Item
1.01
|
Entry
into a Material Definitive Agreement
|
On
July 31, 2017, CombiMatrix Corporation (the “Company”) entered into an Agreement and Plan of Merger and Reorganization
(the “Merger Agreement”) by and among the Company, Invitae Corporation, a Delaware corporation (“Invitae”),
and Coronado Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Invitae (“Merger Sub”) pursuant
to which Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Invitae (the
“Merger”).
Subject
to the terms and conditions set forth in the Merger Agreement, which has been approved by the boards of directors of the respective
parties, if the Merger is completed (the “Effective Time”), (i) each outstanding share of the Company’s Common
Stock shall be cancelled and converted into the right to receive a number of shares of Invitae’s Common Stock equal to an
exchange ratio (the “Exchange Ratio”) defined in the Merger Agreement (the “Common Stock Consideration”),
(ii) each outstanding share of the Company’s Series F Preferred Stock shall be cancelled and converted into the right to
receive a number of shares of Invitae’s Common Stock equal to the Exchange Ratio multiplied by the number of shares of Company
Common Stock underlying such shares of Series F Preferred Stock (the “Series F Consideration”), (iii) each outstanding
restricted stock unit (“RSU”) of the Company shall be accelerated, cancelled and converted into the right to receive
a number of shares of Invitae’s Common Stock equal to the Exchange Ratio multiplied by the number of shares of Company Common
Stock underlying such RSUs (the “RSU Consideration”), (iv) each outstanding in-the-money stock option of the Company
shall be accelerated, cancelled and converted into the right to receive a number of shares of Invitae’s Common Stock equal
to the Exchange Ratio multiplied by the number of shares of Company Common Stock underlying such stock option, minus the value
of the exercise price of the stock option (the “Options Consideration” and, collectively with the Common Stock Consideration,
the Series F Consideration and the RSU Consideration, the “Merger Consideration”), and (v) each outstanding out-of-the
money stock option of the Company shall be cancelled for no consideration.
Based
on an average closing price of Invitae common stock on the NYSE for the thirty trading days prior to the date of the Merger Agreement
of $9.49, the total Merger Consideration payable to the holders of the Company’s currently outstanding Common Stock, Series
F Preferred Stock, RSUs and in-the-money stock options represented approximately $27 million, subject to adjustment based on a
closing “net cash” calculation defined in the Merger Agreement for this purpose as including all current assets, less
all current liabilities (including amounts payable pursuant to the Company’s executive severance plan) and capital lease
obligations of the Company, less all transaction-related expenses including amounts owed to the Company’s strategic advisors,
accountants and attorneys, less amounts owed to repurchase certain of the Company’s common stock warrants, less amounts
payable under the Company’s transaction bonus plan that was adopted on December 2, 2015 (the “Transaction Bonus Plan”),
and less $250,000 stipulated for working capital purposes. The principle form of consideration issuable to the Company’s
security holders under the Merger Agreement is shares of Invitae’s Common Stock. Because the value of the Merger to the
Company’s stockholders is based on a fixed price per share of Invitae’s common stock of $9.49, the overall value of
the Merger consideration potentially to be received by the Company’s stockholders will fluctuate based on the market price
of Invitae’s common stock between now and any closing.
