Item
1.01
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Entry
into a Material Definitive Agreement.
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Merger
Agreement
On
August 21, 2020, Cancer Genetics, Inc., a Delaware corporation (“CGIX”), entered into an Agreement and Plan
of Merger and Reorganization (the “Merger Agreement”) with StemoniX, Inc., a Minnesota corporation (“StemoniX”),
and CGI Acquisition, Inc., a Minnesota corporation and wholly-owned subsidiary of CGIX (“Merger Sub”). Upon the terms
and subject to the satisfaction of the conditions described in the Merger Agreement, including approval of the transaction by
CGIX’s stockholders and StemoniX’s shareholders, Merger Sub will be merged with and into StemoniX, with StemoniX surviving
the merger as a wholly-owned subsidiary of CGIX (the “Merger”). Prior to its execution, the Merger Agreement was unanimously
approved and adopted by the Board of Directors of each of CGIX and StemoniX.
In
particular, the Board of Directors of CGIX (the “Board”), unanimously (i) determined that the terms and provisions
of the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, advisable and in the best
interests of CGIX and its shareholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated
thereby, including the Merger, (iii) determined that it is advisable and in the best interests of CGIX and its shareholders to
enter into the Merger Agreement and to consummate the transactions contemplated thereby, including the Merger, and (iv) resolved
to recommend the adoption of the Merger Agreement by the shareholders of CGIX.
Pursuant
to, and subject to the conditions of, the Merger Agreement, each share of common stock of StemoniX (other than Dissenting Shares
(as defined in the Merger Agreement)), issued and outstanding immediately prior to the effective time of the Merger (the
“Effective Time”) shall be automatically converted into the right to receive an amount of shares of common stock,
par value $0.0001 per share, of CGIX (“CGIX Common Stock”) equal to the Exchange Ratio (as defined in the Merger Agreement)
(the “Merger Consideration”). All Company Options (as defined in the Merger Agreement) outstanding immediately prior
to the Effective Time shall be exchanged for options to purchase CGIX Common Stock. All Company Warrants (as defined in the Merger
Agreement) outstanding immediately prior to the Effective Time shall automatically be cancelled and each StemoniX warrantholder
will be entitled to receive the same consideration such warrantholder would have received had they exercised the Company Warrant
immediately prior to the Merger, net of the exercise price. As a result, immediately following the Effective Time, the former
StemoniX shareholders will hold approximately 78% of the outstanding shares of CGIX Common Stock (which outstanding shares, the
“Deemed Outstanding Shares”, in this context, includes the CGIX Common Stock issuable on a net exercise basis with
respect to any in-the-money CGIX options, in-the-money CGI warrants, in-the-money Company Options and in-the-money Company Warrants)
and the shareholders of CGIX will retain ownership of approximately 22% of the Deemed Outstanding Shares, with such percentages
subject to certain closing adjustments based on net cash held by each company, and with such percentages subject to proportionate
dilution from the private placement financing described below that is a condition of the Merger.
The
combined company will continue to operate CGIX’s vivoPharm, Pty. Ltd. business and will also focus on advancing StemoniX’s
microOrgans® platform and augmented intelligence tools for drug discovery and development. StemoniX, a private
company, is a leader in developing human models for specific diseases via its microOrgan® platform, based on living micro-tissues
engineered from human induced pluripotent stem cells (iPSC). Upon completion of the Merger, the board of directors of the combined
company will be comprised of seven members, including John A. Roberts, President and Chief Executive Officer of CGIX, Yung-Ping
Yeh, Chief Executive Officer of StemoniX, two individuals to be designated by CGIX prior to closing (subject to the reasonable
consent of StemoniX) and three individuals to be designated by StemoniX prior to closing (subject to the reasonable consent of
CGIX). In addition, it is currently anticipated that the executive officers of the combined company will be John A. Roberts, Yung-Ping
Yeh, Andrew D.C. LaFrence, currently Chief Financial Officer and Chief Operating Officer of StemoniX, and Ralf Brandt, PhD, currently
President of Discovery & Early Development Services of CGIX.
