Item 1.01 Entry into a Material Definitive Agreement.
On February 8, 2021, Cancer Genetics, Inc. (the "Company" or "CGI"), entered
into Amendment No. 1 to Agreement and Plan of Merger and Reorganization (the
"Amendment") with StemoniX, Inc. ("StemoniX") and CGI Acquisition, Inc., a
wholly owned subsidiary of CGI ("Merger Sub"), which amends the Agreement and
Plan of Merger and Reorganization dated August 21, 2020 (the "Original Merger
Agreement" and as amended by the Amendment, the "Merger Agreement") among
StemoniX, the Company and Merger Sub, whereby Merger Sub will be merged with and
into StemoniX, with StemoniX surviving the merger as a wholly-owned subsidiary
of CGI (the "Merger"). The Original Merger Agreement had conditions that
included (A) that the Company shall have consummated a financing transaction
(the "Private Placement") no later than the closing of the Merger resulting in
aggregate gross proceeds of $10 million (or such other amount as the Company and
StemoniX agree) and (B) that the shares of common stock of CGI ("CGI Common
Stock") being issued in the Merger shall have been approved for listing on the
Nasdaq Capital Market.
In furtherance of meeting those two conditions, on January 28, 2021, StemoniX
entered into a stock purchase agreement (the "Series C Preferred Stock Purchase
Agreement") with an institutional accredited investor (such investor, together
with any future purchaser of Series C Preferred Stock, the "Series C
Investors"). Pursuant to the Series C Preferred Stock Purchase Agreement,
StemoniX agreed to issue to the Series C Investor shares of its Series C
Preferred Stock (the "Series C Preferred Stock") for an aggregate purchase price
of $2 million, at the initial closing in an ongoing private placement of
StemoniX Series C Preferred Stock for up to $10 million (subject to increase to
up to $20 million with CGI's consent) that may involve one or more additional
closings prior to the closing of the Merger (the "Series C Financing"), and that
as a condition to closing requires that StemoniX have agreements for the
purchase of at least another $6 million of Series C Preferred Stock. Pursuant to
the Merger Agreement, as amended by the Amendment, each share of Series C
Preferred Stock issued and outstanding immediately prior to the Effective Time
will be converted in the Merger, with no action or approval required from the
holders, into the right to receive a number of shares of CGI Common Stock (the
"Series C Conversion Shares") equal to the price per share paid for the Series C
Preferred Stock divided by a conversion price equal to 85% of the weighted
average share price of CGI Common Stock over the five trading days prior to the
closing of the merger (the "5-Day VWAP"), which conversion price is subject to a
valuation cap (the "Series C Valuation Cap") based on an $85,000,000 valuation
of CGI, after giving effect to the issuance of all shares of CGI Common Stock at
or prior to the closing of the merger (excluding the Series C Conversion Shares
and out-of-the-money options and warrants to purchase shares of CGI Common
Stock, but including in-the-money options and warrants to purchase shares of CGI
Common Stock on a net exercise basis). No assurance can be given that the
conditions to closing the Series C Preferred Stock Purchase Agreement will be
satisfied or waived, including that the additional shares be sold.
In addition, on January 28, 2021, CGI entered into a Securities Purchase
Agreement with certain institutional and accredited investors, pursuant to which
CGI issued and sold to certain purchasers in a private placement (the "CGI
PIPE") an aggregate of (i) 2,758,624 shares of CGI Common Stock and (ii) common
warrants to purchase up to an aggregate of 2,758,624 shares of CGI Common Stock,
at a combined offering price of $3.625 per CGI share and accompanying warrant to
purchase one share of CGI Common Stock, for gross proceeds of approximately $10
million.
In light of the foregoing, the Amendment provides that (i) the Series C
Preferred Stock and Series C Conversion Shares are not included in the
definitions of "Company Outstanding Equity" and "Deemed Outstanding CGI Common
Stock," as applicable; and (ii) the CGI securities sold in the CGI PIPE are not
included in the definitions of "CGI Outstanding Equity" and "Deemed Outstanding
CGI Common Stock" (as each such term is defined in the Merger Agreement). As a
result, the Series C Financing and the CGI PIPE do not affect the "Exchange
Ratio" (as defined in the Merger Agreement) and are dilutive to the historical
equity holders of CGI and StemoniX proportionately at the closing of the Merger,
and each are not taken into account in calculating the total number of shares of
CGI Common Stock to be issued to the historical security holders (meaning those
other than the Series C Investors with respect to the Series C Preferred Stock)
in the Merger. In addition, the Amendment revised the closing condition
regarding the Private Placement to solely require that StemoniX have sold an
aggregate of $5 million of Series C Preferred Stock prior to the closing of the
Merger, and also clarifies that the "Net Cash" (as defined in the Merger
Agreement) of each of CGI and StemoniX at closing, for purposes of the Net Cash
Adjustment (as defined in the Merger Agreement) calculation shall not include
any proceeds from the Series C Financing or the CGI PIPE.