In
connection with the Merger, the Company is required to cooperate with Invitae in an exchange offer whereby holders of the Company’s
Series F Warrants may elect to exchange their outstanding Series F Warrants for shares of Invitae’s Common Stock with a
value equal to $2.90 per Series F Warrant (the “Warrant Exchange Offer”). Based on the average closing price of Invitae
common stock on the NYSE for the thirty trading days prior to the date of the Merger Agreement, the total consideration payable
in the Merger to the holders of the Company’s outstanding Series F Warrants represented approximately $6 million in shares
of Invitae common stock, based on $2.90 per Series F Warrant and 2,067,076 Series F warrants currently outstanding and assuming
all holders of the outstanding Series F Warrants accept Invitae’s Warrant Exchange Offer, with such consideration also based
on a fixed price per share of Invitae’s common stock of $9.49. Because the value of the Merger is based on a fixed price
per share of Invitae’s common stock of $9.49, the overall value of the exchange offer consideration potentially to be received
by the Company’s Series F Warrant holders will fluctuate based on the market price of Invitae common stock between now and
any closing. Under the terms of the Merger Agreement, holders of at least 90% of the outstanding Series F Warrants must accept
the Warrant Exchange Offer and tender their warrants to receive shares of Invitae’s Common Stock. If holders of less than
90% of outstanding Series F Warrants tender in the Warrant Exchange Offer, Invitae may elect to terminate the Merger. Holders
of Series F Warrants may exercise their warrants at any time prior to any closing of the Merger, if they so choose, and the Merger
Agreement anticipates an increase in the consideration paid to the Company’s common stockholders as more shares of the Company’s
Common Stock become outstanding as a result of such exercises. Based on a fixed price per share of Invitae’s common stock
of $9.49 and subject to a “net cash” adjustment, the consideration potentially to be received by the Company’s
common stockholders (including holders of shares issued upon the exercise of Series F Warrants) could increase by approximately
$15 million if all Series F Warrants were exercised. Series F Warrants that are not exchanged in the Warrant Exchange Offer and
any Series D Warrants outstanding at the Effective Time would be assumed by Invitae pursuant to the terms thereof. All other warrants
of the Company will be repurchased by the Company pursuant to the terms of that certain existing Warrant Repurchase Agreement
by and between the Company and the holders of such warrants.
The
Company and Invitae have each made customary representations, warranties and covenants in the Merger Agreement. Subject to certain
exceptions, each of the parties has agreed to use their respective commercially reasonable efforts to obtain governmental and
regulatory approvals. In addition, subject to certain exceptions, the Company has agreed to affirmative and negative covenants
relating to (i) the conduct of its businesses during the interim period between the execution of the Merger Agreement and the
consummation of the Merger, (ii) the submission of the Merger Agreement to the Company’s stockholders at a special meeting
thereof for approval, (iii) the recommendation by the board of directors of the Company in favor of the adoption by the Company’s
stockholders of the Merger Agreement, (iv) non-solicitation obligations with respect to alternative acquisition proposals, (v)
the termination of the Company’s employee benefits plans, (vi) the purchase of a directors and officers liability insurance
tail policy, and (vii) the execution of transaction bonus plan payout agreements by the Company’s officers and directors,
pursuant to which the Company’s officers and a vice president of the Company have agreed to accept RSUs of Invitae in lieu
of cash payments under the Company’s Transaction Bonus Plan and the Company’s directors have agreed to accept unrestricted
Invitae Common Stock in lieu of cash payments under the Company’s Transaction Bonus Plan.
The
consummation of the Merger is subject to certain customary mutual conditions, including (i) the effectiveness of registration
statements on Form S-4 to be filed by Invitae in connection with the issuance of the Merger Consideration and the Warrant Exchange
Offer, (ii) the approval of the Company’s stockholders holding a majority of the outstanding shares of the Company’s
Common Stock, (iii) the expiration or termination of any waiting period applicable to the consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iv) the absence of any order of any court or other governmental authority
that prohibits, renders illegal or permanently enjoins the consummation of the Merger, and (v) the authorization for listing of
the shares of Invitae Common Stock issuable in connection with the Merger on NYSE (subject to official notice of issuance). The
obligation of each party to consummate the Merger is also conditioned upon (i) the accuracy of specified representations and warranties
of the other party as of the date of the Merger Agreement and as of the closing (subject to customary materiality qualifiers),
(ii) compliance by the other party in all material respects with its pre-closing obligations under the Merger Agreement, and (iii)
the absence of a material adverse effect with respect to the other party. Invitae’s obligation to consummate the Merger
is also conditioned upon (i) the consummation of the Warrant Exchange Offer and the participation of holders of at least 90% of
the Company’s Series F Warrants in the Warrant Exchange Offer, (ii) the Company’s effectuation of the Warrant Repurchase
Agreement, and (iii) the receipt of certain consents, consulting agreements, transaction bonus payout agreements and other agreements.
As a condition to closing the Merger, the Company’s chief executive officer and chief financial officer have entered into
eight-month independent contractor agreements with Invitae, to become effective as of the closing of the Merger, providing for
monthly compensation and COBRA reimbursement plus bonuses for achievement of the second-half and year-end targets described in
the Company’s existing executive performance bonus plan.
