to the estimated revenue opportunities and operating cost savings that are expected to be realized as a result of the merger. The pro forma combined financial information also does not reflect expenses related to integration activity or exit costs that may be incurred by Transgenomic or Precipio in connection with this merger.

The unaudited pro forma combined balance sheet assumes that the merger took place on December 31, 2016 and combines Transgenomic’s December 31, 2016 consolidated balance sheet with the consolidated balance sheet of Precipio as of December 31, 2016. The unaudited pro forma combined statements of operations for the fiscal year ended December 31, 2016 assume that the merger took place on January 1, 2016. The unaudited pro forma combined statement of operations for the fiscal year ended December 31, 2016 combines Transgenomic’s audited consolidated statement of operations for the fiscal year ended December 31, 2016 with Precipio’s audited statement of operations for the fiscal year ended December 31, 2016.

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TRANSGENOMIC, INC.
 
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of December 31, 2016
 
(in thousands)

     
 Historical Pro Forma Adjustments Notes New Precipio Combined
   Transgenomic (j) Precipio (k)
ASSETS
                         
Current Assets:
                         
Cash and cash equivalents $110  $51  $7,000   g  $7,161 
Accounts receivable, net  225   388           613 
Inventories  24   100           124 
Other current assets  105   13           118 
Assets held for sale  31            31 
Total current assets  495   552   7,000        8,047 
Property and Equipment, net  144   280           424 
Other Assets:
                         
Goodwill        13,910   a   13,910 
Acquired intangibles        28,950   b   28,950 
Intangibles, net  562      (562  c    
Other assets  58   10         68 
   $1,259  $842  $49,298     $51,399 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
                         
Current Liabilities:
                         
Current maturities of long-term debt $7,814  $1,090  $(8,384  f,h  $520 
Accounts payable  6,541   1,084           7,625 
Accrued compensation  224   155           379 
Accrued expenses  3,546   545   (1,105  f,h   2,986 
Deferred revenue  170   92           262 
Other liabilities  1,529   46           1,575 
Total current liabilities  19,824   3,012   (9,489       13,347 
Long Term Liabilities:
                         
Deferred tax liability        8,885   a   8,885 
Long-term debt     4,127   (3,845  h   282 
Common stock warrant liability  582              582 
Other long-term liabilities  203   163         366 
Total liabilities  20,609   7,302   (4,449       23,462 
Stockholders’ deficit:
                         
Convertible preferred stock  2   2,895   (2,897  e,i      
              241   f      
              562   g      
              241   h   1,044 
Common stock  264   52   1,555   d      
              2   e      
              108   f   1,981 
Additional paid-in capital  205,877      (170,117  a – i   35,760 
Warrants     1,434   (1,434  d    
Restricted units     7   (7  d    
Accumulated deficit  (225,493  (10,848  225,493   a   (10,848
Total stockholders’ deficit  (19,350  (6,460  53,747      27,937 
   $1,259  $842  $49,298     $51,399 

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TRANSGENOMIC, INC.
 
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 2016
 
(dollars in thousands)

     
 Historical Pro Forma Adjustments Notes New Precipio Combined
   Transgenomic (f) Precipio (g)
Net sales $1,557  $1,723  $       $3,280 
Cost of goods sold  1,762   970   (198  a   2,534 
Gross profit  (205  753   198        746 
Operating Expenses  7,614   2,465   2,482   a,b   12,561 
Operating loss from continuing operations  (7,819  (1,712  (2,284       (11,815
Other Income (Expense):
                         
Interest expense, net  (1,038  (518  930   c   (626
Warrant revaluation  788              788 
Other, net  (200  3         (197
Total other income (expense)  (450  (515  930      (35
Loss from continuing operations before income taxes  (8,269  (2,227  (1,354       (11,850
Income tax               
Net loss from continuing operations  (8,269  (2,227  (1,354     (11,850
Preferred stock/unit dividends  (393  (432  (215  d   (1,040
Deemed dividends on exchange of preferred units     (1,422  1,422       
NET LOSS FROM CONTINUING OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS $(8,662 $(4,081 $(147    $(12,890
Basic and diluted loss per common share from continuing operations $(0.38                $(0.07
Basic and diluted weighted-average shares of common stock outstanding (Note 4)  22,689,831        175,373,356        198,063,187 

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TRANSGENOMIC, INC.
 
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

1. Description of Transaction and Basis of Presentation

Description of Transaction.

On October 12, 2016, Transgenomic entered into a merger agreement, as amended on February 2, 2017, with New Haven Labs Inc. (“Merger Sub”), which is a wholly owned subsidiary of Transgenomic and Precipio (as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, at the effective time of the merger, Merger Sub will merge with and into Precipio, with Precipio as the surviving entity. When the merger is completed, (i) the outstanding common units of Precipio will be converted into the right to receive approximately 160.6 million shares of New Precipio common stock, together with cash in lieu of fractional units, in the merger and the private placement as discussed below and (ii) the outstanding preferred units of Precipio will be converted into the right to receive approximately 24.1 million shares of New Precipio preferred stock with an aggregate face amount equal to $3 million.

In connection with the merger, at the effective time, in addition to the New Precipio preferred stock to be issued to holders of preferred units of Precipio, New Precipio also will issue shares of New Precipio preferred stock and New Precipio common stock in a related private placement, whereby:

Holders of certain secured indebtedness of Transgenomic will receive in exchange for such indebtedness approximately 24.1 million shares of New Precipio preferred stock in an amount equal to $3 million, and approximately 10.4 million shares of New Precipio common stock; and
New Precipio will issue for cash up to approximately 56.2 million shares of New Precipio preferred stock for $7 million to investors in a private placement.

Basis of Presentation.

The historical consolidated financial information has been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma combined financial information does not reflect revenue opportunities and cost savings that New Precipio expects to realize after the merger. No assurance can be given with respect to the estimated revenue opportunities and operating cost savings that are expected to be realized as a result of the merger. The pro forma financial information also does not reflect expenses related to integration activity or exit costs that may be incurred by Transgenomic or Precipio in connection with this merger. The final determination of the purchase price allocation will be based on the fair values of assets acquired and liabilities assumed as of the date the transaction closes, and could result in a significant change to the unaudited pro forma combined financial information, including goodwill.

2. Estimated Purchase Consideration

The estimated purchase consideration based on the value of the equity of Transgenomic, the accounting acquiree, is as follows:

 
(in thousands) 
Estimated equity market cap $13,223 
Fair value of preferred share conversions  107 
Fair value of debt conversions  8,547 
Estimated purchase consideration $21,877 

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TRANSGENOMIC, INC.
 
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

2. Estimated Purchase Consideration  – (continued)

In estimating the purchase consideration above, Transgenomic used its closing stock price of $0.50 on April 19, 2017 and its outstanding common shares as of December 31, 2016, as well as the number of common shares to be issued in the merger, pursuant to the conversion of its secured debt and shares issued upon conversion of certain convertible notes, as contemplated in the merger agreement and disclosed in the proxy statement.

An increase or decrease in the Company’s stock price would have an impact on the estimated purchase consideration. Below is a sensitivity analysis of what the estimated purchase consideration would be if the Company’s stock price were to increase or decrease by 25%:

  
(in thousands) Assuming a
25% increase
to the $0.50
stock price
 Assuming a
25% decrease
to the $0.50
stock price
Estimated equity market cap $16,529  $9,918 
Fair value of preferred share conversions  134   81 
Fair value of debt conversions  9,899   7,195 
Estimated purchase consideration $26,562  $17,194 

Preliminary Allocation of Estimated Purchase Consideration

The following table sets forth a preliminary allocation of the estimated purchase consideration to the identifiable tangible and intangible assets of Transgenomic, the accounting acquiree, with the excess recorded as goodwill:

 
(in thousands) 
Current and other assets $553 
Property and equipment  144 
Goodwill(1)  13,910 
Other intangible assets(2)  28,950 
Total assets $43,557 
Current liabilities $12,010 
Deferred tax liability  8,885 
Other liabilities  785 
Total liabilities  21,680 
Net assets acquired $21,877 

(1)Based on the sensitivity analysis above, the amount of estimated purchase consideration allocated to goodwill would increase or decrease by approximately $4.1 million.
(2)Other intangible assets consist of:

 
Acquired technology $28,300 
Customer relationships  560 
Non-compete agreements  80 
Trademark and trade name  10 

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TRANSGENOMIC, INC.
 
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

3. Pro Forma Adjustments

The pro forma adjustments included in the unaudited pro forma combined financial statements are as follows:

Pro Forma Adjustments — Balance Sheet

a)Reflects goodwill and deferred tax liability resulting from the acquisition method of accounting based on preliminary estimates of the fair value of the assets and liabilities of Transgenomic. This also includes the elimination of Transgenomic’s historical stockholders’ deficit accounts because Transgenomic is not considered to be the accounting acquirer.
b)Reflects acquired intangibles resulting from the acquisition method of accounting based on preliminary estimates of the fair value of the assets and liabilities of Transgenomic.
c)Elimination of historical intangibles of Transgenomic.
d)Issuance of New Precipio common stock.
e)Transgenomic pre-merger preferred stock converted to common stock.
f)Transgenomic pre-merger debt and accrued interest converted to common stock and $3 million of New Precipio preferred stock with an 8% annual dividend.
g)Issuance of New Precipio preferred stock to investors in a private placement.
h)Precipio pre-merger debt and accrued interest converted to common stock and $3 million of New Precipio preferred stock with an 8% annual dividend.
i)Precipio pre-merger preferred shares converted to New Precipio common stock.
j)Refer to Transgenomic’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April 13, 2017.
k)Refer to Precipio financial information beginning on page F-1 of this Proxy Statement.