Further, an existing investor of StemoniX has agreed to purchase an additional
$3 million of StemoniX convertible notes ("Convertible Notes") plus certain
accompanying warrants to purchase StemoniX common stock ("Convertible Note
Warrants"). The Amendment provides that the Convertible Note Warrants will be
exchanged in the Merger for warrants to purchase a number of shares of CGI
Common Stock equal to 20% of the principal amount of Convertible Notes purchased
(including Convertible Notes previously purchased by such investor) divided by
the 5-Day VWAP, with an exercise price equal to the 5-Day VWAP. The sale of
these additional Convertible Notes is part of StemoniX's plan to reach its
target Net Cash at closing, and is currently pending StemoniX shareholder
approval and customary closing conditions. The Amendment also provides that (i)
the equivalent amount of StemoniX Common Stock (determined using the Exchange
Ratio) underlying the Convertible Note Warrants is included in StemoniX's
outstanding equity for purposes of allocating the shares of CGI Common Stock
being issued to the StemoniX security holders (other than with respect to the
Series C Preferred Stock) and (ii) the shares of CGI Common Stock underlying
certain warrants issued by CGI to its placement agent in a public offering that
closed on November 2, 2020 are included in CGI's outstanding equity for purposes
of calculating the amount of CGI Common Stock to be issued to the StemoniX
security holders (other than with respect to the Series C Preferred Stock).
In addition, the Amendment provides that (i) if the current Series C Investor
purchases at least $5,000,000 Series C Preferred Stock in the Series C
Financing, the current Series C Investor will be entitled to have one observer
on the CGI board after the merger is consummated, and (ii) the investor that has
agreed to purchase an additional $3 million of Convertible Notes and
accompanying Convertible Note Warrants will be entitled to have one observer on
the CGI board after the merger is consummated, assuming such purchase is
consummated.
Further, the Amendment extended the "End Date" (as defined in the Merger
Agreement) to April 30, 2021 and designated the full post-closing board of
directors.
Additional Information about the Proposed Merger and Where to Find It
In connection with the proposed merger between CGI and StemoniX, CGI has filed
relevant materials with the SEC, including a registration statement on Form S-4
that contains a proxy statement/prospectus/information statement. INVESTORS AND
SECURITY HOLDERS OF CGI 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 CGI, STEMONIX AND THE PROPOSED MERGER. The proxy
statement/prospectus/information statement and other relevant materials (when
they become available), and any other documents filed by CGI 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 CGI 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
CGI 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 CGI in connection with the proposed transaction
under the rules of the SEC. Information about the directors and executive
officers of CGI and their ownership of shares of CGI'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 filed and 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, are 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 CGI at the
address described above.
Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. CGI 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. CGI 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 CGI's and
StemoniX's control. CGI'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 CGI's and
StemoniX's ability to obtain the balance of the financing, the approval of
Nasdaq for continued listing and listing after the merger, and the shareholder
approvals 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 relating to the merger; (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 CGI and/or StemoniX, and (vi)
those risks detailed in CGI's most recent Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, registration statement on Form S-4 in connection with the
proposed merger and subsequent reports filed with the SEC, as well as other
documents that may be filed by CGI from time to time with the SEC. Accordingly,
you should not rely upon forward-looking statements as predictions of future
events. Neither CGI 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, CGI 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.
Item 9.01 Financial Statements and Exhibits.
Exhibit No. Description
2.1# Amendment No. 1 to Agreement and Plan of Merger and
Reorganization, by and among Cancer Genetics, Inc., StemoniX, Inc.,
and CGI Acquisition, Inc., dated February 8, 2021.
# Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. CGI hereby undertakes to furnish supplemental copies of any of
the omitted schedules upon request by the SEC.
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