Item
1.01 Entry into a Material Definitive Agreement.
Merger
Agreement
On
September 18, 2018, Cancer Genetics, Inc. (“CGI” or the “Company”), a Delaware corporation, Wogolos Ltd.,
a company formed under the laws of the State of Israel and a wholly-owned subsidiary of the Company (“Merger Sub”),
and NovellusDx Ltd., a privately-held company formed under the laws of the State of Israel (“NDX”), entered
into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, among other things, subject to the
satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge (the “Merger”) with
and into NDX, with NDX becoming a wholly owned subsidiary of the Company and the surviving company of the Merger (the “Surviving
Company”). The Merger is intended to qualify for U.S. federal income tax purposes as a tax-free reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Subject
to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), the
share capital of NDX will be converted into the right to receive an aggregate number of shares of the Company’s common stock,
par value $0.0001 per share (the “Company Common Stock”), equal to 49% of the fully-diluted aggregate number of shares
of the Company Common Stock calculated immediately following the Effective Time (including, among other things, shares issuable
upon the conversion of the Convertible Promissory Note, dated July 17, 2018, issued by CGI in favor of Iliad Research and Trading,
L.P. and shares issuable upon the exercise of CGI options and warrants, determined using the treasury stock method) (the “Post-Closing
Shares”), and the securityholders of the Company as of immediately prior to the Merger will own 51% of the aggregate number
of Post-Closing Shares. The exact number of shares of Company Common Stock that will be issued to NDX securityholders will be
fixed immediately prior to the Effective Time to reflect the Company’s capitalization as of immediately prior to such time.
The foregoing percentages will be determined prior to giving effect to the Private Placement, as defined below.
All
outstanding NDX options and warrants, whether vested or unvested, that have not previously been exercised prior to the Effective
Time must either be exercised for the issuance of NDX ordinary shares prior to the Effective Time or shall terminate and be cancelled
as of the Effective Time, and in any event will not be assumed by the Company or the Surviving Company.
At
the Effective Time, the Board of Directors of the Company will consist of seven members, three of whom will be directors designated
by the Company, three of whom will be directors designated by NDX and one of whom will be Dr. Charles Woler, the Chairman of the
Board of NDX, who will serve as Chairman of the Company’s Board of Directors. Immediately after the Effective Time. John
A. Roberts, President and Chief Executive Officer of the Company, will be President and Chief Executive Officer of the combined
company.
The
Merger Agreement contains customary representations, warranties and covenants made by the Company and NDX, including covenants
relating to obtaining the requisite approvals of the stockholders of the Company and NDX, indemnification of directors and officers,
and the Company’s and NDX’s conduct of their respective businesses between the date of signing the Merger Agreement
and the closing of the Merger. Consummation of the Merger is subject to certain closing conditions, including, among other things,
approval by the stockholders of the Company and NDX, the closing of the Private Placement, the combined company having available
cash of at least $20 million at the Effective Time (inclusive of amounts raised in the Private Placement and advanced under the
Credit Agreement, as defined below, but exclusive of the Company’s cash) and a favorable ruling on the Merger and the transactions
related thereto from the Israel Tax Authority.
The
Merger Agreement contains certain termination rights for both the Company and NDX, including the right of the Company and NDX
to terminate the Merger Agreement in order to accept a superior proposal. In addition, either the Company or NDX may terminate
the Merger Agreement if the Merger is not consummated on or before March 31, 2019 (the “End Date”), provided that
the End Date may be extended by either party for up to 90 days in the event that (w) the Form S-4 (as defined in the Merger Agreement)
is still being reviewed or commented on by the Securities Exchange Commission (the “SEC”), (x) the CGI Stockholders’
Meeting (as defined in the Merger Agreement) has not yet occurred, (y) the mandatory 30 day waiting period under Israeli Law (as
defined in the Merger Agreement) has not lapsed or (z) the Israeli Tax Ruling (as defined in the Merger Agreement) has not been
obtained. In connection with the termination of the Merger Agreement under specified circumstances, NDX may be required to pay
to the Company a termination fee of $0.8 million plus expenses of up to $450,000, or the Company may be required to pay to NDX
a termination fee of $0.8 million plus expenses of up to $450,000.
In
accordance with the terms of the Merger Agreement, (i) the officers and directors of the Company have entered into voting agreements
with NDX (the “CGI Voting Agreements”), and (ii) certain stockholders of NDX have entered into voting agreements with
the Company (the “NDX Voting Agreements,” together with the CGI Voting Agreements, the “Voting Agreements”).
The Voting Agreements place certain restrictions on the transfer of the shares of the Company and NDX held by the respective signatories
thereto and include covenants as to the voting of such shares in favor of approving the transactions contemplated by the Merger
Agreement and against any actions that could adversely affect the consummation of the Merger. In addition, the stockholders
of CGI and NDX that have signed Voting Agreements are required to sign agreements upon the consummation of the Merger restricting
the transfer of shares of Company Common Stock for a limited period of time.
The
preceding summary of the Merger Agreement and the Voting Agreements does not purport to be complete and is qualified in its entirety
by reference to the complete text of the Merger Agreement, the form of NDX Voting Agreement and the form of CGI Voting Agreement,
which are filed as Exhibits 2.1, 99.1 and 99.2, respectively, to this Current Report on Form 8-K and which are incorporated herein
by reference.