Pro Forma Adjustments — Statements of Operations

a)Eliminate amortization expense related to Transgenomic historical intangibles.
b)Record amortization expense related to newly acquired intangibles assuming useful lives between 2 – 20 years.
c)Eliminate interest expense for Transgenomic interest bearing debt that is converted to New Precipio common stock and New Precipio preferred stock.
d)Elimination of historical dividends and recording dividends on New Precipio preferred stock with 8% annual dividend.
e)Refer to Transgenomic’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on April 14, 2016.
f)Refer to Transgenomic’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April 13, 2017.
g)Refer to Precipio financial information beginning on page F-1 of this Proxy Statement.

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TRANSGENOMIC, INC.
 
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

4. Preliminary estimate of New Precipio Common Shares and Preferred Shares

New Precipio Common Shares:

 
 Shares
Transgenomic:
     
Outstanding common shares at December 31, 2016  26,446,927 
Conversion of preferred stock  214,705 
Conversion of debt  10,400,000 
Conversion of convertible notes  416,133 
Precipio:
     
Conversion of common units, preferred units and debt  160,585,422
Total New Precipio common shares, par value $0.01  198,063,187 
New Precipio Preferred Stock:
     
Total New Precipio preferred stock, par value $0.01  104,380,524** 

*Number of shares of New Precipio common stock to be issued in the merger based on the Merger Agreement
**Number of shares of New Precipio preferred stock to be issued pursuant to the merger, the conversion of secured debt and the private placement as described in this proxy statement

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DESCRIPTION OF TRANSGENOMIC CAPITAL STOCK

General

Under Transgenomic’s Third Amended and Restated Certificate of Incorporation, as amended from time to time (the “Certificate of Incorporation”), Transgenomic is authorized to issue up to 150,000,000 shares of Transgenomic common stock, from time to time, as provided in a resolution or resolutions adopted by the Transgenomic Board.

Common Stock

As of April 12, 2017, 26,868,062 shares of Transgenomic common stock, par value $0.01 per share, were issued and outstanding, held by approximately 77 stockholders of record, not including beneficial holders whose shares are held in names other than their own.

Dividends, Voting Rights and Liquidation

Holders of Transgenomic common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders and do not have cumulative voting rights. Holders of Transgenomic common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Transgenomic Board out of funds legally available for dividend payments. All outstanding shares of Transgenomic common stock are fully paid and non-assessable. The holders of Transgenomic common stock have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to the Transgenomic common stock. In the event of any liquidation, dissolution or winding-up of Transgenomic’s affairs, holders of Transgenomic common stock will be entitled to share ratably in Transgenomic’s assets that are remaining after payment or provision for payment of all of Transgenomic’s debts and obligations. The rights, preferences and privileges of the Transgenomic common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock currently outstanding or which Transgenomic may designate and issue in the future.

Preferred Stock

General Matters

Under the Certificate of Incorporation, Transgenomic has the authority to issue up to 15,000,000 shares of preferred stock, $0.01 par value per share (the “Preferred Stock”), issuable in specified series and having specified voting, dividend, conversion, liquidation and other rights and preferences as Transgenomic’s board of directors may determine, subject to limitations set forth in the Certificate of Incorporation. The Preferred Stock may be issued for any lawful corporate purpose without further action by Transgenomic’s stockholders. The issuance of any Preferred Stock having conversion rights might have the effect of diluting the interests of Transgenomic’s other stockholders. In addition, shares of Preferred Stock could be issued with rights, privileges and preferences which would deter a tender or exchange offer or discourage the acquisition of control of Transgenomic.

Of the number of shares of Preferred Stock authorized by Transgenomic’s Certificate of Incorporation, as of April 12, 2017, 2,365,243 shares had been designated Series A-1 Preferred with such rights, privileges and preferences as set forth in the Certificate of Designation of Series A-1 Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on January 8, 2016. As of April 12, 2017, 214,705 shares of Series A-1 Preferred were issued and outstanding.

Series A-1 Convertible Preferred Stock

Certain rights of the holders of the Series A-1 Preferred are senior to the rights of the holders of Transgenomic’s Transgenomic common stock. The Series A-1 Preferred has a liquidation preference equal to its original price per share, plus any accrued and unpaid dividends thereon.

All outstanding shares of Series A-1 Preferred will be automatically converted into Transgenomic common stock, at an initial conversion rate of 1:1, at the election of the holders of a majority of the then-outstanding shares of Series A-1 Preferred, voting as a single class on an as-converted basis. The initial conversion rate for the Series A-1 Preferred is subject to adjustment in the event of certain stock splits, stock dividends, mergers, reorganizations and reclassifications.

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Generally, the holders of the Series A-1 Preferred are entitled to vote as a single voting group with the holders of the Transgenomic common stock, and the holders of the Series A-1 Preferred are generally entitled to that number of votes as is equal to the product obtained by multiplying: (i) the number of whole shares of Transgenomic common stock into which the Series A-1 Preferred may be converted as of the record date of such vote or consent, by (ii) 0.93, rounded down to the nearest whole number.

Anti-Takeover Effects Under Section 203 of the General Corporation Law of the State of Delaware

Transgenomic is subject to Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:

before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or an exchange offer; or
on or after such date, the business combination is approved by the board of directors and authorized at an annual or a special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

In general, Section 203 of the DGCL defines “business combination” to include the following:

any merger or consolidation involving the corporation or any direct or indirect majority owned subsidiary of the corporation and the interested stockholder or any other corporation, partnership, unincorporated association, or other entity if the merger or consolidation is caused by the interested stockholder and as a result of such merger or consolidation the transaction is not excepted as described above;
any sale, transfer, pledge, or other disposition (in one transaction or a series) of 10% or more of the assets of the corporation involving the interested stockholder;
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges, or other financial benefits by or through the corporation.

In general, Section 203 of the DGCL defines an “interested stockholder” as an entity or a person who, together with the person’s affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.

A Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from a stockholders’ amendment approved by at least a majority of the outstanding voting shares. Transgenomic has not opted out of these provisions. As a result, mergers or other takeover or change in control attempts of Transgenomic may be discouraged or prevented.

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Anti-Takeover Effects Under Certain Provisions of Transgenomic’s Certificate of Incorporation and Bylaws

Transgenomic’s Certificate of Incorporation and Transgenomic’s Amended and Restated Bylaws (the “Bylaws”) include a number of provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control of the management of Transgenomic.

First, Transgenomic’s Certificate of Incorporation provides that all stockholder actions must be effected at a duly called meeting of holders and not by a consent in writing.

Second, Transgenomic’s Bylaws provide that special meetings of the holders may be called only by the chairman of the board of directors, the Chief Executive Officer or Transgenomic’s board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors.

Third, Transgenomic’s Certificate of Incorporation provides that Transgenomic’s board of directors can issue up to 15,000,000 shares of Preferred Stock without further action by Transgenomic’s stockholders, as described above.

Fourth, Transgenomic’s Certificate of Incorporation and Bylaws provide for a classified board of directors in which approximately one-third of the directors are elected each year. Consequently, any potential acquirer would need to successfully complete two proxy contests in order to take control of Transgenomic’s board of directors. As a result of the provisions of the Certificate of Incorporation and Delaware law, stockholders will not be able to cumulate votes for directors.

Fifth, Transgenomic’s Certificate of Incorporation prohibits a business combination with an interested stockholder without the approval of the holders of 75% of all voting shares and the vote of a majority of the voting shares held by disinterested stockholders, unless it has been approved by a majority of the disinterested directors.

Finally, Transgenomic’s Bylaws establish procedures, including advance notice procedures, with regard to the nomination of candidates for election as directors and stockholder proposals. These provisions of Transgenomic’s Certificate of Incorporation and Bylaws could discourage potential acquisition proposals and could delay or prevent a change in control of the management of Transgenomic.

