Item 1.01 Entry into a Material Definitive Agreement.
Merger Agreement with Insight Genetics
On January 10, 2020, OncoCyte Corporation, a California corporation (the
"Company" or "OncoCyte") entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Cancer DX Sub, Inc., a Tennessee corporation and a
wholly-owned subsidiary of OncoCyte ("Merger Sub"), Insight Genetics, Inc., a
Tennessee corporation ("Insight"), the shareholders party to the Merger
Agreement (the "Shareholders") and the equityholder representative. Pursuant to
the Merger Agreement, Merger Sub will be merged with and into OncoCyte (the
"Merger") with OncoCyte surviving the Merger. OncoCyte's board of directors and
Insight's board of directors have approved the Merger Agreement.
Merger Consideration
If the Merger is completed, OncoCyte will deliver closing consideration of $7
million in cash and $5 million of OncoCyte common shares, subject to a holdback
for indemnity claims not to exceed ten percent of the total closing
consideration, or $700,000 of cash and $500,000 of OncoCyte common shares (the
"Holdback Consideration"), less deductions for transaction expenses and other
liabilities. The value of the newly issued shares will be determined based on
the average closing price of OncoCyte common shares on the New York Stock
Exchange American during the five trading days immediately preceding the date of
the Merger Agreement, which is approximately 1.9 million shares of OncoCyte
common stock before the ten percent Holdback Consideration of OncoCyte shares.
The Holdback Consideration will be released within 60 days after December 31,
2020, unless OncoCyte provides notice of a claim.
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Earnout Consideration
As additional consideration for Insight's shareholders, the Merger Agreement
provides for OncoCyte to pay a ten-year revenue share of not more than ten
percent of net collected revenues for current Insight pharma service offerings
and a tiered revenue share percentage of net collected revenues through the end
of the lifecycle if certain new cancer tests are developed and commercialized
using Insight technology.
Milestones
OncoCyte may pay contingent consideration of up to $6.0 million, in any
combination of cash or OncoCyte common shares, if certain milestones are
achieved, which consist of a $1.5 million clinical trial completion and data
publication milestone, $3.0 million for an affirmative final local coverage
determination from Centers for Medicare and Medicaid Services ("CMS") for a
specified lung cancer test, and up to $1.5 million for achieving specified CMS
reimbursement milestones.
Representations and Warranties, Pre-Closing Covenants, Closing Conditions and
Termination Provisions
The Merger Agreement includes representations, warranties and covenants of
OncoCyte, Insight and Merger Sub made solely for the purposes of the Merger
Agreement and which may be subject to important qualifications and limitations
agreed to by OncoCyte, Insight and Merger Sub in connection with the negotiated
terms of the Merger Agreement.
The Merger Agreement also contains pre-closing covenants, including the
obligation of Insight and its subsidiary to conduct business in the ordinary
course in a manner consistent with past practice and to refrain from taking
specified actions without the consent of OncoCyte.
The completion of the Merger is subject to the satisfaction or waiver of closing
conditions, including: (i) the absence of any applicable law or order that
prohibits completion of the Merger, (ii) performance in all material respects of
the obligations required to be performed by the other party pursuant to the
Merger Agreement at or prior to the completion of the Merger, (iii) the accuracy
of certain representations and warranties made in the Merger Agreement by the
other party, subject to certain knowledge or materiality qualifications, (iv) no
Shareholders entitled to vote on the Merger will have provided notice of
exercise of their dissenter's rights, and (v) Insight will have placed its trade
secrets in escrow with a mutually agreed upon escrow company and will have
provided OncoCyte or its legal counsel with access to Insight's trade secrets
and other intellectual property.
The Merger Agreement also includes termination provisions for both OncoCyte and
Insight, including the right to terminate by mutual consent and the right of
either party to terminate the Merger Agreement if the closing has not occurred
on or prior to March 31, 2020.
The foregoing summary of the Merger Agreement and the transactions contemplated
by the Merger Agreement does not purport to be complete. It is not intended to
provide any other factual information about OncoCyte, Insight and Merger Sub, or
to modify or supplement any factual disclosures about OncoCyte in its public
reports filed with the SEC.
Registration Rights
Pursuant to the Merger Agreement, OncoCyte agreed to file a registration
statement with the SEC covering the resale the shares of common stock issued in
connection with the Merger within six months following the closing.
Related Persons
In October 2015, Insight issued a convertible promissory note in the original
principal amount of $3,050,000 and a warrant for 1,525,000 shares, with a
warrant exercise price of $0.01 to IG Investors, LLC ("IG Investors"). Our
President and Chief Executive Officer and board member, Ron A. Andrews, owns a
membership interest in IG Investors, and formerly served on Insight's board from
June 2015 to August 2019. In his capacity as a member of IG Investors, under the
original terms of the convertible promissory note, we estimate that Mr. Andrews
will receive $0.7 million in cash upon the closing of the Merger, as he has
agreed to forfeit $0.4 million in additional consideration that would otherwise
be due to him under the terms of the promissory note. Mr. Andrews has also
agreed to re-assign his membership interest to IG Investors, and to cancel his
rights under the warrants and will not receive any additional merger or earnout
consideration. Mr. Andrews will not receive any OncoCyte common shares in
connection with the Merger.
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Item 3.02 Unregistered Sales of Equity Securities.
The disclosure in Item 1.01 of this Current Report on Form 8-K is incorporated
herein by reference. Any common stock issued in connection with the Merger
Agreement will be issued in a private placement transaction, in reliance upon
exemptions from registration requirements pursuant to Section 4(a)(2) under the
Securities Act of 1933, as amended, and the rules promulgated thereunder.
Item 7.01 Regulation FD Disclosure.
On January 10, 2020, OncoCyte issued (i) a press release announcing the entry
into the Merger Agreement, a copy of which is attached and furnished as Exhibit
99.1 to this Current Report on Form 8-K and is incorporated into this Item 7.01
by reference, and (ii) a company presentation including information about the
Merger, a copy of which is attached and furnished as Exhibit 99.2 to this
Current Report on Form 8-K and is incorporated into this Item 7.01 by reference.
Item 9.01 Financial Statements and Exhibits.
Exhibit Number Description
99.1 Press Release dated January 10, 2020
99.2 Informational slide presentation
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