The
Merger Agreement contains customary representations, warranties and covenants made by CGIX and StemoniX, including covenants relating
to obtaining the requisite approvals of the shareholders of CGIX and StemoniX, indemnification of directors and officers and CGIX’s
and StemoniX’s conduct of their respective businesses between the date of signing of the Merger Agreement and the closing
of the transaction.
In
connection with the Merger, CGIX will prepare and file with the U.S. Securities and Exchange Commission (“SEC”) a
registration statement on Form S-4 (the “Registration Statement”) that will contain a proxy statement/prospectus,
and will seek the approval of CGIX’s shareholders with respect to certain actions, including the following:
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the
issuance of shares of CGIX Common Stock to StemoniX’s securityholders in connection with the transactions contemplated
by the Merger Agreement under Nasdaq rules;
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to
the extent required for the listing of CGIX Common Stock on the NASDAQ Capital Market, the amendment of CGIX’s restated
certificate of incorporation to effect a reverse split of all outstanding shares of CGIX’s Common Stock at a reverse
stock split ratio in a range currently anticipated to be 1-for-2 to 1-for-5; and
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any
other proposals to be determined as necessary by CGIX and StemoniX.
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The
closing of the Merger, which is expected in the fourth quarter of 2020, is subject to satisfaction or waiver of certain conditions
including, among other things, (i) the required approvals by the parties’ shareholders, (ii) the accuracy of the representations
and warranties, subject to certain materiality qualifications, (iii) compliance by the parties with their respective covenants,
(iv) the effectiveness of the Registration Statement, (v) no law or order preventing the Merger and related transactions,
(vi) the listing of the shares issued in the Merger on The Nasdaq Capital Market and (vii) consummation of a private placement
financing by CGIX in an amount to be mutually agreed upon by CGIX and StemoniX, and currently anticipated to be $10 million.
The
Merger Agreement contains certain termination rights for both CGIX and StemoniX. In connection with the termination of the Merger
Agreement under specified circumstances, CGIX and StemoniX may be required to reimburse the other party’s expenses in an
amount up to $500,000, including upon either party’s due acceptance of a third-party competing proposal during the term
or within 12 months after termination of the Merger Agreement. In addition, either CGIX or StemoniX may terminate the Merger Agreement
if the Merger is not consummated on or before January 15, 2021 (the “End Date”), provided that the End Date may
be extended by either party for up to forty five (45) days in the event the Registration Statement is still under review by SEC,
and, provided further, in the event the meeting of CGIX shareholders is adjourned or postponed, the End Date shall automatically
be extended to the date that is ten (10) days following such adjournment or postponement.
The
foregoing description of the Merger Agreement is not complete and is qualified in its entirety by reference to the Merger Agreement,
which is attached hereto as Exhibit 2.1 to this report and incorporated herein by reference.
The
Merger Agreement (and the foregoing description of the Merger Agreement and the transactions contemplated thereby) has been included
to provide investors and shareholders with information regarding the terms of the Merger Agreement and the transactions contemplated
thereby. It is not intended to provide any other factual information about CGIX or StemoniX. The representations, warranties and
covenants contained in the Merger Agreement were made only as of specified dates for the purposes of the Merger Agreement, were
solely for the benefit of the parties to the Merger Agreement and may be subject to qualifications and limitations agreed upon
by such parties. In particular, in reviewing the representations, warranties and covenants contained in the Merger Agreement and
discussed in the foregoing description, it is important to bear in mind that such representations, warranties and covenants were
negotiated with the principal purpose of allocating risk between the parties, rather than establishing matters as facts. Such
representations, warranties and covenants may also be subject to a contractual standard of materiality different from those generally
applicable to shareholders and reports and documents filed with the SEC. Investors and shareholders are not third-party beneficiaries
under the Merger Agreement. Accordingly, investors and shareholders should not rely on such representations, warranties and covenants
as characterizations of the actual state of facts or circumstances described therein. Information concerning the subject matter
of such representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information
may or may not be fully reflected in the parties’ public disclosures.