Existing Warrants

As of April 12, 2017, warrants to purchase 3,940,495 shares of Transgenomic common stock with a weighted-average exercise price of $3.04 per share were outstanding. Series A Warrants to purchase an aggregate of 15,400 shares of Transgenomic common stock (the “Series A Warrants”) and warrants to purchase 1,929,482 shares of Transgenomic common stock (the “Exchangeable Warrants”), are subject to a blocker provision (the “Warrant Blocker”), which restricts the exercise of the warrants if, as a result of such exercise, the warrant holder, together with its affiliates and any other person whose beneficial ownership of Transgenomic common stock would be aggregated with the warrant holder’s for purposes of Section 13(d) of the Exchange Act, would beneficially own in excess of 9.99% of Transgenomic’s then issued and outstanding shares of Transgenomic common stock (including the shares of Transgenomic common stock issuable upon such exercise), as such percentage ownership is determined in accordance with the terms of the Series A Warrants. The Series A Warrants and the Exchangeable Warrants are currently exercisable, in each case except to the extent such exercise is restricted by the Warrant Blocker and with respect to the Exchangeable Warrants, Transgenomic stockholder approval. The Warrant Blocker for the Series A Warrants will automatically expire 61 calendar days prior to January 7, 2021, the expiration date of the Series A Warrants and the Warrant Blocker for the Exchangeable Warrants will automatically expire 61 calendar days prior to January 8, 2021, the expiration date of the Exchangeable Warrants. The Exchangeable Warrants may be exchanged for shares of Transgenomic common stock, subject to certain exceptions and limitations. All of Transgenomic’s other outstanding warrants are currently exercisable, except for an Exchangeable Warrant to purchase 1,900,000 shares of Transgenomic common stock, which may not be exercised or exchanged until Transgenomic obtains stockholder approval or approval from Nasdaq to issue shares of Transgenomic common stock upon exercise or exchange. All of Transgenomic’s outstanding warrants contain provisions for the adjustment of the exercise price in the event of stock dividends, stock splits, reorganizations,

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reclassifications or mergers. In addition, certain of the warrants contain a “cashless exercise” feature that allows the holders thereof to exercise the warrants without a cash payment to Transgenomic under certain circumstances.

Unsecured Convertible Promissory Notes

On December 31, 2014, Transgenomic entered into an Unsecured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”) with an accredited investor (the “Investor”), pursuant to which Transgenomic agreed to issue and sell to the Investor in a private placement an unsecured convertible promissory note (the “Initial Note”). Transgenomic issued the Initial Note in the aggregate principal amount of $750,000 to the Investor on December 31, 2014. Pursuant to the terms of the Initial Note, interest accrued at a rate of 6% per year and the Initial Note was set to mature on December 31, 2016. Under the Initial Note, the outstanding principal and unpaid interest accrued was convertible into shares of Transgenomic common stock as follows: (i) commencing upon the date of issuance of the Initial Note (but no earlier than January 1, 2015), the Investor was entitled to convert, on a one-time basis, up to 50% of the outstanding principal and unpaid interest accrued under the Initial Note, into shares of Transgenomic common stock at a conversion price equal to the lesser of (a) the average closing price of the Transgenomic common stock on the principal securities exchange or securities market on which the Transgenomic common stock is then traded (the “Market”) for the 20 consecutive trading days immediately preceding the date of conversion, and (b) $2.20 (subject to adjustment for stock splits, stock dividends, other distributions, recapitalizations and the like); and (ii) commencing February 15, 2015, the Investor was entitled to convert, on a one-time basis, any or all of the remaining outstanding principal and unpaid interest accrued under the Initial Note, into shares of Transgenomic common stock at a conversion price equal to 85% of the average closing price of Transgenomic common stock on the Market for the 15 consecutive trading days immediately preceding the date of conversion. The Initial Note has been converted in full into 502,786 shares of Transgenomic common stock, in accordance with the terms of the Initial Note.

On January 15, 2015, Transgenomic entered into the Note Purchase Agreement with seven accredited investors (the “Additional Investors”) and, on January 20, 2015, issued and sold to the Additional Investors, in a private placement, notes (the “Additional Notes”) in an aggregate principal amount of $925,000. The Additional Notes have the same terms and conditions as the Initial Note (except with respect to the Remaining Note as described below). As of January 19, 2017, $800,000 of the aggregate principal amount of the Additional Notes, and accrued interest thereon, has been converted into an aggregate of 654,029 shares of Transgenomic common stock. Craig-Hallum acted as the sole placement agent for the Additional Notes and Transgenomic issued to Craig-Hallum a convertible promissory note, upon the same terms and conditions as the Additional Notes, in an aggregate principal amount equal to 5% of the proceeds received by Transgenomic, or $46,250. On January 19, 2017, Craig-Hallum converted the principal amount and accrued interest on its convertible promissory note into an aggregate of 43,129 shares of Transgenomic common stock.

As of April 12, 2017, one Additional Note remains outstanding with an aggregate amount due on such Note of $141,705.48 ($125,000 in principal amount and $16,705.48 of accrued interest) (the “Remaining Note”). The Additional Investor holding the Remaining Note (the “Remaining Investor”) agreed to extend the Maturity Date of the Remaining Note pursuant to a January 17, 2017 amendment to the Remaining Note between Transgenomic and the Remaining Investor (the “Amendment”). The Amendment provides that two-thirds of the outstanding principal amount of the Remaining Note must be paid upon the earlier to occur of the closing of the merger between Merger Sub and Precipio as contemplated by the Merger Agreement or June 16, 2017 (such applicable date, the “Deferred Maturity Date”). The remaining one-third of the principal amount outstanding on the Remaining Note must be paid on the six month anniversary of the Deferred Maturity Date (the “Extended Maturity Date”). On the applicable Deferred Maturity Date, all accrued and unpaid interest on the Remaining Note as of the Deferred Maturity Date will be converted into shares of Transgenomic’s common stock at a conversion price based on the average closing price of Transgenomic common stock on the Market for the 20 consecutive trading days immediately preceding the date of conversion, but in no event will the conversion price be less than $0.25 per share. Interest that accrues on the remaining principal amount of the Remaining Note from the Deferred Maturity Date will be payable on the Extended Maturity Date, unless the Remaining Note is converted in which case such interest will be payable in shares of Transgenomic’s common stock as part of the conversion.

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In exchange for extending the Maturity Date of the Remaining Note, Transgenomic will issue to the Remaining Investor on the applicable Deferred Maturity Date a warrant to purchase shares of Transgenomic’s common stock having an aggregate value of $6,250 with an exercise price to be determined as of the date of issuance of the warrant based on the average closing price of Transgenomic common stock on the Market for the 20 consecutive trading days immediately preceding the date of issuance of the warrant, subject to the approval of the Market if necessary. The warrant will expire two years from the date of issuance.

Listing

The Transgenomic common stock is traded on the OTCQB under the symbol “TBIO”.

Transfer Agent and Registrar

The transfer agent and registrar for the Transgenomic common stock is Wells Fargo Shareowner Services. Its address is 1110 Centre Pointe Curve, Suite 101, Mendota Heights, MN 55120 and its telephone number is 1-855-217-6361.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF TRANSGENOMIC

The following table provides information known to Transgenomic with respect to beneficial ownership of Transgenomic’s common stock by its directors, by its named executive officers, by all of its current executive officers and directors as a group, and by each person Transgenomic believes beneficially owns more than 5% of its outstanding common stock as of March 31, 2017. For purposes of this table, we have also included a column that relates to the potential percent owned by each of our directors, named executive officers, and more than 5% beneficial owners following the Merger and the related private placement. Except as indicated in the footnotes to this table, to Transgenomic’s knowledge the persons named in the table below have sole voting and investment power with respect to all Transgenomic common stock beneficially owned and such shares are owned directly by such person. The number of shares beneficially owned by each person or group as of March 31, 2017 includes shares of Transgenomic common stock that such person or group had the right to acquire on or within 60 days after March 31, 2017, including, but not limited to, upon the exercise of options, stock appreciation rights or warrants to purchase common stock or the conversion of securities into common stock. Beneficial ownership information of persons other than Transgenomic’s current executive officers and directors is based on available information including, but not limited to, Schedules 13D, 13F or 13G filed with the Securities and Exchange Commission (the “SEC”) or information supplied by these persons.

    
Name and Address of Beneficial Owner(1) Number of
Shares
Beneficially
Owned
(Pre-Merger)
 Percent of
Class
(Pre-Merger)
 Number of
Shares
Beneficially
Owned
(Post-Merger)
 Percent of
Class
(Post-Merger)
Directors and Executive Officers
                    
Paul Kinnon, President,
Chief Executive Officer,
Interim Chief Financial Officer and Director
  332,499(2)   1.2  332,499   
Doit L. Koppler, II, Director  19,665(3)     19,665   
Robert M. Patzig, Director  68,832(4)     68,832   
Michael A. Luther, Director  10,000(5)     10,000   
Mya Thomae, Director  5,000(6)   *��  5,000   
All directors and executive officers as a group (5 persons)  435,996(7)   1.6  435,996   
Other Stockholders
                    
Randal J. Kirk  8,015,374(8)   29.3  42,503,187(9)   19.1
Mark Rimer      19,388,814(10)   9.62
David Cohen      24,311,997(11)   11.98

*Represents less than 1% of Transgenomic’s outstanding common stock.
(1)The address for all of Transgenomic’s directors and executive officers is the address of its principal executive offices located at 12325 Emmet Street, Omaha, Nebraska 68164.
(2)Includes 332,499 shares issuable upon the exercise of stock options and stock appreciation rights that are exercisable or will become exercisable within 60 days after March 31, 2017.
(3)Includes (i) 4,166 shares owned by Mr. Koppler and (ii) 15,499 shares issuable upon the exercise of stock options that are exercisable or will become exercisable within 60 days after March 31, 2017.
(4)Includes (i) 3,333 shares owned by Mr. Patzig and (ii) 65,499 shares issuable upon the exercise of stock options that are exercisable or will become exercisable within 60 days after March 31, 2017.
(5)Includes 10,000 shares issuable upon the exercise of stock options that are exercisable or will become exercisable within 60 days after March 31, 2017.
(6)Includes 5,000 shares issuable upon the exercise of stock options that are exercisable or will become exercisable within 60 days after March 31, 2017.