Either
the Company or Invitae may terminate the Merger Agreement if (i) the Company, Invitae and Merger Sub agree by mutual written consent
to do so, (ii) the Merger has not been consummated by January 31, 2018 (unless due to the terminating party’s action or
failure to act or SEC delay), (iii) any court or other governmental authority has issued an order or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such order or other action is, or has become, final and non-appealable,
(iv) the approval of the Company’s stockholders is not obtained at a meeting of the Company’s stockholders called
for the purpose of adopting the Merger Agreement (except that the Company may not terminate for this reason if the failed stockholder
approval was due to the Company’s board of directors changing its recommendation), or (v) the other party breaches any representation,
warranty or covenant that results in the failure of the related closing condition to be satisfied (including the occurrence of
a material adverse effect of that party), subject to a cure period in certain circumstances. In addition, Invitae may terminate
the Merger Agreement if (i) the board of directors of the Company fails to recommend, or changes or adversely modifies its recommendation,
that the Company’s stockholders vote in favor of adopting the Merger Agreement, (ii) the board of directors of the Company
approves, endorses or recommends an alternative acquisition proposal, (iii) the Company enters into a letter of intent or similar
document related to an alternative acquisition proposal, or (iv) the Company materially breaches its non-solicitation obligations
(collectively, a “Triggering Event”).
If
the Merger Agreement is terminated by either the Company or Invitae as a result of a breach by the other party of any of such
other party’s representations, warranties or covenants, or because the occurrence of a material adverse effect applicable
to such party was the sole failed condition to closing, then the defaulting party will be obligated to reimburse the other party’s
third party expenses up to a maximum of $400,000 (the “Expense Reimbursement Fee”). In addition, if the Merger Agreement
is terminated by Invitae as a result of the failure of the Company’s stockholders to approve the Merger Agreement or as
a result of a Triggering Event, the Company will be obligated to pay Invitae the Expense Reimbursement Fee.
If
the Merger Agreement is terminated by the Company or Invitae because (i) the Company’s stockholders do not vote in favor
of adopting the Merger Agreement at the stockholders meeting, (ii) a bona fide alternative acquisition proposal was publicly announced
or disclosed before the Company’s stockholders voted on the Merger Agreement at the stockholders meeting and (iii) the Company
enters into a definitive agreement with respect to or consummates a sale of the Company within 12 months, then the Company would
be obligated to pay to Invitae a nonrefundable fee of $1,400,000 minus any Expense Reimbursement Fee previously paid by the Company
(the “Alternative Transaction Fee”). The Alternative Transaction Fee also must be paid by the Company if the Merger
Agreement is terminated by Invitae because of (i) the occurrence of a Triggering Event and (ii) a bona fide alternative acquisition
proposal is announced, disclosed or otherwise communicated to the Company’s board of directors before the Company’s
stockholders vote on the Merger Agreement at the stockholders meeting.
The
foregoing description of the Merger Agreement is not a complete description of all of the parties’ rights and obligations
under the Merger Agreement and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1
hereto and is incorporated herein by reference into this Item 1.01.
The
Merger Agreement and the above description of the Merger Agreement have been included to provide investors and security holders
with information regarding the terms of the Merger Agreement. It is not intended to provide any other factual information about
the Company, Invitae or their respective subsidiaries or affiliates. The representations, warranties and covenants contained in
the Merger Agreement were made only for purposes of that agreement and as of specific dates; were solely for the benefit of the
parties to the Merger Agreement; and may be subject to limitations agreed upon by the parties, including being qualified by confidential
disclosures made by each contracting party to the other for the purposes of allocating contractual risk between them that differ
from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any description
thereof as characterizations of the actual state of facts or condition of the Company, Invitae or any of their respective subsidiaries,
affiliates or businesses. Moreover, information concerning the subject matter of the representations, warranties and covenants
may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures
by the Company or Invitae. Accordingly, investors should read the representations and warranties in the Merger Agreement not in
isolation but only in conjunction with the other information about the Company or Invitae and their respective subsidiaries that
the respective companies include in reports, statements, and other filings they make with the SEC.