Merger Agreement
On September 20, 2020, Illumina, Inc. (the “Company”), SDG Ops, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“First Merger Sub”), SDG Ops, LLC, a Delaware limited
liability company and a wholly owned subsidiary of the Company (“Second Merger Sub”), and GRAIL, Inc., a Delaware corporation (“Grail”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, First
Merger Sub will merge with and into Grail (the “Merger”), with Grail continuing as the surviving entity (the “First Merger”). Immediately following the First Merger and as part of the same overall transaction as the First Merger, Grail will merge with
and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity (the “Second Merger”, and together with the First Merger, the “Mergers”).
Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the First Merger (the “Effective Time”), each issued and outstanding share of Class A Common Stock, par
value $0.001 per share (the “Grail Class A Common Stock”), Class B Common Stock, par value $0.001 per share, Series A Preferred Stock, par value $0.001 per share, Series B Preferred Stock, par value $0.001 per share, Series C Preferred Stock, par value
$0.001 per share and Series D Preferred Stock, par value $0.001 per share, of Grail (collectively, “Grail Stock”) (subject to limited exceptions, including shares with respect to which dissenters’ rights have been validly exercised in accordance with
Delaware law) will be converted into, at the holder’s election, either:
The number of shares of Company Common Stock to be received for each share of Grail Stock may fluctuate with the market price of the Company Common Stock and will, subject to the collar described in
the definition of “Aggregate Stock Consideration” below, be determined based on the volume-weighted average trading price of a share of Company Common Stock on The NASDAQ Global Select Market (“NASDAQ”) over the 20 consecutive trading day period ending
on (and including) the trading day that is 10 trading days prior to the date of the Effective Time, rounded to four decimal places (such price, the “Average Company Stock Price”).
“Aggregate Stock Consideration” means:
Holders of Grail Stock who make no election as to their form of consideration will receive the CVR Consideration.
No fractional shares of Company Common Stock will be issued as Stock Consideration or Alternative Consideration, but in lieu thereof each holder of Grail Stock otherwise entitled to a fractional share
of Company Common Stock will be entitled to receive a cash payment in lieu of such fractional share.
Subject to the terms and conditions set forth in the Merger Agreement, immediately prior to the Effective Time, a portion, determined in accordance with the Merger Agreement, of each outstanding award
of Grail restricted stock, restricted stock units and stock options will vest. Vested equity awards will be canceled for the right to receive, at the holder’s election, either the CVR Consideration or the Alternative Consideration. Unvested awards
will convert into equivalent awards with respect to Company Common Stock in a manner intended to preserve their value, and generally subject to the same terms and conditions as the underlying Grail award, except that the holder may elect to receive a
specified number of vested CVRs in respect of such award in exchange for fewer Company awards.
If the Mergers are not consummated on or prior to December 20, 2020, the Company will make monthly cash payments to Grail of $35 million (the “Continuation Payments”) until the earlier of the
consummation of the Mergers or the termination of the Merger Agreement, subject to certain exceptions. In the event that the Merger Agreement is terminated, the Company will receive shares of non-voting Grail preferred stock in respect of all
Continuation Payments in excess of $315 million, subject to certain terms and conditions.
The Board of Directors of Grail, including both Preferred Directors (as defined in Grail’s certificate of incorporation), has approved the Merger Agreement and the Mergers and the other transactions
contemplated by the Merger Agreement (the “Transactions”) and resolved to recommend that the stockholders of Grail adopt the Merger Agreement.
The completion of the Mergers is subject to satisfaction or waiver of specified closing conditions, including (1) the receipt of required approvals from Grail stockholders, (2) the receipt of required
regulatory approvals, including the expiration or termination of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Act, as amended (the “HSR Act”), (3) the absence of any law, whether temporary, preliminary or permanent, which
is then in effect and has the effect of enjoining, restraining, prohibiting or otherwise preventing consummation of the Transactions, (4) the effectiveness of the Registration Statement to be filed by the Company (together with all amendments thereto,
the “Registration Statement”), pursuant to which the shares of Company Common Stock and CVRs to be issued in connection with the Mergers will be registered with the Securities and Exchange Commission (the “SEC”), (5) the authorization for listing on
NASDAQ of the shares of Company Common Stock to be issued in connection with the Mergers and (6) as a condition to the Company’s obligation to consummate the Mergers, the Selling Investors’ execution and delivery of the Selling Investor Support
Agreement and the Drag-Along Consent (in each case, as defined below). The obligation of each party to consummate the Mergers is also conditioned upon the other party’s representations and warranties being true and correct (subject to certain
materiality exceptions) and the other party having performed in all material respects its obligations under the Merger Agreement.