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(7)Includes shares which may be acquired by executive officers and directors as a group within 60 days after March 31, 2017 through the exercise of stock options, stock appreciation rights or warrants.
(8)Consists of (i) 7,550,669 shares of common stock, (ii) 250,000 shares of common stock issuable upon exercise of warrants to purchase shares of common stock that are currently exercisable, and (iii) 214,705 shares of common stock issuable upon conversion of 214,705 shares of Series A-1 Convertible Preferred Stock. Excludes 161,026 shares of common stock issuable upon exercise or exchange of warrants to purchase shares of common stock (the “Placement Warrants”) that are not currently exercisable as the exercise thereof is restricted by a blocker provision (the “Warrant Blocker”) that restricts the exercise of each Placement Warrant if, as a result of such exercise, the holder of the Placement Warrant, together with its affiliates and any other person whose beneficial ownership of common stock would be aggregated with such holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, would beneficially own in excess of 9.99% of the Company’s then issued and outstanding shares of common stock (including the shares of common stock issuable upon such exercise), as such percentage ownership is determined in accordance with the terms of the Placement Warrants. The Warrant Blocker will automatically expire 61 calendar days prior to the expiration date of the Placement Warrants. In addition, if certain approvals from the Company’s stockholders and The Nasdaq Stock Market LLC to issue any additional shares of common stock pursuant to the exchange right under the Placement Warrants are obtained (the “Placement Warrants Required Approvals”), an additional 100,000 shares of common stock may be issued upon exercise of an exchange right under the Placement Warrants for an aggregate of up to 260,862 shares of common stock issuable upon exchange of the Placement Warrants. The total of the shares of common stock, the warrants to purchase shares of common stock and the shares of Series A-1 Convertible Preferred Stock are held by the following companies, which are managed by Third Security, which is managed by Randal J. Kirk. Mr. Randal J. Kirk could be deemed to have indirect beneficial ownership of these shares: Third Security Senior Staff 2008 LLC beneficially owns 3,206,149 shares of common stock, which consist of (a) 3,020,267 shares of common stock, (b) 85,882 shares of common stock issuable upon conversion of 85,882 shares of Series A-1 Convertible Preferred Stock, and (c) 100,000 shares of common stock issuable upon exercise of warrants to purchase shares of common stock that are not Placement Warrants and are currently exercisable; Third Security Staff 2010 LLC beneficially owns 2,268,595 shares of common stock, which consist of (x) 2,125,654 shares of common stock, (y) 42,941 shares of common stock issuable upon conversion of 42,941 shares of Series A-1 Convertible Preferred Stock, and (z) 100,000 shares of common stock issuable upon exercise of warrants to purchase shares of common stock that are not Placement Warrants and are currently exercisable; Third Security Incentive 2010 LLC beneficially owns 1,603,076 shares of common stock, which consist of (1) 1,510,135 shares of common stock, (2) 42,941 shares of common stock issuable upon conversion of 42,941 shares of Series A-1 Convertible Preferred Stock, and (3) 50,000 shares of common stock issuable upon exercise of warrants to purchase shares of common stock that are not Placement Warrants and are currently exercisable; Third Security Staff 2014 LLC beneficially owns 937,554 shares of common stock, which consist of (A) 894,613 shares of common stock, and (B) 42,941 shares of common stock issuable upon conversion of 42,941 shares of Series A-1 Convertible Preferred Stock. The business address of these beneficial owners is 1881 Grove Avenue, Radford, Virginia 24141.
(9)Includes the shares identified in footnote (8) and (i) 10,400,000 shares of common stock issuable upon conversion of the secured debt as of the closing of the merger and (ii) 24,087,813 shares of common stock issuable upon conversion of the New Precipio preferred stock issuable upon conversion of $3.0 million of secured debt as of the closing of the merger.
(10)Includes (i) (a) 15,844,452 shares of common stock issuable pursuant to the merger and (b) 3,494,362 shares of common stock issuable upon conversion of 3,494,362 shares of New Precipio preferred stock issuable pursuant to the merger, which shares will be owned by Chenies Investor LLC, an entity that is controlled by Mark Rimer, and (ii) 50,000 shares of common stock issuable upon the exercise of Bridge Warrants issued to Chenies Investor LLC.
(11)Includes (i) 19,455,552 shares of common stock issuable pursuant to the merger and (ii) 4,656,445 shares of common stock issuable upon conversion of 4,656,445 shares of New Precipio preferred stock issuable pursuant to the merger and (iii) 200,000 shares of common stock issuable upon the exercise of Bridge Warrants issued to David Cohen.

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FUTURE TRANSGENOMIC STOCKHOLDER PROPOSALS

Whether or not the merger with Precipio is completed, Transgenomic will hold its regular annual meeting of stockholders in 2017. Pursuant to Transgenomic’s Bylaws, stockholder proposals submitted for presentation at Transgenomic’s 2017 annual meeting of stockholders, including nominations for common stock directors, must be received by the Corporate Secretary at c/o Transgenomic, Inc., 12325 Emmet Street, Omaha, NE 68164 no later than 35 days prior to the date of Transgenomic’s 2017 annual meeting of stockholders. If less than 35 days’ notice of the 2017 annual meeting of stockholders is given, then stockholder proposals must be received by Transgenomic’s Corporate Secretary no later than seven days after the mailing date of the notice of the 2017 annual meeting of stockholders, and in the case of a special meeting of stockholders, received not later than the close of business on the 10th day following the day on which notice of the date of the meeting was mailed. Any stockholder nomination for a director, who is not an incumbent director, must set forth the name, age, address and principal occupation of the person nominated, the number of shares of Transgenomic’s common stock owned by the nominee and the nominating stockholder and other information required to be disclosed about the nominee under federal proxy solicitation rules.

In order to be included in Transgenomic’s proxy statement relating to the 2017 annual meeting of stockholders, stockholder proposals must be submitted in writing within a reasonable time prior to Transgenomic beginning to print and send its proxy materials for the 2017 annual meeting of stockholders to Transgenomic’s Corporate Secretary at c/o Transgenomic, Inc., 12325 Emmet Street, Omaha, NE 68164. Transgenomic will announce the date of the 2017 annual meeting of stockholders following the closing of the merger with Precipio. The inclusion of any such proposal in Transgenomic’s proxy materials will be subject to the requirements of the proxy rules adopted under the Exchange Act.

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IMPORTANT NOTICE REGARDING DELIVERY
OF STOCKHOLDER DOCUMENTS

Transgenomic is sending only one proxy statement to “street name” stockholders who share a single address unless it received contrary instructions from any stockholder at that address. This practice, known as “householding,” is designed to reduce printing and postage costs. However, if a stockholder is residing at such an address and wishes to receive a separate proxy statement in the future, such stockholder may request them by calling Transgenomic’s Corporate Secretary at (402) 452-5400, or by submitting a request in writing to Transgenomic’s Corporate Secretary, c/o Transgenomic, Inc., 12325 Emmet Street, Omaha, NE 68164. If a stockholder is receiving multiple copies of the proxy statement, such stockholder can request householding by contacting the Corporate Secretary in the same manner described above. In addition, Transgenomic will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the proxy statement to a stockholder at a shared address to which a single copy of the documents was delivered.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

Transgenomic is subject to the informational requirements of the Exchange Act. Accordingly, Transgenomic files annual, quarterly and current reports, proxy statements and other information with the SEC. Transgenomic also furnishes to its stockholders annual reports, which include financial statements audited by independent certified public accountants and other reports which the law requires to be sent to stockholders. The public may read and copy any reports, proxy statements or other information that Transgenomic files at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information at the public reference room by calling the SEC at 1-800-SEC-0330. Transgenomic’s SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC atwww.sec.gov. You may obtain a copy of any of these documents, at no cost, by writing or telephoning at the following address:

Transgenomic, Inc.
12325 Emmet Street
Omaha, Nebraska
Attention: Corporate Secretary
(402)-452-5400

Transgenomic’s common stock is traded on the OTCQB, operated by OTC Markets Group Inc., under the symbol “TBIO.”

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INFORMATION INCORPORATED BY REFERENCE

Certain information has been “incorporated by reference” into this proxy statement, which means that Transgenomic has disclosed important information to you by referring you to another document filed separately with the SEC. The documents incorporated by reference into this proxy statement contain important information that you should read about Transgenomic.

The following documents are incorporated by reference into this proxy statement:

(a)Transgenomic’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April 13, 2017; and
(b)Transgenomic’s Current Reports on Form 8-K, filed January 6, 2017, January 17, 2017, January 19, 2017, January 20, 2017, February 2, 2017, February 21, 2017, February 24, 2017 and April 17, 2017.

Transgenomic is delivering to its stockholders with this proxy statement the aforementioned annual report in accordance with Item 13(b)(2) of Schedule 14A and its current reports on Form 8-K filed subsequent to December 31, 2016. In addition, all reports and other documents that Transgenomic subsequently files pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this proxy statement and prior to the special meeting will be deemed to be incorporated by reference into this proxy statement and to be part of this proxy statement from the date of the filing of such reports and documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this proxy statement.