Credit
Agreement
In
connection with the signing of the Merger Agreement, on September 18, 2018, the Company entered into a Credit Agreement (the “Credit
Agreement”) with NDX, pursuant to which NDX agreed to loan the Company up to $2,300,000. The aggregate commitment under
the Credit Agreement is issuable in two advances, the first of which, for $1.5 million, was extended on the date of the execution
of the Credit Agreement, and the second of which, for $800,000, is issuable on or after the date that the Company files the Form
S-4 (as defined in the Credit Agreement) with the SEC, subject to certain conditions. The Company anticipates using the proceeds
of such loans for general working capital.
The
Credit Agreement is the general unsecured obligation of the Company and is subordinated in right of payment to the Amended and
Restated Loan and Security Agreement between the Company, certain of its wholly-owned subsidiaries and Silicon Valley Bank, dated
March 22, 2017, as amended (the “SVB Loan”), and to the Loan and Security Agreement between the Company, certain of
its wholly-owned subsidiaries and Partners for Growth IV, L.P., dated March 22, 2017, as amended (the “PFG Loan” and,
together with the SVB Loan, the “Senior Debt”), provided that amounts owed by the Company to NDX under the Credit
Agreement may be repaid before repayment of the Senior Debt upon certain types of termination of the Merger Agreement. Interest
accrues on the outstanding balance under the Credit Agreement at 10.75% per annum, and matures upon the earliest of (i) the End
Date and (ii) the date on which the Merger Agreement is terminated in accordance with its terms (or 90 days thereafter in the
case of certain causes for such termination). Upon the occurrence of an event of default, interest accrues at the lesser of 21%
per annum and the maximum rate permitted by applicable law. The Credit Agreement contains customary default provisions, including
provisions for potential acceleration, and covenants, including negative covenants regarding additional indebtedness, asset sales,
investments and dividends.
Upon
certain events of default under the Credit Agreement, NDX may convert all, but not less than all, of the outstanding balance under
the Credit Agreement into shares (the “Conversion Shares”) of Company Common Stock at a conversion price of $0.606
per share (a “Conversion”).
In
connection with the Credit Agreement, on September 18, 2018, the Company entered into a promissory note (the “Note”),
evidencing the loans made under the Credit Agreement, and a registration rights agreement (the “Credit Agreement Registration
Rights Agreement”), pursuant to which the Company has agreed to file, within 45 days after the Company receives notice of
a Conversion, one registration statement on Form S-3 (or, if Form S-3 is not then available to the Company, such form of registration
that is then available to effect a registration for resale of the subject securities) covering the resale of all Conversion Shares.
The
Company relied on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities
Act”), with respect to the offer of the Conversion Shares.
The
foregoing description of the Credit Agreement, the Note and the Credit Agreement Registration Rights Agreement, is only a summary
and is qualified in its entirety by reference to the full text of the Credit Agreement, the Note and the Credit Agreement Registration
Rights Agreement, copies of which are filed as Exhibits 10.1, 10.2 and 10.3 to this Current Report on Form 8-K, and which are
incorporated herein by reference.
Private
Placement
In
connection with the signing of the Merger Agreement, on September 18, 2018, the Company entered into a securities purchase agreement
(the “Purchase Agreement”) pursuant to which it agreed to sell and issue (the “Initial Equity Subscription”)
to the purchasers thereunder, all of whom are current NDX shareholders, in a private placement pursuant to Section 4(a)(2) of
the Securities Act and Rule 506 of Regulation D promulgated thereunder thereunder a total of 8,509,891 shares of Company Common
Stock (the “Shares”) and purchase warrants to purchase an aggregate of up to approximately 6,382,418 shares of Company
Common Stock (the “Warrants”) for an aggregate purchase price of approximately $8.6 million, with the Shares and Warrants
being sold together in a fixed combination of one Share and one Warrant to purchase 75% of a share of Company Common Stock, at
a price of $1.01 per Share and related Warrant. In addition, the Company and NDX may continue to solicit additional subscriptions
pursuant to the Purchase Agreement after the date of the Initial Equity Subscription and prior to the closing thereof (such additional
subscriptions, together with the Initial Equity Subscription, collectively, the “Private Placement”), on the same
terms as the Initial Equity Subscription. The closing of the Private Placement is conditioned upon, and will occur immediately
following, the Merger.
The
Warrants will be exercisable for five years beginning on the closing date at an initial exercise price of $1.01 per share, subject
to adjustment in certain customary circumstances. The Warrants may be exercised on a cashless basis.
Upon
the closing of the Private Placement, the Company will enter into a registration rights agreement (the “Registration Rights
Agreement”) with the investors in the Private Placement, pursuant to which the Company will be required to file, within
45 days of the closing, one registration statement on Form S-3 (or, if Form S-3 is not then available to the Company, such form
of registration that is then available to effect a registration for resale of the subject securities) covering the resale of the
Shares and the shares of Company Common Stock issuable upon exercise of the Warrants.
The
foregoing description of the Purchase Agreement is qualified in its entirety by reference to the full text of the Purchase
Agreement, a copy of which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2018.