The Merger Agreement contains customary representations and warranties of the Company and Grail relating to their respective businesses and financial statements, in each case generally subject to
customary materiality qualifiers. Additionally, the Merger Agreement provides for customary pre-closing covenants of the Company and Grail, including covenants of Grail relating to conducting its business in the ordinary course, and covenants of each
party to refrain from taking certain actions without the other party’s consent. The Company and Grail also agreed to use their respective reasonable best efforts to cause the Merger to be consummated and to obtain expiration or termination of the
waiting period under the HSR Act and other required regulatory approvals, subject to certain exceptions. The Merger Agreement provides that Grail is subject to certain restrictions on its ability to solicit alternative acquisition proposals from and
provide non-public information to third parties and to engage in negotiations with third parties regarding alternative acquisition proposals, subject to customary exceptions.
The consummation of the Mergers and the other Transactions is subject to obtaining the consent of the holders of the majority of the total voting power of Grail Stock, voting together as a single
class, and the consent of the holders of the majority of outstanding shares of Grail preferred stock, voting together as a single class on an as-converted to Grail Class A Common Stock basis in favor of the adoption of the Merger Agreement and approval
of the Transactions (the “Grail Stockholder Approvals”). Subsequent to the execution of the Merger Agreement, certain stockholders of Grail (collectively, the “Selling Investors”), including the Company in its capacity as a stockholder of Grail,
entered into a voting and support agreement with the Company (the “Selling Investor Support Agreement”). As of September 20, 2020, the Selling Investors collectively held shares of Grail Stock representing over a majority of the total voting power of
Grail Stock and over a majority of outstanding shares of Grail preferred stock. Under the Selling Investor Support Agreement, the Selling Investors agreed, among other things, to execute and deliver a written consent promptly after the Registration
Statement is declared effective by the SEC, approving the adoption of the Merger Agreement and approving the Transactions, which will constitute receipt by the Company of the Grail Stockholder Approvals. Under the terms of the Selling Investor Support
Agreement, the Selling Investors are generally prohibited from transferring ownership of Grail Stock prior to the earlier of the consummation of the Mergers and the termination of the Merger Agreement in accordance with its terms, subject to limited
exceptions.
In connection with the Transactions, the Selling Investors delivered a written agreement (the “Drag-Along Consent”), substantially in the form attached as Exhibit B to the Merger Agreement, to exercise
their contractual “drag along” right under the Amended and Restated Voting Agreement dated as of November 27, 2019 (the “Voting Agreement”), by and among Grail and certain stockholders of Grail party thereto, to require certain other stockholders party
to the Voting Agreement, among other things, to vote their shares of Grail Stock in favor of, and to adopt, the Transactions.
The Merger Agreement contains certain termination rights for each of the Company and Grail, including a termination right for each of the Company and Grail if the consummation of the Merger does not
occur on or before September 20, 2021, subject to a three-month extension for certain limited purposes in connection with obtaining certain required regulatory clearances. Upon termination of the Merger Agreement under specified circumstances, the
Company would be required to pay Grail a termination fee of $300 million and make an additional $300 million investment in Grail in exchange for shares of non-voting Grail preferred stock, subject to certain terms and conditions.
The foregoing description of the Merger Agreement, the Selling Investor Support Agreement, the Drag-Along Consent and the Transactions does not purport to be complete and is subject to, and qualified
in its entirety by, the full text of the Merger Agreement, a copy of which is attached hereto as Exhibit 2.1, the Selling Investor Support Agreement, a copy of which is attached hereto as Exhibit 10.1, and the form of Drag-Along Consent attached as
Exhibit B to the Merger Agreement, each of which are incorporated herein by reference.