Documents incorporated by reference are also available, without charge. You may obtain documents incorporated by reference in this proxy statement by requesting them in writing or by telephone at the following address:

Transgenomic, Inc.
Attn: Investor Relations
12325 Emmet Street
Omaha, Nebraska 68164
Phone: (402) 452-5400
Fax: (402) 452-5461
E-mail: investorrelations@transgenomic.com

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Members
of Precipio Diagnostics, LLC

We have audited the accompanying balance sheet of Precipio Diagnostics, LLC (the “Company”) as of December 31, 2016, and the related statements of operations, changes in members’ deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Precipio Diagnostics, LLC, as of December 31, 2016, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, negative working capital and has a net member deficiency which raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty

/s/ Marcum LLP
Marcum LLP
 
Hartford, CT
April 24, 2017

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INDEPENDENT AUDITORS’ REPORT

To the Members
Precipio Diagnostics, LLC

Report on the Financial Statements

We have audited the accompanying balance sheet of Precipio Diagnostics, LLC (the Company) as of December 31, 2015, and the related statements of operations, changes in members’ deficit and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Precipio Diagnostics, LLC as of December 31, 2015, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net member deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

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As discussed in Note 1 to the financial statements effective January 1, 2015, the Company early adopted Financial Accounting Standard Board issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs.

/s/ Marcum LLP
 
Hartford, CT
February 3, 2017

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PRECIPIO DIAGNOSTICS, LLC
 
BALANCE SHEETS
DECEMBER 31, 2016 AND 2015

  
 December 31,
2016
 December 31,
2015
ASSETS
          
CURRENT ASSETS:
          
Cash and cash equivalents $51,573  $234,688 
Accounts receivable, net  387,613   455,744 
Inventory  100,222   83,411 
Prepaids and other current assets  12,761   4,910 
Total current assets  552,169   778,753 
PROPERTY AND EQUIPMENT, NET  280,061   343,214 
SECURITY DEPOSIT  10,000   10,000 
TOTAL ASSETS $842,230  $1,131,967 
LIABILITIES AND MEMBERS’ DEFICIT
          
CURRENT LIABILITIES:
          
Current maturities of long-term debt, less discounts $394,838  $575,157 
Convertible bridge notes, less debt issuance costs  695,000   1,351,073 
Accounts payable  1,083,550   739,719 
Accrued expenses  699,600   123,386 
Current maturities of capital leases  46,230   36,440 
Deferred rent     28,107 
Deferred revenue  92,150    
Total current liabilities  3,011,368   2,853,882 
LONG TERM LIABILITIES:
          
Long-term debt, less current maturities and discounts  4,127,256   210,639 
Capital leases, less current maturities  163,077   164,185 
Total liabilities  7,301,701   3,228,706 
MEMBERS’ DEFICIT
          
Preferred Series A, 1,905,556 units authorized, 1,075,000 units in 2016 and 1,825,556 units in 2015 issued and outstanding  1,075,000   1,825,000 
Preferred Series B, 1,882,968 units authorized, 1,208,189 units in 2016 and 1,817,213 units in 2015 issued and outstanding  1,820,070   2,785,070 
Common units, 5,288,254 units authorized, 1,314,632 units in 2016 and 1,237,449 units in 2015 issued and outstanding  52,176   37,705 
Warrants  1,433,636   11,898 
Restricted units  7,203   9,802 
Accumulated deficit  (10,847,556  (6,766,214
Total members’ deficit  (6,459,471  (2,096,739
TOTAL LIABILITIES AND MEMBERS’ DEFICIT $842,230  $1,131,967 

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

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PRECIPIO DIAGNOSTICS, LLC
 
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

  
 Years Ended
December 31,
   2016 2015
NET REVENUE
          
Patient service revenue, net $2,100,986  $1,804,828 
Less provision for bad debts  (378,178  (324,869
    1,722,808   1,479,959 
LESS: COST OF DIAGNOSTIC SERVICES  969,504   814,660 
GROSS PROFIT  753,304   665,299 
OPERATING EXPENSES  2,465,165   2,168,655 
OPERATING LOSS  (1,711,861  (1,503,356
OTHER INCOME (EXPENSE):
          
Interest expense  (518,027  (188,240
Other income  3,000   11,838 
    (515,027  (176,402
NET LOSS  (2,226,888  (1,679,758
Preferred unit dividends  (432,716   
Deemed dividends on exchange of preferred units  (1,421,738   
NET LOSS AVAILABLE TO COMMON UNIT HOLDERS $(4,081,342 $(1,679,758

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

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PRECIPIO DIAGNOSTICS, LLC
 
STATEMENTS OF CHANGES IN MEMBERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

          
          
 Preferred
Series A
 Preferred
Series B
 Common Restrictive
Units
Capital
Value
 Warrants Accumulated
Deficit
 Total
 Outstanding
Units
 Capital
Value
��Outstanding
Units
 Capital
Value
 Outstanding
Units
 Capital
Value
Balance, January 1, 2015  1,880,556  $1,825,000   1,817,213  $2,785,070   1,007,879  $22,789  $14,318  $11,898  $(5,086,456  (427,381
Net loss                          (1,679,758  (1,679,758
Stock based compensation on vesting of restricted units              229,570   14,916   (4,516        10,400 
Balance December 31, 2015  1,880,556   1,825,000   1,817,213   2,785,070   1,237,449   37,705   9,802   11,898   (6,766,214)   (2,096,739) 
Net loss                            (2,226,888  (2,226,888
Preferred unit dividends                            (432,716  (432,716
Deemed dividends on exchange of preferred units                         1,421,738   (1,421,738   
Exchange of preferred units for Sr. Notes & Warrants  (805,556  (750,000  (299,779  (475,000                 (1,225,000
Exchange of preferred units for Jr. Notes & Warrants        (309,245  (490,000                 (490,000
Stock based compensation on vesting of restricted units              77,183   14,471   (2,599        11,872 
Balance December 31, 2016  1,075,000  $1,075,000   1,208,189  $1,820,070   1,314,632  $52,176  $7,203  $1,433,636  $(10,847,556)  $(6,459,471) 

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

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PRECIPIO DIAGNOSTICS, LLC
 
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

  
 Years Ended December 31,
   2016 2015
CASH FLOWS USED IN OPERATING ACTIVITIES:
          
Net loss $(2,226,888 $(1,679,758
Adjustments to reconcile net loss to net cash flows used in operating activities:
          
Depreciation  112,162   111,571 
Amortization of deferred financing costs and debt discount  32,662   33,437 
Unit-based compensation expense  11,873   10,400 
Provision for allowance of doubtful accounts  378,178   324,869 
Capitalized PIK interest on convertible bridge notes  84,717   87,818 
Changes in operating assets and liabilities:
          
Accounts receivable  (310,047 ��(583,247
Inventory  (16,811  3,300 
Prepaids and other current assets  (7,851  1,061 
Accounts payable  343,830   193,259 
Accrued expenses  576,215   40,966 
Deferred rent  (28,107  (22,514
Deferred revenue  92,150    
Net cash used in operating activities  (957,917  (1,478,838
CASH FLOWS USED IN INVESTING ACTIVITIES:
          
Purchases of property and equipment     (10,734
Net cash used in investing activities     (10,734
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
          
Proceeds from convertible bridge notes  455,000   1,263,275 
Proceeds from senior notes  525,000    
Capital lease principal payments  (40,831  (28,308
Payments of notes payable  (154,367  (63,106
Payments of deferred financing costs  (10,000  (20,918
Net cash flows provided by financing activities  774,802   1,150,943 
NET CHANGE IN CASH AND CASH EQUIVALENTS  (183,115  (338,629
CASH AND CASH EQUIVALENTS – BEGINNING  234,688   573,317 
CASH AND CASH EQUIVALENTS – ENDING $51,573  $234,688 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
          
Interest paid $126,220  $100,422 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
          
Purchases of property and equipment financed through capital leases $49,010  $135,929 
Preferred unit dividend financed through exchange agreement $432,716  $ 
Convertible bridge notes exchanged for long-term debt $1,120,000  $ 
Series A and B Preferred exchanged for long term debt $1,715,000  $ 

LIQUIDITY AND GOING CONCERN

NATURE OF BUSINESS

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

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PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 1 — Nature of Business and Significant Accounting Policies

Nature of Business

Precipio Diagnostics, LLC (the “Company”) is a Connecticut Limited Liability Company formed in 2011. The Company is an early-stage diagnostics company that operates a cancer diagnostic laboratory located in New Haven, Connecticut. The Company collaborates with the Yale School of Medicine (“Yale”) to provide cancer diagnostics that is delivered to the community and improves patient care. The Company is party to an exclusive agreement for professional pathology services with Yale, which allows the Company to provide a superior level of cancer diagnostics. Specimens are shipped to the Company’s laboratory where they are processed and diagnosed by the academic experts at Yale, whereby the end product is a pathology report which guides its customers, oncologists, as to the nature of their patients’ disease and helps them determine how best to care for their patient. In addition to the pathology services provided, a Yale designated physician also serves as the Company’s medical director.