Additional
Information about the Proposed Merger and Where to Find It
In
connection with the proposed Merger, CGIX and StemoniX intend to file relevant materials with the Securities and Exchange Commission,
or the SEC, including a registration statement on Form S-4 that will contain a prospectus and a proxy statement. INVESTORS AND
SECURITY HOLDERS OF CGIX AND STEMONIX ARE URGED TO READ THESE MATERIALS (AS WELL AS AMENDMENTS AND SUPPLEMENTS THERETO AND ANY
DOCUMENTS INCORPORATED BY REFERENCE THEREIN) WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
CGIX, STEMONIX AND THE PROPOSED MERGER. The proxy statement, prospectus and other relevant materials (when they become available),
and any other documents filed by CGIX with the SEC, may be obtained free of charge at the SEC website at www.sec.gov. In addition,
investors and security holders may obtain free copies of the documents filed with the SEC by CGIX by directing a written request
to: Cancer Genetics, Inc., c/o John A. Roberts, Chief Executive Officer, 201 Route 17 North 2nd Floor, Rutherford, NJ 07070. Investors
and security holders are urged to read the Registration Statement and the other relevant materials when they become available
before making any voting or investment decision with respect to the proposed Merger.
This
report shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any
securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities in connection
with the proposed Merger shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended.
Participants
in the Solicitation
CGIX
and its directors and executive officers and StemoniX and its directors and executive officers may be deemed to be participants
in the solicitation of proxies from the shareholders of CGIX in connection with the proposed transaction under the rules of the
SEC. Information about the directors and executive officers of CGIX and their ownership of shares of CGIX’s Common Stock
is set forth in its Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on May 29, 2020,
and in subsequent documents to be filed with the SEC, including the Registration Statement referred to above. Additional information
regarding the persons who may be deemed participants in the proxy solicitations and a description of their direct and indirect
interests in the proposed merger, by security holdings or otherwise, will also be included in the Registration Statement and other
relevant materials to be filed with the SEC when they become available. These documents are available free of charge at the SEC
web site (www.sec.gov) and from the Chief Executive Officer at CGIX at the address described above.
Forward-Looking
Statements
This
report and the press release attached hereto as Exhibit 99.1 contain “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. CGIX and StemoniX generally identify forward-looking statements by terminology
such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,”
“intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,”
“predicts,” “potential” or “continue” or the negative of these terms or other similar words.
These statements are only predictions. CGIX and StemoniX have based these forward-looking statements largely on their then-current
expectations and projections about future events and financial trends as well as the beliefs and assumptions of management. Forward-looking
statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond
each of CGIX’s and StemoniX’s control. CGIX’s and StemoniX’s actual results could differ materially from
those stated or implied in forward-looking statements due to a number of factors, including but not limited to: (i) risks associated
with CGIX’s and StemoniX’s ability to obtain the shareholder approval required to consummate the proposed merger transaction
and the timing of the closing of the proposed merger transaction, including the risks that a condition to closing would not be
satisfied within the expected timeframe or at all or that the closing of the proposed merger transaction will not occur; (ii)
the outcome of any legal proceedings that may be instituted against the parties and others related to the Merger Agreement; (iii)
the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement,
(iv) unanticipated difficulties or expenditures relating to the proposed merger transaction, the response of business partners
and competitors to the announcement of the proposed merger transaction, and/or potential difficulties in employee retention as
a result of the announcement and pendency of the proposed merger transaction; (v) volatility and uncertainty in the financial
markets and general economic conditions, which could have an adverse impact on CGIX and/or StemoniX, and (vi) those risks detailed
in CGIX’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, and subsequent reports filed with the
SEC, as well as other documents that may be filed by CGIX from time to time with the SEC. Accordingly, you should not rely upon
forward-looking statements as predictions of future events. Neither CGIX nor StemoniX can assure you that the events and circumstances
reflected in the forward-looking statements will be achieved or occur, and actual results could differ materially from those projected
in the forward-looking statements. The forward-looking statements made in this communication relate only to events as of the date
on which the statements are made. Except as required by applicable law or regulation, CGIX and StemoniX undertake no obligation
to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events.