Item 8.01 Other Events.
SteominX Series C Financing
On January 28, 2021, StemoniX, Inc. ("StemoniX") entered into a stock purchase
agreement (the "Series C Preferred Stock Purchase Agreement") with two
institutional accredited investors (the "Investors"), pursuant to which StemoniX
agreed to issue to the Investors shares of its Series C Preferred Stock (the
"StemoniX Series C Preferred Stock") for an aggregate purchase price of $5
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) that may involve one or more additional closings prior to the closing
of the proposed Merger described below (the "Series C Financing"), and that as a
condition requires that StemoniX have agreements for the purchase of at least
another $3 million of StemoniX Series C Preferred Stock. 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.
The Series C Financing is intended to partially satisfy the closing conditions
in the Agreement and Plan of Merger dated August 24, 2020 (the "Merger
Agreement") between StemoniX, Cancer Genetics, Inc. ("CGI" or "Company") and CGI
Acquisition, Inc., a wholly owned subsidiary of CGI, which conditions include
(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/or (B) that the shares of Common Stock being issued in the
Merger shall have been approved for listing on the Nasdaq Capital Market.
CGI and StemoniX are negotiating an amendment to the Merger Agreement whereby,
consistent with the requirements of the Series C Preferred Stock Purchase
Agreement, each share of StemoniX Series C Preferred Stock issued and
outstanding immediately prior to the effective time of the merger (the
"Effective Time") of CGI's wholly owned subsidiary and StemoniX (the "Merger")
will be converted into the right to receive a number of shares of CGI Common
Stock equal to the price per share paid for the StemoniX 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 conversion price is subject to a 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 shares
of CGI common stock issued in exchange for StemoniX Series C Preferred 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).
As a result, immediately following the Effective Time, but prior to the
proportionate dilution resulting from the stock to be issued to holders of
StemoniX Series C Preferred Stock and any other private placement transactions
that CGI and StemoniX agree is part of their plan to satisfy the financing
conditions set forth in the Merger Agreement, the former StemoniX shareholders
(other than those purchasing StemoniX Series C Preferred Stock) will hold
approximately 78% of the outstanding shares of CGI Common Stock and the
stockholders of CGI (other than with respect to CGI securities issued in the
future to satisfy the conditions of the Merger Agreement, if any) will retain
ownership of approximately 22% of the outstanding stock, with such percentages
subject to certain closing adjustments based on the Net Cash (as defined in the
Merger Agreement) held by each company (such adjustment, the "Net Cash
Adjustment"). The exact number of shares of CGI Common Stock that will be issued
to StemoniX shareholders (other than with respect to securities issued in the
Private Placement) will be fixed immediately prior to the Effective Time to
reflect the capitalization of CGI as of immediately prior to such time as well
as the Net Cash Adjustment, and the exact number of shares of CGI Common Stock
that will be issued to the Investors upon conversion of the StemoniX Series C
Preferred Stock under the Merger Agreement will be fixed immediately prior to
the Effective Time based on the weighted average share price of CGI Common Stock
over the five trading days prior to the closing of the Merger.
In addition, if the Series C Financing is consummated, the Investors will be
entitled to have one observer on the CGI Board of Directors after the Merger is
consummated (and a second observer if certain additional sums are raised).
Litigation Related to the Merger
On November 13, 2020, a purported stockholder of CGI filed a complaint against
CGI, the chief executive officer of CGI and the directors of CGI in the United
States District Court for the Southern District of New York, entitled, Scott
Sawin v. Cancer Genetics, Inc. et al. The complaint (the "Sawin Complaint")
alleges that CGI's Registration Statement on Form S-4, as filed with the SEC on
October 16, 2020 related to the merger (the "Prior Registration Statement"),
omitted to disclose certain material information allegedly necessary to make
statements made in the Prior Registration Statement not misleading and/or false,
in violation of Section 14(a) and Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and Rule 14a-9 promulgated thereunder,
and alleges breach of fiduciary duty of candor/disclosure. The complaint seeks
injunctive relief, enjoining the merger until the defendants to the applicable
lawsuit disclose the alleged omitted material information, and costs, among
other remedies.
On November 19, 2020, a purported stockholder of CGI filed a complaint against
CGI and the directors of CGI in the United States District Court for the
Southern District of New York, entitled, Carlos Juan Pastrana v. Cancer
Genetics, Inc. et al. On November 19, 2020, a purported stockholder of CGI filed
a complaint against CGI and the directors of CGI in the United States District
Court for the District of New Jersey, entitled, Joshua Dunn v. Cancer Genetics,
Inc. et al. On November 23, 2020, a purported stockholder of CGI filed a
complaint against CGI and the directors of CGI in the United States District
Court for the District of New Jersey, entitled, Matthew Haller v. Cancer
Genetics, Inc. et al. On November 25, 2020, a purported stockholder of CGI filed
a complaint against CGI and the directors of CGI in the United States District
Court for the District of New Jersey, entitled, Steve Prentiss v. Cancer
Genetics, Inc. et al. On December 1, 2020, a purported stockholder of CGI filed
a complaint against CGI and the directors of CGI in the United States District
Court for the Southern District of New York, entitled, Virginia Weiderman v.
Cancer Genetics, Inc. et al. On December 18, 2020, a purported stockholder of
CGI filed a complaint against CGI and the directors of CGI in the United States
District Court for the Southern District of New York, entitled, Jason Kauffman
v. Cancer Genetics, Inc. et al. On January 27, 2021, a purported stockholder of
CGI filed a complaint against CGI and the directors of CGI in the United States
District Court for the District of New Jersey, entitled, Joseph Sheridan v.
Cancer Genetics, Inc. et al. Each of the foregoing seven complaints allege facts
and seek relief substantially similar to the Sawin Complaint.
CGI believes that the claims asserted in the lawsuits described above are
without merit and intends to vigorously defend CGI, CGI Acquisition, Inc. and
the director and officer defendants against these claims, as applicable,
however, there can be no assurance that the defendants will prevail in such
lawsuits. CGI is not able to estimate any possible loss from these litigations
at this time. It is possible that additional lawsuits may be filed in connection
with the merger.
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 necessary 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 have been and 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 and Quarterly Report on Form 10-Q, 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.
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