Liquidity and Going Concern

The financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) applicable for a going concern, which assume that we will realize our assets and discharge our liabilities in the ordinary course of business. We have incurred substantial operating losses and have used cash in our operating activities for the past several years. As of December 31, 2016 and 2015 we had negative working capital of $2.5 million and $2.1 million, respectively due to the fact that our accounts payable and accrued expenses were double the amount of our current assets as of the balance sheet date, along with the significant amount of debt we have coming due within the next twelve months. Our ability to continue as a going concern is dependent upon a combination of achieving our business plan, including generating additional revenue, and raising additional financing to meet our debt obligations and pay our liabilities arising from normal business operations when they come due. The Company is currently in discussions with certain investors to raise additional capital as part of a proposed merger, see Note 12 — for further discussion on the merger. There can be no assurance such capital is available at terms favorable or agreeable to management, if at all, or that the Company will successfully complete the proposed merger. Since the outcome of these matters cannot be predicted with any certainty at this time, there is substantial doubt that we will be able to continue as a going concern.

The Company has entered into a payment deferral arrangement with Connecticut Innovations as they were unable to continue to repay the principal payments on the loan as they came due. The Company has secured a revision to its Connecticut Innovations debt repayment schedule effective July 14, 2016 that approves interest only payments through October 1, 2017, interest and principal payments through August 1, 2018 and on the remainder of the outstanding loan due on October 1, 2018.

Further, the Company is in default on its Webster Bank loan due to the Company’s cash balance falling below the required minimum balance of a cash runway of 3 months, based on trailing six months average cash burn as stipulated in the agreement. Precipio and Webster Bank, in a Default and Reservation of Rights letter dated January 29, 2016, agreed that while Precipio remains in default, Webster Bank will preserve their rights but take no action at this time against the Company and shall refrain from calling the loan. Further Webster Bank has considered to maintain its senior credit facility in a letter dated January 4, 2017 subject to their re-approval process.

During this period Webster Reservation of Rights letter discussed above will remain in effect until the process is completed. Management cannot assure that they will be able to extend the credit facility on terms reasonably acceptable to the Company if at all.

If management is unable to extend the credit facilities, obtain waivers, or both, the financial institutions could request payment on demand which could impair the Company’s ability to conduct business in the near future.

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PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 1 — Nature of Business and Significant Accounting Policies  – (continued)

The aforementioned circumstances raise substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern as a result of the outcome of this uncertainty.

Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities, at the date of the financial statements, and the reported revenues and expenses during the reporting period.

The most significant estimates with regard to these financial statements relate to the allowance for doubtful accounts, assumptions used to value stock based compensation, contractual allowances, warrant valuations and potential impairment of long-lived assets. Although management believes the estimates that have been used are reasonable, actual results could vary from the estimates that were used.

Concentrations of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company considers all highly liquid investments, with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed, Federal Deposit Insurance Corporation (FDIC) insured limits of $250,000. The Company reduces its exposure to credit risk by maintaining such deposits with high-quality financial institutions. At times the Company’s deposit can exceed these limits.

Service companies in the health care industry typically grant credit without collateral to patients. The majority of these patients are insured under third-party insurance agreements. The services provided by the Company are routinely billed utilizing the Current Procedural Terminology (CPT) code set designed to communicate uniform information about medical services and procedures among physicians, coders, patients, accreditation organizations, and payers for administrative, financial, and analytical purposes. CPT codes are currently identified by the Centers for Medicare and Medicaid Services and Third-party payors. The Company utilizes CPT codes for Pathology and Laboratory Services contained within codes 80000-89398.

Risks And Uncertainties

The Company operates in the healthcare industry which is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.

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PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 1 — Nature of Business and Significant Accounting Policies  – (continued)

Accounts Receivable

Accounts receivable result from the health care services provided by the Company and are due within 30 days from the invoice date. Accounts receivable are reduced by an allowance for doubtful accounts. In evaluating the collectability of accounts receivable, the Company analyzes and identifies trends for each of its sources of revenue to estimate the appropriate allowance for doubtful accounts. For receivables associated with services provided to patients with third-party coverage, the Company analyzes contractually due amounts and provides an allowance, if necessary. For receivables associated with self-pay patients, including patients with insurance and a deductible and copayment, the Company records an allowance for doubtful accounts in the period of services on the basis of past experience of patients unable or unwilling to pay for service fee for which they are financially responsible. The difference between the standard rates and the amounts actually collected after all reasonable collection efforts have been exhausted is charged against the allowance for doubtful accounts.

Inventory

Inventory consists of laboratory supplies and is valued at cost (determined on an average cost basis, which approximates the first-in, first-out method) or net realizable value, whichever is lower. We evaluate inventory for items that are slow moving or obsolete and record an appropriate allowance for obsolescence if needed. We determined that no allowance for slow moving or obsolete inventory was necessary at December 31, 2016 and 2015.

Property And Equipment

Property and equipment, including assets held under capital lease, are stated at cost, net of accumulated depreciation and amortization. Expenditures for maintenance and repairs are expensed as incurred. Depreciation and amortization are calculated using the straight-line method over estimated useful lives of related assets. Amortization expense of assets acquired through capital leases is included in depreciation and amortization.

Estimated useful lives are as follows:

 
Asset Life
Machinery and lab equipment 5 – 7 years
Office equipment and computer 5 – 7 years
Lab software 3 – 5 years

For assets sold or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts, and any related gain or loss is reflected in operations for the period. Expenditures for major betterments that extend the useful lives of property and equipment are capitalized.

Impairment of Long-Lived Assets

The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and estimated fair value calculated utilizing the a discounted cash flow model or appraised value depending on the nature of the asset. There were no impairments of long-lived assets for the years ended December 31, 2016 and 2015.

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PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 1 — Nature of Business and Significant Accounting Policies  – (continued)

Debt Issuance Costs

Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Both are presented as a reduction of the related debt in the accompanying balance sheets. Net debt issuance costs and debt discounts were $65,048 and $87,207 at December 31, 2016 and December 31, 2015, respectively (net of accumulated amortization of $87,342 and $55,184, respectively). Related amortization expense was $32,662 and $33,437 for the years ended December 31, 2016 and 2015, respectively.

Net Patient Service Revenue

The Company primarily recognizes revenue for services rendered upon completion of the testing process. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered, including retroactive adjustment under reimbursement agreements with third-party payors. Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for third-party payor settlements are provided in the period the related services are rendered and adjusted in the future periods, as final settlements are determined. See Note 7 for additional information relative to net patient service revenue recognition and third-party payor programs.

Presentation of Insurance Claims and Related Insurance Recoveries

The Company accounts for its insurance claims and related insurance recoveries at their gross values as standards for health care entities do not allow the Company to net insurance recoveries against the related claim liabilities. There were no insurance claims or insurance recoveries recorded during 2016 or 2015.

Income Taxes

The Company, which is organized as a limited liability company, operated under the default classification as a partnership until July 31, 2016. Effective August 1, 2016, the Company elected to be treated as a corporation for tax purposes and as such, a net deferred tax asset, prior to a valuation allowance is created. The Company calculated an income tax provision for the remainder of the year. Prior to August 1, 2016, income tax expense or benefits were calculated at the members’ level.

For the period from August 1, 2016 through December 31, 2016, deferred income taxes are provided on net operating loss carryovers and on the future income tax considerations associated with temporary differences between the carrying amounts of assets and liabilities for tax and financial reporting purposes. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not that they will not be realized.

There are no uncertain tax positions that would require recognition in the financial statements. Management’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of, or changes in tax laws, regulations and interpretations thereof as well as other factors. At December 31, 2016 and August 1, 2016, there were no amounts that had been accrued for uncertain tax positions. Our policy is to record interest and penalties directly related to income taxes as income tax expense in the accompanying statements of operations. We have statutes of limitation open for our federal and state income tax returns related to tax years 2013 through 2016.

Rent Expense

Rental expense is recognized on a straight-line basis over the terms of the leases.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs charged to operations totaled $12,935 in 2016 and $24,249 in 2015.

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PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 1 — Nature of Business and Significant Accounting Policies  – (continued)

Unit Based Compensation

The Company recognizes unit-based compensation expense for the fair value of the awards on the date granted on a straight-line basis over their service period. Compensation expense is recognized only for unit-based payments expected to vest. The Company estimates forfeitures at the date of grant based on the Company’s historical experience and future expectations.

Non-Employee Awards: The Company accounts for unit based compensation issued to non-employees at the fair value of equity instruments given as consideration for services rendered as a non-cash charge to operations over the shorter of the vesting period or service period. The equity instruments are revalued on each subsequent reporting date until performance is complete with a cumulative catch-up adjustment recognized for any changes in their fair value.

Common Warrant Units

The Company accounts for the issuance of common warrant units issued in accordance with the provisions of ASC Topic 815. The Company classifies as equity any contracts that (i) require physical settlement or net-unit settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own units (physical settlement or net-unit settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside of the company’s control), or (ii) gives the counterparty a choice of net-cash settlement or settlement in units (physical settlement or net-unit settlement).

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU No. 2014-09”). This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to a customer. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB decided to defer the effective date of this new accounting guidance by one year. As a result, ASU No. 2014-09 will be effective for the Company for all annual and interim reporting periods beginning after December 15, 2017 and early adoption would be permitted as of the original effective date. The new standard permits the use of either the retrospective or cumulative effect transition method. The Company does not expect to early adopt this guidance and it has not selected a transition method. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40). The new guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. The Company does not believe that the adoption of this guidance will have a material impact on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard amends the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases and amends disclosure requirements associated with leasing arrangements. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. The Company is currently assessing the impact that the adoption of this ASU will have on its financial statements.