The Merger Agreement has been included to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Grail or their
respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement were made solely for purposes of the Merger Agreement and as of specific dates, were solely for the benefit of the parties to the
Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of
establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Merger Agreement and should
not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information
concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
Bridge Facility Commitment Letter
On September 20, 2020, and in connection with the Merger Agreement, the Company entered into a commitment letter (the “Commitment Letter”) with Goldman Sachs Bank USA (“Goldman Sachs”) . The Commitment
Letter provides that, subject to the conditions set forth therein, Goldman Sachs commits to provide a 364-day senior unsecured bridge term loan facility in an aggregate principal amount of $1,000.0 million (the “Bridge Facility”) to fund, in part,
amounts payable by the Company in connection with the Merger. The Bridge Facility bears interest at an annual rate equal to LIBOR plus a margin ranging from 1.25% to 2.0%, depending on the Company’s credit rating or leverage ratio, subject to an
increase of 0.25% for each 90 days that elapse after the closing of the Merger. Under the Commitment Letter, Goldman Sachs will act as sole lead arranger and sole bookrunner for the Bridge Facility, and will perform the duties customarily associated
with such roles. It is anticipated that some or all of the Bridge Facility will be replaced or repaid by the Company through one or a combination of the following: issuance of debt securities, preferred stock, common equity, or other securities or
borrowings under a credit facility.
The commitment to provide the Bridge Facility is subject to certain conditions, including (1) the consummation of the Merger pursuant to the Merger Agreement, (2) the absence of a material adverse
effect with respect to Grail and its subsidiaries, taken as a whole, (3) the accuracy of certain representations and warranties, (4) the absence of certain limited defaults, (5) the delivery of certain financial information pertaining to each of the
Company and Grail and (6) the receipt of customary closing documents. The Company will pay certain customary fees and expenses in connection with obtaining the Bridge Facility.
The foregoing description of the Commitment Letter and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the
Commitment Letter, a copy of which is attached hereto as Exhibit 10.2, and is incorporated herein by reference.
Contingent Value Rights Agreement
At the closing of the Mergers, the Company, a mutually agreeable trustee and the Holder Representative (as defined in the CVR Agreement) will enter into a Contingent Value Rights Agreement (the “CVR
Agreement”) governing the terms of the CVRs. A holder of a CVR will be entitled to receive a pro rata portion of quarterly payments in an amount equal to (i) (x) 2.5% of “Covered Revenues” (as described below) up to and including $1 billion plus (y)
9.0% of Covered Revenues in excess of $1 billion, multiplied by (ii) a fraction the numerator of which is the aggregate number of CVRs then outstanding, and the denominator of which is the total number of shares and shares issuable under options and
equity awards of Grail issued and outstanding as of immediately prior to the Effective Time, with such $1 billion threshold measured over an annual period.
“Covered Revenues” mean, subject to certain deductions, adjustments, inclusions and exclusions set forth in the CVR Agreement:
Such payments will be due over a twelve-year period, commencing on the later of (a) the closing date of the Mergers and (b) (i) the date that Grail’s Galleri early detection test first becomes
commercially available in the United States as a laboratory developed test or (ii) such earlier date (on or after the closing date of the Mergers) specified by the Holder Representative; provided that the twelve-year period will commence no later than
December 31, 2022. The Holders of the CVRs will have customary audit rights of the Company that may be exercised by the holders of a majority of the CVRs or the Holder Representative.
Pursuant to the CVR Agreement, the Company will agree to operate its business in good faith and not take any actions for the primary purpose of avoiding or reducing the amount of payments payable to
the holders of the CVR and will agree to use certain efforts to obtain regulatory approval and clearance for certain existing Grail products, and to use certain efforts to sell certain products within the field of detection (including through the use
of Grail’s Galleri early detection test or DAC diagnostic aid for cancer test) of cancer and monitoring of individuals with or suspected of cancer utilizing methylation-based technology.
The Company may, at any time on and after the date that 90% of the CVRs issued pursuant to the terms of the Merger Agreement either are (i) no longer outstanding, and/or (ii) repurchased, acquired,
redeemed or retired by the Company, redeem all (but not less than all) of the outstanding CVRs at a price described in the CVR Agreement.
The CVR Agreement does not require the CVRs to be listed on a securities exchange, and, except for permitted transfers described in the CVR Agreement, transfers of the CVRs are generally restricted.
The foregoing description of the CVR Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the CVR
Agreement, a copy of which is attached hereto as Exhibit C to the Merger Agreement, and is incorporated herein by reference.