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PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 1 — Nature of Business and Significant Accounting Policies  – (continued)

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements, forfeitures and classification on the statement of cash flows. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow — Classification of Certain Cash Receipts and Cash Payments (Topic 230) (“ASU 2016-15”), which addresses a few specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its statements of cash flows.

Note 2 — Accounts Receivable

The mix of receivables from patients and third-party payers at December 31, was as follows:

  
 2016 2015
Medicaid $21,642  $24,078 
Medicare  232,068   86,644 
Self-Pay  63,599   4,403 
Third party payers  880,912   773,049 
    1,198,221   888,174 
Less allowance for doubtful accounts  810,608   432,430 
Total accounts receivable $387,613  $455,744 

Note 3 — Property and Equipment

A summary of property and equipment at December 31 follows:

  
 2016 2015
Machinery and equipment $152,738  $152,738 
Capital lease equipment  296,053   247,044 
Laboratory software  218,165   281,165 
Computers  57,277   57,277 
Office equipment  9,348   9,348 
    733,581   684,572 
Less accumulated depreciation  453,520   341,358 
Total property and equipment $280,061  $343,214 

Depreciation expense totaled $112,162 in 2016 and $111,571 in 2015

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PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 4 — Notes Payable

Long-term debt consists of the following:

  
 December 31,
   2016 2015
Senior Notes $3,269,968  $ 
Senior Note debt issuance costs  (8,500   
Junior Notes  583,821    
Connecticut Innovation – line of Credit  162,066   138,442 
Depart. of Economic Development (DECD)  243,287   277,654 
DECD debt issuance costs  (30,208  (35,552
Webster Bank  328,000   448,000 
Webster Bank debt discounts and debt issuance  (26,340  (42,728
Total long-term debt  4,522,094   785,796 
Current Portion  (394,838  (575,157
Long-term debt, net of current maturities $4,127,256  $210,639 

Senior and Junior Notes

During 2016, the Company raised $525,000 from members through the issuance of Senior Notes which accrue interest at a rate of 12% and are payable at the sooner of the closing of a qualified public offering, as outlined in the note agreement, or five years from date of issuance.

Also during 2016, the Company restructured equity through a redemption and exchange agreement by exchanging Member Equity comprised of Series A and Series B Convertible Preferred Units in the amount of $2,147,716 (members’ initial investment of $1,715,000, plus declared dividends on these preferred units of $432,716), and Convertible Bridge Notes of $1,120,000, plus accrued interest of $61,073 for new Senior Notes of $2,744,968 and new Junior Notes of $583,821. The Senior and Junior Notes accrue interest at a rate of 12% and 15%, respectively, and have maturity dates ranging from March 2021 to September 2021, or earlier based on certain qualifying events as outlined in the note agreements.

As of December 31, 2016, the outstanding balance of Senior and Junior notes was $3,269,968 and $583,821, respectively, with accrued interest included within accrued expenses on the accompanying balance sheet of $279,740 and $71,258, respectively.

Connecticut Innovations, Incorporated

The Company entered into a line of credit on April 1, 2012 with Connecticut Innovations for up to $500,000 with interest paid monthly at 8 percent, due on September 1, 2018. Principal and interest payments began February 1, 2013 and ranged from $7,436 to $12,206 until September 2016, when the Company entered into a forbearance agreement to defer monthly principal payments until October 2017. Beginning October 1, 2017, principal payments of $11,467 are due including interest at 9% through September 2018. Pursuant to the forbearance agreement, the Company is also restricted from any additional borrowings under the line of credit. The line is secured by substantially all of the Company’s assets. As of December 31, 2016 and 2015 the outstanding balance was $162,066 and $138,422, respectively.

In connection with the line of credit, the Company issued warrants to purchase 25,000 Series A Preferred Units of the Company, which were classified as an equity warrant, at an exercise price of $1.00 per unit, subject to adjustments as defined in the warrant agreement. The warrants were valued at $6,000 at the date of the grant utilizing the Black-Sholes model (volatility 40%, expected life 7 years, and risk free rate .36%). The value of the warrants was treated as a debt discount. The Company accreted to interest expense $1,500 in 2015. There was no accretion of the debt for the year ending December 31, 2016.

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PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 4 — Notes Payable  – (continued)

The warrant and related Series A Preferred Units have a put feature related to the Company maintaining its presence in the State of Connecticut. Management has reviewed the probability of the Company leaving the State of Connecticut as being remote. This determination is mainly due to the collaboration agreement it has with Yale. As such determined that the put option has an immaterial value. The line of credit is subordinate to the Webster Bank term loan.

The Company was in default with Connecticut Innovations because it was unable to continue to repay its principal payments on the loan. As such during 2014, the Company entered into a forbearance agreement with Connecticut Innovations to defer the loan payments for up to six months. The Company was in default of the forbearance agreement during 2015 and was not able to pay the balloon payment for the full balance is due June 2016. Precipio subsequently entered into an agreement with Connecticut Innovations on July 14, 2016 to restructure the loan to an interest-only payments plan totaling $1,041 per month through October 2017. Principal and interest shall be due at the end of the deferral period and the regular monthly payments of $11,467 will continue thereafter through October 2018 at which time the remaining balance is due and payable. The Company is also restricted from any additional borrowings under the line of credit.

Department of Economic and Community Development

The Company entered into a 10-year term loan with the Department of Economic and Community Development (DECD) on May 1, 2013 for $300,000, with interest paid monthly at 3 percent, due on April 23, 2023. The loan is secured by substantially all of the Company’s assets but is subordinate to the term loan with Webster Bank and the Connecticut Innovations, Incorporated Line of Credit. As of December 31, 2016 and 2015 the outstanding balance was $243,287 and $277,654, respectively,

Webster Bank

The Company entered into a 3.5-year term loan with Webster Bank on December 1, 2014 for $500,000, with interest paid monthly at the one month LIBOR rate (0.73% at December 31, 2016) plus 500 basis points, due on May 31, 2018. The line is secured by substantially all of the Company’s assets and has first priority over all other outstanding debt. As of December 31, 2016 and 2015 the outstanding balance was $328,000 and $448,000, respectively.

The term loan with Webster Bank is subject to financial covenants relating to maintaining adequate cash runway, as defined. As of December 31, 2016 the Company was not in compliance with these covenants and, as such, the Webster Bank debt has all been presented as current in the accompanying financial statements. Precipio and Webster Bank entered into a Default and Reservation of Rights letter dated January 29, 2016, agreed that while Precipio remains in default, Webster Bank will preserve their rights but not take any action at this time against the company and shall refrain from calling the loan. Further Webster Bank has considered maintaining its senior credit facility in a letter dated January 4, 2017 subject to their re-approval process. During this period Webster Reservation of Rights letter discussed above will remain in effect until the process is completed.

In connection with the Webster Bank agreement, the Company issued 7 year warrants to purchase $20,000 Series B Preferred Units of the Company. The exercise price is equal to 1) share price of the next round of equity financing equal to or greater than $1.0 million to be closed prior to September 1, 2015 or 2) the most recent round prior to the close ($1.5845) should the qualified financing not occur. There were no qualifying rounds of $1.0 million prior to September 1, 2015 as such the exercise price is $1.5845. The warrants were valued at $11,898 at the date of the grant utilizing the Black-Scholes model (volatility 59.1%, expected life 7 years, and risk free rate 1.93%) and was classified as an equity warrant. The value of the warrants was treated as a debt discount and will continue to accrete interest through the maturity date of the line of credit. The Company accreted to interest expense $1,700 of the debt discount for the periods ending December 31 2016 and 2015.

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TABLE OF CONTENTS

PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 4 — Notes Payable  – (continued)

The following represents the aggregate future maturities required on long-term debt for the years ending December 31:

      
 Senior
Notes
 Junior
Notes
 Connecticut
Innovations
 DECD Webster
Bank
 Total
2017 $  $  $31,514  $35,324  $328,000  $394,838 
2018        130,552   36,398      166,950 
2019           37,505      37,505 
2020           38,646      38,646 
2021  3,269,968   583,821      39,821      3,893,610 
Thereafter           55,593      55,593 
    3,269,968   583,821   162,066   243,287   328,000   4,587,142 
Less, debt discount and debt issuance costs  (8,500        (30,208  (26,340  (65,048
   $3,261,468  $583,821  $162,066  $213,079  $301,660  $4,522,094 

Note 5 — Convertible Bridge Notes Payable

During the year ended December 31, 2015, the Company issued eleven unsecured convertible bridge notes for $1,360,000. The notes accrue interest at a rate of 14% and were payable no later than September 30, 2016. As of December 31, 2015, the outstanding balance was $1,360,000, excluding debt issuance costs of $8,927, with accrued interest of $87,818 included within accrued expenses on the accompanying balance sheet. During 2016, the maturity date of these convertible bridge notes was extended to December 31, 2016.

The convertible Notes will (i) convert into Series C Preferred Units of the Company (at a 30% discount) upon a Qualified Series C Financing (as defined), (ii) at the option of the holders of a majority of the then-outstanding principal amount of the notes, convert into Series C Preferred Units of the Company (at a 30% discount) upon any other Series C Financing, or (iii) if no such Qualified Series C Financing occurs, or no such option conversion takes place by the maturity date (as hereinafter defined), the convertible notes will be fully repaid by Company or the notes and accrued and unpaid interest shall convert into Preferred Series B Units (at a 30% discount) of the Preferred Series B conversion Price as defined in the operating agreement provided that notice is given to the Company at least one day prior to maturity. In the event a Deemed Liquidity Event (merger, sale, IPO, or transaction with exchange of 50% or more of voting power) the holders of the note at its sole discretion can (a) require the Company to pay an amount equal to two times the principal and accrued and unpaid interest or (b) convert all unpaid principal and interest at a rate of 70% of the applicable security. These notes are subordinated to Connecticut Innovations Inc., State of Connecticut Department of Economic Development and Webster Bank.

During 2016, prior to entering into the redemption and exchange agreement, the Company issued additional unsecured convertible bridge notes for $440,000. In addition, the Company issued additional unsecured convertible bridge notes for $15,000. These notes accrue interest at a rate of 14% and are payable no later than December 31, 2016.

Pursuant to the redemption and exchange agreement, the Company exchanged $1,120,000 of convertible bridge notes for long-term debt (Senior Notes) (Note 4).

During January 2017, the holders of the notes agreed to waive the maturity date and the notes are payable on demand and accrue interest until paid. As of December 31, 2016, debt issuance costs were fully amortized and the outstanding convertible notes balance was $695,000, with accrued interest of $143,981 which is included within accrued expenses on the accompanying condensed balance sheet.

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TABLE OF CONTENTS

PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 6 — Net Revenue from Patient Services

The following table summarizes net revenues for the years ended December 31, from services to patients:

  
 2016 2015
Gross patient service revenue $3,385,526  $2,854,037 
Less: contractual allowances and adjustments  (1,284,540  (1,049,209
Patient service revenue, net $2,100,986  $1,804,828 

The following summarizes all payers for the years ended December 31:

  
 2016 2015
Medicaid $24,902  $47,254 
Medicare  688,335   424,347 
Self pay  252,727   58,198 
Third party payors  1,135,022   1,275,029 
   $2,100,986  $1,804,828 

Revenue from the Medicare and Medicaid programs account for a portion of the Company’s net patient service revenue. Laws and regulations governing those programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term.

Note 7 — Commitments and Contingencies

Operating Leases

The Company entered into a sixty-four month operating lease beginning in September 2011, for their facility in New Haven, Connecticut and during 2012 and 2013, the Company took on additional square footage. For the years ended December 31, 2016 and 2015, rental payments range from approximately $11,000 to $12,000 per month. As of January 2017, this lease is month to month and the Company is negotiating a new long-term lease for its facility.

The Company recognizes rent expense on a straight-line basis for all operating leases. Rent expense was $122,751 in 2016 and $130,957 in 2015.

Capital Leases

The Company has entered into various capital lease agreements to obtain lab equipment. The terms of the capital leases range from five to ten years with interest rates of 7.25%.

The following is an analysis of the property acquired under capital leases as of December 31.

  
Classes of Property: 2016 2015
Lab equipment $296,053  $247,044 
Less accumulated amortization  (102,247  (57,632
   $193,806  $189,412 

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TABLE OF CONTENTS

PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 7 — Commitments and Contingencies  – (continued)

Included in cost of diagnostic services is amortization expense of $44,615 in 2016 and $33,055 in 2015 related to equipment acquired under capital leases.

The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments.

 
Years ending December 31, 
2017 $59,888 
2018  59,888 
2019  59,888 
2020  35,520 
2021  24,514 
Thereafter  4,207 
Total capital lease obligations  243,905 
Less: Amount representing interest  (34,598
Present value of net minimum lease obligations  209,307 
Less, current maturities of capital leases  (46,230
Capital Leases, long term $163,077 

Purchase Commitments

The Company has entered into purchase commitments for reagents from suppliers. These agreements started in 2011 and run through 2022. The Company and the suppliers will true up the amounts on an annual basis. The future minimum purchase commitments under these agreements are as follows:

 
Years ending December 31, 
2017 $148,664 
2018  148,664 
2019  148,664 
2020  97,382 
2021  69,920 
Thereafter  7,837 

Note 8 — Legal and Regulatory Environment

The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirement, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.

Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.

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PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 9 — Members’ Deficit

The Company entered into an amended and restated limited liability company operating agreement (the amended operating agreement) authorizing the use of four different classes of units (i) Series A Convertible Preferred Units (Series A) (ii) Series B Convertible Preferred Units (Series B), (iii) Voting Common Units and (iv) Non-Voting Common Units. The Company is authorized to issue 1,905,556 Series A units (including warrants), 1,882,968 Series B units (including warrants) and 5,288,524 common units. The common units include 3,788,524 common units (including warrants) reserved for issuance upon conversion of the Series A units and Series B units, 954,216 voting common units issued or reserved for issuance as equity incentives and 545,784 non-voting common units issued or reserved for issuance as equity incentives.

Voting Rights

Each of the Series A and Series B classes of units has protective provisions providing consent rights for such classes in voting on certain matters. In addition, each holder of Series A and Series B units shall have the right to the number of votes equal to the number of common units issuable upon conversion of such Series A and B units, respectively. Each voting common unit shall carry the right of one vote per common unit. Non-voting common units shall not have any voting rights.

Common Units

Common Units

The Company has two classes of common units, voting and non-voting. The Company has issued 954,216 and 954,216 common voting and 360,416 and 283,233 common non-voting shares to various employees as of December 31, 2016 and 2015, respectively.

Restricted Unit Awards

The fair value of restricted units granted to employees is determined on the grant date. Incentive units granted during years ended December 31, 2016 and 2015 were zero and 90,000, respectively. Unit-based compensation expense charged to operations for the periods ended December 31, 2016 and 2015 was $11,872 and $10,400, respectively.

Information regarding outstanding restricted unit awards follows:

   
 Voting Non-Voting Total
Outstanding at January 1, 2015  138,784   89,007   227,791 
Granted     90,000   90,000 
Released  (138,784  (90,786  (229,570
Canceled, forfeited, or expired         
Outstanding at December 31, 2015     88,221   88,221 
Granted         
Released     (77,183  (77,183
Canceled, forfeited, or expired     (1,000  (1,000
Outstanding at December 31, 2016     10,038   10,038 

Convertible Preferred Units

As of December 31, 2015 the Company had 1,880,556 Series A and 1,817,213 Series B units outstanding. During 2016, the Company restructured some equity investments, including the exchange of 805,556 Series A and 609,024 Series B units for new Senior and Junior Notes (see Note 5) and common warrant units resulting in outstanding units as of December 31, 2016 of 1,075,000 for Series A and 1,208,189 for Series B.

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TABLE OF CONTENTS

PRECIPIO DIAGNOSTICS, LLC
 
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 9 — Members’ Deficit  – (continued)

The Series A and Series B units have a preferred return of eight percent per year on the unreturned capital contributions of the respective series. The preferred return accrues quarterly; unpaid returns accumulate and were $631,717 and $507,644, as of December 31, 2015, for Series A and Series B, respectively. The accumulated amounts as of December 31, 2016 were $432,028 and $480,970 on Series A and Series B units, respectively.

In addition, in connection with the Company’s finance agreements, the Company issued warrants to purchase 25,000 units of Series A and $20,000 of Series B. These warrants were still outstanding as of December 31, 2016.

Mandatory Conversion

The Series A units and Series B units have a mandatory conversion feature, which states that at either the closing of a qualified public offering or an event that has been specified as a mandatory conversion time by a vote of the Series A and Series B unit members, then all outstanding Series A and Series B units (and any declared but unpaid distributions) shall automatically be converted into voting common units at the then effective conversion rate. As of December 31, 2016, no events have occurred that would cause an automatic conversion of these units.

Convertible Rights

The Series A Members and Series B Members shall have conversion rights as follows:

Each Series A unit shall be converted, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable voting common units as is determined by dividing the Series A adjusted purchase price by the Series A conversion price (original purchase price of security, subject to adjustments for distributions to its respective series) in effect at the time of conversion. Series A can be converted into 1,507,028 and 2,470,348 shares of common units at December 31, 2016 and 2015, respectively.

Each Series B unit shall be converted, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable voting common units as is determined by dividing the Series B adjusted purchase price by the Series B conversion price (original purchase price of security, subject to adjustments for distributions to its respective series) in effect at the time of conversion. Series B can be converted into 1,527,464 and 2,140,080 shares of common units at December 31, 2016 and 2015, respectively.

Commonwarrant Units

In March 2016, the Company entered into a redemption and exchange agreement with certain members relating to their 805,556 Preferred A Units and 609,024 Preferred B Units. Under the terms of the agreement, the unit holders would exchange their units in the Company for the issuance of debt. The aggregate purchase price per the agreement was the members’ initial investment of $750,000 for Preferred A Units and $965,000 for Preferred B Units, along with a preferred return of 8%, recorded as a dividend in the amount of $432,716, resulting in a total principal amount of $2,147,716 (comp